Will COVID-19 Affect International Trade and Globalization?

Operator:  Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's International and National Security Law Practice Group, was recorded on April 2, 2020, during a live teleforum conference call held exclusively for Federalist Society members.     

 

Micah Wallen:  Welcome to The Federalist Society's teleforum conference call. This afternoon's topic is titled, "Will COVID-19 Affect International Trade and Globalization?" My name is Micah Wallen, and I am the Assistant Director of Practice Groups at The Federalist Society.

 

      As always, please note that all expressions of opinion are those of the experts on today's call.

 

      Today, we are fortunate to have with us Daniel Gerkin, who is Counsel for International Trade and National Security and CFIUS at Skadden, Arps. We also have Professor Heng Wang, who is a Professor and Co-Director of Herbert Smith Freehills China International Business and Economic Law Centre, as well as Faculty at Law at the University of New South Wales Law School.

 

      After our panel has their opening remarks, we will then move to an audience Q&A portion.

 

Thank you both for sharing with us today. Daniel, the floor is yours.

 

Daniel Gerkin:  Thank you very much, Micah. And thank you to The Federalist Society for inviting us to speak today on what is an incredibly timely topic. I'm happy to discuss how international trade issues across a multitude of different regimes are being impacted by the virus.  

 

By way of background, I sit in the national security practice at Skadden. And so I handle a variety of different matters ranging from foreign investment to export controls to embargos and sanctions to customs and tariff issues, and each one of those is impacted by this virus. And I think over time, perhaps, we might not see deglobalization, or at least not radical deglobalization, but perhaps simply a balance being struck between reliance or dependence on other countries and reliance or dependence on domestic production, hopefully in such a way that we won't have the same types of issues that we're experiencing in terms of personal protective equipment and other medical and pharmaceutical items in the future.

 

      So firstly, from a national security perspective, CFIUS, the Committee on Foreign Investment in the United States, is very likely now to more strictly scrutinize foreign investments in the U.S. healthcare and pharmaceuticals sector. It was already beginning to do that primarily because companies like that in the U.S. often are repositories for quite a bit of sensitive, personal information on U.S. citizens, health-related, DNA-related, and otherwise.

 

      We're expecting as well to see, perhaps, changes in the export controls regime that will more strictly control certain technologies, particularly with respect to gene editing. And those will play into national security views that CFIUS conducts as well.

 

      In addition, when looking inward, different countries take their own self-interest first and foremost. A number of countries are injecting capital into their own industries and in some cases, perhaps, maybe nationalizing certain companies, which to the extent those companies have U.S. subsidiaries may trigger CFIUS jurisdiction which more closely scrutinizes transactions with foreign parties that have a substantial government interest. The same would be true in connection with any future acquisition that a nationalized company might make in the U.S.

 

      So certainly, from a national security perspective in terms of foreign investment, the virus is likely to have some affects. My day to day, in addition to national security and foreign investment issues, have to do with export controls compliance issues. We're not seeing export controls being changed in any meaningful way in the U.S., but it has been widely reported that more than 50 governments around the world have imposed restrictions on exports of personal protective equipment, including masks, glasses, and garments, including major trading partners, the E.U., Australia, India, in terms of active pharmaceutical ingredients that are produced there and are utilized in pharmaceutical production.

 

      Interestingly, while the U.S. has not imposed any such restrictions, the U.S. has generally remained silent on the fact that other countries are imposing these types of quantitative restrictions because they're, essentially, WTO inconsistent. Although, there are a number of WTO mechanisms that might very well allow that type of behavior so long as it's time-limited and strategically focused on protecting equipment that might be needed to protect domestic population.

 

      As I understand it, there are basically three ways these types of measures could be consistent with WTO practice. First, there's newer measures that are necessary to, protect human, animal, or plant life, or health; other export restrictions that are temporarily applied to prevent or relieve critical shortages of products essential to the exporting contracting party; and lastly, and perhaps most interestingly, is the national security exception, which has never been litigated at the WTO and perhaps the professor can speak more to this particular issue. None of the other exceptions have ever been litigated at the WTO either. Although, the U.S. tariffs under Section 232 on imported steel and aluminum, which are a national security base, may ultimately get a hearing at the WTO to the extent the WTO remains a functioning body.

