General findings: the catalog of policy interventions
We found that the types of trade-related health measures deployed during the pandemic were diverse, ranging from policies aimed at funding or collaborating with pharmaceutical companies, to increasing domestic investment in health sectors, to policies attempting to reduce shortages of essential products by ramping up their domestic manufacturing or preventing their exportation. Moreover, while all the countries in the study were active in implementing a wide array of measures, the high-income countries were generally much more likely to take policy action.
Table 1 quantifies the total number of distinct policy interventions, focusing especially on the health sector (column 3).4 To further understand these policies, we created a 5-part typology of policy interventions (described more fully in Table 3, below) and mapped the rules of global economic governance onto these policies to identify areas of potential conflict. The table shows the most prevalent types of policy interventions by each country (Table 1: columns 4-8). For our sample of countries, subsidy policies (column 4) were the most numerous and among the most diverse, e.g., targeted subsidies to domestic producers, capital injections into private firms, government advance purchase agreements for vaccines and treatments, and others. Tariffs and quantitative restriction policies followed next (column 5), e.g., import and export restrictions, import and export licensing requirements, tariff quotas, and others. Investment measures (column 6) included only a short list of new rules governing foreign direct investment, local sourcing and localization incentives. Public procurement policies (column 7) governing direct government purchases of goods and services were less extensive and included access rules, localization requirements and preference margin incentives.
Policies directly relevant to the health demands of the pandemic that could be constrained by trade policies related to intellectual property, such as those found in the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS agreement) were virtually non-existent. In our sample, only France and Germany each made subtle changes to their compulsory IP licensing procedures to make them easier to issue during the pandemic (WIPO 2021).
Table 1: Quantitative Overview
Country
(in order of nominal GDP per capita) (1)
|
Total # of interventions enacted (2)
|
# of Health sector interventions
(as % of total) (3)
|
# of health sector subsidies (as % of health sector measures) (4)
|
# of health sector trade measures (5)
|
# of health sector investment measures (6)
|
# of health sector public procurement measures (7)
|
# of health sector IP measures (8)
|
USA
|
476
|
70 (14.7%)
|
49 (70%)
|
19 (27%)
|
1 (1%)
|
1 (1%)
|
0
|
Germany
|
263
|
28 (10.3%)
|
15 (54%)
|
9 (32%)
|
3 (11%)
|
0
|
1 (4%)
|
France
|
161
|
39 (23.8%)
|
26 (67%)
|
8 (21%)
|
4 (10%)
|
0
|
1 (3%)
|
China
|
32
|
7 (21.9%)
|
2 (29%)
|
5 (71%)
|
0
|
0
|
0
|
South Africa
|
33
|
5 (15.2%)
|
3 (60%)
|
2 (40%)
|
0
|
0
|
0
|
India
|
170
|
56 (32.9%)
|
17 (30%)
|
32 (57%)
|
3 (5%)
|
4 (7%)
|
0
|
Sources: GTA 2021; WIPO 2021; Authors’ calculation.
As shown by Table 1, the higher the nominal GDP per capita of each country, the higher the number of interventions, except for India. The US dominates the list with 476 distinct total policies as well as with the greatest number of trade-related health sector policies, primarily subsidies. For the US, France and Germany, subsidies were the most common policy tools, while procurement and investment measures were the least common. In contrast, China and India relied relatively more on tariffs and quantitative restrictions than on subsidies (see Figure 1).5 India’s interventions focused heavily on the health sector compared with the other study countries, although these measures still made up a minority of its interventions. China implemented the fewest number of policy interventions during the time period.
Table 2 disaggregates broader intervention types more specifically. Some policy tools are used by most or all countries: state aid or state loans, export licensing requirements, import tariffs and anti-dumping duties. The data show the prevalence of subsidies, especially by our high-income countries. India deployed the greatest number of distinct intervention types, while South Africa used the fewest. It is also notable that the policy types deployed by France and Germany are the most similar to one another, likely reflecting the fact that the pandemic response was partly shaped at the level of the European Union.
