IMPACT OF COVID-19

ON INTERNATIONAL TRADE LAW

 

Rijuka Naresh Jain1

 

“The unavoidable declines in trade and output will have painful consequences for
households and business, on top of the sufferings caused by the disease itself.”
— Roberto Azevedo, Director-General, WTO.

INTRODUCTION

COVID-19 has been declared as a “public health emergency of international concern” by the World Health
Organization (WHO). COVID-19 is a humanitarian crisis on a global scale. The impact of the novel
coronavirus (COVID-19) on all our lives - professional and personal - is changing day-by-day. The virus
continues to spread throughout the globe, placing health systems under bizzare stress in the battle to save
human lives.

Covid-19 pandemic has taken over one million lives all over the globe and more than forty four million people
have been affected till date. The world is going through a really tough time, where it is not only affected
economically, but it is also affected politically, legally and socially, and the world has to face unexpected
challenges.

The global economy has been shaken in a way that has never happened earlier. Although economists and
the policymakers are comparing the present economic slowdown with the great depression and the financial
crisis of 2009, the damage caused by the COVID 19 pandemic is far greater and it has a unique nature.
COVID-19 has disrupted international trade and global supply chains for essential and non-essential goods
and services.

This global pandemic has led to market failure in most countries around the world and a decline in global
economic growth prospects. The pandemic has not only taken human lives but has also forced the world to
face a severe slowdown. International trade has been hit hard.The lack of cooperation between countries to
tackle this crisis has exacerbated the economic situation of the world, in turn, adding to geopolitical tensions
and distrust between trading partners.

Against this background, there is a clear need to keep trade flowing, both to ensure the supply of essential
products and to send a signal of confidence for the global economy. The WTO has said that all regions in the
word will suffer double-digit declines in exports and imports in 2020, except for the “Other regions” which is
comprised of Africa, Middle East and Commonwealth of Independent States (CIS). Trade is essential to save
both lives and livelihoods. But keeping trade flowing requires cooperation and trust.

The spread of COVID-19 across the globe has changed many people's lives. As more and more people are
asked to stay home, many activities have been forced to move from offline to online (O2O), including work,
grocery shopping, food delivery, education and entertainment. This new trend could help the global O2O gig
economy flourish provided key challenges can be overcome. World’s major economic powers such as the
US, China, UK, Germany, Italy, France, Japan and many other rising economies like India, etc. are on the
verge of collapse.

The World Trade Organization has predicted that world merchandise trade could vary between 13 and 32%
this year, following the impact of COVID-19. It's predicted the adverse effects of coronavirus on globalization

1
Rijuka Jain is an undergraduate law student pursuing BLS LLB from Adv Balasaheb Apte College of Law, Mumbai. She has a keen
interest in Criminal Law, Constitutional Law, International Law and Cyber Law. (Authored on April 22, 2021).

Published in Article section of www.manupatra.com

may carry on for years, much like the financial crisis which occurred in 2009. The pandemic is an
unprecedented challenge in our time not just to world health but to the global economy. 

The entire region in Asia was hit hard by the first wave of the coronavirus, as the sudden stop in activity
struck households and firms simultaneously. Since the outbreak of the pandemic, the region has been going
through strict lockdown norms. Transportations and travels have been banned, the region lost its huge
earnings from tourism, theatres and malls have been closed indefinitely and every other economic activity
has been stopped. The governments are forced to provide all of its citizens with basic needs and health care
services. The policymakers are also investing a huge amount of money on medical infrastructure and other
medical equipment.

The COVID-19 pandemic has not only sparked an unprecedented global health crisis. It has sparked an
unprecedented global economic and trade as well. Trade has been hit by simultaneous supply, demand, and
trade cost shocks, resulting in the sharpest and deepest trade contraction in a generation.

As a developing region, Asia will face grave economic danger in the coming days if the governments and
policymakers do not deal with the situation smartly.

PROBLEMS WHICH CAME UP DUE TO COVID-19

As the bank services were disrupted, the transaction of money took place with a delay leading to a pseudo
financial crisis, people could not open new accounts or were able to do so with great difficulties causing the
working class a lot of inconveniences.

Depreciation in Quality and Quantity of the products which were being imported and exported lead to small
scale businessmen exploiting the manufacture of these products at a low cost meeting the demand with the
supply of poor quality goods.

As the businesses were disrupted, a lot of daily wage workers or labourers lost jobs or did not receive the
salaries that they were supposed to receive. There was a lot of cut-down in the salaries that they received,
due to which they were unable to meet the demands and the daily living costs as a lot of them had to pay
rents, food, medicine and so on. Their healthcare had also become expensive.

Labour supply shortages, factory closures, and supply disruptions have reduced production. Layoffs, income
losses, and increased uncertainty are leading consumers and firms to reduce or defer spending and
investment decisions. Meanwhile, declining revenues and rising unemployment has increased the risk of
business and household defaults, straining the financial system. While declining trade is largely a reflection,
not a cause, of this underlying economic contraction, rising trade costs - from transport, logistics and supply
chain disruptions, as well as trade restrictions – act as additional brakes on the global economy.

