COVID-19 and Global Value Chains : A Discussion of Aruments on Value Chain Organization and the Role of the WTO
January 11, 2021
Marc Bacchetta, et al.
1. INTRODUCTION
The COVID-19 pandemic led to shortages of medical equipment and pharmaceutical products in many countries as demand spikes exceeded existing supply and production capacity. For their supplies of personal protective equipment (PPE) and generic drugs, countries are dependent on imports from a relatively small number of countries.1 When worldwide production capacity was unable to meet the demand spike, bidding wars and export restrictions raised the price of several medical goods essential in the fight against the pandemic. At the same time transport delays and differences in timing of COVID-19 lockdowns have led to interruptions of production in complex value chains because of missing intermediates.
The COVID-19 pandemic brought to the attention of the public the risks associated with fragmented production process as managed across the planet. As a result, many policy makers and analysts argue for interventions in favour of reorganization of value chains to limit the dependence on imports for essential goods and to increase the resilience of value chains. Often these pleas favour so-called re-shoring, a return of manufacturing activity and jobs which were previously offshored to industrialized countries. Robert Lighthizer (2020), the US Trade Representative, for example argued in the New York Times that "the era of offshoring US jobs is over." And Peter Altmaier (Nienaber, 2020), German Economy Minister, called for less dependence of Europe on imports from nonEuropean countries for medical equipment. Beata Javorcik (2020), Chief Economist at the European Bank for Reconstruction and Development, observed that the COVID-19 pandemic together with uncertainty about future trade policy will force companies to think about re -shoring and diversifying sources of supply.
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