Trade and Prosperity | Briefing | December 2021

December 23, 2021

Export controls: a creeping threat to global prosperity

Trade rules generally deal with preventing restrictions on imports. They have less to say about exports. But both matter. Trade controls on exports are currently growing. Their impacts on global supply chains are no less important, but have to date, received far less attention. This needs to change. 

A long list of restrictions. Global Trade Alert reports that harmful export restrictions climbed from 24 in 2019 to 224 in 2021, an increase of more than 800 per cent. In 2021 to date, 78 harmful restrictions have been reported. Many of these restrictions have been imposed in response to shortages of critical inputs to manage pandemic responses, for example, “vaccine nationalism” – whereby restrictions are imposed on vaccines and critical vaccine ingredients.

Growing controls. Higher profile examples of export controls also include: Indonesian export restrictions on thermal coal, which have resulted in higher energy prices in Asia, especially China. Global grain growers are increasingly feeling the impact of China’s decision to restrict exports of phosphate fertilisers; China’s controls on exports of urea may also impact fuel additive supplies in Australia and eventually threaten truck transport in many parts of the world. Farmers have also been affected by reduced supply of ammonium nitrate fertilisers, manufactured with a heavy reliance on Russian gas that has been hit by export restrictions. Moscow has also increased taxes on exports of wheat with more rises to come, further contributing to looming food price increases. Environmental goods are impacted by a range of export controls. 

More than just exports. These constraints have been felt both up and down supply chains, contributing to economic slowdowns and labour shortages, and laying bare the degree to which global consumers, farmers and manufacturers have become reliant on distant partners for the supply of critical inputs. Coupled with disruption to the physical movement of goods – shortages of containers, pallets, ship space and berths – export controls are impacting a range of products. For example, a recent Global Trade Alert report found that the “panicked” imposition of export restrictions on medical goods and vaccines throughout the pandemic has contributed to supply disruptions, and sparked stockpiling and domestic manufacturing efforts in countries that had previously relied on global exporters for these goods. 

Nationalist sentiment. The common thread among these measures is growing nationalism, driven by fear and uncertainty around essential products and inputs. International cooperation bodies are calling for a cooperative, trade-driven recovery, but governments around the world are increasingly choosing a short-term focus on their own interests. 

Limited international disciplines. There are few trade disciplines limiting the scope of governments to impose export restrictions, particularly when health concerns arise. WTO rules prohibit only quantitative controls on exports. They don’t prevent the use of export duties and other restrictions; export taxes for example are not prohibited (though must generally be non-discriminatory). And wider ‘exceptions’ to address health and safety permit controls to be imposed in some circumstances. Even EU members can restrict exports among themselves for a range of reasons.

Emerging rules. Some recent FTAs have more specific rules on export restrictions, but as yet these rules generally don’t constitute substantive disciplines capable of regulating the range of controls emerging. The USMCA, for example, includes a provision governing export restrictions on foodstuffs to address food security concerns, focused on notification and consultation obligations and time limits. The CPTPP probably has the most developed rules. It includes more specific commitments to limit the trade restrictive impacts of export duties. It prohibits export taxes unless they are also applied to domestic consumption, or set out in an Annex, of which those listed are to be progressively eliminated or reduced over time.

Where to next? There have been numerous high level political commitments to limit export controls by bodies such as APEC and the G20, and also pacts between trading partners, but these are not binding rules. Will they work? Do we need more rules? In the current environment it’s difficult to conceive of agreement on new disciplines, and even harder to think about those which might work. But maybe we should.