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Trade Therapy: Deepening Cooperation to Strengthen Pandemic Defenses
its higher price. For example, air transport has been the mode of choice during the COVID-19 pandemic for trade in medical goods in short supply and urgent need, such as PPE, ventilators, and vaccines. However, in the years before the pandemic, many drug companies switched to ocean shipping for less-time-dependent medical products, owing mostly to the relatively high cost of air freight, the development of temperature-controlled shipping containers, and the use of better monitoring and tracking equipment. Trade in distribution services. Distribution services (wholesale and retail trade services) also play an essential role in the international supply of medical goods. In most jurisdictions, the distribution of medical goods is highly regulated, with the sale of various products (especially medical drugs) having to be conducted through specialized establishments such as pharmacies. These regulations have “health policy and safety” motivations but also have an impact on the efficiency of distribution and on cost. Trade in insurance services. Insurance services help ensure the smooth functioning of medical GVCs. Supply-chain disruptions, which can bring production of goods and delivery of services to a halt, are among the most significant risks for businesses.7 In such circumstances, companies participating in GVCs may incur significant financial losses if they are not adequately insured. Supply-chain disruptions may arise from incidents affecting the policyholder (that is, the GVC’s lead company) or its suppliers and may involve damage to machinery and other property (Swiss Re Institute 2020). Business interruption—whether resulting from regulatory actions (such as withdrawal of regulatory approval or license suspension) or from a company’s own decision to suspend operations because of violations of good manufacturing practice (GMP) standards—may be particularly harmful for medical goods industries. Over recent years, the global insurance industry has developed specific nondamage business-interruption policies to insure medical goods companies against these risks (Swiss Re Institute 2020). Trade in insurance services through various modes often plays an important role in the supply of these policies.
PATTERNS IN MEDICAL GOODS AND SERVICES TRADE BEFORE THE PANDEMIC Trade patterns in medical goods Trade in medical goods grew faster than overall goods trade from 2010 to 2019, steadily increasing its share and showing more resilience. During the decade preceding the COVID-19 pandemic, trade in medical goods grew at an annual average rate of 4.7 percent, compared with 2.8 percent for overall merchandise trade, and its share of trade grew from 4.9 percent to 6.0 percent, reaching US$1.3 trillion (figure 1.7). As discussed earlier in the section on medical supply chains, several factors contribute to this performance, including global income convergence, aging populations, technological innovation, and policy reforms. Trade in medical goods was more resilient than trade overall, reflecting the stability of demand for essential medical goods.