The 25th anniversary, marked traditionally as a moment of commemoration, has not presented itself as amiable for the World Trade Organization (‘WTO’). Envisioned in the year 1995, as it celebrates its 25th year of inception, it is facing unprecedented disruption in global trade resulting from a pandemic. This health crisis has brought with it its own set of challenges for global trade and its related international value chains. This, in the backdrop of the increasing nationalist approach toward policymaking the world over, has raised several red flags for international trade. States’ ideological inclinations do have a visible impact on their trade policy, the tremors of which are felt globally. Measures implemented by States in wake of COVID-19, such as the decision of the USA to prohibit the export of N95 masks, and countries under the European Union (EU) such as Germany and France who have levied individual restrictions on the export of medical supplies within the EU single market, strengthen this contention. India, in this regard, has also followed a protectionist approach. As a protective measure, India has restricted the export of essential chemicals, including a complete ban on the export of hydroxychloroquine, which is believed to be an effective drug against the coronavirus. This has been criticized by Western powers, with the USA expressly threatening to ‘retaliate’ against this export ban. It is in the light of this burgeoning concern that the authors aim to analyze India’s amended trade policy measures under the looming threat of COVID-19 and assess whether it runs contradictory to the current framework governing international trade.
India’s export ban of essential chemicals – justified under WTO?
In order to ameliorate the medical infrastructure and to ensure that the country is stocked in terms of medical supplies, India decided to ban the export of 26 active pharmaceutical ingredientsand also the highly debated hydroxychloroquine.This was done in exercise of powers conferred on the government by Section 3 of the Foreign Trade (Development & Regulation) Act 1992, read with para 1.02 and 2.01 of the Foreign Trade Policy, 2015-20. The government of India amended Chapter 29 (Organic chemicals) and Chapter 30 (Pharmaceuticals) of Schedule 2 of the ITC (HS) Export Policy 2018 to put these chemicals under the ‘restricted’ category. This decision, however, was not received particularly well in the west, and the Trump administration announced to ‘retaliate’ against such a policy measure. The authors of this paper argue that India’s decision of levying an export ban was in consonance with the regime of international trade law. Additionally, such threats of retaliation were devoid of any legal connotation and could not have been pursued under the aegis of International trade law.
The multilateral trading system under WTO, in principle, exhorts States to avoid the levying of export prohibitions. This finds express manifestation in the provisions of the GATT 1994.GATT and WTO allow quantitative restrictions covering all import and export-related measures, which include seasonal and de facto measures, which is generally not allowed.
While the general elimination of quantitative restrictions covers all import and export-related measures, including seasonal and de facto measures, the GATT and certain WTO Agreements allow them under specific circumstances.
- Exceptions under Article XI:2(a)
Article XI:1 of this instrument prohibits State members from “introducing or maintaining any form of export prohibition or restriction other than duties, taxes or other charges”. Hence, a blanket prohibition on exports of particular products is not a practice that is promoted under the WTO. However, there are certain exceptions to this general position that are envisaged under the same instrument. The provision reads;
“2. The provisions of paragraph 1 of this Article shall not extend to the following:
- Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party.”
Article XI:2 carves an exception wherein the exhortation of Article XI:1 ceases to exist. Hence, temporary prohibitions on the export of products that are essential are not prohibited under the framework of WTO.
It is pertinent, at this juncture, to ascertain what would constitute an ‘essential’ product to warrant an export ban. To this end, the decision of the Appellate Body in China – Raw Materials is instructive regarding the scope and application of this exception. It held that the commodities in question have to be ‘absolutely indispensable or necessary’ for the exporting country, and the shortage must be ‘critical’. ‘Critical shortage’ thus refers to “those deficiencies in the quantity that are crucial, that amount to a situation of decisive importance, or that reach a vitally important or decisive stage, or a turning point.”
