10 COMMERCIAL MEASURES VS. COVID-19, ACCORDING TO THE IDB
Apr 07, 2020 14:50 PM

 

In the last century, the world has suffered seven major pandemics with their corresponding negative economic effects. Namely, the Spanish, Asian and Hong Kong flu, H1N1, SARS, MERS and Ebola.

However, one of them had a greater impact on the main world and developing economies. Fabrizio Opertti, Manager of the Integration and Trade Sector, and Mauricio Mesquita Moreira, Chief Economist and Research Coordinator of the Integration and Trade Sector, both from the Inter-American Development Bank (IDB), recalled in an analysis note that the Spanish flu ( 1918) had, until now, taken first place. At that time, a reduction of 10% in world trade and about 20% in regional trade was estimated.

As well as other effects on the supply side, such as the sudden reduction in the labor force, and demand, such as the contagion of consumers, restrictions on their mobility and the tendency to save money in the face of uncertainty. It should be noted that the world also carried the effects of the First World War.

“But apparently this time it is different. The impact of this crisis can far exceed those of the Spanish flu, "they mentioned.

 

This is due to the great human and commercial connectivity that is experienced today as a consequence of the “Great Post-war Liberalization”, lower transportation and communication costs and the development of global value chains.

 

The Great Recession of 2008-2009, which  led to a 20% annual historical drop in business or global and Latin American, makes clear the implications that these structural changes may have, ”they assured.

And they anticipated that, as a prelude to what is coming, the first commercial data for 2020 is not very comforting.

China, the epicenter of the pandemic and global value chains, saw exports fall by 17% and imports by 4% in the first two months of 2020, compared to the same period the previous year.

In the United States, total imports and those coming from Latin America and the Caribbean (LAC) also fell in January, by 4% and 2% in annual terms, respectively, when the pandemic was just beginning. And in Brazil, exports in the first two months of the year fell by 8.5%, also in annual terms.

Also Read: Supply Chains at Risk Not Seen Since World War II

These figures are alarming when you consider that world trade was already in full slowdown: in 2019 it grew by just 1%, compared to an average of 5% in the last two decades.

“Based on the available historical data, this is a crisis that could affect all LAC countries, regardless of their level of specialization. Although the prices of commodities such as oil and copper face greater volatility, manufactured goods are more vulnerable to sudden stops, due to dependence on value chains and the possibility of delaying purchases by consumers, "they said.

 

Likewise, services such as tourism will be particularly affected by containment measures such as the drastic decrease in flights, the mandatory closure of hotels and the impact of the disease on its workforce. IDB specialists said that encouraging news is that these same past crises suggest that there is a possibility of a rapid recovery, the so-called "V" recovery.

This result, however, will depend not only on fiscal, monetary and health policies, but also on trade and integration policies taken by governments. That is why they ask themselves, what should governments do in trade and integration to respond to this crisis? - Continue supporting trade liberalization, as indicated in the book From promises to results in international trade. It would be a setback if the region's governments succumb to a nationalist rhetoric that wrongly blames globalization for the current crisis.

 

- Increase coordination between countries and promote integration. This is not only because of the systemic health problems we face — diseases do not respect borders — but also to facilitate a rapid recovery, led by trade and foreign direct investment.

- Discourage the adoption of restrictions on exports of medical equipment, medicines and their supplies. To date, 24 countries have adopted these restrictions, mostly in Europe and Asia. These measures could increase local supply in the short term, but create medium-long-term disincentives to domestic production due to the uncertainty of being able to access external markets. Furthermore, they create retaliation risks and jeopardize regional and multilateral cooperation efforts.

- Eliminate tariffs and non-tariff barriers (BNA) to medical equipment, supplies and disinfectants. LAC's tariffs are well above the world average, ranging from 5% to 15%. The BNAs reach 90% of these items. These measures would help to reduce the costs of these products that are fundamental for managing this type of crisis.

- Promote regional and multilateral trade agreements to facilitate the coordination of pandemic prevention and mitigation measures; and prevent unilateral measures from producing costly diplomatic and trade conflicts that delay recovery and compromise long-term growth.

- Customs and other governmental border control entities must implement a simplified and expedited procedure for the dispatch of critical goods.

- Identify, in cooperation with the health authorities, the merchandise necessary to attend the emergency, considering a temporary exception in the payment of tariffs.

 

- Promote and facilitate the liberalization of trade in services, particularly in the area of ​​telemedicine. A potential problem with pandemics is that citizens, even those with mild symptoms, rush to go to hospitals, overloading the system. Some countries in the region offer telemedicine services to the internal public, but current trade restrictions prevent it from spreading to other countries.

- Discourage high protection for the agricultural sector -common in the region- since it would be particularly dysfunctional at this time. A supply shock in the national food supply chain can have fatal consequences on the population, beyond the direct impacts of the pandemic.

- Work with export promotion agencies to sustain and enhance firms' exports, providing information services that allow identifying new opportunities in the area of ​​goods and services, as well as establishing new commercial links to replace those affected by the crisis.