Partner, Covington & Burling LLP
Senior Fellow for Trade and International Political Economy, Council on Foreign Relations
Panelists discuss how trade policies across the world have complicated the fight against the COVID-19 pandemic and how these policies can be adjusted to better manage the global public health crisis.
KACZMAREK: Great, thank you. Good afternoon everybody and welcome to today’s Council on Foreign Relations virtual meeting on “Trade and the COVID-19 Pandemic.” We are very fortunate to have two well-known experts in trade policy with us: Marney Cheek, partner at Covington and Burling; and Jennifer Hillman, a senior fellow here at CFR.
I’m Matt Kaczmarek. I’m on the global credit team at BlackRock, and it’s a pleasure to be presiding over my first of these virtual meetings here today. I won’t take up too much time with introductions, so why don’t we go ahead, and jump right in, and make the most of our conversation today.
So this is—you know, COVID-19 is a global pandemic; it requires a global response. Equipment, research, and treatments will all need to be shared across borders in order to mitigate and control the virus.
Why don’t we start by bringing some of our participants up to speed on how trade policy is implemented—the global response to date. Now the global effort against the virus has mostly consisted of individual countries working to contain the virus and treat those who are affected.
So let me start with you, Marney, if I can. How have trade policies aided or impeded countries’ abilities to secure the equipment they need for this initial phase?
CHEEK: So thanks, Matt.
You know, nations at first really found themselves competing for limited, scarce resources of protective equipment, of tests, of ventilators, and so in the early stages of this crisis, what you saw were countries were fairly quick to impose export restrictions on this PPE, on medical products, even on some foodstuffs in an effort to ensure domestic supplies.
And so with travel restrictions then also in place, what you really saw was trade slowed tremendously across the board, both for these critical equipment really, as well as in every area. That said, I think trade also played a positive role in these initial responses to the crisis in that governments were very quick to reduce tariffs on products so that they would cross borders as inexpensively as possible, and also customs officials tried to create kind of fast tracks to get—to get goods across borders. And when you think about what the global supply chains for these products look like, 40 percent of all PPE trade comes from three countries: China, Germany, and the United States. China has a 25 percent market share globally on masks—facemasks, for example. So there really needed to be also kind of an active positive trade response to keep trade moving with as little red tape as possible to try to get these supplies to where they were needed.
So I think while there was an initial reaction to try to keep everything within borders, there was, certainly, then a recognition that at the same time trade needed to be part of a solution.
Jennifer, over to you.
HILLMAN: Well, again, I would only second a lot of what Marney said. And part of it is, I think, this showed a light for every country on just how much trade there is in all of the medical goods and medical supplies, everything from soap and hand sanitizers on down. I mean, the initial numbers you looked at, $2.2 trillion in two-way trade in all of these products, and it pushed a lot of countries to think about, yeah, why do we have a tariff or, particularly, a high tariff on soap, on disinfectant, on all of these things.
So I do think you did see, again, that spotlight be shined on what was going on, particularly on the tariff side, and a number of countries respond by getting rid of their tariffs. And I think here in the United States, for example, you saw a lot of attention on the fact that we had put tariffs as a result of the trade war with China, the Section 301 efforts.
We had put a lot of fairly high tariffs, either 25 percent or 7½ percent, on a tremendous number of medical supplies and medicines coming in from China, and, again, you saw in March a huge effort to exempt those items from that—from those tariffs. So you’ve seen countries do it.
The other thing that you’ve seen, obviously, is a series of statements by the G-20 leaders followed by a statement by the G-20 trade ministers that, basically, says don’t do these export bans, but if you absolutely have to do them make sure that they are temporary. Make sure that they are transparent. Make sure that they are necessary for what you’re engaging in.
So there is a sense of please do not but on bans on exports but if you have to, make sure that they are very limited in terms of what they cover, make sure they’re very limited in how long they last, and make sure that the whole world knows about them so that you’re doing them in a fairly transparent way. And that, I think, you have seen, sort of more or less, countries try, at least, to follow those general notions of limited actions that would bar trade.
The other piece, though, that you’re, clearly, seeing is how difficult it’s been on the pure logistics side of moving trade and, again, I think this has pointed out to everybody what a huge volume of trade moves in the belly of commercial airplanes. And since, you know, our airlines are not flying, those bellies are not moving and so a lot of what used to trade that way has now either had to go on air freight, which has become very expensive, or has had to revert to ocean freight, which has, again, been much slower and, secondly, you know, again, we’re seeing huge jam ups at our ports, which are becoming increasingly clogged with all the clothes that none of us are buying at retail stores that are no longer open, et cetera.
So you’ve seen on the logistics side, you know, some real pushes in terms of where the jam ups and the logistics holdups can also then affect trade in medical goods and medical supplies.
KACZMAREK: Well, and that’s a good segue to my next question, which is, I mean, it’s great to hear you both describing a slightly more positive picture on the trade facilitation front than I think we’ve seen—than the popular media is reporting in terms of export bans and national, you know, barriers to trade of some of these equipment.
What steps now can countries take to facilitate greater flexibility to transfer some of these critical supplies and equipment? And, Jennifer, if you want to pick up with that one.