 

      The U.S. silence, though, I think is consistent with the U.S. position vis-à-vis countries taking a more intense interest in their own priorities. To me, it would be somewhat hypocritical for our government to complain about what other countries are doing in terms of export restrictions when I think we might be very well acting in that same self-interest if the tables were turned. We happen to be a net importer of that type of equipment. But if we were a net exporter, I think we probably would do the same.

 

      In fact, the U.S. trade representative Bob Lighthizer, a former Skadden partner, wrote in a letter to the Wall Street Journal in response to an op-ed that was written by another former USDR Ambassador Zoellick, "At times like this, nations inevitably will put the interest of their own citizens first. Indeed, if there is one lesson to be drawn from this crisis, it is that dependence on other countries as the source of key medical products has created a strategic vulnerability for the U.S. By encouraging diversification of supply chains and—better yet—more manufacturing in the U.S., President Trump's economic and trade policies are helping to overcome that vulnerability."

 

      So it's not surprising at all to me that the U.S. has remained silent as other countries are taking these steps. Of course, we are doing everything we can to encourage other countries to continue supplying us, and we've made it a little bit easier in the U.S. to do that. The USDR, for example, has reduced tariffs on imported medical equipment from China. These are the so-called Section 301 tariffs by issuing product exclusions, allowing those products to come in tariff-free.

 

But the notion of altering supply chains, or at least diversifying them, is taking on a lot of traction today in the U.S. It's reflected in the CARES Act, the $2 trillion stimulus package, which does allocate monies for national academies to explore supply chain diversification. It's come up recently even before the COVID situation in a request to the Government Accountability Office from Senator Schumer, a Democratic senator of New York, to investigate vulnerabilities associated with the medical products and pharmaceutical supply chain.

 

      More recently, there's been legislation introduced by Senator Cotton to address our dependence on Chinese pharmaceutical products and legislation as well -- bi-partisan legislation introduced by Senators Rubio and Senator Warren, having the same focus. So that's something that we may see more of in the near term.

 

And over the long term, the question becomes is that in our best interest to manufacture domestically medical products, some of which are not particularly sophisticated like gowns and masks, some of which are a little more sophisticated like ventilators, but presumably, could be more efficiently produced in lower-wage countries, not only China but others as well. And so there's a debate raging as to whether or not it may be better to continue importing but to stockpile these items or whether it may be better to manufacture them domestically or I suppose some combination of both of those things.

 

      And we may see, in addition to this legislation, there being a greater push from the White House on this particular subject. As many of you may have read, there's a proposed executive order imposing “Buy America” requirements on pharmaceuticals and certain medical products. Whether or not that executive order ever gets signed, we shall see. But it's certainly something that's being pushed by folks like Peter Navarro in the White House, who's essentially aligned on these issues with Bob Lighthizer. And as I noted, there's bi-partisan support for evaluating these particular issues. And they ultimately become a question of efficiency, as I said, is it a question of cost? For example, the major pharmaceutical trade association, PhRMA, position essentially is that to alter a supply chain would take a substantial amount of time and would be tremendously costly.

 

      There's an interesting article in this morning's Financial Times about this very issue. And it's also not that easy necessarily to extricate yourself from a country like China. You'd be laying off employees and having to deal with issues relating to employment. You may require some kind of permission to leave the country. So it may not be in a private sector's best interest to diversify the supply chain in the way that many in Congress and in the White House would like for us to do.

 

      Those are the ways that I am seeing the COVID-19 situation play out in the international trade arena. And it'll be interesting to see how these issues develop over time, whether there is a WTO type challenge, whether this executive order gets issued, whether any of this legislation gets passed, and what the reaction from the private sector might be.

 

      So those are a few high-level thoughts and after the professor speaks, we're both happy to take questions from the audience. I'm hoping that we end up having a robust discussion. I'll let you take it from here, Professor.

