Trade Law and Supply Chain Regulation in a Post-COVID World
American Journal of International Law (2020 Forthcoming)
17 Pages Posted: 27 Jul 2020
Date Written: July 22, 2020
COVID-19 hit as the world was undergoing the most significant upheaval in the international trade regime since at least the creation of the World Trade Organization (WTO) in 1995. The pandemic has given urgency to a preexisting demand in the United States, Europe, and elsewhere for the localization of supply chains. When the crisis hit, many developed countries realized that their supply chains for critical medical supplies and pharmaceuticals were concentrated in China. When the pandemic temporarily halted production in China, developed countries faced significant shortages of medical supplies. As a result, approximately eighty nations restricted the export of such products.
This Article argues that modern trade agreements overly constrain the ability of states to regulate supply chains for critical products such as medical supplies. I make two primary points. First, critics of reshoring have argued that further trade liberalization is the best guarantee against supply chain risks. To the contrary, I argue that modern free trade agreements (FTAs), the primary vehicle through which trade liberalization has proceeded since 1995, do little to encourage the diversification of supply chains and in some cases actually exacerbate supply chain risks, especially through loose rules of origin. Second, I argue that WTO rules constrain preventative regulation of supply chain risks designed to prevent a crisis, while providing exceptions for aggressive action only in the face of a crisis. WTO members are thus put to a choice. They can limit their attempts to preventatively regulate supply chain risks, waiting until a crisis occurs, or they can flout WTO rules. The former option risks more supply chain crises, while the latter option risks further undermining support for and adherence to the multilateral trading system. In this sense, trade law finds itself at a juncture similar to that faced by rules on the use of force two decades ago. Both sets of rules contain limited exceptions for preemptive action in the face of imminent threats. Just as nations like the United States felt that the imminence requirement did not give them enough flexibility to respond to modern threats in the use of force context, so too will nations chafe at the narrow exceptions for crisis-based supply chain regulation in the trade context.
Keywords: WTO, trade, COVID, public health, supply chains, resilience, reshoring
JEL Classification: K33
Suggested Citation: Suggested Citation