The article focuses on the developing countries, the EU, ASEAN and the Middle East which are facing a dual challenge of COVID-19 and development. The EU also faces a crisis of internal cohesion which is only aggravating. For the emerging blocs like the ASEAN, the test is of keeping their shared interests intact. The Middle East countries face a moment of epiphany, pondering over their strategic importance in the absence of oil.
India is one of the largest exporters in the generic drug markets, although its share in the global exports is 1.7 per cent. Exports in the month of March reduced to US$ 21.4 billion, declining by 34.5 per cent of the total export volume, the largest fall in the past 25 years. The target of the outbound trade, which was kept at US$ 350 billion, was thus far from being met. The import decline is partially ascribed to the decline in the quantity of crude oil, which is one of the major components of the Indian Imports. As the domestic demand for the crude oil fell by 30 per cent, so did the imports.
The most astounding development during this trade downfall took place in the Indian Pharmaceutical exports. Although Indian pharmaceutical industry exported US$ 19 billion worth of drugs in 2018–19 to diverse markets, it, however, faces issues relating to patent laws and non-tariff barriers in the US and Chinese pharmaceutical markets. To facilitate the export of Hydroxychloroquine, an antimalarial drug believed to be effective in treating the novel coronavirus, the FDA had to ease 80–85 per cent of the barriers on its export, with many of the companies featuring for the first time in the generic drug approval list of the FDA. This drug was later exported to various countries.
If on one hand international credentials of the Indian Exports were being increased, on the other hand, there was a shift towards devising Indian testing kits and indigenous treatment methods, especially after the antibody testing kits procured from China were rendered inefficacious by the ICMR (Indian Council of Medical Research). The CSIR (Centre for Scientific and Industrial Research) has got approval for mass production of its strip testing kits, which is as efficient as the PCR tests.
Europe was the epicentre of COVID-19 and the European Union (EU) which was on the verge of reformation faces unanticipated challenges. Therefore, these are testing times for the EU, particularly for countries like Italy, Spain and France, as it grapples with many dissatisfied members and the prospect of a joint Euro-Zone debt. The EU as an entity has been the largest importer of commercial services to the world, which have been the most adversely affected due to the pandemic. Moreover, the Intra-EU trade has also suffered greatly. On March 28, Italy made a plea for the speedy import of essential medical equipment which was not heeded to. Finally, France sent 7 tonnes of medical supplies to Lombardy. Later, medical supplies were also sent to Balkans and other western neighbours. To finally converge their efforts, a proposal for a joint Euro-area debt was initiated, which evidently divided the EU into two camps—with Italy leading its supporting group. The pending proposal is reiterated time and again by Italy.
The United Kingdom on the contrary was already facing a decline in its trade because of BREXIT, and its exports shrank by 4 per cent in 2019. It faced acute crisis in procuring ventilators and there was a delay from the Chinese shipments after which it had to remove VAT and other taxes on the import of medical equipment.
For a grouping like ASEAN, a collaborative effort had to be established as COVID response fund would be used by the member states to procure medical equipment. Few ASEAN member states topped in the lists of importers of PPE; however, not all countries produced PPE, like Vietnam. In spite of a plethora of Free Trade Agreements, there was none in the area of medical equipment because of which the countries faced problems in procuring medical supplies. Also, there were heavy taxes levied on the import of these medical equipment from the US and other countries which made trade even more difficult. These factors are leading to large scale government interventions in alleviating the adverse economic effects in the form of government relief packages. Singapore has announced three relief packages worth US$ 42 billion for stimulating the economy.
South Korea, another country facing the brunt of COVID-19, accounts for 2 per cent of the global exports, with semiconductors forming the major part. The exports fell to 24.3 per cent in March, the lowest in 11 years. South Korea is therefore facing a cash crunch created by this drastic drop along with major companies in the country facing liquidity crises.
How can one talk of trade without talking about Oil? Oil, which dominated the realm of geopolitics and the trade networks for decades, constituting 3.8 per cent of the global economy, suddenly seems to have lost all its charm. The oil prices crashed from US$ 300 per barrel to less than $ 0 on April 21 and the region which got the most severely affected due to this is the Middle East. The collapsing external demand along with a crash in oil prices debilitated the economy. Attempts by the OPEC for curtailing the production to restore the prices failed multiple times, with the latest proposal being blocked by Russia in which a 1.5 million barrel per day cut was proposed. Finally, on April 12, a consensus was reached on the largest ever production cut by the OPEC nations. The prospects of a price revival remain bleak with it reaching not more than US$ 40 per barrel until 2022. With the region having countries with maximum public debt, the dual shock of price reduction and drying government revenues make the path for an economic revival tortuous.
This health emergency has revealed the vulnerabilities and at the same time the necessity of interconnectedness. On one hand we are reminded of the necessities of an interdependent economy while on the other hand many pre-existing loopholes in international trade regime have come to the forefront. In this exceptional paradox, the global order has the prerogative of choosing between cooperation and confrontation.
Katyayini Richhariya Research Intern at CPPR. Views expressed are personal and need not reflect or represent the views of Centre for Public Policy Research.