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COVID-19 International Trade in a Time of Crisis: Pandora’s Box Revisited, Part I

The spectre of “vaccine nationalism” is one of the recent challenges that the global COVID-19 pandemic has brought us. The immediate and primary focus of governments has been the serious threat to the health of their populations. The resulting economic challenges have been “game changing.”

At the end of January 2021, the European Union became the first major trading power to introduce export controls on COVID-19 vaccines.[1] Other countries have considered export bans. In India, the domestic Serum Institute has been directed to prioritise the needs of India.[2] The U.S. and UK governments have signed contracts with producers that prohibit export of domestic production to the domestic market.[3] In fact, the front runner in “vaccine nationalism” was the United States. The same Trump Administration that opened the national security “Pandora’s Box”—declaring that a nation that could not produce its own steel was not a nation”[4]—made it clear that U.S.-origin vaccines would be released on an “America-first” basis.[5] While the Biden Administration has repudiated many of its predecessor’s policies and measures it has explicitly maintained this one.

Recent manufacturing delays and resulting supply issues have created more problems and headlines about “vaccine wars,” [6] raising particular concerns in countries without domestic production. This has led to questions about the trade law implications of these threatened export bans. Well before COVID-19, the world trading system was facing a growing trend of economic nationalism. We have examined the WTO’s national security exception and the potential threat it poses to the global liberal trade order. With the introduction of section 232 tariffs on steel and aluminum by the U.S. Trump Administration, the issue of the reliance on the national security exception became less academic and more urgent. References to “Pandora’s Box” seemed appropriate. President Trump claimed that the tariffs were a matter of national security and that a nation that was not able to produce its own steel was not a nation.

While in could be said that a majority of WTO members opposed the increased reliance on the national security cover to justify otherwise WTO-inconsistent trade measures, the issue of vaccine nationalism may not be so clear. Perhaps, and to paraphrase the former president, there is a growing sentiment that a nation that is not able to produce its own vaccine is not a nation.

What About International Trade Law and Export Restrictions?

The WTO rules and other major trade agreements such as the Canada-U.S. Trade Agreement (CUSMA) and the Canada-EU Comprehensive Economic and Trade Agreement (CETA) include a general prohibition on export restrictions as set out in Article XI of GATT 1994.[7] However, there are exceptions and we have reviewed potential U.S. claims and other countries were claims of GATT Article XXI coverage for various trade restrictive measures. The WTO’s embattled dispute settlement system had started to create some useful jurisprudence. In terms of “vaccine nationalism” there are more basic and accepted exceptions that do not entail the reliance on the ultimate Article XXI “get out of jail card.”

Following the EU announcement in January, Canada’s lead trade negotiator Steve Verheul indicated that while there were provisions in CETA that prohibit export restrictions that “…there are exceptions … in particular, if the export restrictions are applied on a temporary basis, if they’re to prevent a critical shortage and if they relate to essential supplies. On those particular measures, the EU is probably on solid ground.”[8]

In the GATT context, Article XI:1 prohibits members from introducing or maintaining any form of export prohibition or restriction other than duties, taxes or other charges.[9] However, Article XI:2(a) of the GATT 1994 allows “export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party“. The reference to a measure that is “temporarily applied” indicates that the carve-out applies to measures applied for a limited time, taken to bridge a “passing need”. In turn, “critical shortage” refers to deficiencies in quantity that are crucial, that amount to a situation of decisive importance, or that reach a vitally important or decisive stage, or a turning point.[10] Also, if a WTO Member introduces or maintains a quantitative restriction in accordance with WTO rules, Article XIII of the GATT 1994 requires that its application be non-discriminatory.[11]

So, in this context, Mr. Verheul indicated that Canada will continue to study the application of the measure by the EU closely with regard to its application and exemptions they’ve provided to certain countries to ensure that the EU is not taking a “discriminatory approach.” Canada also expects it trade partners to act with the transparency required by WTO and other applicable agreements. This includes the obligation of explaining how any restrictions are consistent with trade obligations.[12]

Early during in the COVID-19 pandemic, the WTO Secretariat addressed the “unprecedented public health challenge” of COVID-19 in the context of the “unprecedented worldwide demand for medical products to fight the pandemic.”[13] While its review of the application of Article XI:2(a) pre-dated the vaccine issue, the conclusions and observations also apply to the current situation. The Secretariat also noted that WTO Members might justify COVID- 19 export-restricting measures pursuant to the “General Exceptions” of Article XX of GATT 1994.[14] The provision allows for prohibitions and restrictions to pursue certain legitimate policy objectives. In the context of COVID-19-related issues, Article XX:b is the most relevant as it relates to measures “necessary to protect human, animal or plant life or health.” Pursuant to WTO jurisprudence, the burden of proof is on the country invoking an exception such as Article XX(b). The restrictions “fall within the range of policies designed to protect the value at stake.”[15] The restrictions would have to also meet the “necessity” test which in turns involves the “weighing and balancing”[16] of the following factors:

  • the importance of the interests or values at stake
  • the contribution of the measure to achievement of the objective pursued
  • its trade-restrictiveness
  • the reasonable availability of less trade-restrictive measures which offer the same level of protection.