Table 2: Interventions Impacting Pharmaceutical and non-Pharmaceutical Health Sectors by Country
Broad Intervention Category
|
Intervention Type
|
USA
|
Germany
|
France
|
China
|
SA
|
India
|
Subsidies
|
Capital injection (e.g., bailouts)
|
|
|
2
|
|
|
|
Financial grant
|
18
|
|
8
|
|
|
3
|
Interest payment subsidy
|
|
|
|
|
|
1
|
Loan guarantee
|
|
4
|
4
|
|
|
|
Production subsidy
|
1
|
|
|
|
|
7
|
State aid
|
28
|
|
|
|
|
3
|
State loan
|
2
|
9
|
11
|
1
|
3
|
|
Tax or social insurance relief
|
1
|
|
1
|
1
|
|
1
|
Trade finance
|
|
2
|
|
|
|
2
|
Tariffs and quantitative restrictions
|
Anti-dumping
|
4
|
2
|
2
|
1
|
|
19
|
Anti-subsidy
|
3
|
|
|
1
|
|
1
|
Export ban
|
|
|
|
|
|
1
|
Export licensing req’t
|
1
|
4
|
4
|
1
|
2
|
4
|
Export quota
|
|
|
|
|
|
1
|
Export-related Non-Tariff Measures
|
10
|
|
|
|
|
1
|
Import ban
|
|
|
|
|
|
4
|
Import licensing req’t
|
|
|
|
1
|
|
|
Import tariff
|
1
|
1
|
1
|
1
|
|
1
|
Import tariff quota
|
|
2
|
1
|
|
|
|
Investment measures
|
Foreign Direct Investment (FDI): Entry and ownership rule
|
|
1
|
2
|
|
|
|
FDI: Treatment and operations, other
|
1
|
|
|
|
|
|
Local sourcing
|
|
|
|
|
|
3
|
Local operations
|
|
2
|
2
|
|
|
|
Public procurement
|
Public procurement localization
|
1
|
|
|
|
|
4
|
IP law changes
|
Compulsory licensing procedures
|
|
1
|
1
|
|
|
|
TOTAL
|
70
|
27
|
38
|
7
|
5
|
56
|
Source: GTA 2021; WIPO 2021; Authors’ calculation.
Relationship between policies and rule-based constraints
As described above in Table 1, we created a 5-part typology of policy interventions and mapped the rules of global trade, investment, and intellectual property rules onto these policies to identify areas of potential conflict (see Table 3, below). What follows is a general overview of the legal obligations under multilateral, bilateral or regional free trade agreements, as well as investment treaties. We then compare the policy interventions during the pandemic to those obligations, highlighting to what extent countries are at risk for disputes on the basis of those actions, and discuss future legal risk in the next pandemic.
1. SUBSIDIES
The most prevalent type of policy intervention, understanding global rules governing them is of principal importance in mapping the policies onto the rules. The WTO’s Agreement on Subsidies and Countervailing Measures (SCM) lays down strictures on government support of industries, though it does not prohibit them outright. Subsidies targeting a specific firm, sector or geographic area can be subject to legal action, either through a WTO dispute or unilateral trade remedies,6 provided the complaining country can prove injury to their domestic industry, serious prejudice to their economic interests in other markets (Art. 6.3), or (in a small number of cases) “nullification or impairment” of their expected benefits under the suite of WTO Agreements (Art. 5). In this context, the US financial support to Moderna for research and development on the mRNA vaccine platform as well as the European Investment Bank’s loan to BioNTech for the same would undoubtedly be “specific” subsidies. State support for vaccine development was not limited to high income countries (See Table 3 for more examples). Rules governing subsidies are not as common outside of the WTO, however the European Union has an extensive set of state aid rules that usually constrains member states’ subsidies and related policies.
During this pandemic, when countries acknowledged essential government support and tried novel measures to mitigate its impacts, the likelihood of competing WTO disputes seemed low. Even the EU suspended their state aid rules during the pandemic. Nonetheless, multiple examples of long-running trade disputes between the US and Canada,7 the US and the EU (Reuters 2021),8 and the US and India (Suneja 2019)9 suggest that countries with similar policies are still quite willing to take aim at each other. As the urgency of the pandemic begins to wane and existing firms seek to consolidate or expand their share of the market, WTO disputes and domestic investigations into subsidies and countervailing measures are likely to make an appearance. In particular, countries wishing to support their nascent pharmaceutical industries will find themselves constrained by the rules preventing them from causing injury to domestic incumbents and industries in other countries. The more successful they are in launching new or expanded domestic industries, the more likely they will be mired in costly disputes.