Following this jurisprudence, a ban on the export of hydroxychloroquine will qualify this condition of indispensability. This is supported by several medical research that hints towards the therapeutic abilities of this particular drug in cases of COVID-19. Hence, it can be inferred that it had been an absolutely necessary product for India, and when compared to its population and potentially affected cases, the product raised apprehensions of being ‘critically short’ at a point of time, which after due examination of the stick, was restored for trade. Moreover, Article XI:2(a) also encompasses the anticipatory actions of States. Article XI:2(a) allows Members to apply prohibitions or restrictions temporarily in order to ‘prevent or relieve’ such critical shortages. These measures include actions taken beforehand against the occurrence of an event, as an anticipatory or preventive action.
- General exceptions under Article XX
Article XX of the GATT 1994 offers general exceptions from international trade obligations for unilateral trade measures in pursuit of specified purposes.In cases where the measure is violative of Art. XI:1 and cannot be justified under Art XI:2, it is possible for it to be justified under one of the general exceptions contained in Art XX of the GATT. Paragraph (b) of this provision is of particular significance under the present factual matrix. It reads;
“Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:
… (b) necessary to protect human, animal, or plant life or health; … ”
Hence measures, that are in violation of laws relating to international trade, if justified as necessary for the protection of human health, are exempted under Article XX. This provision includes measures that protect all aspects of physical and psychological health and wellbeing and must be interpreted broadly.
In Brazil-Retreaded Tyres, the Appellate Body held that “determining the necessity of a measure under Art XX(b) was a holistic operation that required a weighing and balancing of the importance of the interests or values at stake, the extent of the contribution to the measure’s objective and its trade restrictiveness”. This was affirmed by the Appellate Body in EC-Asbestos. In this decision it was held that “as the importance of the interests or values at stake increase, the likelihood of the measure being justified under Art XX also increased. Provided that COVID-19 has been classified as a pandemic by the WHO, Members’ interests in their citizens’ lives are at stake and are clearly of paramount importance”.
This suggests that the export bans and other restrictions described above have a high chance of being justified under this provision. Hence, India’s decision can be argued to be within the confines of permitted restrictions under the WTO regime. India is not the sole country that has refused to export medical goods, there is a global trend that depicts Members’ shift towards a more protectionist approach with regards to trade in medical goods.While states are entitled to make regulations on health and safety measures, measures having the effect of limiting exports or imports will only be permitted if backed by scientific findings and should not be disguised efforts at protectionism or discrimination.
Protectionist Trade Policy
Trade protectionism essentially means a sovereign’s policy decisions that intend to restrict or occlude international trade to shield domestic producers from foreign competition.Protectionism is an economic policy of restraining trade through methods ranging between tariffs, quotas, bans, and many other restrictive regulations to discourage imports and prevent the takeover of the domestic market by foreign companies. This is done with a view to negating the harmful effects of trade on the domestic industries. A recent example of trade protectionism is the imposition of higher tariffs by the Trump Administration on the import of steel and aluminum in 2018.
The roots of protectionism are embedded in mercantilist policies. The idea of mercantilism can be best described in the words of Adam Smith, who notes that “the encouragement of exportation, and the discouragement of importation, are the two great engines by which the mercantile system proposes to enrich every country.”Hence, it is an economic policy that aims to minimize imports and simultaneously maximize the exports for an economy with an intention to create ‘export surplus.’It is an ex-post classification, which means that it is an intellectual reconstruction postdating the period during which it was in practice, and was supposedly propounded.Though the appropriateness of this term as such for historical research has been questioned, mercantilism in contemporary trade discourse is formulated as the nationalization of economics.
The literature surrounding mercantilist ideas is supposed to have propounded strong arguments in favor of protectionist policies.The strongest ideational-historical argument in support of mercantile control, and for modern times protectionist policies, of international trade is that they are perceived as objects of “state power.”The history of global trade bears testimony to the fact that States resort to protectionist policies in times of crisis. The great depression of the 1930s was marked by a wave of protectionist trade policies, wherein import tariffs were increased in several countries around the globe.The US imposed the Smoot-Hawley tariff in June 1930 which raised the average tariff on dutiable imports by nearly 20%.
England adopted the preferential trade system by increasing its tariffs in 1932 despite being an ardent believer in liberal trade. To add, many major jurisdictions adopted Voluntary Export Restraints (VERs) due to mounting pressure as well as threats from trading partners, during the global recession of 1980-81.