 

Prof. Heng Wang:  Thank you. And thank you, Daniel, and also, I'd like to thank The Federalist Society for the invitation.

 

      So today, I would like to follow up the talk just now -- the great talk by Daniel about COVID-19 and the globalization -- deglobalization. I think I have several points to make that -- the first one is that actually is the deglobalization issue has actually arisen before the COVID-19, as reflected in the trade war. But of course, the COVID-19 makes this scenario more challenging and more difficult.

 

      The issue of the possible deglobalization or partial deglobalization may be contributed to the defects of the free trade. People have argued that while there is such a problem, it's more about the equality that free trade may bring or may make more obvious at national-international level because the people, lab sectors, who will be affected by free trade because they lose jobs. That's one of the key points in the presidential campaign.

 

      On an international level, that's the same issue, that is some country will lose from that, some country may benefit more. But in reality, there's insufficient support or mechanism to address this inequality to different sectors or different nations.

 

      And also, this is being reflected in structure issues. In a trade war, you see that actually they are arising, national reason, people look for more trade restrictions. So these are some measures which would have been taken before the COVID-19. But COVID-19 see a strong wave of those kind of actions in terms of, say, trying to address, say, national interests, protect the citizens' health. So there are over 24 countries have taken export control and so on, so forth.

 

      These are issues that are being addressed in the trade war but hasn't been really dealt fully by the Phase One agreement between U.S. and China in January this year because the Phase One agreements, U.S.–China trade deal, it's a short-term one. So they keep the fundamental issues, largely the untouched, these issue arises and may lead to more dynamics in the international economy.

 

      And the second point I would like to make: does COVID-19 make it more challenging or more difficult to solve those problems and also makes the deglobalization issue more the central piece in current dynamics? Why is that the double tier in crisis? Because now we only have one WTO Appellate Body judge, and the W Appellate Body hasn't really worked in this regard, although they are now having discussion about alternative.

 

      But the U.S. has major economies out of that. And a district settlement assistant is also been time consuming, so they're not really fit for those kind of COVID-19 emergency. And also, they have issue, which is we are facing issue like national security. It's not really a pure legal issue. That probably explains the reason why there are not many disputes has been reasoned to the WTO in the history.

 

      So that comes back to -- this comes to my third point of how do we look at the issues arising COVID-19 and, say, possible deglobalization? I think I will focus on the national security in the new issues because we see more and more in trade war and following COVID-19, they'll likely have more invocation of national security arguments. But this has been kind of unchartered water because if we look at the WTO, the World Trade Organization, the rule system, they don't really have a detailed illustration [of] what it means (national security).

 

They do have exception like generic exception which is different from national security in terms of you can protect public health, public welfare, but you should not discriminate if you take those kind of measures to protect your citizens, the animals, and the public welfare and so on and so forth. They should not be disguised restriction.

 

These are rules provided by the GATT, General Agreement on Tariffs and Trade and General Agreement of Trade and Services, but national security issue was not really defined as there are very few disputes. They do have one between Ukraine and Russia about national security. But basically, this issue has not been raised to say “put it on the stage.”

 

And also, I think one of the main reasons why the stage stay away from that because national security is so sensitive and it's being very -- they may have reluctance to have the adjudicators define for that as they have been a very tough decision for the adjudicators because they are more than law, they are probably more close to the question of the role of the government of the market. That's one thing that may be relevant. But also, the relation between free trade and regulation. And of course, national security involves more issues beyond trade as we see already in many of the new areas like the high-tech industry and so forth.

 

      So that's the third point which I think the new issues which complicate the discussion. It makes solving problems in a traditional treaty, a multi-national treaty like in WTO, more difficult. That’s probably one of the reasons why WTO has not been able to play a pretty strong role in this regard.

 

      And the fourth point I would like to make is that whatever we will see in the future or what we may do to deal with this kind of issue, I think that's actually where we're at a crossroad. Seems that it's not likely that we will have a treaty or those kind of traditional -- have law abiding instrument to deal with this issue. We'll see that actually because we have the deglobalization or globalization debate, this about issue about the practice levels we'll see how businesses will diversify their supply chain. They will avoid concentrating in one country and move away from some country.