2. IMPORT AND EXPORT BARRIERS
The second most prevalent interventions were import and export barriers. The WTO’s General Agreement on Tariffs and Trade (GATT) Article XI prohibits any new trade barriers, other than tariffs and similar charges (GATT Art. XI:1). Paragraph two provides exceptions, for export restrictions “temporarily applied to prevent or relieve critical shortages… of essential products” (GATT Art. XI:2). Regional and bilateral free trade agreements (FTAs) also contain prohibitions on new non-tariff barriers to trade that tend to mirror both the rules and the exceptions of Article XI (e.g., USMCA Art. 2.11). General and security exceptions may apply in limited ways to these measures as well and are discussed below.
Export barriers were a common policy approach to address the scarcity of supply of key COVID-19 products (Table 3) India and South Africa introduced new export licensing requirements for COVID-19 health products. Shortly after the pandemic began, Germany imposed an outright ban on exporting personal protective equipment (PPE) and India addressed its vaccine shortage by introducing a rule of “compulsory domestic sale” for vaccines (effectively an export ban). In each instance, these policies would almost certainly fall under the general prohibition on non-tariff barriers (XI:1), although they might well qualify for the exception for relieving critical shortages in essential products (XI:2), as long as they are only temporary.
3. INVESTMENT MEASURES
The most complex rules discussed here govern treatment of foreign investors and their investments. Under the WTO, the Agreement on Trade-Related Investment Measures (TRIMs agreement) requires that the GATT standard of national treatment (GATT Art. III) and prohibition on new non-tariff barriers (GATT Art. XI) applies to both trade and investment measures (TRIMs Art. 2). Thus, any measure is likely TRIMS-violative that shapes the investment environment to restrict imports or exports or prefers domestic to imported products.
Suspect health sector investment measures under TRIMs include India’s imposition of local content requirements on medical coveralls, German and French introduction of new foreign investment screening in the health and biotech sectors and the EU’s localization requirement for firms negotiating advanced purchase agreements, including AstraZeneca and Curevac. Under TRIMS, local content requirements are specifically prohibited measures and localization requirements are likely to have a similar discriminatory impact on the use of imported vs. domestic products.
International investment agreements (IIAs) often have much deeper, more specific and more enforceable commitments than those at the multilateral level, (Crawford and Kotschwar 2020). While TRIMs applies only to investment measures related to trade in goods, the protections in IIAs typically apply to all sectors where foreign investors are present. In addition, IP is often included as a protected investment, (Okediji 2014). Furthermore, express restrictions on performance requirements for investors, including localization requirements, further limits the range of policy tools at a government’s disposal for managing crises (UNCTAD 2022).
Finally, the investor-state dispute settlement (ISDS) mechanism prevalent in IIAs provides a unique opportunity in international law for investors to bring private arbitration claims against national governments for government regulations claimed to interfere with the value of their investments. Many have written to critique this system (Schultz and Dupont 2014, Moehlecke & Wellhausen 2022, Sweet, Stone and Saltzman 2017). We note that allowing private stakeholders to sue states outside of their domestic courts removes the ordinary checks and balances of state-to-state dispute settlement mechanisms that are based on potentially mitigating diplomatic or public welfare considerations (Horn 2018, Bernasconi-Osterwalder 2014, De Melo & Otavio 2017). During or after the pandemic, private firms (including pharmaceutical companies) may choose to bring an investor-state claim directly against a country if their in-country investments operations are claimed to have been undermined by policy changes. As discussed below, that could include changes that diminish the expected monetized return on a patent or copyright.
4. GOVERNMENT PROCUREMENT
The Government Procurement Agreement (GPA) is a plurilateral agreement within the WTO, meaning that its commitments apply only to its 48 member states (and others that join in the future). The general rules require members to not discriminate against the products, services and firms of fellow members in their procurement decisions (GPA Art. IV.1, IV.4). The US, for example, has not made any procurement commitments with respect to state or local governments, so that they may make their own decisions about whether to comply with GPA purchasing rules (Platzer and Mallett 2019). On the other hand, the US does have a federal level schedule of commitments which does include a range of agencies that purchase medical supplies and pharmaceuticals for the government (Reinsch, Hoffner and Caporal 2020).
As mentioned, the GPA is plurilateral so that the US does not have to extend the same treatment to China as it does to fellow-member EU states, Canada and others. Outside of the GPA countries may have more in-depth procurement commitments – such as more sectors covered by non-discrimination and transparency rules. The US eliminated government procurement commitments with Canada in the process of NAFTA’s renegotiation, reverting to the GPA rules in the new USMCA, although US commitments with Mexico, which is not a GPA member, still stand (Reinsch, Hoffner and Caporal 2020).
