Trade policy scenario in post COVID-19 era

Many countries may consider strengthening their inward-looking trade policies. 

The COVID-19 pandemic is likely to be known as that inflection point in the history which changed the nature of the post-World Trade Organization (WTO) global trade policy environment. The last time the world witnessed a similar situation was in 1995 when WTO was established, creating a rule-based global trading system.

As of December 2019, when China first informed the World Health Organization (WHO) about the Coronavirus, the last of the judges at the Appellate Body of the WTO retired without any replacement appointed by the WTO Members. This, in effect, has removed the most important tool by which the order was maintained by the WTO, impacting its ability to ensure adherence to its rules by its members.

The impact of COVID-19 on trade and economy is already visible. It has led to reduction in demand and collapsing trade flows. Supply-chain disruptions have questioned the resilience of production networks, whether regional or global, on which the world has been dependent on in the post-WTO period. Economists are comparing the lockdown with the Great Depression of 1930s and the financial crisis of 2008-09. The WTO estimates world trade to fall by 13% to 32% in 2020. Global institutions are trying their best to soften the impact of this pandemic on the world’s economy. The World Bank has released a guidance note on ‘Dos and don’ts of trade policy in response to COVID-19’. The note encourages governments across the world to ease out the restrictions for trade in essential medical goods and food, by removing the need for applications and licenses. It further encourages them to support exporters to maintain jobs and foreign exchange earnings, and to contribute to macroeconomic policy efforts to shield the economy from the downturn caused due to the pandemic. Whether countries heed this advice, or the protectionist tendencies strengthen, is the question to ask.

Even before the pandemic struck, there were a series of disruptions in the global trade policy environment, led by unilateral and sometimes arbitrary actions. These were in the form of imposition of punitive import duties, withdrawal of Generalized System of Preferences benefits and renegotiation of free trade agreements by a few countries. In India, too, the signs of the trade policy turning inward-looking were appearing. These signs include India’s hesitation in signing on to the Regional Comprehensive Economic Partnership (RCEP) Agreement without inclusion of specific measures to protect its interests, increase in anti-dumping and other trade protection actions and increasing its import duties and new import licensing requirements.