How the G20 can strengthen access to vital medical supplies in the fight against COVID-19

Chad P. Bown (PIIE)

April 15, 2020 9:00 AM
Image credit: 
REUTERS/Fabrizio Bensch
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Part of a series of proposals for the G20's* agenda on the COVID-19 pandemic.

Note: This blog draws heavily from Bown (2020a, 2020b, 2020c, and 2020d).

The COVID-19 pandemic has tested the resilience of the global trading system, and the system has catastrophically botched the test. The phrase “beggar-thy-neighbor” in trade parlance fails to capture how export curbs and hoarding of personal protective equipment (PPE) and other medical gear have disrupted international commerce and cooperation, aggravating global supply shortages, with terrible consequences for disease containment.

But because nearly everyone is to blame, not least the United States, it is a waste of time for the G20 to point fingers. The chain of economic events and an examination of the data presented here lead inescapably to the conclusion that nations acting in what they believe is in their self-interest is exacerbating the global health crisis.

With no end to this self-defeating behavior in sight, the cycle of protectionism could spread, like the infection itself. These protectionist policies not only will spread to other countries but also may spill over to impact other hospital equipment (e.g., ventilators, patient-monitoring equipment), pharmaceutical supplies, and even food. If that happens, the world will be worse off, not better. And the worsening has already begun.

Facing this grim reality, the G20 must undertake three sets of policy actions to sustain the supply of protective medical gear that doctors and nurses require to treat patients: (1) coordinate production incentives, (2) reopen and maintain openness to trade, and (3) create new monitoring and reporting mechanisms to reassure what supplies are available where and that they are being distributed fairly.

The world is very reliant on China for imports of personal protective equipment

Before the COVID-19 pandemic started, China was an important global supplier of hospital gear. Take five pieces of personal protective equipment critical to the fight against the disease. China supplied 42 percent of world imports of face shields, protective garments, gloves, mouth-nose-protection equipment, as well as goggles and visors in 2018 (figure 1). Other PPE-exporting countries are also important, but China is a singularly major supplier of all the five products collectively, of each of the five products individually, and to most all of the G20 economies individually, as well as to the rest of the world.

Figure 1 Much of the world’s imports of personal protective equipment come from China

China’s exports of personal protective equipment fell in early 2020, but not as badly as feared

In January and February 2020, China was the epicenter of the coronavirus outbreak, and its internal demand for PPE spiked. Thus, just as the disease was spreading to other countries, and other governments recognized their owned heightened need for PPE, they feared being cut off from critical Chinese supplies.[1] Yet, the early data did not bear out the worst of those fears.

According to official Chinese customs data released on March 25, Chinese exports of PPE to the world declined by only 15 percent in the first two months of 2020, relative to the same period in 2019. Notable is that China’s exports of these medical products declined less than the rest of its exports to the world, which fell by 17 percent during the same period.

The EU restricted exports of five medical products

Nevertheless, other countries had already begun restricting their exports of PPE, out of fears of local short supplies. Most notable were export bans undertaken by a number of EU member states, including major PPE suppliers within Europe, such as Germany, France, and the Czech Republic. The bans affected (intra-EU) trade among EU member countries, including European exports to COVID-19-ravaged places like northern Italy.

On March 15, the European Commission stepped in by imposing export authorization restrictions on five separate medical products estimated at $12.1 billion in foreign (extra-EU) sales in 2019. The policy did not apply to intra-EU trade but would restrict PPE exports to countries outside the bloc. EU member states received the move as a quid pro quo: Brussels had restricted EU exports to the rest of the world in exchange for getting EU member states to relax their export bans on each other.

In a PIIE blog post published on March 19, I noted how one self-defeating feature of the  Commission’s initial export restrictions was their potential to disrupt pan-European supply chains, as the restrictions also applied to commerce with major European (but non-EU) economies like Switzerland and Norway. For that reason, on March 20, the Commission modified the export restrictions to no longer affect trade with Switzerland, Norway, and a handful of other countries and territories.

Nevertheless, the restrictions remained on an estimated $10.3 billion in foreign (extra-EU) sales in 2019. Of the restricted products, EU exports of face shields were the largest at $6.5 billion, followed by protective garments at $2.7 billion (figure 2). EU export restrictions also remained on exports of $746 million of mouth-nose-protective equipment, $264 million of hospital gloves, and $148 million of protective goggles and visors.