HILLMAN: Well, so, again, I do think there is a lot that countries can do. I mean, part of it is, again, making it very clear that everyone understands that for these supply chains to be continued to be open and effective and efficient, you know, governments need to stand behind those supply chains and, again, so some of it is making sure that we’re not all rushing to do what, again, a number of countries have been looking at, which is to say, oh, wait a minute. We want to be completely self-sufficient in whatever these medical supplies or medical goods are, and you saw that and you saw some of it, you know, here in terms of, oh, we need to move to “buy America” for all medical supplies or other things.
But I think you’re seeing, again, a little bit of a step back and you’re starting to see many more countries and companies recognize that you cannot just do that. Particularly in the middle of a pandemic, you cannot just say, OK, now, all of a sudden, we’re going to want all of our supplies to be made at home, wherever home may be. And you are starting to see some sense of what is a better approach.
And I think there’s growing recognition that a better approach is one in which you keep supply chains open, running, but build in a little bit of resilience that we don’t currently have and a lot more redundancy than we might have; possibly consider the equivalent of sort of a strategic stockpile, you know, a buildup of some inventory. But what you should not be doing is trying to, in essence, cut out or stop supply chains. And I do think you are starting to see that push towards creating more resilience and redundancy in our supply chains, rather than trying to kill them.
KACZMAREK: That’s great.
Marney, what do you think countries need—can do to increase flexibility?
CHEEK: I do think that there has definitely been a look inward in terms of the dialogue of how to solve this problem, as Jennifer was mentioning. But I find it encouraging that the EU—for example, European countries have now lifted their export bans on some of these products. And there is a group of like-minded countries. Within the WTO, forty-two countries, led by Switzerland, Canada, Australia, New Zealand, and others, the U.K., have put out a couple of statements, most recently just last week, saying that they think they should intensify work on facilitating cross-border flows of medical supplies.
I think there has to be that international dialogue among key players to ensure that trade barriers don’t end up impeding what we obviously need right now, which is a smooth-functioning trade system to be able to provide these medical supplies.
Now, I will say, among those forty-two like-minded WTO countries, the U.S., the EU, and China have not signed on to those statements. But it includes Switzerland, which is a key driver in the innovative pharmaceutical sector. And the EU itself has also made overtures that it’s interested in seeing a permanent reduction in tariffs on these goods.
So I think that there is a lot of room for concrete international dialogue and collaboration to make sure that the trade system and trade liberalization is supportive of helping these goods move to where they need to be.
And I guess, just briefly, I’d say, you know, there really is precedent for that in that, under the WTO system, there is a plurilateral agreement, so meaning not all WTO members but some have signed on to what’s called the zero-for-zero tariff deal for pharmaceuticals, whereas it’s a group of countries that have agreed to have no tariffs on pharmaceutical products and inputs.
So there already is a foundation there. It could be expanded. More countries could sign on to it. You could add broader products. So I think that there really are some concrete steps also that could be taken to try to help facilitate global trade in this area.
KACZMAREK: That’s great.
Before we move on, I want to ask one follow-up question since you’re both talking about plurilateral and multilateral, at least, discussion, if not concrete steps at this point.
Marney, you mentioned the plurilateral efforts. Do you—can those be effective if they don’t include the U.S. and Europe and China at this point? Aren’t those three, you know, countries and regions critical to the supply chains as they exist right now? Do you think—is that more of a future concern, or is that—is there a possibility for immediate impact, based on the work that those countries are doing?
CHEEK: Yeah, my—so my own view is that, you know, the group of WTO companies—countries—sorry—countries—the group of WTO members who are speaking on this are a large and diverse enough group to be able to make progress. And it is true that ultimately the U.S. and China and the EU should hopefully join that effort.
But, you know, we’re also on the eve of an election in the United States. I don’t know that the U.S. is going to lead a plurilateral effort in the WTO on this right now. On the other hand, the U.S. has made it clear that we’re not walking away from the WTO.
So I think that there is room for like-minded countries to make progress. But I think you’re quite right to flag that at some point you need, you know, China and the U.S. as big players in this market for these types of goods to be willing to sign on to whatever everyone else agrees to.
KACZMAREK: Sure. And of course, building blocks are always helpful to be picked up in the future if they’re established, at any moment.
KACZMAREK: Let me move onto the next question. We see an unprecedented global race to develop effective treatments and vaccines. This is really—this is an amazing effort. If medical trials for one or more of each of these do show success, how prepared are we to distribute these around to the world? And are there additional policy steps that countries could take now in order to prepare for these treatments and vaccines when they inevitably come.
Jennifer, can start with you on that one?
HILLMAN: Well, yeah. I mean, where we are I think in terms is way better than we’ve been, you know, for example, when we think back to the HIV/AIDS crisis twenty years ago, where I think there was nowhere near the level of coordination and understanding about what the rules are. And obviously, there has to be—I do think the good news is that we have put in place cooperative mechanisms that did not exist, you know, like I said, when we went through HIV/AIDS. And it’s on both the public institution side and on the private sector, private/public cooperative side.