 

For example, if that happens regarding China, whether their multi-national enterprises move their supply chain away from China and how China respond to that, how other countries respond to that, these are the level where the company will make their decision. And also, company probably will engage in those self-disruption. That is to reveal their practice because traditionally, there's been more heavy rely on global value chain, but the COVID-19 has revealed that it's beyond vulnerable in some sense because you cannot get those supply in time, and also they have those kind of disruptions in demand and supply. Even now, there’s financial side issues.

 

      And also, related to that at a second level, besides the businesses, we also see a strong, much stronger role of the government at different jurisdictions from different parts of the world. We're not sure at this stage what will be in the future, whether there'll be huge change in the globalization. The problem, unlikely to have a huge change in globalization, is short term because even if one want to redesign their supply chain, it takes time and also you need the supply to be redesigned and you have also various rules you have to take in mind -- you have to bear in mind, including whether you can still enjoy the tariff benefits, the investment incentives you have received in the past, and also the consumers and local markets in the local markets and so on and so forth.

 

      But of course, there is a process. We'll see that the stronger role of the government because the government may direct United States in trade war. The U.S. may want U.S. businesses to return to U.S. and maybe, they have some other country follow the suit. So that's at the national level. It's mixed with different positions.

 

      The third level we look at beside businesses, government, international, original, or ex-original level are both waves of globalization, deglobalization even in the context of COVID-19. Because COVID-19 on one hand has revealed that global value chain or the free trade has some problems in terms of disruptions in their demand and supply. But on the other side, the COVID-19 also called for the stronger role probably by trade because that drives down the cost. If they have those kind of totally self-reliant country, that doesn't exist. So even the [inaudible 21:33] U.S. or China have to rely on, to different degree, the imported components to make that [inaudible 21:41] negative.

 

And there you the issue that actually -- and also, if you want to find less fee in other solutions, you still need a national corporation, and you want lower costs, personal protection equipment and so on, so forth. So there have been a very strong call for first of the trade. And that should also explain why the recent 2020 Trade and Investment Summit, the joint statement, had actually calls for the need to maintain the international trade and also to make sure that trade work for the solution of the COVID-19. And they offset -- the emergency measures can only be used if deemed necessary and must be targeted and proportionate, transparent and temporary.

 

      And also, similarly, there has to be a joint statement by a ministry in Singapore, Australia, Canada, Chile, New Zealand, Myanmar, and Brunei. And there have been also similar calls for trade line and still remain open for the flow of goods and relief materials. So we see that they have both wave of the globalization, de-globalization problem, but I think that's, from my perspective, personal perspective, I think the trade should be strengthened. But on the other side, we should also address the fundamental issue, equality issue behind the free trade. That is to do a smarter way of dealing that.

 

Probably, this can only happen in a short-term of soft law, non-binding process as we see that actually G20, G7 maybe, we see the Eight-Pack and so on and so forth. And the trade war itself should be resilient because at this stage, the COVID-19 is not only a crisis but also an opportunity to see how important globalization trade is but also saw another side to see that how urgent we need to address the issues. We signal the trade of globalization like equality issue at international level so they may have more efforts needed to have the domestic support from vulnerable sectors and internationally, to have more balance and rule-based and also neutral or level play field for everyone.

 

      So that's basically probably we'll see in the future. But in the short term, I think that depends on the decision of the businesses, how they will -- we think of their practice. And also I think depends also on the self-restraints of the states, because in the short term, it's difficult to see the WTO or have a ruling or will be able to forcefully prohibit the states to take those kind of measures. It's probably rely more on the self-reliant -- sorry, self-restraints of the states.

 

And also, more broadly, to be the efforts of the like-minded actors ranging from governments, business NGOs, and others to work together to have an international cooperation to find solution for COVID-19 because [it’s] not only about searching for a solution for a vaccine and also our relief groups but also searching for -- make sure that we have a system which is robust to stand such unprecedented, I think, not only trade crisis or globalization crisis but also governments crisis. How do we be able to focus on the real issue and kind of statute-rule based system that no matter you a big or small player, at national level or international level, you'll be treated fairly?