In broad terms, it appears that the kind of export restrictions introduced and/or contemplated by the EU and other WTO members might well find cover under Article XI:2(a) and/or Article XX(b).

The COVID-19 pandemic presents a direct and important threat to human health, and effective vaccines are both a necessary tool to counter the threat and remain in short supply at this time. In terms of the specifics, the burden is on the implementing country to demonstrate that its measures are required to meet the objective of vaccinating its own population and the measures would be compared to less trade- restrictive available alternatives, e.g. a quota system rather than an export ban. The actual application of the measure in question would have to meet the test of bone fides that it is not applied in an abusive or discriminatory way or in an incoherent or inconsistent manner.[17]

There is a need for a longer-term vision and countering what some are calling “strategic autonomy” and the political imperatives that have lead to such phenomena as “vaccine nationalism.” While even such trade liberalization bodies as the WTO are ready to acknowledge some trade restrictions are justified, we are reminded that the overall well-being and future of the world’s population is dependant the depend on international trade and the effective functioning of global value chains. As per the G20 Ministerial Statement of 30 March 2020:

… emergency measures designed to tackle COVID-19, if deemed necessary, must be targeted, proportionate, transparent, and temporary, and that they do not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules.[18]

While facing pressure to mitigate critical shortages of vaccines and equipment needed to fight COVID-19, governments should recognize that beating the pandemic will require a global production and transport strategy on an unprecedented international scale. Well-functioning value chains can play a key role.

On the one hand, lower domestic prices will reduce the incentive to produce the good domestically, and the higher foreign price creates an incentive to smuggle it out of the country, both of which may reduce domestic availability of the product. On the other hand, restrictions initiated by one country may end-up triggering a domino effect. If trade does not provide secure, predictable access to essential goods, countries may feel they have to close themselves from imports and pursue domestic production instead, even at much higher prices. Such a scenario would likely result in lower supply and higher prices for much-needed merchandise. The long-term effects could be significant. [19]

In Part II we will examine, in more detail, calls for more openness and ideas on how to better harness the international trading system to beat the COVID-19 threat.

_________________________

[1] Export Controls on Covid-19 Vaccines: Has the EU Opened Pandora’s Box? Prof. Simon J. Evenett (St. Gallen Endowment for Prosperity Through Trade); January 31, 2021; p 1

[2] See, for example, Indian denials in https://www.hindustantimes.com/indianews/misinformationhealthministrysaysnobanonexportofcovid19vaccine/storyojAzo9BFLd1ZecdqQM51yN.html.

[3] Shots Fired: The many guises of vaccine nationalism, The Economist, March 13, 2021; p. 70

[4] Trump: ‘If you don’t have steel, you don’t’ have a country’ Brandon Carter, The Hill, March 2, 2018

[5] Legal counsel have noted that the U.S. Defense Production Act can be invoked such that “priority contracts” be fulfilled by local manufacturers, which may have the effect of curtailing delivers to foreign buyers (see https://www.law360.com/articles/1346836/howdefenseproductionactmayaffectvaccinesupplychain). To the extent that such provisions are invoked in the case of COVID-19 vaccines, they could disrupt exports too. To summarise, there are both covert and overt ways to curb the export of COVID-19 vaccines.

[6] EU-Britain Vaccine War Heats Up as Brussels Eyes Banning Exports Eric Reguly, The Globe and Mail, March 23, 2021; p. A4

[7] See Annex A

[8] Evidence – CIIT (43-2) – No. 14 – House of Commons of Canada (ourcommons.ca) ; see also Mia Rabson; Canada Preparing Trade Options in Case EU Breaks Promise to Keep Vaccines Flowing; Toronto Star, February 1, 2021

[9] See full text of Article XI in Annex A

[10] Whether a shortage is “critical” may be informed by how “essential” a particular product is; the characteristics of the product and factors pertaining to a critical situation may inform the duration for which a measure can be maintained in order to bridge a passing need. Inherent in the notion of criticality is the expectation of reaching a point in time at which conditions are no longer “critical”, such that measures will no longer fulfil the requirement of addressing a critical shortage (Appellate Body Reports, China – Raw Materials, paras. 323-328).

[11] See Annex A

[12] See fn. 8 and also No written guarantee on EU vaccine shipments, says international trade minister

[13] 23 April 2020 EXPORT PROHIBITIONS AND RESTRICTIONS INFORMATION NOTE

[14] See Annex A

[15] 23 April 2020 EXPORT PROHIBITIONS AND RESTRICTIONS INFORMATION NOTE p. 12. The Secretariat notes that Members would enjoy significant deference in determining this element.

[16] Ibid. See also Appellate Body Reports, China – Raw Materials.

[17] Ibid.

[18] http://www.g20.utoronto.ca/2020/G20_Statement_Trade_and_Investment_Ministers_Meeting_EN_300320.pdf

[19] 23 April 2020 EXPORT PROHIBITIONS AND RESTRICTIONS INFORMATION NOTE

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