So you have seen huge efforts for there to be constant dialogue between the World Health Organization that has to think about all the public health aspects of those drugs and vaccines, and the World Trade Organization that, again, is very—going to be very involved in the trade aspects of it. And again, making sure markets are open. And then thirdly, the World Intellectual Property Organization, because it is highly likely that a vaccine or drugs or any combination of them may carry with them intellectual property rights that would otherwise suggest that the owner of those rights has an exclusive—the exclusive right to decide the where, when, and hows that they would be marketed and sold.
And so those three organizations have been, I think, really doing a good job of trying to cooperatively work together to make sure that we’re meeting cooperatively in that space between public health, trade, and intellectual property. And then secondly, you’ve seen just an explosion in the amount on the private and private-public side of sharing, of, you know, patent information between medicine, patent pools of various kinds. R&D getting shared. And then more importantly, and I think you just saw it yesterday, there was a global vaccine summit hosted by the U.K., where you saw big pledges of support for once we get this vaccine or these drugs, again, how do you get it out? And how do you get it out fast enough and more globally?
I think it’s pretty clear to everybody that this is—if we come up with a vaccine, for example, it is not going to be simple to make. It’s going to require sophisticated manufacturers with tight controls and strong regulations in order to make sure we don’t make bad vaccines or, you know, in some way have difficulties. And at the same time, the chances are high that this is going to have be distributed by giving someone a vaccine of a refrigerated vial of a vaccine, which again requires all this coordination of do we have the refrigeration, the distribution, the medical glass, et cetera.
So there are huge concerns. And at the same time, I think what you are seeing is something like we’ve never seen before in terms of the level of cooperation and the level of pledging of funds to support the research and development effort. And now more pledging of funds to support the manufacture and distribution effort, to try to make sure that it can go as fast, as efficiently, and as effectively, and as global as we can. So I’m at least very encouraged by the level of cooperation and coordination that we’re seeing right now.
KACZMAREK: That’s great. Marney, what’s your perspective?
CHEEK: Yeah, I would just highlight two things that Jennifer said. One is that at the forefront of this pandemic all the key players involved are thinking about the developing world. And so I think that unlike other pandemics, as Jennifer said, you are already seeing NGOs like GAVI has already raised $500 million to make sure that there’s, you know, doses of a vaccine, whatever that vaccine might end up being, that gets to the developing world at the same time these drugs are getting to the developing world. And I think that, you know, with the support of large NGOs, the WHO, the World Bank, thinking now about making sure that there’s a channel, a distribution channel for developing countries is critical. And I’d agree with Jennifer, it’s in advance of where we may have been historically on some of these pandemic issues.
The only other comment I would make is related to the intellectual property that surrounds these new vaccines and treatments for COVID-19. And there is often talk about compulsory licensing the patents for those medicines, which is essentially the government forcing pharmaceutical companies to license their technology to local manufacturers so that the local manufacturers can make and distribute the medicines. Because of some of the complexity particularly with regard to vaccines that Jennifer mentioned, I don’t think that’s a valid model for this health crisis.
The right to the patented invention, the IP itself that is underpinning a treatment for COVID-19 or a vaccine, is not going to be enough to ensure that there is ample production of a final product. You need to know how to manufacture it. You need to have quality control measures to ensure effectiveness. Most of a vaccine is not just going to be some chemicals that you crush up into a pill. That’s easy. It’s probably going to be a gene-based technology that’s quite sophisticated and really requires the knowledge that innovative companies have. And they need to be willing to share with a distribution network. So I do think that you’re going to see a lot of voluntary licensing arrangements to try to broaden the distribution network for whatever treatment seems to be the one we have once all of these clinical trials are in the right place.
HILLMAN: Can I add only just that I totally agree that compulsory licenses is probably not the right solution. I do think for what it’s worth, that for a lot of those in the developing world the fact that there are now revised rules in the WTO that permit compulsory licensing when all else fails is at least an important sort of assurance that they’re not going to be left out. I mean, I totally agree that this is not the best road to go down, it’s not even the second-best road to go down. But the fact that that right exists, if it turns out that the pharmaceutical companies are not willing—and, again, I don’t think that’s the road we’re going to be on—but are not willing to allow reasonable licensing or reasonable other sales, the fact that it’s there as a backstop I think is giving comfort, which is important, to the developing world, that they’re not going to be completely left out in the cold if this vaccine were to be developed in the United States or in Europe. That there will be efforts made to make sure they get access to it to.
KACZMAREK: Well, unlike so many other parts of the response to this pandemic, it’s good to see that the system has learned from previous experience and has at least built a little bit of flexibility and resiliency into the process.
Let me ask you now about a couple of longer-term factors and longer-term impacts that this pandemic might have. The first one I want to ask is about supply chains. And there’s been a lot of talk. Jennifer and Marney both mentioned it in opening comments about, you know, predictions of reshoring and supply chain constraints, and strategic stockpiles. Many have predicted that the longer-term impact is going to be this movement to protect critical supply chains, particularly regarding medical equipment. Do you agree with this? And do you—you know, how do you recommend balancing the need to protect access to critical supply chains with the benefit of production over different regions?
And can we start with Marney on this one?
