COVID is teaching hard lessons on trade policy

A long-delayed meeting of World Trade Organization (WTO) ministers scheduled for today was postponed yet again due to the omicron variant of COVID-19. However, the need for a trade policy reckoning only grows stronger with the latest pandemic development.

When the meeting is rescheduled, trade ministers need to face up to the radical shift in policy measures taken by member states in response to the existential health and economic crises caused by COVID-19 and the obvious need to do more.

Before the latest outbreak the U.S., Europe and other wealthy nations provided billions in subsidies to private firms and launched industrial policies in sectors ranging from pharmaceuticals and semiconductors to electric vehicles. These policies departed from - and potentially broke - market-oriented free trade and investment rules. At the same time, free trade rules did not prevent countries from blocking exports of vaccines and other life-saving products.

What then, can the international community learn from this experience as we try to overcome a pandemic that still rages across much of the world and try to build more resilient supply chains? Are there lessons for trade policy in the massive government interventions that were deemed necessary? And did the rules of the WTO and other trade agreements help or hurt national responses to the pandemic?

To answer these questions, a group of experts from the Boston University Global Development Policy Center and I searched databases of government policies affecting trade or cross-border investment, focusing on a sample group of six large countries: the U.S., Germany, France, China, South Africa and India. In our new report, we examine the measures taken, evaluate whether they are consistent with existing international rules or may be subject to international challenge and assess whether the trade rules should be changed to allow countries policy space to respond to global crises like pandemics.

To begin, we found that subsidies were the most common form of intervention, including direct capital stakes and a wide range of financial grants and other state aid to support domestic firms in the health sector and the economy more generally. All of the countries in the study implemented trade-restrictive measures, including anti-dumping, export or import restrictions.

The U.S. implemented the most measures of any country studied, relying primarily on subsidies. India and South Africa relied more heavily on trade constraints, like tariffs and quantitative restrictions, reflecting their more limited fiscal space. Perhaps a surprising outlier, China implemented the fewest new trade-related policies during the pandemic, which may suggest it had existing measures in place and available to address the health and economic effects of the crisis. In this sense, Western policies became more interventionist, like those of China.

Another striking finding was that despite the extreme shortage of essential medicines and vaccines during the pandemic, none of the countries studied issued compulsory licenses to allow domestic production when patent holders refused to voluntarily license production. WTO members agreed in 2001 to permit compulsory licensing after earlier fights over access to life-saving medicines and it would seem an obvious first step for a country attempting to manage a pandemic. However, the patent landscape makes the process complex and difficult, with many COVID-19 products covered by multiple patents filed in different countries, compounded by frequent opposition from governments where patent-holding firms are based.

Our report lays out the specific trade and investment rules that impose constraints on each type of policy intervention used by the countries in the study and notes that those taking such measures can still be challenged in international tribunals by other governments, investors or property rights holders. Indeed, once the pandemic wanes and existing firms seek to consolidate or expand their market share, WTO disputes, domestic investigations and countermeasures are likely. In particular, countries attempting to build up long-term resilience by supporting their domestic pharmaceutical and other industries will find themselves constrained by rules that do not allow them to cause injury to incumbent industries in other countries or to give preference to domestic producers. The more successful they are in launching new or expanded domestic industries, the more likely they are to become mired in lengthy and costly legal disputes.

The changes in priorities during an acute crisis like a pandemic show that the commitment to the current global trade regime is not immutable. The lessons learned should be used to change rules that impede appropriate crisis responses and efforts to build resilient health systems and more equitable and secure economies - before the next crisis strikes.

When the WTO finally meets, ministers should consider immediate policy steps to end the pandemic, including adopting a broad waiver of WTO intellectual property rules for products related to COVID-19 testing, treatment and vaccines. Relatedly, high-income countries should leverage their research and financial contributions to vaccine development and high levels of demand to require reluctant pharmaceutical firms to share data and technology with firms in developing countries to ensure sufficient, timely and affordable medical products to end the pandemic everywhere. We also propose steps to remove obstacles to countries trying to build long-term health resilience, economic development and equity. For example, existing exceptions permitted by WTO trade rules should be broadened to provide explicit exceptions for measures implemented in pursuit of full employment, economic security and social equity.

The pandemic experience has made clear that the existing balance in trade and investment regimes between government policy space and the prerogatives of the private sector has tilted too far toward the latter. To correct this, constraints on governments should be scaled back to allow policies that support public health and greater resilience, equity and sustainability in individual economies and in the global system as a whole. This will require changes at both the global institutional level and in the domestic policies of individual countries.

The arrival of omicron delayed the WTO ministerial but made excruciatingly clear that the lessons from COVID-19 must be learned and applied to global trade rules.

Sandra Polaski is a senior research scholar with the Boston University Global Development Policy Center and is the former deputy director-general for Policy of the International Labour Organization and former U.S. deputy undersecretary of Labor.