There are arguments for and against protectionism in international trade, but it cannot be denied that this practice has been led forward through generations. A similar practice is anticipated in the post-COVID world order. Dr. Gary Hufbauer, Senior Fellow at Peterson Institute for International Economics, addressing this concern states that “over the next two to three years – we will probably see a rise in protectionist responses, which in turn will limit the rebound in trade once COVID-19 is arrested.” This proposition is strengthened by the fact that as of April 2020, a total of 69 governments had banned or limited exports of essential medicines and Personal Protective Equipment (‘PPE’).It is often suggested that WTO’s enforcement mechanism should be applied to restrictive measures initiated by the states which are primarily driven by protectionism. It is explicitly provided by WTO that states can apply discriminatory measures for a myriad of regulatory reasons provided such measures are not applied under the veil of protectionism to effect a ‘disguised restriction on trade’.
US threats of Retaliation – a possible measure under the WTO regime?
The US President, in an interview on April 7th, 2020, warned India that there will be ‘retaliation’ if the Indian government did not lift its ban on hydroxychloroquine, an essential antimalarial drug that Trump’s office has been advocating as a possible cure for COVID-19. This stance of the US officials raises pertinent questions with regards to countermeasures under international trade law. Can essential medicines be banned from export during pandemics? If the answer to this question is in the affirmative, can there be sanctions imposed on the countries banning such trade? What are the trade measures that can be suspended during pandemics and would sanction apply?
Trade retaliations, as sovereign measures, are fairly common when it comes to international trade. There have been several instances in the history of global trade where this route has been taken recourse. A recent example is the steps taken by countries like India, the EU, Russia, and China in form of increasing tariffs on imports from the USA. This measure was in retaliation to the USA’s decision of increasing tariffs on steel and aluminum products by 25 percent and 10 percent, respectively, and other anti-dumping and countervailing duties.
At this juncture, it is pertinent to understand the regime under which retaliations function. It originates from article XXIII of GATT which provides that a member is entitled to certain remedies and in serious cases right to increase trade restrictions if,
any benefit accruing to [that government] directly or indirectly under this Agreement is being nullified or impaired … as the result of
(a) the failure of another contracting party to carry out its obligations under this Agreement, or
(b) the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, or
(c) the existence of any other situation ….
The principles for undertaking retaliatory measures are enshrined in the Understanding of Rules and Procedures Governing the Settlement of Disputes (‘DSU’).Article 22.2 of the DSU allows for “suspending concessions or other obligations under the covered agreements.” Retaliation, rather, is an informal term for suspending concessions or levying sanctions against a country and is often characterized as the final and most serious consequence a non-implementing member may face under the WTO system for dispute settlement. The procedure entails that when a trade dispute does not reach a successful resolution under the WTO dispute settlement system, the aggrieved member country can then request the right to implement certain measures, as retaliation against the concerned offender.
These measures, otherwise inconsistent with WTO Agreement, if authorized by the Dispute Settlement Body (‘DSB’), allow a member country to suspend its obligations in response to a violation or impairment of obligations under the WTO. These obligations are suspended only when the Member complained against fails to implement the rulings of the DSB. Hence, prior authorization under the DSU is a precondition for retaliating. This functions as a safeguard against the arbitrary application of this power. Additionally, clarifying the nature of such measures, the DSU states that compensation and the suspensions of concessions are ‘temporary measures’ and that neither is preferred “to full implementation of a recommendation to bring a measure into conformity with the covered agreements.” The temporary nature of the provision indicates that they can merely be used as measures to induce compliance and cannot be of a punitive nature.
Under Section 301 of the Trade Act of 1974 (Trade Act), the president has been granted absolute authority to impose retaliatory trade restrictions in response to restrictive, discriminatory, and ‘unreasonable’ trade practices of a state. The interpretation of ‘unreasonable’ in the above context refers to the GATT concept of “nullification and impairment” as an example of the standard to be applied. In retrospect, the Trade Act authorizes the United States trade representative (USTR) to negotiate when cases of violation of international trade agreements arise.  In the aftermath of the 1988 amendments, measured retaliation against restrictive trade practices has become mandatory when negotiations prove to be unsuccessful.
