Author : Poorvi Bhati, Student at Indore Institute of Law, Indore
Co-Author : Muskaan Rawat, Student at Indore Institute of Law, Indore
ABSTRACT
The whole world is suffering from the deadly Corona virus. Millions are infected and thousands have died. Tackling virus is challenging for all the nations. This phase is nerve-racking as there are many factors which should be looked at. One amongst them is the downturn of international trade policies further resulting tension in trendy life, globalization, and relations between countries.
The COVID-19 pandemic is likely to be recognized as the historical tipping point that shifted the post-World Trade Organization (WTO) climate of global trade policy. The last time the world experienced a similar predicament was in 1995, when WTO was formed, creating a global trading system based on rules.
Global institutions are making every effort to soften this pandemic’s impact on the world economy. In reaction to COVID-19 ‘the World Bank issued an advice note on Dos and don’ts of foreign policy. The note urges policymakers around the world to relax export controls on critical medical and food goods by removing the requirement for permits, licenses, etc. It also encourages them to encourage exporters in maintaining employment and foreign exchange earnings and adding to macroeconomic policy efforts to defend the economy from a pandemic-induced slowdown. The paper will study whether the countries heed this advice or reinforce the protectionist trends. In a nutshell, this paper aims to find the impact of pandemic on International trade policies and investments. The pandemic has already resolutely filtered into policymaking. Policies to safeguard essential domestic infrastructure and industries are tightened up, notably FDI screening and previous authorization.
INTRODUCTION
Foreign trade between different countries is a crucial factor in raising the quality of living, creating jobs and encouraging consumers to access a wider variety of goods. There lie many policies which overlook the trade and which are inbuilt to protect the global trade from any discrepancies. While globalization and trade offer new opportunities, they are not without challenges. The era with COVID-19 has become the new normal and has impacted the international trade also affecting its policies. The COVID-19 pandemic is increasingly a concern for almost every nation. The whole shutdown situation has resulted in trade restrictions with the changes in the trade policies. Governments responded directly with large-scale fiscal and monetary policies, increasing health care spending, offering wage assistance to staff in impacted industries, offering corporate liquidity relief, and intervening on capital markets to deter growing spreads.
REVIEW OF LITERATURE
The COVID-19 pandemic triggered an ongoing human and health catastrophe. The measures needed to suppress the virus have caused an economic slowdown. There is a great deal of doubt at this stage regarding the severity and length. According to the report of World health Organization, Global trade is predicted to plunge by between 13 and 32 % 2020 as the COVID 19 pandemic disrupts normal economic development and life across the global. Almost all regions will experience a double-digit drop in trade volumes by 2020, with exports from North America and Asia hit hardest. The reports by World Trade organization signify that the changed trade policies will affect both the developed and developing countries. The social distancing measures also lead to a fall in both demand and supply in targeted sectors.
OBJECTIVE
The Objective of this research paper is to find out the global impact of International trade and policies amid COVID-19.
GLOBAL IMPACT OF COVID-19
Forecasting the economic impact of the crisis is nuanced, since several causes are interrelated. How long nations may have to pursue the social distancing steps and what the transition plan would look like remains uncertain. The World Trade Organization has estimated that the COVID-19 pandemic’s contraction would have a more damaging impact on commerce than did the financial crisis. The WTO, based in Geneva, said it predicted a rebound in global trade in goods between 21% and 24% for 2021, depending entirely on the duration of the coronavirus outbreak and the viability of policy responses. Nearly all regions would suffer double-digit percentage trade declines this year, with the hardest hit being exports from North America and Asia. Complex value chains sector, such as electronics and automotive products, would also see steeper falls.
Some countries are unable-or cost-effectively-to manufacture adequate amounts of their own medical supplies. Also countries with substantial production ability may not be able to make good use of it at the height of COVID-19 outbreaks due to labour shortages or mobility constraints.
IMPACT OF CHANGE IN TRADE POLICIES
- Overall Impact on Global Prices:
Restrictions on exports are also likely to affect world prices. These measures are intended to counteract domestic shortages and price inflation as demand for products associated with COVID-19 is rising. Even so, through exporting nations, regulatory policies limit global supply, contributing to even higher costs.
Another problem with the limitations on exports is that they may be infectious. When prices of key COVID-19 goods increase, more policymakers may respond by placing restrictions on exports to offset price increases and future domestic demand shortages. Such acts have collective consequences, exacerbating the initial shock and contributing to more price inflation – a recorded ‘multiplier effect’ in the 2008-11 food crisis.[1]
- On Developing Countries:
Most developing countries rely heavily on imports to meet their medical supply needs which are essential for combating COVID-19. Accordingly, recently imposed export restrictions by pioneering exporting countries could cause significant supply disruptions for developing countries and further contribute to price hikes in medical supply.
Export restrictions could create disruption in supplies and price increases.
3. Import protection contributes to tax the health systems in the countries
Policy on exports is only part of the picture. Many developed and developing nations are regulating their own health-care services by raising taxes on medicinal goods manufactured. These initiatives raise critical goods’ domestic costs and thereby reducing the welfare.