Services sectors have been heavily affected by social distancing measures and border restrictions. This is
particularly the case for services that rely on physical movement and proximity, such as tourism, retail, or
transport services. Indeed, border closures implemented in response to COVID-19 alone could see services
trade costs increase by an average of 12% across sectors and countries.

Beyond services, industries relying on global value chains have been negatively impacted by transport
restrictions, slowdowns and bottlenecks, given their interdependent and geographically dispersed production
networks. Those industries dependent on established firm-to-firm relationships – such as automakers - could
suffer more, as they cannot easily or rapidly find substitute suppliers or buyers. Likewise, industries
optimized for 'just-in-time' production – such as electronics – could feel the effects of supply disruptions more
acutely.

Border restrictions have also affected trade in many B2B services. Despite the potential for digital delivery of
B2B services, many businesspersons and professionals rely on their physical presence abroad to deliver

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services. Moreover, the installation of foreign machinery and equipment often requires travel of specialized
workers – so border restrictions also impede trade in these goods and related services.

DOING MORE ON TRADE AND HEALTH TO BE READY FOR THE NEXT TIME

The current crisis offers an opportunity to develop readiness for future pandemics. In addition to national
measures to ensure supply, there may be scope for an international agreement to provide greater
predictability and certainty on availability of key supplies in international markets and build confidence that
trade will keep flowing to support the management of future pandemics.

The economic and trade impact will largely depend on how fast the pandemic is brought under control. But it
will also depend on how quickly supply constraints are lifted, how rapidly consumer demand returns, how
quickly investment picks up, how fast workers are re-employed, and how resilient today's open global
economy proves to current shocks.

If the pandemic is brought under control soon and restrictions are promptly lifted, output and trade could
rebound nearly to their pre-pandemic trajectory. But if the pandemic is protracted and restrictions stay in
place, output and trade could remain below the pre-COVID trendline.

CHALLENGES

1. Keeping the business of trade going - transport, logistics and trade facilitation:
A significant challenge in the current environment is disruption to the services that allow
trade to continue to function. The disruption may be significantly higher in developing economies
than in high-income economies. Limits on the mobility of people and lockdowns may be affecting a
variety of trade processes. Customs and other border agencies also face the challenge of keeping
trade flowing while preventing the spread of COVID-19.

2. Keeping essential supply chains flowing – medical supplies.

Trade in medical products represents around 5% of total world trade. Personal protective
products represent around 13% of trade in medical products.

3. Keeping essential supply chains flowing – food.

As opposed to medical supplies, the global supply of food is currently adequate. An
important lesson of the food price crisis of 2007-08 is that export restrictions hurt everyone.

4. Helping MSMEs to trade – overcoming obstacles exacerbated by the crisis.

The economic and trade challenges flowing from the pandemic exacerbate many of the
existing and well-known obstacles facing MSMEs. Restoring supply chains and improving trade
facilitation is particularly vital for MSMEs.

ACTIONS

● Boost confidence in trade and global markets by improving transparency.

● Keep global supply chains going, especially for essentials.
● Look beyond the immediate: Policy actions now could have a long life.
● Improving information sharing to ensure that cross-border data related to COVID-19.
● Developing possible disciplines or guidelines on export restrictions.
● Exploring upstream readiness for implementing available technologies and best practices to facilitate
the enhanced mobility of essential workers.
● Cutting tariffs on essential medical products.
● Addressing the needs of the most vulnerable countries.

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CONCLUSION

COVID-19 has been declared as a “public health emergency of international concern” by the WHO. It is a
humanitarian crisis on a global scale. The impact is on all our lives and is changing day-by-day. The virus
continues to spread throughout the globe, placing health systems under uncommon stress in the battle to
save human lives.

Although it is difficult to determine the exact impact the coronavirus will have on the world’s economy, it is
clear the impact will be substantial and pervasive. And it appears the worst is yet to come. Investors
worldwide are closely watching the coronavirus’s impact on world markets. The US stock market has shown
substantial volatility, with the Dow Jones Industrial Average suffering its worst single-day losses since the
2008 financial crisis.

In a challenging and uncertain situation, trade is essential to save lives – and livelihoods. Because of trade
tensions between various countries and slowing economic growth, trade was already trembling in 2019 even
before the virus struck. Besides, transport and travel are today directly affected in ways they were not during
the financial crisis ten years ago. Today, the whole sectors of national economies are shut down. There is a
clear need to keep trade flowing, both to ensure the supply of essential products and to send a signal of
confidence for the global economy.

Even if the tide turns quickly and the virus’s spread is curtailed, its impact will likely be long-lasting. Some
entities with thin margins and weak balance sheets will have been driven out of business. Others may need
to consider bankruptcy protection to address liquidity issues, or supply chain or vendor disruptions. The
Dentons Restructuring, Insolvency & Bankruptcy Team is here to help you and your clients navigate the
inevitable challenges ahead.

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