ATP RESEARCH > Meeting the Challenge of the Coronavirus State of Play as Seen from the WTO

Meeting the Challenge of the Coronavirus State of Play as Seen from the WTO

04/09/2020

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Alan Wm. Wolff, Deputy Director-General | World Trade Organization (WTO)

Agriculture Coronavirus Export Global Value Chains Tariffs

For the multilateral trading system, during the current crisis, it is necessary to engage in a process of triage in setting priorities.

  • The first, most pressing issue, is dealing with the threat to public health.
  • The second priority is dealing with the calamitous decline of the global economy and preparing to assist in the essential recovery that must follow.
  • The third priority is to consider structural reforms for the WTO and the world trading system to make it more effective.

Today, we are dealing with the first of these priorities, and I would argue, it is time to plan for the second priority. In addition, governments should be thinking about the third priority, even if action will only come later. We need to learn from our responses to the crisis and its aftermath and consider before too long what institutional reforms current experience will suggest.

Priority 1. DEALING WITH THE THREAT TO PUBLIC HEALTH

On 3 April 2020 the WTO released a report on trade in medical products . The salient points of the report are:

  • Medical products account for approximately 5% of total world trade (imports and exports); this is about $2 trillion, more than half of imports are medicines;
  • About one-third of total trade in medical products is described as critical and in severe shortage in the COVID-19 crisis; they total about $597 billion (or 1.7%) of total world trade in 2019;
  • Tariffs on some products remain very high.

    • For example, the average applied tariff for hand soap is 17% and some WTO Members apply tariffs as high as 65%;

    • Protective supplies used in the fight against COVID-19 attract an average tariff of 11.5% and is as high as 27% in some countries;

  • The number of export restrictions on exports is substantial and growing.

  • The WTO coronavirus website points to two categories of measures that should be of particular multilateral concern, national export controls on medical supplies, equipment and medicines and those applied to food.

  • The two categories are dissimilar in one major respect.

    • Supplies of ventilators, personal protective equipment, and some medicines deemed relevant to treating Covid-19 symptoms, are in short supply.

    • Food is not in short supply. In fact, global cereal production is headed toward the third highest level on record.

WHAT IS THE IMPACT OF THE PANDEMIC ON WORLD TRADE?

The WTO released its Trade Forecast yesterday, April 8. The forecast is sobering:

  • World trade is expected to fall by between 13% and 32% in 2020 as the COVID-19 pandemic disrupts normal economic activities … around the world. UP TO ONE THIRD DROP IN WORLD TRADE.

  • The predicted decline … will likely exceed the [decline] in trade brought on by the global financial crisis of 2008-09.

  • Nearly all regions will experience double digit declines in 2020.

  • Trade will likely fall more steeply in product sectors with complex value chains.

  • Services trade will likely be very adversely affected, especially in transportation and travel.

  • Estimates of the expected recovery in 2021 are equally uncertain, with outcomes depending largely on the duration of the outbreak and the effectiveness and extent of the policy responses.

  • I would add, epidemiologists point out that every outbreak of influenza during the last 250 year had a second wave.

Discussion

What is behind the trade forecast? Of course, supply shocks and demand falling are two primary explanations. But there is more.

  • The costs of trade – moving goods from a factory or farm to the other side of an international border – increased by a staggering 25% estimated conservatively.

Why did this happen?

  • The increase in trade costs is caused by a variety of factors — global value chains being impaired, commercial travel being shut down, along with curtailed logistics.

  • To assess what increased trade costs of this magnitude means in terms of impact, consider that current applied global tariffs average 7.6% on the value of the imported goods; retail margins are well below that figure; online margins are often at under 1%, and for most retail sectors the margin is between 0.5% and 3.5% of cost of goods sold.

  • This means that to the extent producers cannot absorb the increase in trade costs, the consumers must do so to the extent that they are physically present in the market and can afford to pay more. Since demand is also strangled by half the globe’s peoples being locked down, with many unemployed, the net effect is a dramatic fall in trade.

 

Proofed corrected FINAL WITA for 9 APRIL

 

To view the the full speech, click here.

 

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