The ‘mandatory retaliation’ provisions of Section 301 apply to any foreign government practice that “violates, or is inconsistent with.., or other-wise denies benefits to the United States” under a trade agreement, or “’is in violation of, or inconsistent with, [other] international legal rights of the United States and burdens or restricts United States commerce.” It can be understood from the context that the application of mandatory retaliation is primarily resorted to when a foreign practice impairs the right of reasonable expectations of the US under international trade agreements.
Obligations under international covenants
To understand the position on this aspect, it is crucial to have a holistic perspective on the problem. COVID-19 is an international crisis and is not limited to one or two countries. Hence restriction in the supply of drugs, while benefitting the citizens of one country, is detrimental for other States who are dependent on their import. To this end, the States are bound under instruments of international law, which run parallel to agreements on trade, to assist in the achievement of desired standards of health. Article 12 of the International Covenant on Economic, Social, and Cultural rights mandates the right to health. It provides;
“1. The States Parties to the present Covenant recognize the right of everyone to the enjoyment of the highest attainable standard of physical and mental health.
…(c) The prevention, treatment, and control of epidemic, endemic, occupational and other diseases;
(d) The creation of conditions which would assure to all medical service and medical attention in the event of sickness…”
The Committee on Economic, Social, and Cultural Rights in its report to the UN General Assembly, in 2000, addressed several issues in right to health. It also interpreted Article 12 of the ICESCR, in the following words:
“Article 12, paragraph 2 (c) of the Covenant: The right to prevention, treatment, and control of diseases. The prevention, treatment, and control of epidemic, endemic, occupational, and other diseases requires the establishment of prevention and education programs for behavior-related health concerns such as sexually transmitted diseases, in particular HIV/AIDS, and those adversely affecting sexual and reproductive health, and the promotion of social determinants of good health, such as environmental safety, education, economic development, and gender equity.”
The right to treatment includes “the creation of a system of urgent medical care in cases of accidents, epidemics, and similar health hazards, and the provision of disaster relief and humanitarian assistance in emergency situations. The control of diseases refers to States’ individual and joint efforts to, inter alia, make available relevant technologies, use and improve epidemiological surveillance and data collection on a disaggregated basis, the implementation or enhancement of immunization programs and other strategies of infectious disease control.”
Article 12, paragraph 2 (d) of the Covenant: The right to health facilities, goods, and services (see para. 12 (b) above) g 17. “The creation of conditions which would assure all medical service and medical attention in the event of sickness’, both physical and mental, includes the provision of equal and timely access to basic preventive, curative, rehabilitative health services and health education; regular screening programs; appropriate treatment of prevalent diseases, illnesses, injuries, and disabilities, preferably at the community level; the provision of essential drugs; and appropriate mental health treatment and care. A further important aspect is the improvement and furtherance of participation of the population in the provision of preventive and curative health services, such as the organization of the health sector, the insurance system, and, in particular, participation in political decisions relating to the right to health taken at both the community and national levels.”
Hence, States need to ensure sufficient mechanisms to realize the rights enshrined under Article 12 of the covenant. As a measure to achieve these goals, States require to adopt the right to health into their national, political and legal systems, including the undertaking of legislative measures.
Article 2 of the Covenant requires “all states to take steps, individually and through international assistance and cooperation, especially economic and technical, towards the full realization of the rights recognized in the Covenant, such as the right to health”. The report emphasized a joint reading of the provisions under Articles 12, 2, 22, and 23 along with the Alma – Ata Declaration to rope in international cooperation, including joint and separate actions by states to achieve the full realization of the right to health. Interestingly, the report quotes something very relevant which is “To comply with their international obligations in relation to article 12 of the Covenant, States parties have to respect the enjoyment of the right to health in other countries, and to prevent third parties from violating the right in other countries, if they are able to influence these third parties by way of legal or political means, in accordance with the Charter of the United Nations and applicable international law. Depending on the availability of resources, States should facilitate access to essential health facilities, goods, and services in other countries, wherever possible, and provide the necessary aid when required. States parties should ensure that the right to health is given due attention in international agreements and, to that end, should consider the development of further legal instruments.” (emphasis supplied). The report goes on to clarify that there should be international assistance in terms of economic and technical assistance. This does not, therefore, require trade assistance in any manner.
