Rethinking trade liberalisation in the age of the virus
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Tourist attractions like the Pinnawela Elephant Orphanage have been closed to prevent the spread of the virus.
With the coronovirus reaching pandemic levels globally, and with Sri Lanka also reporting several cases, the immediate concern for all nations is to ensure that its citizens are kept safe. To this end, many countries including Sri Lanka have imposed travel restrictions, quarantine measures and restrictions on public gatherings. While daily wage earners, those self-employed and those whose livelihoods depend on social interaction are immediately at threat in a situation where there is no meaningful social security system, the larger picture has not yet unfolded but is important to understand in a bid to be better prepared to deal with it in the near future.
Rationale for trade liberalisation
Sri Lanka is a member of the World Trade Organisation (WTO). As such, it is bound by all its rules as well as several covered agreements that deal with topics such as agriculture, textiles, subsidies, sanitary measures, investment, and intellectual property. The WTO was created for the express purpose of bringing the benefits of trade liberalisation to all nations and promoting economic prosperity globally. The rationale for trade liberalisation is the principle of ‘Comparative Advantage’. This economic theory posits the idea that any nation may be good at producing some product or service. The older theory of ‘Absolute Advantage’ mandated that a nation only produces a product that it was more efficient at producing than another nation. This theory did not serve global trade interests because there were some nations that did not have an absolute advantage over any product. Comparative Advantage takes a more realistic perspective because nations that are very efficient at producing certain goods will focus on them and leave off producing goods that they are not so efficient at producing, even if they do produce them more efficiently than certain other nations. These goods then become comparatively more advantageous for those other nations to produce, resulting in every nation producing something in large quantities, achieving economies of scale and efficiency which results in more profits, and being able to trade these in the global market. Thus, each nation becomes interdependent on each other, as no single nation is self-sufficient any more.
Protectionist measures in the WTO setting
Even though the WTO actively promotes trade liberalisation, it allows nations to take several protectionist measures that are aimed at safeguarding domestic producers and the market. The General Exceptions to obligations that are found in Article XX of the WTO document permit a state to take measures that are necessary to protect human and animal health and plant life. In addition a state may also prevent exportation of products that are in short supply. The Security Exception in Article XXI permits a state to take any action to protect its essential security interests in a time of war or other emergency in international relations. Therefore, in any emergency situation, a state may choose to refuse to export products that it considers are important for domestic consumption, even if they are essential to another state. Similarly, a state may refuse to allow importation of goods from another state if it fears that those goods are contaminated and will endanger human or animal health or plant life.
Implications of the coronavirus for global trade
Restrictions on social life have already left their mark on economic activity, with stock markets in most countries indicating a downward spiral. The coronavirus has the potential to not only slow down production, as governments focus only on keeping essential services up and running, but also to slow down imports and exports. While protectionist measures had always been part and parcel of the WTO and its predecessor, the General Agreement on Tariff and Trade (GATT), its provisions had not been fully put to the test, as it will be in the weeks and months following the virus and its aftermath.
Implications for Sri Lanka
It may be argued that in the face of a global pandemic, trade should not be a priority. In the case of Sri Lanka, the unfortunate reality is that we are dependent on imports for a majority of our basic needs, and that no local production exists in many essential sectors. Thus, if a country that we are dependent upon for a basic good is unable to export this good to Sri Lanka because of its own domestic situation, there is no legal basis on which we could demand that it do so. In a previous work, I have argued that there must be a vibrant domestic production if a state is to participate meaningfully in the global trading arena (“Global Trade and Sri Lanka: Which Way Forward” – Stamford Lake, 2016). Further, domestic production of essential goods must be maintained, even if they are unproductive in the face of foreign competition.
Conclusion
In the 25 years following the establishment of the WTO, there has been several threats to the global trading system, but none as serious as the one potentially posed by the coronavirus. It will force statesmen and policy makers to re-think many of the fundamental principles upon which the global trading system of interdependency is constructed. If developing nations with low manufacturing capacities such as Sri Lanka are to survive in such a system, there must be re-thinking of priorities without which, vulnerable populations will be placed at high risk.
(The writer is a Professor of Commercial Law and teaches International Trade Law and WTO Law at the Faculty of Law, University of Colombo).