 

      I think that's probably these efforts of everyone and to look through and to solve its challenges as COVID-19, as it shows, effects everyone. And to wrap up, I think that’s actually where we're about to see a very challenging future. But I think that's a reason why we should have more focus on those thorny questions. I think that's what I would like to talk at this stage. And as mentioned earlier by Daniel, we are more than happy to answer questions.

 

Micah Wallen:  We just had a question light up the line, so we'll move to our first caller.

 

Caller 1:  Thanks. Based on what you've seen in the U.S.–China trade negotiations this past year and what that revealed about both governments' respective strengths and weaknesses in negotiating the terms of bilateral trade, how do you think this post-pandemic period will affect both China and the United States' relative bargaining positions toward each other in terms of how this changes the strengths and weaknesses of the United States versus China and the strengths and weaknesses of China versus the United States in future bilateral disputes?

 

Daniel Gerkin:  This is Dan Gerkin. That's a very interesting question. I think you could probably take the view that the Chinese position is strengthened a bit because they are a key supplier of this type of equipment. But at the same time, part of the reason for the trade war is not only to change China's behavior but to incentivize a decoupling to some extent, a reassuring of manufacturing to the U.S.

 

And so I think from that standpoint, this just further demonstrates that there's a potential need for domestic capacity. And that may in fact be the stronger case, making the U.S. position a bit stronger in the sense that if the U.S. takes steps to reduce its dependency on China, then I think perhaps its bargaining position is increased. But I'm certainly interested to hear what the Professor has to say. It's an interesting question.

 

Prof. Heng Wang:  Thank you. I think this is a very interesting question, and I also think that's very crucial for future negotiation between both sides. I agree with Daniel actually that down the track, it’s most likely that when it comes to including U.S. and China we’ll highlight the importance of domestic capacity -- domestic consumption because, actually, the epidemic crisis may need to kind of down turn of international economy. So they have probably less demand for international trade in general because it's kind of a recession. So that's means that the exports or [inaudible 28:47] businesses may have to live a very hard life. Some may really go bankrupt in this process.

 

      One side, you can see what actually Daniel mentioned earlier that the decoupling I think will continue to some extent because of the trade war. There has been a possible move away from those previous strong bond between the two countries. I really see those happening to some extent. Another side, their purchase commitments, either Phase One agreement may increase the U.S. reliance on China in terms of purchasing from China. So you see that actually there are two ways. This is not only one direction movement. So that depends probably on the domestic capacity. That also will determine economic performance.

 

      The economic performance on both sides will, I think, be crucial to the negotiation position on both sides. And secondly, also in terms of dependency of U.S. on China or China on the U.S., you see the two-way directions. On one side, they have more reliance because of the Phase One agreement encourages more purchase from China, but also maybe more investment in China.

 

Another side, the U.S. policy also encourage businesses to move away and return to U.S. So we'll see what happens in the practice. It also depends also on policy on both sides, whether U.S. China can really negotiate certain structural issues to provide long-term predictability to guide the world's community out of this crisis. That's also an issue. As you see the Financial Times recently, the president of Germany called for united actions against the COVID-19. We'll see how the major nations respond to that.

 

Micah Wallen:  All right. We have another question that joined the queue, so we'll move to that caller.

 

Caller 2:  I wanted to ask specifically about the pharmaceutical industry. As I understand that there are a number of senators that are considering statutes that will require a certain portion of pharmaceuticals that are currently being made in China to be made in the U.S. I guess my question's multi-fold. First of all, is this a big enough issue in and of itself to cause a trade war between the two countries? Does bringing that domestic production back to the United States violate GATT or violate any bilateral trade agreements? And how could this matter be resolved, if at all?

 

Daniel Gerkin:  You're right. There's quite a bit of legislation that's been floated, some of which I think relates to better identification of how much Chinese origin active pharmaceutical ingredients are included in a particular pharmaceutical product but others of which I think would drive domestic production of needed pharmaceuticals like antibiotics. I don't know what the balance of trade is with respect to those types of products. I think I may have a document here that speaks to that issue.