States parties should refrain from “imposing embargoes or similar measures restricting the supply of another State with adequate medicines and medical equipment. Restrictions on such goods should never be used as an instrument of political and economic pressure”. In this regard, the Committee recalls its position, stated in General Comment No. 8 (1997), on the relationship between economic sanctions and respect for economic, social, and cultural rights. It is also the obligation of the state parties to ensure that international instruments do not adversely impact the right to health. Further, states parties have a joint and individual responsibility, in accordance with the Charter of the United Nations and relevant resolutions of the General Assembly and of the World Health Assembly, “to cooperate in providing disaster relief and humanitarian assistance in times of emergency, including assistance to refugees and internally displaced persons”. Each State should contribute to this task to the maximum of its capacities. These statements of the 2000 report, justify the stand of India in imposing a ban on essential drugs like hydroxychloroquine and paracetamol in times when it has not taken stock of its own situation. It is the primary responsibility of New Delhi to first cater to the health needs of its country, before providing assistance to others. It is also one of the sovereign functions of every state.
However, some diseases like the COVID–19 have been transmitted beyond the frontiers of States, and the international community has a collective responsibility to address the problem. Para 40 of the 2000 report goes on to oblige the economically developed States to have a special responsibility and interest to assist the poorer developing states in this regard. However, the scenario here, is that a developing country has been threatened with sanctions or retaliation by a powerful developed nation for the non–supply of essential drugs, it might need for its poor population. In General comment no. 8 (1997 report) of UNCESCR, the issue of imposition of economic sanctions was addressed, which are imposed frequently, internationally, regionally, and unilaterally. It is reiterated that such sanctions should always take full account of the provisions of this Covenant.
The 1997 committee also took serious note of the imposition of sanctions on the Covenant. The ‘dramatic impact’ of sanctions often causes significant disruption in the distribution of food, pharmaceuticals, and sanitation supplies … [and] severely interferes with the functioning of basic health systems. While asserting this statement, it observed “In addition, their unintended consequences can include reinforcement of the power of oppressive elites, the emergence, almost invariably, of a black market and the generation of huge windfall profits for the privileged elites which manage it, enhancement of the control of the governing elites over the population at large, and restriction of opportunities to seek asylum or to manifest political opposition. While the phenomena mentioned in the preceding sentence are essentially political in nature, they also have a major additional impact on the enjoyment of economic, social and cultural rights.”
While considering sanctions, one must bear in mind the impact of the sanctions on the most vulnerable groups within the target country. It should not be applied simply to assert either political or economic pressure on the governing elite of the country to make them conform to principles of international law. It is for these purposes that humanitarian exemptions have been devised by the UN Security Council to allow the free movement of essential goods and services for humanitarian purposes. It is commonly assumed that these exemptions ensure basic respect for economic, social, and cultural rights within the targeted country. Although sanctions in this context may mean sanctions for violation of the covenant, this interpretation can be very narrow. In fact, if retaliations are measures that a developed country proffers to developing countries like India trying to protect their very basic right to health of its citizens, it shall be valued as a gross violation of the Covenant by such countries threatening with retaliation.
In 1996, a major study prepared for the General Assembly by Ms. GraçaMachel on the impact of armed conflict on children stated that “humanitarian exemptions tend to be ambiguous and are interpreted arbitrarily and inconsistently. … Delays, confusion and the denial of requests to import essential humanitarian goods cause resource shortages. … [These effects] inevitably fall most heavily on the poor.” It may well be interesting to note at this juncture that the United States of America is a signatory to this Optional Protocol, but it has not ratified it. Despite this, the Covenant shall still be operative for the USA.
