Are trade ideals abandoned during crises?
Published 13 July 2022
Recognizing the simple reality that countries will readily sacrifice trade principles when confronted by crisis does not mean that we should throw our hands up in grim resignation. Earlier ideals about trade may no longer be operative, but practical and constructive steps can be taken to help us mitigate future damage and ensure the trade system does not break down.
The global trade system was built on a set of noble principles which always sounded great in theory but were never really tested in practice. The systemic disruptions of recent years have put those principles to the test. Early results are not encouraging. When push comes to shove, countries are willing to abandon high-minded principles in favor of nationalistic trade policies which advance their individual interests, frequently at the expense of partners.
A foundational principle that has underpinned the rules-based global trade system since its inception is the sense that “we are all in this together” and trade partners should avoid “beggar thy neighbor” policies. According to this belief – or hope – countries would see sufficient value in maintaining a cooperative system built on mutual benefit and refrain from short-term policies that deliver individual benefits but damage the interests of others. Interdependence, rather than “go it alone” policies, was seen as an advantage that all members would be deeply invested in maintaining.
Trade principles to the test
The Covid-19 pandemic provided arguably the greatest test to date of those principles. Faced with shortages of critical supplies, including medicine and medical equipment, numerous governments around the world responded with a raft of trade restrictions, including export bans. The World Trade Organization reported that 85 countries placed restrictions on the exports of various types of medical supplies in 2020.
One should perhaps tread lightly in judgement of many of these actions. The world was being ravaged by a largely unforeseen pandemic, for which no country was adequately prepared. Policymakers were confronted with immensely difficult decisions, often carrying life and death implications. While some responses were disappointing from a narrow trade policy perspective, they were understandable given the pandemic’s unprecedented nature and the lack of forethought devoted to managing such a crisis.
However, after two years of living with the pandemic, one would hope that there has been sufficient time to absorb the lessons, adjust policy responses accordingly, and ensure we collectively do better next time around. Unfortunately, that does not appear to be the case. Countries are sticking with their earlier inclination to resort to beggar thy neighbor policies in times of upheaval.
While most countries are continuing to cope with the lingering effects of the pandemic, the Ukraine war has introduced a major new shock into the system. Critical sources of supply in the energy and agricultural sectors have been disrupted. In some cases, they are cut off completely. Ripple effects are spilling over into other sectors and further compounding preexisting shortages and trade backlogs resulting from the pandemic.
Doors closing on critical exports
Many countries are responding with the same or similar policies we saw in the early days of the pandemic, especially when it comes to food. According to the International Food Policy Research Institute, more than 20 countries have imposed restrictions on food exports since Russia’s invasion of Ukraine. These restrictions or bans could cover as much as 17% of globally traded calories in 2022. Some examples? India banned wheat exports. China prohibited the sale of fertilizer to other countries. Turkey halted or restricted exports of a wide range of essential items, including butter, beef, lamb, and vegetable oil. Moldova, Serbia, and Hungary restricted wheat, and although the policy was later reversed, Indonesia banned exports of palm oil.
Trade rules do permit countries to put temporary measures in place on the basis of vaguely defined national security and public health concerns. But it would be difficult to look at the rising chaos and the growing shortage of critical supplies and conclude that a stable, rules-based system was intended to operate this way. The system was predicated on the belief that members would adhere to a set of unwritten values and principles. It was assumed that they would work hard to maintain trust and confidence in the system and exercise restraint in pursuing their own interests at the expense of others. While every sovereign entity will inevitably pursue self-interest, some degree of deference to the wider system and the needs of others was expected. These assumptions now need to be reexamined.
A more realistic understanding of trade
Recognizing the simple and now demonstrable reality that countries will readily sacrifice trade principles – in some cases, trade rules – when confronted by crisis does not mean that we should throw our hands up in grim resignation. Important and constructive steps can be taken to mitigate the damage done when these unfortunate circumstances arise.
A common, agreed understanding of what constitutes a crisis sufficient to trigger otherwise prohibited trade actions would help reduce uncertainty and inject some much-needed predictability into tumultuous circumstances. It would be useful to ensure that any measures undertaken are for a defined, limited duration. The simplest step could also be the most important. Countries should be highly transparent in the implementation of policy measures taken in times of crisis and be open to consultation with affected trade partners. Immensely useful work has already been done in this area, particularly the UNESCAP initiative on model FTA provisions. The job, however, is far from complete.
Scientists tell us that Covid-19 is unlikely to be the last zoonotic pandemic we will endure. Geopolitical analysts also believe we have entered an era of rising geostrategic conflict. Given the future we are likely to face, we need to have a more realistic understanding of the way countries will respond and take concrete steps to limit the disruption caused to trade. Bilateral and plurilateral trade agreements should include provisions on managing trade in times of crisis. Regional organizations like the Asia Pacific Economic Cooperation (APEC) forum can play an important role in developing and disseminating best practices and providing a forum for information sharing and consultation. The recently concluded WTO Ministerial Conference included an agreement to prohibit export restrictions on sales to the World Food Program – a positive although modest achievement.
It would be a major step forward if we can simply establish guardrails and transparent best practices when we reach those unfortunate moments when events force sovereign nations to protect national interests at the expense of the larger trading community. There’s no point in bemoaning the demise of our lofty and perhaps unrealistic trade principles. Earlier ideals about trade may no longer be operative, but practical and pragmatic steps can help us navigate through crisis and ensure the trade system does not break down.
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