 

And it certainly, I think, would be an issue between the U.S. and India as well. I don't know that it's a large enough issue to trigger its own trade war, nor do I think that it would necessarily violate any GATT principles. I'm interested in the Professor's thoughts on that. I think countries are well within their rights to incentivize the return of manufacturing and production so long as they're not engaging in any arbitrary or otherwise discriminatory practices.

 

And certainly, I think as a policy matter, there's some something to be said for that or at least for importing and stockpiling now and developing some domestic capacity for the future. It doesn’t seem to be what the pharmaceutical industry itself is willing to subscribe to at this particular point in time, though they have expressed a willingness to evaluate different options.

 

Prof. Heng Wang:  I think to follow up Daniel's points, actually, if there's been -- that also probably depends on what are the justifications for the measures. I guess one possible -- according to the previous trade war practice, I guess U.S. may argue speaking on national security issue. If that's the case, I think that makes [it] more difficult to invoke the WTO rules because the WTO rules, as mentioned earlier, it's not clear about what it means national security and that remains open. They have very little jurisprudence in the judgments in the previous cases.

 

      That's not really a pure legal issue, and it involves many non-legal considerations. So I would say that actually, that depends on the arguments of both sides, but looks difficult to fit squarely into the traditional parameters of the trade agreements. Or people may argue that it's more investment issue, which is outside, largely, outside the WTO scope. And also, I think those measures may not necessarily trigger another wave of trade war in the large scale. But maybe they have retaliatory responses from the other side.

 

So it looks like that has been after the COVID-19, they have more measures which may take towards the deglobalization. I think it's being -- it is an issue which has two sides. On one side, it's understand -- can asserting terms to protect national security. Another side is that probably will be once you be careful about to avoid protectionism because if every country follow this suit, to some extent, there will be a real challenge for the communities. So that also shows that we need a real, hopefully, a rule-based system or at least some soft law, non-binding guidance in this behavior, and to makes sure that we maximize the benefits and also try to minimize the challenges.

 

Micah Wallen:  All right. We have a few other questions that popped in. So we'll move to our next caller.

 

Joao Octavio Benevides Demasi:  Good afternoon. My name is Joao Octavio Benevides Demasi. My question, don't you think both the first part had great to deference show national security shoes because they are? The counters are sobering. And then the other question is don’t you think it's true that it’s also a matter of politics if you have a Democrat government? They will promote globalization. If having Republicans, they will promote na -- let's say nationalism, not nationalization. And don't you think that a certain dose of nationalism is good, for the two countries [inaudible 35:44]?

 

Daniel Gerkin:  I think I understood those. Taking, perhaps, them in reverse order and the last question I think is whether we think some degree of nationalism is good for a country. I think certainly, as a general matter, at least my own personal view, is that globalization is the preferred course. But in times of crisis, as we're seeing with this pandemic, I do think that the interests of any one country necessarily should be put ahead of the interests of another country. That's not to say that I think we should restrict trade, I just think over time, this has opened some eyes and we should develop our own domestic capability. But that shouldn’t necessarily cause us to close the border to imported, competitive items, say, a ventilator or a gown or a mask.

 

      On the second question, the distinction that’s between Republicans and Democrats, I guess, traditionally, Republicans were more free trade oriented. This iteration of the Republican Party seems to be more nationally focused. And there are a number of Democrats who are skeptical of globalization and free trade as well, in large part because they are concerned for that in environmental and labor standards historically.

 

      I think the pandemic and some of the legislation that's been proposed, which has been proposed on a bipartisan basis, suggests that this issue is not necessarily as between globalization or economic nationalism, it's more about protecting the health and safety of the American population. And so if there's a way to achieve that, I think, as I've been saying, that probably falls into the bucket of some bounds being struck between there being domestic manufacturing capability as well as continued imports for purposes of national stockpiling. And I think the CARES Act also allocates several billion dollars, actually, for the procurement of items for the national stockpile.