Given the scope of these rules, US advance purchase agreements with vaccine suppliers would be covered by the GPA, as well as its new Strategic Active Pharmaceutical Ingredients Reserve - an effort to increase the domestic manufacturing of essential pharmaceutical inputs. The US, however, is not likely to face a WTO challenge on that basis since it strategically funnels purchasing through state and local governments not covered by the GPA (Platzer and Mallett 2019).
5. INTELLECTUAL PROPERTY PROTECTION
The WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS agreement), provides a well-known baseline of protection, including 20-year pharmaceutical patents (TRIPS Art. 27), with limited exceptions for health emergencies (TRIPS Arts. 30, 31), which are circumscribed by complex rules on domestic efforts to issue compulsory licenses to produce products that are scarce or unaffordable (TRIPS Art. 31). The rules potentially allow a member state without production capacity to request another country to produce a patented product for its use (TRIPS Art 31bis) but this has not been widely used (Vincent 2021). FTAs have introduced “TRIPS-plus” standards which, in practice, extend patent terms, protect clinical trial and other data for longer periods of time and interfere with marketing approvals for generics (Boston University Global Development Policy Center 2019, Labonté et al. 2021). Moreover, many international investment treaties include intellectual property as a covered investment, thus subject to protection and, as mentioned above, enforcement through ISDS.
While countries have been willing to flout international trade commitments in the current crisis, they have been reluctant to ignore global IP rules, and even hesitant to rely on existing flexibilities within the rules, such as compulsory licensing (CL). While Germany and France did make minor tweaks to their CL procedures (WIPO 2021), they did not issue any licenses, and only a small handful of countries did so, with none issued for vaccines (MSF 2021, Baker 2021). If countries did suspend IP rights, they could be susceptible to claims at the WTO and unilateral pressure from countries and regions like the US and the EU, and perhaps to ISDS claims as well. Rather than ignore the rules, some countries sought an official negotiated waiver of provisions of the TRIPS agreement for COVID-19 related products. Proposed in October of 2020 by India and South Africa (WTO 2020), negotiations resulted in a ministerial decision that falls far short of the expansive TRIPS waiver initially proposed (WTO 2022). The reasons for this are rooted in various complexities discussed in more detail below.
EXCEPTIONS
There are exceptions to many of these trade and investment rules that might make space for non-compliant policies during emergencies. GATT Article XX provides a list of general justifying exceptions such as measures “necessary to protect human, animal or plant life or health” (XX(b)), restrictions on exports to “ensure essential quantities of those materials” (XX(i)) and measures “essential to the acquisition or distribution of products in general or local short supply” (XX(j)). Although some justifications, especially sub-paragraph (b), could be broadly interpreted – the overarching conditions of the Article’s introductory paragraph require that exceptional measures be applied in a way that does not constitute arbitrary or unjustifiable discrimination or a disguised restriction on trade. The WTO’s Appellate Body has relied heavily on this “chapeau” requirement such that few countries have successfully defended policies under Article XX (Moran 2017).10
GATT article XXI allows WTO members to take “any action which [they] consider necessary for the protection of [their] essential security interests (iii) taken in time of war or other emergency in international relations” (XXI(b)(iii)). This exception does not include the chapeau requirement of Article XX so it may be interpreted more broadly or flexibly. Similar Article XXI-type language is found in the General Agreement on Trade in Services (GATS Arts. XIV, XIVbis), the TRIPS Agreement (TRIPS Art. 73) and the GPA (Art. 11). Both the TRIMs and SCM Agreements are under GATT, so these general and security exceptions would apply directly and automatically to them. FTAs also tend to retain the language of general and security exceptions. A previous study by one of us found that almost half of all preferential trade agreements notified to the WTO contain an essential security exception similar to that of GATT Article XXI (Thrasher, Sklar and Gallagher 2019).
In the context of a global pandemic, subsidies to support vaccine development and production or export restrictions, for example, could very likely be justified under existing rules and exceptions. As discussed further below, however, relying on exceptions to defend pandemic policy making has both short- and long-term shortcomings.