Trade sanctions or economic sanctions, on a country trying to protect its own citizens from a pandemic, should not be considered a breach under international trade law. The Trump Administration should have refrained from the use of the word ‘retaliation’. India is under an international obligation to assist and co-operate, but simultaneously, it has to ensure the safety of its citizens. The larger question still looms: can retaliation be applied in such cases? Retaliation is the final and most serious consequence a non-implementing Member faces in the WTO dispute settlement system. Although retaliation requires prior approval by the DSB, the countermeasures are applied selectively by one Member against another.
Pandemics do not respect international borders and consequently, they have the potential to incapacitate several societies, political structures, and economies simultaneously. The WHO issued rather conservative temporary recommendations excluding notably travel and trade restrictions. At the present juncture, States are in a dilemma. When a state enters into an international trade agreement with other parties, a level of mutual compliance is expected from both parties.
The citizen favoring policies is the sequel of the exercise of sovereignty by states, by trading off their international obligations. The generation of a larger content ratio would not attract any retaliatory actions by the international community, as the international obligations are voluntary commitments by the Nation-state to ensure the fulfillment of symbiotic interests. The act of the Indian state to restrict the export of drugs could be validated by the various provisions under International law.
WTO explicitly discourages discriminatory measures proffered under the veil of protectionism. During the current crisis, we have noticed an increasing surge in the application of protectionist measures by the state parties which is in turn threatened by retaliation in the realm of international trade. Furthermore, it can be concluded that due to the self-imposing principle of retaliation, it is found to be an effective measure for enforcing obligations set by international trade agreements rather than imposing a compensatory penalty or any other constructive measures.
Undoubtedly, based on the discussion made above, India’s decision to restrict the export of these essential chemicals does fall squarely within the exceptions carved out under the GATT 1994, provided specifically under Art. XI:1, XI:2 and XX of this instrument. The framework under WTO suggests that temporary export restrictions of essential products can be justified when there is a probability of a State being in a ‘critical shortage’ of its supply. The unprecedented nature of the COVID-19 pandemic dictates the need for a cautious approach on the end of governments, in order to ensure that the medical infrastructure is sufficiently stocked in terms of essential supplies. Moreover, retaliation cannot be a justified measure under the current circumstances since a prior authorization of the DSB has not been acquired and hence, such action is untenable. States, here, need a reminder that allowing sovereign protectionist measures or allowing states to secure their supplies of products is their sovereign right; and respecting such sovereign rights is in itself an international obligation.
This article has been written by Hiral Mehta Kumar working as an Assistant Professor of Law at the National University of Study and Research in Law, Ranchi.
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sign of Section 301,” 8Boston University International Law Journal 301 (1990
Article 12, paragraph 2 (d) of the Covenant.
UN Committee on Economic, Social and Cultural Rights (CESCR), UN Committee on Economic, Social and Cultural Rights: Report on the Twenty-second, Twenty-third and Twety-fourth Sessions (25 April-12 May 2000, 14 August-1 September 2000, 13 November-1 December 2000), 7 June 2001, E/2001/22; E/C.12/2000/21, available at: https://www.refworld.org/docid/45c30b2e0.html [accessed 12 April 2020]Available on file:///C:/Users/ASUS/Desktop/ITL%20article/UNCESCR%20Report%202000.pdf (Last accessed…)
 2000 report para 40.
UN Committee on Economic, Social and Cultural Rights (CESCR), UN Committee on Economic, Social and Cultural Rights: Report on the Sixteenth and Seventeenth Sessions (28 April16 May 1997, 17 November5 December 1997), 20 June 1998, E/1998/22, available at: https://www.refworld.org/docid/45c30b2a0.html [accessed 12 April 2020]
The Committee did not in any way call into question the necessity for the imposition of sanctions in appropriate cases in accordance with Chapter VII of the Charter of the United Nations or other applicable international law. But those provisions of the Charter that relate to human rights (Articles 1, 55 and 56) must still be considered to be fully applicable in such cases.
Ibid. Para 4.
Ibid. Para 8.
Article 3.7 of the DSU
According to the view of some Members and trade law experts, Articles 8.2 and 8.3 of the Agreement on Safeguards provide for a procedure partially departing from Article 22 of the DSU and allow the suspension of concessions immediately after the adoption of the panel (and Appellate Body) report, without prior DSB authorization.