 

Micah Wallen:  All right. We have one other question in the queue. We'll move to out next caller.

 

Caller 4:  In the news about this pandemic, I saw a story about a company that was making some progress with vaccine research. And one fact about this company that I thought was remarkable was that this company was structured to have an office in the United States and an office in Central Europe and an office in China. And this company, I think, in each of those offices, I think it was engaged in vaccine research, like a pharmaceutical company.

 

      But not knowing much of the details about these three legal regimes, I would assume that the legal environment in Europe and China and the United States is very different in each place. And so I'm curious whether you might be able to explain what specifically is the reason why it could be advantageous for a company to situate itself like that in each of three very different legal systems. And maybe the advantages are not legal at all but just practical.

 

Daniel Gerkin:  Dan Gerkin, I can take a crack at that and then let the Professor speak to it and maybe address any points he wanted to raise in connection with the prior question as well.

 

      We have a lot of clients who operate across borders. They do R&D in the U.S., Europe, China, elsewhere, in Asia. I think you're right. In part, it's a question of where the talent lies. Partly, I suppose, there may be differences in the legal regimes that may make drug development in particular work on a more expedited timetable. In the U.S., the FDA approval process is quite a lengthy one. I'm sure in Europe, it is as well to some extent.

 

I'm not sure how that would play out in China, but perhaps there are approvals that are more easily obtained, and companies can go to market sooner rather than later and start generating revenue. The R&D expenses are tremendous and so it's probably better than not to be able to recoup your investment sooner rather than later. And you have a toe hold, then, in those markets already. But I think the considerations probably are more practical, but there may be some legal efficiencies as well in terms of approvals.

 

      I would freely admit, I'm speculating to some extent, not having any particular insight into the pharmaceutical industry. Though, I have represented pharmaceutical companies in the past, both name brand and generic. It's the norm, I think, and not an exception to the norm that R&D is being done in multiple different locations.

 

Prof. Heng Wang:  I think I agree that actually, it's been probably -- we have to, yeah, guess what the considerations are. I agree actually that expertise is one of the considerations where they can recruit RA research and development staff. And in some jurisdictions, it may be more cost effective. And also, you always have an advantage combining the locally available sources. And also, the regulator for [inaudible 41:30] is another consideration. It's much more efficient. I think we already see in practice, you may do the pilots and other steps which may be quicker in a local context instead of doing that in an international manner.

 

And also, I think they also may have potential taxation considerations, whether there are taxation benefits out of that. And also, the local markets is another aspect. A majority of that is to understand what's a need in local markets particularly to the major markets. And also when they gradually also to help to get used to the local legal systems and to be prepared for the sales and others, yeah.

 

Micah Wallen:  Daniel or Professor Wang, do either of you have anything further you'd like to discuss or questions to ask yourselves or anything else for us today?

 

Daniel Gerkin:  I just think that the pandemic has somewhat exacerbated issues that already existed, in particular, with respect to the relationship between the U.S. and China. It's no secret that in addition to the trade war, we view China and Chinese companies very skeptically from a national security perspective and have implemented changes to export controls. We've been far more aggressive from a Foreign Corrupt Practices Act standpoint, from an economic sanction's standpoint, and ultimately, may hasten the decoupling that we've both talked about.

 

      I still think our futures are better if we're collaborating as opposed to competing, and I mean competing in a way that's unhealthy or uncooperative. So while the pandemic probably, as I said, has exacerbated some of those preexisting issues, I do think eventually, we'll probably get to a co-existent place.

 

We may rely on China and other countries a little bit less for the supply of pharmaceuticals or medical equipment. But at the end of the day, I do think efficiencies and supply chains will probably end up overcoming tendencies to fully disentangle, at least the United States, from other countries around the world. So that's my editorial view. And again, that is my own view, it's not necessarily Skadden's view or my any clients view.

 

Micah Wallen:  We had one other question too. We'll go ahead and take the question now.