CHEEK: Yeah, sure. No, I certainly agree that there will be growing calls to try to, you know, reshore the production of critical medicines. Just yesterday USTR Bob Lighthizer called for a protectionist industrial policy to basically do just that. You know, simply put, as I mentioned at the beginning, I don’t think reshoring is going to be a solution. Just when you look at the global supply chains involved in the manufacture of not only medical equipment but also pharmaceuticals and vaccines. I mean, there’s key inputs into pharmaceutical products that are simply not available in the United States. I think something in the nature of 70 percent of pharmaceutical inputs come from outside the United States. That’s just not something you can, quote, “reshore,” overnight. I don’t think it makes sense to try to reshore that.
What I do think makes sense is to diversify global supply chains. And I think a lot of companies have already learned their lesson and are moving towards that in light of the U.S.-China trade war, which is they’re still manufacturing in China, but they’ve also opened manufacturing facilities in Southeast Asia, in Mexico. Diversifying the global supply chain can buttress that supply chain from domestic shocks, shocks in certain countries, et cetera. But I don’t think that reshoring, you know, this whole industry really makes sense short term or long term. It doesn’t seem feasible to me, and I don’t think it’s actually a way for our own economy to get stronger.
KACZMAREK: And Jennifer, you had mentioned stockpiling at one point—
HILLMAN: Yeah, well, so, I mean—pardon me—
KACZMAREK: —what—other ideas?
HILLMAN: —just to sort of second on a lot of what Marney has said. I mean, part of it is—you know, A, is it even possible to do? Can you just do this—order everyone to reshore? And again, if you look at a number of the things that have been talked about about how to do this—I mean, you’ve heard talk that there could be an executive order coming soon basically saying that all medical supplies—or some version of that—sold in the United States must be made in America. In other words, go to what is Buy America.
And again, that in theory only applies to government purchases. I mean, the government only as the right to require government purchases be made in America. But again, doing so—first of all, it would violate our requirements under the government procurement agreement, which is another one of the plurilateral agreements at the WTO where we have said we are going to allow foreigners to be selling pharmaceuticals or whatever to our Veterans Administration, to our FHA, to our, you know, Food and Drug Administration because we also have the right to sell our drugs under government procurement into the other markets of those that are parties to the government procurement agreement. It’s a straight reciprocal kind of agreement.
So again, if you were to try to go down this road, are we really ready to walk away from the government procurement agreement and say everything has to be made in America to be sold in America? Again, huge issues with that just both legally and how do you do it.
Second thing is, you know, can you use other kinds of incentives to say we’re not going to mandate that you have be made in America, but we’re going to try to create some kind of incentives to do that, and again, to me that then requires, you know, either, you know, a huge industrial policy or lots of government subsidies to say, you know, we’re going to put a lot of government money into the idea that we’re going to in essence encourage companies by subsidies and incentives—again, is that the best use of government resources right now when we’ve got lots of other things to do to fight the outcome of the pandemic? So again, it comes to be this issue of, you know, can you really do it, you know.
And then lastly is this issue of whether you do it sort by forcing, and at various points, you know, the Trump administration has occasionally threatened that they would use the International Emergency Economic Powers Act or other things to really force companies out of China. And part of it is, to me, I hope the conversation requires a step back for why are we doing this, is this whole movement about punishing China—I mean, is that really what’s at the heart of a lot of this, or is it really that we think we need to have more things that are made in America because we’re more reliant on that?
You know, and again, both of them have sort of problematic aspects to it, but I think you have to step back and say why—why would we go down this road of saying it has to be made in America? And I think the answer to that question helps you think about both whether how feasible is it and whether it really is a desirable outcome.
KACZMAREK: That’s great. Thank you.
I just want to remind everyone that on your menu bar there is an option to raise your hand if you have a question, and I will ask one more question before we transition to our members, who I assume will have many questions for you on this interesting topic and the wide range of issues we’ve discussed.
Let me ask you just quickly, broadening out again, in term of broader trade policy it seems like the pandemic has, you know, increased pressure on our global trading system which already, as we just mentioned—as Jennifer just mentioned—is under strain by U.S.-China tension, the withdrawal—the general withdrawal from U.S. multilateralism. So this is a big year with further challenges for the WTO.
The president is campaigning for re-election. His trade deal with China is going to be—the U.S. trade deal with China is going to be a factor in that. There’s important U.S. trade negotiations going on with the U.K., among others.
What impact can you see—and Marney, if I can start with you on this one—what do you see the impact of the pandemic having, if any, on the larger trade policy environment for the rest of 2020?
CHEEK: Thanks, Matt. I mean, there is not just a global health crisis now; there’s a global economic crisis. And the question, I think, is: Is trade going to be part of the problem or do people see trade as part of the solution?
And if you look back to the financial crisis from 2008, you know, the G-20 stepped in early and committed not to engage in protectionist measures to combat the financial crisis. That commitment was important to global economic recovery, and I think a similar commitment is important to global economic recovery now.
You know, you’re quite right. We’re in an election year. So, on the one hand, there’s an active trade agenda. There’s also a presidential election in the fall. And how is that all going to feed into what the trade agenda should be, given the health and economic crisis we find ourselves in?
And I think the U.S. is going to need to strike a balance. We really can’t afford a policy that isn’t going to actively keep markets open for U.S. products. In order for our economy to get back on track, we need to be exporting.