Figure 2 EU export restrictions put a lot of medical goods trade with many countries at risk

European trade officials subsequently sought to justify the export authorization program as a monitoring effort.[2] Yet, the burden of proof to make that case shifts squarely onto the European Union. Their failure to make the program transparent would breed distrust, raise concerns over unfairness and favoritism, and even lead to allegations of potential cronyism and corruption.

The only positive element of the EU policy was its temporary nature. It was set to expire in late April, 2020, six weeks after its March 15 imposition.

The United States also restricted exports of some personal protective equipment

On April 3, President Donald Trump announced the United States would also restrict exports of certain PPE, under the Defense Production Act (DPA). The United States exported an estimated $1.1 billion of the restricted products in 2019, including disposable respirators and surgical masks ($511 million), air-purifying respirators ($415 million), and hospital gloves ($150 million) (figure 3).

Figure 3 US export restrictions put a lot of medical goods trade with many countries at risk

Federal Emergency Management Agency (FEMA) issued the rule to limit American exports of such PPE products for 120 days starting on April 7. But there were also concerns that the United States might extend its export restrictions to other products, including ventilators, which were also in short supply. On March 27 and April 2, the Trump administration had also invoked the DPA to facilitate the domestic protection of ventilators, though neither announcement mentioned US export restrictions at the time.

Some poor countries are particularly vulnerable to the EU and US restricting medical supplies

COVID-19 has fast become a global pandemic. Many developing countries lack a sophisticated medical system to treat afflicted patients. Equally worrisome is if they are cut off from foreign medical supplies.
Many of these countries are small or lack the domestic industry for the government to encourage additional local production if and when their populations suddenly become exposed to the virus.

Many poor countries rely on imports of medical supplies from the European Union and the United States and would be left vulnerable if either cut off its exports (figure 4). EU export limits could significantly affect countries in Eastern Europe, northern Africa, and sub-Saharan Africa. The American export curb could hurt numerous countries across Latin America.

Furthermore, health care professionals require access to all of these PPE products to fight COVID-19. Being cut off from even one could significantly hamper the effectiveness of medical care.

Figure 4 EU and US export restrictions on medical supplies leave many poor countries vulnerable

Other countries are restricting PPE trade, and the law of the jungle is emerging

The European Union and its member states, as well as the United States, were not alone in their export restrictions. G20 members including India, Brazil, Argentina, South Korea, Turkey, Indonesia, UK, and Russia also imposed (or, in the case of China, were accused of imposing) export restrictions on PPE or other COVID-19-related treatment products.[3] In many cases, countries were no longer willing to send life-saving equipment to another country.

The first three months of 2020 not only bred serious distrust between governments but also stoked tensions between governments and major private sector suppliers of PPE. Manufacturers such as 3M issued public statements that the US government was pressuring them to limit PPE exports to Canada, as well as Latin America, even prior to announcing  export restrictions on April 3. In France, the government reportedly seized Swedish firm Mölnlycke’s entire stock of an estimated six million masks. Canada, Brazil, and France have also reportedly made similar complaints about PPE sales being diverted away from their markets.

G20 priorities: Production, trade, and transparency

The G20 must tackle this growing distrust and halt the emerging downward spiral of protectionism. Three complementary and coordinated sets of policy actions on production, trade, and transparency are required.

On production, the United States, Europe, China, and other major economies must support the manufacture of PPE.[4] Regulators need to adjust their safety requirements to achieve a new balance between equipment availability and consumer protection, in light of new risks and new sources of supply. But governments must immediately subsidize companies so that they commit to increasing production. In the immediate term, China is best prepared to expand its output. At the time of writing and unlike some other countries, China was not in a lockdown crimping its supply-side economic activity. China also begins from a sizeable starting point, and it had a head start as it began scaling up local production in February, earlier than other countries.

On trade policy, countries require access to global sources of finished PPE, as well as key inputs to produce it. Governments should reduce tariff and nontariff barriers to trade, on both final goods and inputs, and on imports as well as exports.

But a major priority must be a coordinated reversal of all the export restrictions on PPE that G20 economies have so far imposed in 2020. Furthermore, policymakers must reject additional nativist, short-term pressure to keep supplies local. The ongoing nature of the pandemic means they will face repeated requests for such trade barriers and will constantly have to exercise restraint.

