Trade policy, key to get out of quarantine and face COVID-19

Today, more than ever, countries in Latin America and the Caribbean (LAC) need to act together in their trade policy decisions to stock up the goods and supplies they need to address the health crisis caused by COVID-19 and exit the generalized quarantine.

Epidemiological models in Europe and the United States, as well as recent experiences of countries that have moved to a later stage of the pandemic, like China, South Korea, and Singapore, suggest that governments need to implement an effective strategy to end the quarantine. This strategy includes, but is not limited to, securing COVID-19 tests and sanitary supplies, and medical equipment (e.g., artificial respirators).

Countries in LAC have so far only conducted limited testing for COVID-19, and domestic markets are experiencing shortages of some urgently needed medical and hygiene products, such as disinfectants.

Barriers to trade in medical supplies and equipment

Latin American countries are experiencing three major trade barriers that prevent them from facing the health crisis with the necessary effectiveness and forcefulness.

First, since the onset of the pandemic, there has been a spike in global demand for the medical goods needed to address it, which has resulted in global shortages of specific components that are essential for rapidly diagnosing COVID-19 and treating it.[1]

Second, about 90 countries have implemented some restrictive measures on exports of medical supplies and equipment, medicines, masks, and other goods needed to address the pandemic.[2] The United States, China, and Europe —which together account for 70% of LAC countries’ imports of these goods— have already imposed limitations on exports of medical supplies and equipment.

Although these measures are supposedly temporary and covered by the rules of international trade because they address medical shortages within national territories, they are nonetheless causing enormous distortions in the market. These have the most significant effect on poor and vulnerable countries and tend to generate a culture of retaliation just when international cooperation is needed most.

Most LAC countries neither produce diagnostic tests nor have the technology or patent rights needed to start producing them locally, which means that in the short term, they depend on supplies from producer countries.

Although India is the only country to have imposed formal restrictions on diagnostic tests exports, domestic demand for these products in main producer countries (the United States, Europe, China, and South Korea) and other regulatory measures recently adopted by China,[3] forces a highly restricted tests supply. These restrictions limit the ability of our countries to rapidly increase their testing rates and mitigate the risks of reopening their economies.

Since no country in the world is self-sufficient in these products, eliminating such restrictions is key. At the same time, it is imperative that countries of the region act collectively – for example, by using their regional integration initiatives – and take joint and coordinated positions to make access to these goods more equitable.

National health regulations have also created barriers to the distribution of medical supplies and equipment in many LAC countries as the procedures for obtaining health quality certifications tend to be slow and cumbersome. There is an urgent need to simplify these procedures.

How governments can act

To face this situation, the Inter-American Development Bank prepared the document Del confinamiento a la reapertura: consideraciones estratégicas para el reinicio de las actividades en América Latina y el Caribe en el marco de la Covid-19. Below are some public policy ideas and proposals on foreign trade and integration whose objective is to maintain the supply of critical inputs to address the pandemic and reopen the economy:

1. Strengthen and expand regional integration initiatives (Mercosur, the Pacific Alliance, SICA, CAN, CARICOM, PROSUR) and connections between these blocs to reach cooperation agreements to:
   • Strengthen regional food and medical supply chains;
   • Pursue joint procurement of medical supplies under the auspices of the Pan American Health Organization (PAHO), especially diagnostic supplies and equipment for healthcare workers;
   • Make headway on regional and global mutual recognition agreements for quality certification (such as CE Mark and FDA approval[4]) to get medical supplies and equipment to national markets more quickly;
   • Promote agreements with developed countries to access patent rights for diagnostic tests, medicines, vaccines, and other equipment that allow to produce these goods either locally or regionally.
2. Continue to implement measures to eliminate tariff and nontariff barriers to imports of medical products, inputs, and services, and agricultural sector imports to strengthen health systems and ensure production chains obtain the inputs on which they depend.[5]
3. Remove restrictions on exports of medical products, supplies, and services that are not essential and reduce the time for which temporary measures are in force.
4. Implement trade facilitation measures to expedite the clearance of goods and ensure that controls at border crossings are safe and efficient. In addition to the measures listed here, the following are also important:

• Accelerate the implementation of single windows for foreign trade (VUCEs) and interoperability with key trading partners to reduce the times and costs of international trade operations and move toward paperless systems[6];
• Increase and prioritize the certification of importing and exporting companies, customs agents, warehouse operators, and other economic operators through Authorized Economic Operator (AEO) programs to promote safe, streamlined control processes;
• Develop contingency plans and security protocols with customs and other authorities involved in foreign trade operations, including signing joint emergency agreements between neighboring countries.

5. Strengthen the capacities of domestic industries and provide incentives for increasing the supply of medical products through local firms while simplifying internal procedures for obtaining health certifications for products needed to fight the pandemic and reopen economies.

 

For more information, you can read the report Del confinamiento a la reapertura: consideraciones estratégicas para el reinicio de las actividades en América Latina y el Caribe en el marco de la Covid-19, available in Spanish.

 

[1] According to the American Society for Microbiology, there is a global shortage of chemical agents for testing for SARS-CoV-2.

[2] The U.S. International Trade Commission (ITC) has compiled restrictive trade measures implemented in response to the COVID-19 pandemic.https://www.macmap.org/en/covid19

[3] China recently banned the export of test kits that are unauthorized for sale in the domestic market, which has affected the supply and immediate availability of these test kits globally.

[4] These certifications are issued by the European Union and the United States Food and Drug Administration and indicate that a product complies with health and safety protection standards.

[5] At between 5% to 15%, LAC’s tariffs are well above the global average. NTBs are as high as 90% for these categories. These measures would help bring down the cost of these products, which are essential for managing a crisis of this sort.

[6] The Pacific Alliance countries (Chile, Colombia, Mexico, and Peru) have pioneered interoperable VUCE systems in Latin America.