And so I think there’ll be a tough line in public speeches. I think we’ll hear about, you know, reshoring. But behind the scenes, I think there’s an imperative that the U.S. will work to keep the U.S.-China trade relationship on track. You already see that. We’re not bashing China that much right now, as much as saying, like, you know, they’re buying our soybeans. And, you know, we think that that relationship can stay on track.
We need to be opening new markets through bilateral trade deals, which I think is why those are being emphasized. And even with regards to the WTO, we’re not abandoning the WTO by any means, even if, at the moment, we might be leaving WTO leadership to others.
So I really think that trade liberalization has got to be part of the agenda to get us out of what’s now not just a global health crisis, but is also a significant economic downturn. So I think we’re going to see a bit of push and pull from now through the end of 2020 to face the realities of the fact that the U.S. economy needs trade to get back on track.
KACZMAREK: Thanks, Marney.
HILLMAN: Yeah, so—
KACZMAREK: —do you think is the bigger impact of—
HILLMAN: You know, again, I would totally agree that—and again, I think it’s interesting, when you look back on what happened during the financial crisis, the WTO was one of the ones really pushing hard on the, if you will, naming and shaming of those engaged in protectionist behavior. And I think a lot of that naming and shaming was pretty successful in terms of a limited number of countries that did enact a lot of protectionist policies.
My concern right now is the WTO is not in a good place. I mean, the United States has effectively killed its appellate body, which is part of its dispute-settlement system. So the rules are not quite as binding as they used to be. In this particular pandemic, the general rules of the WTO have a big exception where it says, OK, you have all these rules, but you’re allowed to violate them if you’re doing so in order to protect shortages of critical foodstuffs or other essential things.
So, again, there is kind of this big loophole that if countries want to take advantage of it, you know, they could. And that’s a lot of the concern. And obviously, a huge amount of the concern in the WTO and the trading system generally is what it says about the U.S.-China relationship.
And I would certainly agree with Marney. We’re seeing a lot of fairly mixed messages. You know, on the one hand, I think there was early on this whole sense of blame the pandemic on China. I mean, the goal of the policies ought to be to make it very clear that all of this was China’s fault and that we’re going to blame it on China, that we’re going to consider, you know, everything from allowing lawsuits against China here in the United States, notwithstanding the Foreign Sovereign Immunities Act, or that we’re going to maybe cancel the payment on Chinese debt or cancel that debt entirely, or, again, impose more tariffs on Chinese goods.
So, on the one hand, you see this whole push to maybe push China. And on the other hand, I think you do see, as Marney said, a lot of statements coming out of USTR of, no, no, the China—bilateral U.S.-China deal is still on track. We still expect it to be met. And the rest of the world is very worried that the U.S.-China relationship can blow up the whole trading system when the two largest trading partners are not, you know, either in leadership positions or are not themselves adhering to the rules.
So, again, we’re at this really precarious point. And again, you see very, very mixed messages either way. I think, at its core, what this pandemic has shown people is that we need multilateralism more, not less. We need an open, effective, efficient global trading system, more, not less. And then the question is whether everybody can come together to make sure that that happens.
Well, on that note, I would definitely like participants to join our conversation with your questions. A reminder that this conference call is on the record. And let me ask, Meghan, if we have some questions at this point.
STAFF: (Gives queuing instructions.)
At this time we do not seem to have any questions.
KACZMAREK: Well, I have plenty, so I will continue to dive in here.
And if I can pick up, Jennifer was just talking about, you know, the impact of the broader U.S.-China tension on this broader relationship. And lifting back from that, you know, there—the WHO and the WTO are both two organizations that the U.S. has tended to make a bit of a bogeyman throughout the course of the president’s first term.
And I wonder, you know, there’s a lot of political bluster in these conversations, but both of you have spoken about the real mechanics of these organizations continuing to function with some, you know, good evidence that they’re working, and also learning and applying the lessons of previous pandemics.
So I wonder if you could just comment on, you know, how much does this political bluster and political acrimony from the U.S. matter? Is it having a real impact on our ability to respond to the pandemic? Or do you think that there’s really two sides of this? There’s the high-level attention and then there’s actually the nuts and bolts and the mechanics.
Jennifer, can you comment on that?
HILLMAN: Well, to me, the single biggest impact—and I don’t know the WHO as well, but I think it is true at both of them—is basically the leadership vacuum that’s being created. There’s no question that the United States has left the stage as a leader, you know, sort of driving either of these institutions. There’s just no doubt.
And I think as the world looks at the United States right now and looks at how poorly we are doing in comparison to other countries in the world at dealing with COVID—and now you add on to it, I think, the world’s perceptions that we are not dealing well with the way in which we’re approaching the systemic racism in our country and the protests in light of George Floyd’s death—the world is sort of, I think, really taking another look at whether it is a U.S. model that they intend to follow.
So I think at the backdrop of all of this, what you’re seeing is any time the United States is leaving the leadership stage, the question is who’s filling that void? And in some places and in some ways, I think that’s China. And in other places and in other ways it is not. And I would say at the WTO I do not believe that it is really China, because, again, a lot of the other countries of the world share a lot of the United States’ concerns.
