Trade policy cooperation to contribute to global health security

• Lack of multilateral mechanisms to mobilize financing to develop vaccines and therapeutics and a joint procurement and distribution platform to provide essential medical products and vaccines to low- and middle-income countries (LMICs) that lack production capacity • Absence of precrisis support for innovative international programs put in place following past global health threats to support vaccine development and production in LMICs

Gaps in trade rules • Weaknesses in systems and procedures to facilitate the rapid cross-border movement of certified medical products • Poor implementation of WTO provisions encouraging the use of international standards for products and production requirements • Absence of mutual recognition arrangements between regulatory regimes for medical goods (including PPE) and for the qualifications of medical services providers • Poor implementation of good regulatory practices, particularly in the area of medical services • Lack or inadequate use of good practices for public procurement in times of global excess demand and limited mechanisms for international cooperation between public agencies procuring medical goods and services (for example, health care workers) through instruments such as joint purchasing across jurisdictions

Some of these gaps can be addressed within the framework of WTO agreements and RTAs. Others call for new forms of cooperation between states, nonstate actors, and the private sector, which is discussed in detail at the end of the chapter.

Policies affecting medical goods trade

Open trade in medical products would enable efficiency improvements in health care systems, thus increasing preparedness to address future pandemics. Restrictions of trade in medical goods reduce access, quality, and the choice and cost-effectiveness of medical goods. Similarly, trade restrictions on inputs needed to manufacture medical goods and on trade in services that support the functioning of medical value chains contribute to rising costs and reduced efficiency of health systems. As highlighted in chapter 2, open trade would lead to income gains equal to US$6.18 billion annually, in particular for LMICs.

Import and export interventions Unilateral import and export responses. Export and import policy interventions during a pandemic—even when rational from the perspective of individual countries—can lead to collective losses and harm to the poorest countries. As the evidence in chapter 2 suggests, during a pandemic, governments face incentives to lower import barriers or increase export restrictions on critical medical goods to increase domestic supplies at a time of global scarcity. Exporters and importers face similar motives and act roughly at the same time (indeed, most measures were imposed in March and April 2020). As a result, world export supply decreases and import demand increases, worsening global scarcity and pushing up prices. This prompts governments to use additional trade policy measures to ensure adequate supplies and stabilize domestic prices. Thus, pandemic trade policies have been driven only in part by fundamentals; they are also a reaction to measures imposed by other governments, in a tit-for-tat commonly referred to as a “multiplier effect” (Giordani, Rocha, and Ruta 2016). All countries, and particularly vulnerable importers, stand to lose.

Unilateral export and import policies have longer-term consequences as well. If during a health crisis a country is subject to export restrictions by producing countries, it will see trade as an unreliable way to maintain access to essential products. It may therefore use import restrictions in normal times to achieve greater self-reliance as insurance against export restrictions during a health crisis. An escalation of pandemic measures—as seen during the first phase of the COVID-19 pandemic (chapter 2)— undermines trust in the system and jeopardizes global efficiency in production of medical goods.

Tariffs. Most medical goods tariffs are bound at relatively low levels at the WTO and in RTAs, but there are still important disparities between income groups. Over the years, different types of medical goods have been subject to different WTO sectoral tariff initiatives, such as the Agreement on Pharmaceuticals (“Pharma Agreement”) and the Expansion of the Information Technology Agreement (“ITA Expansion”).6 This has resulted in an increased number of bound tariff lines (78 percent to date) and the progressive liberalization of trade in these products (average duty of 31 percent). But there are large disparities by income group, with lower-income countries having far fewer bindings, with higher tariffs (figure 3.1).

Significant tariff liberalization for medical products has also taken place under preferential trade agreements (PTAs). Whereas the applied most-favored-nation (MFN) tariff for all medical goods is 5 percent, the preferential tariff (as committed) under PTAs notified to the WTO and currently in force (2022) is approximately 1 percent. The preference margin (the difference between applied MFN and preferential tariffs) is greatest for PPE (11.5 percent MFN and 1.9 percent preferential) and lowest for pharmaceuticals (2.3 percent MFN, compared with 0.8 percent preferential).