The COVID-19 pandemic led to a huge contraction in international trade and to a global economic slowdown. It is important to evaluate the lessons learnt from this pandemic to engage in some long-term thinking. This is important both for the EU as a whole and for Malta.
First of all, supply chains failed us during the time of need. Politicians and entrepreneurs who usually harp on the virtues of artificial intelligence, 5G and the like were rudely awakened to the reality that their countries are not able to produce essentials like face masks and sanitiser in a time of crisis.
Should there be another crisis of a different type, will the same problem reoccur? There is now a discussion on whether developed countries have gone too far with outsourcing their industrial capabilities from countries such as China and whether the reshoring of certain industries should be pursued.
There is also the question of identifying crucial goods that could be stockpiled in case of an emergency, even though the list of such products would be infinite. Here developed countries need to start looking into somehow being self-sufficient for such products without becoming too protectionist. Alternatively there could be agreements between countries that would guarantee the supply and flow of essential products should there be an emergency.
The second question relates to how the pandemic shocked us into realising how vulnerable we are and that climate change in particular will be more destructive than this pandemic. Trade policy therefore needs to go beyond economic considerations and start pushing notions such as sustainability, the environment and social issues. Trade agreements need to have conditions which make the countries that are part of them sign up to environmental and social standards. So, for example, any trade agreement with the US should urge it to sign up to the Paris climate change agreement.
Any trade agreement with the US should urge it to sign up to the Paris climate agreement
The third issue relates to the previous one in that there should be less tolerance for unfair competition. Unfair competition is especially a problem for the EU. The EU has relatively high standards when it comes to the environment and social issues and its businesses incur considerable costs to abide by them.
It is a problem when goods and services from third countries are more competitive that the EU’s because those countries impose much lower standards. While trade agreements should push countries to sign up to higher standards, they should also prohibit substandard products from benefitting from the advantages offered by the respective agreement (such as duty-free treatment).
Both the EU as a whole as well as Malta should dwell on these issues. The EU has already started a consultation process on how trade policy should be revamped following COVID-19. Yet there should also be some thinking on a local level.
Since 1987, Malta has rightfully adopted a liberal approach to trade and advocated free trade policies. However, the COVID-19 pandemic and even our homegrown environmental problems are making us aware that pandemics and ‘disasters’ are not something we just see happening in other countries on the news. Our considerations on international trade should therefore start going beyond mere comparative advantage, where we just seek the goods, services and investment that carry the lowest price.
The first step towards this could be for the Maltese government to bring the debate that is being held at a European level on the ground in Malta. This would entail bringing all stakeholders together to identify the challenge ahead and strategic solutions to it.
The value of this exercise would be threefold, namely: triggering a mentality of long-term strategic thinking that plans for possible emergencies; raising awareness that trade should not just be about seeking the lowest priced goods and services; and giving a mandate to the government to start engaging and partnering at a European level with member states that are proactive in pushing environmental and social standards. This process cannot start a minute too soon.
Jan Micallef, lawyer specialisingin European and international trade law