 

Joao Octavio Benevides Demasi:  I am rephrasing my question. I am sorry that I was not clear enough. My question is to both speakers. If the standard of review through security, through national questions, would it be one that would provide great deference to the states, to the legal reasoning of the states and the WTO organization?

 

      Because it's one of the most important questions you are under Article 21, and therefore, the hard-core questions of national security questions. So don't you think that based under the full regime of this case is great deference to the States?

 

Daniel Gerkin:  You're saying deference to the States?

 

Joao Octavio Benevides Demasi:  Yes. That --

 

Daniel Gerkin:  In matters of national security? Yeah, I think that's probably right if these issues were litigated. And I certainly think issues around export restrictions, for example, that are currently being imposed, they probably would pass muster under one or more of the various exceptions, including the national security exception. And I think that the World Health Organization actually has already alluded to that, that they do believe these export related restrictions are not WTO inconsistent.

 

So I agree that there should be deference to the States, but that deference should have limits. For example, I mentioned earlier, the steel and aluminum tariffs that the U.S. has imposed or the investigations under the Section 232 provisions relating to imported automobiles. It's, to me, very, very difficult to credibly assert that the U.S. national security is threatened because we're importing BMWs and Mercedes. But while I do agree that there should be deference to the States, I think that deference should have limits.

 

Prof. Heng Wang:  Just to follow up the answer to the questions, I think it's actually, we will see the deference to the nation, but also I think there must be a limit, as Daniel said. Otherwise, we'll be facing jungle rules. And actually, in the previous case of the Ukraine-Russia disputes in adopting national securities, you did see actually the adjudicator trying to have some boundaries regarding the national security exercise. Although, largely, the state deferred to the national interpretation of that.

 

      If I can wrap up on my personal view, I fully agree with what Daniel said earlier that actually trade, I think, in general should be strengthened because the COVID-19 does indicate such urgency of collaborate to have low-cost supply and also culmination to fight against the epidemic as well as a broader economic and also government crisis.

 

      But another side, we see that actually the decoupling is likely to continue as following the trade war, and also, the underlying issue has not been addressed. They give us these urgent needs to address new 21st century issues, those related to competition and in our governments, other issues. I think we really need a rule-based system, but it won't happen overnight. It won't be happening in hard law range any time soon. But I think the soft law approach maybe a way [we] can move forward.

 

      But more important, I think they also need to have the how-to that U.S. and China will be difficult to agree with each other in short time, unless they have a strong political willingness. And the third parties -- the third countries in the public and private actors will be critical because if they have a critical mass of support of a rule-based system and to provide more international cooperation to build a predictable, long-term, stable order, we'll see those dynamics coming. And it will be very valuable. That'll affect everyone.

 

So I think this is the issue that needs joint efforts from everyone. I think this needs coordinated efforts from all of us because to build the rule-based system and also to address those more complicated, deeper issues regarding the future of international order because that effects everyone. I think that's the end of my observation. And thank you.

 

Micah Wallen:  Thank you. And, Daniel, did you have anything else before we close out today?

 

Daniel Gerkin:  I didn't, but we just did get a question from one of the conference organizers, which is do you predict that the pandemic will increase demand for international lawyers because of increased compliance costs or decrease demand of international lawyers because of reduced trade or other obstacles?

 

And my answer to that is the lawyers essentially always win. So to the extent there are changes, restrictions, what have you, I always think that lawyers, and in particular in this arena, international trade lawyers, will remain in demand. The China issues in particular keep me busy quite a lot of each day and those range, as I been saying, from national security related to [inaudible 49:48] to trade related issues. And so I see increased demand for trade practitioners.

 

Micah Wallen:  All right. And --

 

Prof. Heng Wang:  Thank you.

 

Micah Wallen:  -- on behalf of The Federalist Society, I'd like to thank both of our experts for the benefit of their valuable time and expertise today. We welcome listener feedback by email at [email protected]. Thank you all for joining us. We are adjourned.

 

Operator:  Thank you for listening. We hope you enjoyed this practice group podcast. For materials related to this podcast and other Federalist Society multimedia, please visit The Federalist Society's website at fedsoc.org/multimedia.