Even if they don’t share our tactics, they share a lot of our concerns that much of what’s happening in China from the pure trade front—the amount of subsidies, the amount of sort of unfair trade practices, the amount of theft of intellectual property, the amount of forced technology transfers; you know, all of this litany of things—many of the members of the WTO share that concern about the United States.
So I think within the WTO there is less willingness to allow China to fill that leadership void. So then the question comes, so then who is leading the WTO? I think, as Marney was pointing out, you know, what is ending up is various coalitions of various sets of countries are, in various ways, starting to lead the (fight ?). You’ve had the government of Canada put together this Ottawa process to try to figure out how do we get the WTO more back on track, et cetera.
So for me, a huge amount of it is who’s filling the void when the United States sort of leaves, and what comes of that leadership vacuum?
CHEEK: Yeah, I think I would just—I think I would just add to that that, you know, for the last several years, I think, the U.S. has been declining to take that leadership role. And in some ways the system, when it was working well and the economy was strong, was able to say, OK, well, maybe this is kind of a pause, and we’ll see if the U.S. reasserts itself, you know, in a couple of years.
I think when you have a global financial crisis and a global health crisis that there just is a real need for international dialogue and international solutions. And if the U.S. is not going to be part of that dialogue, I think you will see countries deciding to move forward and work within the WTO and the WHO as best they can, even if they are hampered by the fact that, you know, one of the usual leaders on the world stage in terms of the global economy and one of the biggest markets is not an active participant in that.
But I think that there’s an imperative to do something. And so I think you will see other countries stepping in to fill that vacuum. And if the U.S. is on the sidelines, the U.S. is going to need to grapple with how long they feel like they can sit on the sidelines of those global conversations.
KACZMAREK: Well, and related to that, obviously, we’re in an election year. We’ve talked about that a little bit already. Do you see—what do you see as the potential for the U.S. reasserting that leadership role?
Obviously, there’s—you know, part of that is in relation to the pandemic and the response to the pandemic, which is going to play out for the rest of this year but it’s going to go into the next term. And we can assume with President Trump, if he gets reelected, it would probably be, you know, a similar, potentially, even harder, approach toward the WTO.
Do you think, if there was a transition and former Vice President Biden and that administration, do you think the world would welcome U.S. leadership here? You both sort of questioned whether or not the U.S. has a role or whether countries would seek U.S. leadership.
But as Jennifer just mentioned, you know, a lot of countries agree with the U.S. perspective on some of these issues. So how open do you think the opportunity is for the U.S. to reassert itself come January 2021?
HILLMAN: Well, I’ll say, I mean, from my perspective I think the opportunity is huge. Do I think the world would like the United States to lead? Absolutely yes, and the question is, you know, with leadership comes you have to have people willing to follow as well. So the question is leadership to do what.
To me, as long as that leadership is to stay within some generally agreed upon rules-based system, you know, where we’re all going to agree on the basic fundamental rules and we’re not going to assert that the rules are only rules that—are only the rules that we like and that we’re going to ignore the ones that we don’t, or that the rules apply to everyone but not to us, as long as we are saying we want to get back involved in a rules-based organization like the WTO where the rules are universally applicable and are agreed upon by the members, I think yes, the world wants the United States in a leadership role.
And the other thing about, I think, both the WTO and the WHO that we have to remember is at some level they are member-driven institutions. It is not as though the head of the WHO or the head of the WTO can simply pronounce, OK, here’s what we’re going to do and everyone has to follow.
Every proposal, every rule change, every idea, at some level has to bubble up from the members of the institution. And so, yes, there remains this huge opportunity for the United States both within the WHO and within the WTO to provide that. OK. Here are the ideas. Here’s what we’re going to get behind. So, yes, there’s an open door. The question is, you know, when and how do we walk through it and, again, I think that has got to be a recommitment, and I do see that very clearly in the Biden campaign that—you know, this notion that, you know, we need to be leaders on the world stage and we need a rules-based system. We need a rule of law system rather than just a might makes right kind of power-based system where we think we can win just by going it alone.
So I do think you would see, potentially, a shift away from that notion of, you know, America’s better off going it alone.
CHEEK: Yeah, and I would just—
KACZMAREK: Marney, do you agree the door is wide open?
CHEEK: I think so, maybe with some annoyance—(laughs)—on behalf of our long-term partners.
But what I would say is that the U.S. has always tried to work within these international organizations with like-minded countries. So while it’s fair to say that we’re a leader and I think it’s also fair to say that there’s a leadership vacuum, there’s a lot of like-minded countries that the U.S. has worked with in the past to push a trade liberalization agenda and other agendas that are, largely, consistent with U.S. global economic interests, and I think that our like-minded partners are continuing to do good work on those issues.
So I think that things have not come to a standstill in these organizations as a result of that maybe leadership vacuum by the United States. And so, therefore, you know, while I would agree that my sense as well as your and Jennifer’s is that a Biden administration, if there is one, would be much more open to reasserting a leadership role on the world stage, I think where we—where the United States steps back into line is really with its like-minded allies on these issues who actually have been trying to move forward an agenda even with that lack of U.S. leadership.
So it might not be as stark as one might think for the U.S. to, certainly, resume engagement at the level that it used to be engaged in these institutions and also even to lead. I agree that there would be a number of countries that would welcome that.