Table 3: Illustrative Typology of Policies and Relevant Provisions
Policy Type and Examples
|
WTO Rule (citation)
|
FTA rule (example)
|
Subsidies:
➢ US, EU, India and China’s government support for vaccine development (Moderna, Pfizer/BioNTech, Covaxin, Sinovac and others)
➢ South Africa support for firms producing COVID-19 supplies
➢ Indian subsidies for firms manufacturing medical devices
➢ Various countries’ subsidies for acquisition of diagnostic equipment
|
Specific subsidies are actionable if they cause injury or result in serious prejudice to foreign competitors (SCM Arts. 1 (definition of subsidies), 5 (adverse effects of ‘specific’ subsidies), 6.3 (serious prejudice))
|
None beyond the WTO rules.
|
Import/Export Restrictions:
➢ New export licensing measures (South Africa, India)
➢ New export bans on COVID-19 products (India – vaccines, Germany – PPE)
|
No quantitative restrictions on trade – import or export, except where there are “critical shortages of essential goods” (GATT Article XI)
|
EU-Ukraine Art. 271
USMCA Art. 2.11
CPTPP Art. 2.10 (adopting and
incorporating GATT Article XI)
RCEP Art. 2.17 (adopting and
incorporating GATT Art. XI)
|
Investment Measures:
➢ Indian local content requirement on medical coveralls
➢ France and Germany: New foreign investment screening in health and biotech sectors
➢ EU advanced purchase agreements with localization requirements (AstraZeneca & Curevac)
|
No measures which require foreign investors to use local content or export a certain % of their goods (TRIMS Art. 2, Annex)
|
All including right of establishment: EU-Ukraine Art. 88 (national treatment)
USMCA 14.4 (national treatment), 14.10 (performance requirements) CPTPP 19.4 (national treatment), 19.10 (performance requirements)
RCEP Arts. 10.3 (national treatment), 10.6 (performance requirements)
|
Government Procurement:
➢ Indian new local procurement rules for medical device producers selling to the government
➢ US advanced purchase of vaccines
➢ US SEPIR initiative
➢ EU advanced purchase agreements with localization requirements (AstraZeneca & Curevac)
|
Requires non-discrimination and transparency in government purchasing and contracting decisions among parties to the agreement (GPA Art. IV)
|
EU-Ukraine Art. 151 (non-discrimination and transparency)
USMCA Art. 13.4 (non-discrimination and transparency)
CPTPP Art. 15.4 (non-discrimination, and transparency)
RCEP Art. 16.4 (transparency only)
|
IP/Compulsory Licensing:
➢ Modification of domestic CL rules (Germany, France)
|
TRIPS Agreement, Article 31, 31bis
|
EU-Ukraine Art. 219 (reaffirming the Doha Declaration on TRIPS and Public Health)
USMCA Art. 20.6 (affirming
commitment to Doha Declaration) CPTPP Art. 18.41 (incorporates TRIPS by reference)
RCEP Art. 11.39 (incorporates TRIPS Art. 31, 31bis by reference)
|
Source: Authors’ analysis.
4 This refers to domestic processes of complaint by the domestic industry, investigation and findings with respect to the impact on the domestic industry. Although the remedies are governed by domestic law, the SCM Agreement provides guard rails to make sure those processes are fair, transparent and consistent with the general standards governing subsidies (SCM Part V).
5 See various disputes about Canadian and US lumber industries at DS236, DS247, DS257, DS264, DS277, DS311. https:// www.wto.org/english/tratop_e/dispu_e/cases_e/ds257_e.htm.
6 See various disputes about airplane subsidies in the US and the EU at DS 316, https://www.wto.org/english/tratop_e/ dispu_e/cases_e/ds316_e.htm.
7 See the tit-for-tat dispute between India and the US at DS456 and DS510.
8 Moran helpfully lays out the WTO disputes regarding the general exceptions and shows that these are rarely successful but does not conclude that this is problem for states (Moran 2017).
9 “Health Sector Interventions” are interventions which impact a combined grouping comprised of nine sectors chosen by the authors: (1) basic organic chemicals, (2) basic inorganic chemicals n.e.c, (3) miscellaneous basic chemical products, (4) pharmaceutical products, (5) chemical products n.e.c, (6) medical & surgical equipment and orthopedic appliances, (7) instruments and control equipment, except optical instruments, (8) petroleum, chemical and pharmaceutical manufacturing services, (9) human health services.
10 South Africa implemented slightly more subsidy measures than trade measures, but the sample size for both South Africa and China are so small as to not be very instructive about trends.