The G20 has a special responsibility to look out for the needs of the poorest and most vulnerable developing countries and not shut them off from their exports. By pushing for an open trading system and against import-substitution industrialization, the G20 has long encouraged poor countries to open up their markets to imports, facilitating a system in which they have come to rely on G20 suppliers for essential medical equipment. G20 export restrictions threaten to eliminate such countries’ access to global markets for PPE just when they need it the most.

On transparency, the G20 must also create new monitoring initiatives. A vigilant and accurate system of oversight with improved access to information would not only reveal what governments are doing but also reassure policymakers of what their counterparts are not doing. Access to such information would lower tensions and suspicion. Monitoring would convince countries that their trading partners are not adopting beggar-thy-neighbor policies when they really are not, relieving pressure on countries to adopt such harmful policies themselves.

When imposing export restrictions, governments need to promptly notify the World Trade Organization (WTO), but that is clearly not enough. If countries must adopt an export authorization program, for their own monitoring purposes, they should voluntarily provide real-time information on who is requesting authorization for export, as well as which requests were accepted versus denied and for what reason.

But the increasing “wild west” behavior reportedly arising in PPE markets will not be checked with just monitoring of government policy. The G20 needs to make two additional commitments on transparency.

On PPE data, the G20 must quickly ramp up a reporting system for each member’s production capacity, output, domestic demand, stockpiles, exports, and imports. Such a system already exists  for agriculture to help manage global food supplies and preemptively address famine outbreaks in the face of drought or other natural disasters.[5] The public health community demands that accurate and real-time information be available on PPE supplies in the face of the ongoing pandemic.

Too little PPE data are currently publicly available on domestic supply, stockpiles, and consumption. And while the entire G20 must take on the commitment to collect, provide, and update such information, China is the most important place to start. The world has become so reliant on China for PPE imports that now is the time for it to lead by allowing the world real-time insight into its production capacity, output, domestic demand, and global export sales of PPE.

On commercial transactions of PPE, more transparency is needed on the prices and quantities being realized in markets, as well as who the buyers are. Given potentially legitimate concerns over price gouging, hoarding, and other market failures, the world requires reassurance about whether PPE markets can function. Publicizing information on PPE transactions may also help discourage egregious abuses of market power in the first place.

This level of transparency is admittedly far-reaching, and private firms may hesitate due to concerns over business confidentiality. In these extraordinary times, companies should consider providing this  information voluntarily; failure to do so could increase political pressure to nationalize the industry. And failure to cooperate could leave everyone worse off if the pandemic continues unabated.

References

Bown, Chad P. 2020a. Trump's trade policy is hampering the US fight against COVID-19PIIE Trade and Investment Policy Watch, March 13. Washington: Peterson Institute for International Economics.

Bown, Chad P. 2020b. EU limits on medical gear exports put poor countries and Europeans at riskPIIE Trade and Investment Policy Watch, March 19. Washington: Peterson Institute for International Economics.

Bown, Chad P. 2020c. COVID-19: China's exports of medical supplies provide a ray of hopePIIE Trade and Investment Policy Watch, March 26. Washington: Peterson Institute for International Economics.

Bown, Chad P. 2020d. COVID-19: Trump’s curbs on exports of medical gear put Americans and others at riskPIIE Trade and Investment Policy Watch, April 9. Washington: Peterson Institute for International Economics.

Notes

* The members of the G20 are Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, Japan, India, Indonesia, Italy, Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, and the United States.

1. Though denied by the Chinese government, there were reports of a Chinese export ban on some PPE-like masks.

2. On March 30, European Commission Director-General for Trade, Sabine Weyand, tweeted: “The EU export auth[orization] measure is a short term monitoring tool to address market failures + make sure that scarce resources go to the health + social care sector - inside + outside the EU. Such measures are recognised as legitimate in today‘s G20 Statement.”

3. Data from Global Trade Alert database (accessed on April 4, 2020).

4. However, that does not mean imposition of “Buy Local” requirements. Such policies are harmful as they limit access to imported supplies, which may be the only ones available at any particular moment in time.

5. See, for example, US Department of Agriculture, World Agricultural Supply and Demand Estimates, updated monthly, as well as Food and Agriculture Organization of the United Nations, World Food Situation.

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