KACZMAREK: Well, and your point gets back to the question that Jennifer raised of leadership to do what. And, certainly, the U.S. has been long frustrated within the construct of the WTO, which is what led to these plurilateral agreements versus the full WTO route in the first place. So all of those points are well taken.
I do want to give another reminder. We’ve got a great group of members on this call. So, please, you do need to select on your menu bar to raise your hand virtually and the operator will call on you if you have a question. So I would encourage you to join this conversation.
In the meantime, I want to just ask a specific question on export bans because we have used export bans as an example in several of these questions. But it’s getting a lot of press and attention and, you know, as you’ve talked about the supply chains for PPE and medical equipment are pretty limited in terms of which countries have them, which countries can produce them, and how those products get distributed around the world, do you—you know, kind of let us know what—how export bans have been used so far, to your knowledge, and what you think the outlook is for the use of export bans specifically, going forward.
Marney, can I ask you on this one?
CHEEK: Sure. Well, I think you saw some significant producers of some of this PPE decide to institute export bans. So Germany, for example. The U.S. also adopted regulations to make it difficult to export these products without prior approvals.
So, you know, I think when countries felt that they needed to, first, protect their own they used these export bans to keep product in-country that maybe otherwise was already committed elsewhere, and I think particularly the way this crisis unfolded so that, you know, there were outbreaks elsewhere before they were in the United States, I’m sure we’ve all heard stories where the U.S. was actively supplying other markets with, you know, important PPE and other medical products because there was a demand there and there wasn’t yet a demand here.
I think it’s, you know, frankly, natural human instinct and, you know, to decide that you need to keep that product in the United States if it’s being manufactured in the United States for a critical and acute need. The trade rules support that. You can put in place a temporary export restraint due to a public health crisis to protect human health.
But I do think that there’s much less of a justification—I actually think there’s no justification—to keep those kind of export bans in place and that we now need to see an easing of those bans. Like I said, the EU countries have already lifted some of those bans and I think we will see other countries follow suit so that trade in these products can get back to normal again once—you know, and I think production at this point also has seriously ramped up to meet demand.
So I think you saw kind of a temporary shock with a temporary solution, but that at this point, you know, countries are lifting those bans, I think, as they should so that these supplies can get to where they’re needed.
HILLMAN: I’d only add, you know, the other thing that’s worrying and, on the other hand, where there’s some good news is that a number of countries also looked at and/or enacted bans on food—I mean, various foodstuff items on the theory, again, that there was going to be—as supply chains start to break down there really is a worry that you’re not going to have enough food to feed your people. And a number of countries, again, put in bans on grains, on wheat, on rice, on, you know, all kinds of basic foodstuffs, and you’ve, again, seen those start to be lifted or semi-lifted.
In other words, what had been a flat ban—you can’t export any of it, you have to keep all of it at home—a lot of countries have converted them instead into quotas where you can export up to X amount and after that then you got to keep the rest of it at home.
So you are starting to see this and, again, I think you’re starting to see a lot of push, particularly at the WTO and other places, to say, look at what happened in the crisis in 2008 where there were a lot of bans on food, and what it resulted in is just huge spikes in prices and huge shortages that would not have—you know, that were not necessary. In other words, these are not effective policies over the longer haul. And I think countries are at least hearing that message that this is really not the road to go down.
And, again, I come back to I think, you know, there will be an effort to really push on this G-20 trade minister’s statement that says, you know, basically, don’t do these policies and if they are deemed necessary make sure they are targeted, you know, again, so they’re as narrow as possible, that they’re proportionate, that they’re transparent, and that they’re temporary. And so my sense is, if countries really do believe in what they’ve committed to in this G-20 pledge, we should get through this without a lot of long-term damage to the trading system by these temporary export bans.
And the other thing is, you know, I think the WTO is still trying to stay in that role of namer-shamer, where it is trying to make sure that there is daily a catalogue of any new measures that countries are putting in. It depends a lot on whether countries actually do their notifications like they’re supposed to. But they’re really—between those, and global trade alert, and a lot of others, there is a real effort to try to make sure everybody is aware of what’s going on.
KACZMAREK: That’s great.
Coming off of that, you know, export bans are an example of negative trade impact policy that might, you know, find life after this as a lesson of this pandemic. I want to ask you about positive tools that have been used in order to facilitate greater trade during the pandemic that you think might find a life after and might actually—maybe the pandemic is accelerating a few improvements in the global trading system. Are there—are there policies that countries have pursued in order to advance the ability for trade in critical equipment and supplies that you think might last beyond this current crisis? And I’ll start with Jennifer. Are there—
HILLMAN: Sure. I mean, you know, obviously, one of the ones that has the potential to have a lot of impact, you know, far-reaching, is whether some of the things that have been done to speed up customs compliance, to speed up regulatory approvals, to in essence just do all of those things to facilitate faster customs clearing, faster ability to figure out, you know, rules of origin, faster ability to figure out customs classifications, et cetera. Just the mechanics of making the goods clear through any government procedures, it’s possible that those will help, because I do think there is this sense of we have to be able to prioritize and put in the fast lane, you know, these kind of critical goods. And the question is, you know, do we have the right mix between what goes into the fast lane without allowing, you know, again, if you will, counterfeit or poorer—poorer quality goods to somehow slip through regulatory procedures. So it’s that getting it right between how much regulation you need versus how do you fast-track approvals and trade facilitation more generally in order to make it move.