4. Trade policies have also impacted in lower or no tariffs
Many of these reforms are temporary: protection is suspended, not eliminated. Although this is a move in the right direction, if exporters consider policy reforms to be transient, they may be hesitant to join markets. Locking-in tariff reductions and other policy changes in WTO commitments would be a more effective trade policy reform to address the COVID-19 health crisis.[2]
OUTLOOK FOR TRADE IN 2020 AND 2021
Movement restrictions and social distances to slow the spread of the disease mean that labor supply, transportation and travel are now directly affected in ways that were not affected by the financial crisis. Pretty much the entire sectors of national economies, along with hotels, restaurants, non-essential retail trade, tourism and major manufacturing shares, have been shut down.
Reduced foreign trade, declining world-wide PMIs and deep cuts in GDP projections for the year demonstrate that we have reached the predicted recessionary era. With dramatically varying indices and crude oil futures hitting negative dollar prices, this is an uncharted territory for traders and policymakers alike.
IMPACT ON INDIA
Probable fallout of the COVID-19 pandemic is that countries are more and more likely to adopt a lot of and more proponent measures. A key thing to note is that the exports fell across nearly all commodity groups. Many commodities have recorded a decline of more than 30-40 % particularly engineering products, textiles, meat, cereals, plastics, and chemicals, which in recent years have been the key drivers of export development. While the gloom and doom encompassing COVID-19 is palpable, the crisis may additionally present some nice opportunities for India. Indian policymakers got to crouch down and arrange economic help which will not solely facilitate India’s export sector survive the immediate crisis, however additionally retain stability and resume growth within the medium to long-run.
POSSIBLE REMEDIES
On top of the human misery induced by the epidemic itself, the resulting decrease in commerce and production would have serious effects for households and enterprises.
Thus, in the ongoing downturn, there is a need to examine whether to maintain exchange going and to insure that it will continue to sustain global growth. This implies both today’s acts and choices, with a view to the future.
- Cutting taxes on essential medicinal products – countries could analyze a WTO strategy, to remove tariff barriers on an agreed range of priority medical supplies (similar to the agreement reached on IT products).[3]
- Principles on export restrictions– This may range from an agreement to prevent export bans on some categories of products or to codify stringent requirements for their use, depending on the existing G20 Agreement, which specifies that: ’emergency steps intended to counter COVID-19, if considered appropriate, must be tailored, proportionate, clear and temporary, and that they do not create needless barriers to trade or affect the global situation.[4]
More generally, there is a need to prevent further deterioration in the current trade disputes to preserve trust in global markets and cooperation. With businesses rattled by the decline of demand and the continuing confusion over the period and extent of COVID-19 and relevant mitigation steps, there is still little room to introduce new expenses, including needless regulatory instability. A successful move in improving trust and rising pressures will be pledging governments not to introduce new tariffs or trade restrictive measures.
CONCLUSION
Governments worldwide have imposed stringent containment policies to slow the spread of the disease – what the IMF has called “the Great Lockdown” Restrictions on our cultural, personal, and social lives – strictures that only three months ago would have been utterly unimaginable – are treated as natural and essential. Simply stated, the pandemic has transformed the planet more than anyone predicted and in a manner least planned. Trade consequences and policy reactions have become one of the least expected elements. To escape from these laws, governments need to be confident that foreign markets can still deliver the products they require. Transparency and regional dialog and coordination are the key to creating global supply trust.
REFERENCES
- Baldwin, R and E Tomiura (2020), “Thinking ahead about the trade impact of COVID-19”, In Baldwin and di Mauro eds. Economics in the Time of COVID-19, VoxEU.
- Espitia, A, N Rocha and M Ruta (2020), “Database on COVID-19 trade flows and policies”, World Bank.
- Evenett, S (2020), “Tackling Coronavirus: The Trade Policy Dimension”, Global Trade Alert, 11 March.
- Giordani, P E, N Rocha and M Ruta (2016), “Food prices and the multiplier effect of trade policy”, Journal of International Economics101: 102-122.
- Posen, A (2020), “Containing the economic nationalist virus through global coordination”, In Baldwin and di Mauro eds. Mitigating the COVID Economic Crisis: Act Fast and Do Whatever It Takes, VoxEU.
- Baschuk, B. (2020), “A Trade Collapse that’s Heading Into the History Books”, Bloomberg, https://www.bloomberg.com/news/articles/2020-03-26/supply-chain-latest-a-trade-plunge-worthy-of-the-history-books.
FOOTNOTES
[1] Giordani et al. 2016
[2] Alvaro Espitia, Nadia Rocha, Michele Ruta , Trade and the COVID-19 crisis in developing countries ,09 April 2020,
https://voxeu.org/article/trade-and-covid-19-crisis-developing-countries.
[3] COVID-19 and international trade: Issues and actions , http://www.oecd.org/coronavirus/policy-responses/covid19-and-inernational-trade-issues-and-actions-494da2fa/#endnotea0z5 OECD Policy Responses to Coronavirus (COVID-19).
[4] G20 Trade and Investment Ministerial Statement, 30 March 2020, http://www.g20.utoronto.ca/2020/2020-g20-trade-0330.html.