This post is by professors Henrik Horn and Petros Mavroidis
The recent EU regulation restricting exports of vaccines [Commission Implementing Regulation (EU) 2021/111, 2021, O.J., (L 31I)] has caused much debate. One feature of the regime that has attracted less attention is the fact that the EU measure explicitly applies to exports to some, but not all, countries. Is this discrimination in line with the letter, the rationale, and the objectives of the world trading regime?
The requirements for export restrictions on vaccines to be WTO legal
The legal issue is in a certain respects straight-forward. Article XI.2 GATT, which is a scope provision, provides an exemption for essential products from the prohibition of export restrictions in Article XI.1 GATT: “Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party”. Life-saving vaccines are clearly essential products, so the exemption is applicable. But it also requires that the WTO member faces critical shortages, and the restrictions must be temporary as well. The recent export restrictions on vaccine seem to fulfil these criteria as well, although it is not yet clear how long they will remain in place.
However, it is also clear that both the wording of Art. XI.2 GATT, which states that the exemption applies to the prohibition in Art. XI.1 (“the provision of paragraph 1 of this Article”), as well as the context (Article XIII: Non-discriminatory Administration of Quantitative Restrictions), imply that export restrictions on vaccines must be non-discriminatory as per Art. I GATT.
This raises the question: how should export quantitative restrictions be allocated across WTO members to be non-discriminatory? Here the GATT is silent. Art. XIII.2 GATT provides an answer in case of import quotas--the shares should reflect the market shares observed during a pre-quota representative priod --but the agreement does not specify any principles for what constitutes non-discrimination in case of an export quota. Since XIII.2 is irrelevant for the purposes of export quotas, MFN-applies.
But the GATT is silent on what constitutes discrimination in the realm of export restrictions. A natural candidate for a definition of non-discrimination could be a proportional reduction in the volumes that would arise absent a restriction, both since this corresponds to a standard interpretation of non-discrimination, and since it applies to quantitative import restrictions in Art XIII.2. However, since export quotas have been left out of Art. XIII.2 GATT, where it could naturally have been included, had the Contracting Parties desired this to be the norm for non-discrimination, this is not necessarily an adequate definition of non-discrimination. One could further contemplate, that the MFN requirement could be satisfied if quotas were not allocated at all, and either goods would be sold on “first come first serve”-basis, or an ad hoc agreement at the WTO between producers and consumers would be called for to address the issue. Similar agreements have been concluded in the past, and the MFA (Multi-Fibre Agreement) is a prime illustration.
Of course, discriminatory export restrictions could in principle be defended by invoking the public policy grounds embedded in Article XX. The chapeau of this provision imposes an even-handedness test, so the country discriminating will have to explain why, by serving one sauce to the goose (Switzerland) and another to the gander (Brazil), it still acts in non-discriminatory manner. In all likelihood the respondent will here face an uphill battle to persuade the WTO judges. But, a member could possibly claim for instance that by not excluding its neighbor countries, it contributes to the protection of its own public health, since most of the contacts are de facto with the neighbor countries, and not with remote places. The validity of a defense along these lines remains to be tested.
Hence, it is clear that export restrictions have to respect Art. I GATT, unless if they can be justified under Art. XX, but it is not clear what constitutes a non-discriminatory administration of export restrictions. The EU measure can still in all likelihood be said to be discriminatory, however, since, on its face, the export restrictions only apply to some WTO members.
Preferential Trade Agreements and Export Restrictions on Vaccines
The EU has exempted a few of its FTA partners from the scope of its export embargo on vaccine. This raises the question of whether export for such a product can lawfully be lifted vis-à-vis other members of a free-trade area (FTA) or even a customs union, as per Article XXIV.
Whether or not Germany, say, exports the vaccine to Italy, does not affect the legality of an EU export restrictions vis-vis the US. The EU is a member of the WTO on its own right, so the trade between Germany and Italy is an internal EU matter that falls outside the WTO. But the EU must treat all WTO members in even-handed manner, irrespective whether it has signed an FTA with them or not. It cannot, for example, treat Switzerland (an FTA partner of the EU towards who the EU continues to export vaccines) more favourably than say, the United Kingdom (another FTA partner, towards who the EU stopped exporting vaccines), or, China, a country with which the EU has no FTA. This is so, because FTA partners can give each other an advantage only with respect to tariffs and restrictive regulations of commerce, and not with respect to measures, like health policies, which were not meant to protect in the first place.
Health Policies and Trade Agreements
The discussion so far highlights the differential legislative treatment of the administration of import and export restrictions, and the ensuing problems.
Export restrictions on a vital vaccine are surely viewed by many as being morally problematic. While it is in the export restricting country’s national interest to ensure that its citizens get access to the vaccine, this presumably also apply to those countries that would have imported the vaccine. Hence, export restrictions on vaccines effectively constitute exportation of health problems. As such, it might seem a flaw in the WTO Agreement to allow for export restrictions on e.g. vaccines.
However, from the perspective of the Dismal Science, it is not necessarily a signal of a problem with the trade agreement that similar practices are permitted. For instance, if the export restriction only shifts a certain number of casualties from the export restricting country to trade partners, the export restriction will not affect the overall number of casualties from the virus, only the distribution of the casualties across countries. Trade agreements are not meant to solve such purely distributional problems.
But export restrictions on vaccines are likely to not only affect the distribution of a given number of deaths, but also the total toll. If the (EU) objective is to contribute to minimize the total number of casualties, the vaccine should primarily go to those countries where the impact on health is the largest. One important factor here is presumably the level of development, since poorer countries have less ability produce their own vaccines, to treat those who become ill, etc. From this perspective, the discrimination should be in favor of those who are most severely hit by not having access to the vaccine. This seems to be largely the opposite of what the EU did, when it imposed its export restrictions.
It should be noted that the EU has taken certain actions that suggest it sees its export restrictions as problematic. On February 18, 2021, the EU and the so-called “Ottawa group” issued a communication[1] entitled “COVID-19 and Beyond: Trade and Health”, whereby they promised to eliminate export restrictions, adopt new ones sparingly and to the extent necessary to protect their essential interests, and always observe the WTO, while exporting vaccines to least-developed and developing countries with no access to them. But on February 25, Ursula von der Leyen stated again that the EU will ban vaccines leaving EU if suppliers fail to deliver, without specifying if future restrictions will be discriminatory or not. In the same vein, India seems to be contemplating the imposition of export restrictions on vaccines as well, and one cannot exclude that others might follows as well. If such measures proliferate during the pandemic, the effects risk reverberating on the trading system long after the pandemic is gone.
[1] WTO Doc. JOB/GC/251.