If we can do that. I mean, there was a trade facilitation agreement that the WTO reached a number of years ago that is really important to try to create this one-stop shopping where you can go one place, one fast hit on getting through all of the trade compliance. If those become fully implemented, particularly in the developing world, and you really do set up a one-stop shop, easy movement of goods across borders, that would be huge going forward.
CHEEK: Yeah, I would just add—I would just add to that tariff reduction. So a lot of countries did temporarily reduce their tariffs on medical supplies and medical goods, but you have to ask yourself: Why not—why not reduce those tariffs to zero? Tariffs, you know, increase the price of goods in your own country. (Laughs.) And given that these are critical products, and countries realized pretty quickly that they could dramatically lower the tariffs on those products, it seems to me that that’s a positive for consumers globally for these types of medical products. And so, you know, that’s something that also could get locked in.
As I mentioned, there is actually an older WTO agreement on pharmaceuticals and pharmaceutical inputs that hasn’t been updated since 2010. But the template and foundation is already there. And you know, seeing some kind of agreement to lock in lower or zero tariffs on some of these critical products would seem to make a lot of—a lot of sense to me. Because, you know, this is really—was really a global pandemic. But, you know, there’s other health crises that come down the line. And so having locked in those lower tariffs might help facilitate the movement of goods in the future also.
HILLMAN: The other one that I would add that we don’t know yet, but it’s clear that there is a lot of government support which would otherwise possibly be considered a subsidy, I know that maybe going into the idea of research, development, manufacturing, sale, distribution of all these pharmaceuticals. So, again, what may happen is, again, a possibility to revisit the notion that certain kinds of subsidies, and subsidies for certain things, should be, you know, in old-fashioned WTO parlance be considered green-lighted, meaning that, you know, they’re to be encouraged and they’re not be challenged as somehow creating an unfair trade advantage.
I think it’s too early to tell, but I wouldn’t surprise me if coming down the road there might be an ability to revisit the idea that certain subsidies are actually good and should be affirmatively encouraged in terms of support for government investment in things that are for a global good, that we create a kind of global commons where we allow and encourage government, and NGO, and—you know, and other private support. But we encourage these kind of pools of support for the fair, and efficient, and quick distribution of these pharmaceuticals in way that would—otherwise might be considered inconsistent with the agreement against subsidies.
KACZMAREK: That’s great. Thank you.
Before we wrap up, I want to ask you one last question, which is about new leaders that might be emerging on the stage. We spent a lot of time talking about the U.S. and China, and this competition between them. We talked a little bit about Europe, and not very much about Europe. And there’s always the question in the global trading system about the possibility of three European leaders. Are there other countries that are stepping into this void and taking the lead, and asserting themselves, that we might look to in the future as leaders as the trading system evolves?
Jennifer, can I ask that question to you?
HILLMAN: Well, I would—I would—again, for me, I would look to some degree, for example, to Japan. When you think about it, the United States, you know, early on, I mean, you know, I think President Trump’s second day in office he withdrew the United States from what was then the Trans-Pacific Partnership. And I think at the time most everyone thought that that meant the death of the TPP. And I think it was really heavily Japan that stepped forward and said: No, let’s continue with the TPP without the United States. And it was Japanese leadership, to me very significantly, that led to this—what is now the CPTPP. But I mean, again, it’s that same regional agreement, minus the United States. So and I think on a number of the, you know, sort of down in the weeds proposals at the WTO, I would cite Japan.
The other one clearly for me is Canada. I mean, the Canadians really have stepped forward in creating this Ottawa Group that’s trying to look at how do we reform the WTO. So I would give them—you know, the Canadians and the group that they’ve put together a lot of credit. Within the WHO itself, you know, as a result of the United States’ blocking of the appellate body, it’s really been the EU that has led this effort to come up with an arbitration alternative. So again, the EU at least leading and trying to get other countries to join them, and saying, OK, let’s come up with some other options.
You know, but as an institution the WTO is clearly facing a crisis in the sense that the director general of the WTO has now stepped down and said that he would be leaving by September. So there’s going to be a huge leadership change there. And that one is going to be really interesting, to see, you know, who ends up being put forward as viable candidates to become the next head of the WTO, at a time in which it needs, you know, I think very forceful and very effective leadership.
CHEEK: Yeah, so I agree with that. And I would just point to the fact that there are smaller economies who have built their economic success on trade. You know, Singapore, New Zealand, Mexico. You know, these countries have flourished based on trade liberalization and liberal trade rules. And they tend to be often, you know, leaders in this space. So I think there are opportunities also for smaller markets who rely heavily on trade liberalization to also be, you know, helping drive the dialogue in this next phase as we move forward.
KACZMAREK: That’s great.
Well, I want to thank you both for a fascinating and wide-reaching, wide-ranging conversation. And thank you to all of our participants for joining today’s virtual meeting. Please note that the audio and video of today’s meeting will be posted on the CFR website. And thank you all for joining us. Have a good day.