Temporary is the New Permanent? Lingering Export Restrictions in Response to the COVID-19 Pandemic

Anna Jankowska and Maria V. Sokolova are Stockholm/Geneva-based trade aficionados. 

The views and opinions expressed in this blog are solely those of the original authors and contributors. These views and opinions do not necessarily represent those of Trade Experettes, the Trade Experettes editorial team and/or any or all contributors to this site.

Dozens of countries around the world have enacted temporary export restrictions in response to COVID-19 resource scarcities, and the majority remain in place despite the end of lockdowns and the general reopening of economies. This raises a question: how temporary are these temporary export restrictions and to what extent are these restrictions indicative of a “new normal”?

As governments around the world struggle to confront and contain the pandemic, they have enacted various temporary trade measures to safeguard access to critical resources. Using data from Trade Map, we estimate that approximately 73% of these measures are export restrictions, and special licensing requirements account for another 25%. The exponential rise in extraordinary export measures was triggered by an announcement on 12 March, 2020 by the World Health Organization (WHO) that defined COVID-19 as a global pandemic. As the chart above shows, the number of measures increased rapidly and peaked on 28 April 2020, at which point 74 countries had implemented 110 export restrictions.  While some of the measures have been repealed since May, the vast majority still remain in place. This has important implications for the global economy. In fact, half of the measures enacted since the beginning of the pandemic have no foreseeable expiration date, suggesting that they may be around for quite some time. 

Source: Authors’ calculations based on the International Trade Centre MacMap COVID-19 measures database

The slippery slope across sectors  

At the beginning of the pandemic, most measures covered personal protective equipment (PPE) (e.g. masks, gloves and disinfectants), medical products and supplies (e.g. medicines based on hydroxychloroquine and ventilators). The pattern of international trade in these products is quite concentrated. Based on 2019 Trade Map data, the G20 countries accounted for 83% of exports identified by the World Customs Organization (WCO) and the WHO as COVID-19 relevant medical supplies, which are medical and preventative products that are crucial for addressing the immediate effects of the pandemic on the public health sector. Temporary trade measures implemented across these countries have the potential to affect roughly 45% of these exports. This shock in supply and simultaneous increase in demand led to dramatic price increases in products like face masks and medicines, which increases the risk of limited access to these critical suppliers for poorer countries. 

As several countries entered into a variations of lockdown, food security concerns also spread, leading some countries to respond by introducing export bans on key food staples such as cereals, dairy, potatoes, rice, and sugar. Export restrictions by Asian rice exporters led to a 7-year high in rice prices, putting further pressure on food security concerns. The UN World Food Program estimated that the COVID-19 crisis could double the number of people facing acute food insecurity— up to 265 million by the end of 2020. 

Increasing concerns of macroeconomic stability in the face of economic disruptions also pushed export restrictions into new sectors. By June, this led some countries to put restrictions in place on other products as well, including cement, timber, iron, and paper scraps in the interest of protecting inputs for domestic industries. This development indicates a shift in motivation from securing access to key resources for domestic constituents, to using temporary trade policies as a more general means of economic stabilization and protectionism. 

Securing policy space versus shunning international obligations

While governments should be able to put protective measures in place in exceptional circumstances, the introduction of measures infers a risk that these particular policies will remain in place for a significant time. Over 66% of the temporary export restrictions that countries enacted in March and April remain active in August, while only some temporary COVID-19 restrictions have been lifted (eg. physical movement). 

In addition, many WTO Members have not fully met their obligation to notify export restrictions to the WTO. According to the information on temporary trade restrictions available in ITC Market Access Map and published by the WTO, 74 WTO Members have imposed measures. Meanwhile, 41 members, or roughly half, have provided official notifications of these new temporary measures even though they have an obligation to report their export restrictions. According to Article XI:1 of the GATT 1994, quantitative restrictions refer to all “prohibitions or restrictions other than duties, taxes or other charges” applied by Members on imports or exports of goods, which can be “made effective through quotas, import or export licenses or other measures.” In addition, members are required to notify all quantitative restrictions in force, including import and export related measures, as well as seasonal ones, including policies of a temporary nature. 

Nevertheless, many members do not honor these commitments. While institutional complexity of trade regulations and high compliance costs can be argued as reasons for developing countries failing to notify the WTO of new export restrictions and other temporary trade measures, it is important to point out that the absence of reporting has not been not limited to developing countries. A G20 Ministerial Statement in May 2020 acknowledged this, and strongly urged all Members to notify any measures to the WTO in the interest of helping firms adjust to the shifting policy environment and increasing policy predictability. 

The risks associated with long-term export restrictions

While the short-term strategy of introducing export restrictions to increase domestic product availability may be fruitful, it is not a risk free option. In the short-term, this induces a demand shock to importing countries, which in the longer run risks leading to increased costs of domestic production, limiting future possibilities of restoring export links, and decreasing the disposable income of consumers for other products, affecting production (both domestic and international) of these products too. Price differentials between countries can also create incentives for smuggling and other non-competitive behavior.

Export restrictions also magnify the adjustment costs for struggling firms by disrupting global value chains and exacerbating critical shortages. Well-functioning value chains can quickly help ramp up production globally, while containing cost increases. As new production becomes available, trade will be essential to move supplies from where they are abundant to where they are scarce, especially as the disease outbreaks take place at different times in different locations. However, a lack of international cooperation risks hampering the urgently required supply response.

In the case of PPE value chains, the disruptions in production by major suppliers including China, coupled with export restrictions, has led to significant price hikes and shortages. As an illustrative example, prices of PPE products rose dramaticallyfor months following the COVID-19 outbreak, with a six-fold increase for surgical masks, a threefold for respirators, and a doubling in the price of gowns. These changes in the accessibility of protective materials left importers in least developed countries especially vulnerable in a time of most urgent need.

Building resilience is easier together

Temporary restrictions that become a long-term fixture of trade policy are not novel to the current situation.  Consider the fate of temporary trade policies like the Chicken Tax, a 25% tariff on the import of light trucks (which was put into place by USPresident Johnson in 1964 in response to European tariffs on US chicken, and is still in force today, 56 years later), increasing the cost of and diverting trade in global supply chains. 

While certain restrictive policies continue to haunt us decades later, this time around we can do better, together. The COVID-19 pandemic has highlighted the vulnerabilities associated with inter-dependency, but also the immense possibilities for sourcing supplies from new producers when there is a need. Globally, ensuring that people have access to essential goods like medical supplies and food at affordable prices and in sufficient supply should be a priority for all. Therefore, shortsighted policies aimed only at keeping supplies within national borders leave us all worse off, and will make us even more vulnerable in the future when we are forced to maintain domestic supplies and cannot rely on global and regional value chains. 

The pandemic is not over just yet, but it is already clear that countries need to think twice about the impact of temporary export restrictions on their economies, and the global economy at large. The longer countries wait to repeal their temporary export restrictions, the greater the risk that these policies will continue to make us all worse off.  As Milton Friedman is rumored to have said, “there is nothing more permanent than the temporary.” The pandemonium of the pandemic will pass eventually, but in order to not have trade “COVID taxed,” let’s stand together and to avoid making the temporary permanent once again.