International policy tools: Keep markets openInternational agreements |
IssueBilateral, regional, plurilateral and multilateral trade agreements include commitments by countries to keep markets open. These contribute to the predictability and transparency of trade and investment regimes. Moreover, liberalisation provisions allow firms to diversify their sourcing and to organise production at the international level to mitigate their risks. Deep integration provisions are increasingly common in trade and investment agreements; they create a business environment that facilitates adjustments and enables firms to be agile. In addition to the economic benefits of such agreements, they have a positive impact on the resilience of supply chains. However, trade and investment agreements have general and specific exception clauses that allow governments to take exceptional measures in the event of a crisis. While this flexibility is important, COVID-19 illustrated that trade and investment agreements did not prevent the introduction of restrictive trade measures that exacerbated supply chain disruptions. For example, different types of export restrictions affected trade in key medical supplies, including face masks and vaccines. Export bans hurt the poorest countries (which generally lack production capacity), while increasing prices and domestic production costs. Export restrictions can backfire on the country imposing them, as those same countries may need to import intermediate inputs to sustain their domestic production. Export restrictions create uncertainty affecting firms’ investment strategies and reduces confidence in international sources of supply (and demand) ‒hurting all actors in the medium term by undermining incentives for production. Indeed, the food price crisis of 2007-08 showed that export restrictions undermined food security for all. New commitments in international agreements could be considered to reinforce the capacity of supply chains to operate during a crisis and to prevent the introduction of harmful measures. Such commitments could, inter alia: (i) limit trade and investment policy discretion on essential goods; (ii) enhance trade facilitation practices and regulatory cooperation; (iii) improve transparency; and (iv) create consultation mechanisms and cooperation in crisis situations. Such commitments would be in the interest of both exporters and importers to preserve trust in their access to essential goods, and to avoid non-cooperative outcomes that lead to less resilient supply conditions. Policy action
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