National steps to limit or reduce the magnitude and duration of shortages of medical goods can be strengthened by international cooperation. This paper argues for a multi-pronged approach, which is set out in the following proposed three-part framework. The framework’s 10 guiding principles are also summarized in Box 1.
Effective public health responses by governments
Reliance on cross-border supply chains for medical goods cannot make up for first-order errors in public health policy. Consequently, any package to limit the duration and magnitude of shortages of medical goods will require action to reduce the magnitude of demand spikes. This requires governments to take the following steps:
- Implement measures to limit animal-to-human transmission of infectious diseases.
- Act early when public health emergencies arise, so that the number of people falling sick and requiring medical assistance is reduced in the first instance (in the case of highly infectious diseases, this should include investing in an effective test-and-trace system).
- Where appropriate, ration access to key pieces of medical equipment and PPE.
- Maintain stockpiles – alone or with trusted allies – of only those medical goods likely to be relevant to a range of future public health emergencies.
Specific national measures relating to medical goods
To allow governments to ramp up purchases of medical goods during emergencies, public procurement regulations and practices must be revised with an eye to encouraging bids for state contracts from suppliers both at home and abroad (on the condition, in either case, that prospective suppliers can demonstrate they meet applicable international standards). Where national and international standards diverge, the application of national standards should be suspended for the duration of the public health emergency, thereby facilitating sourcing from a greater number of qualified overseas suppliers.
Procuring entities should develop systems to assess the overall exposure of their suppliers’ sourcing chains to specific geographical regions. It is not enough just to take account of the production locations of relevant first-tier suppliers. First-tier suppliers must also provide information on the locations of their own (i.e. second-tier) suppliers, and so on for third-tier suppliers etc. where relevant. Procuring entities could introduce incentives (either financial or in the criteria for evaluating bids) to encourage sourcing from producers in under-represented regions. First-tier suppliers able to switch production rapidly from one region to another could be treated more favourably.
Governments should devise and publish national trade facilitation plans to ease the import of specified medical goods. Each government should also enumerate the legal, regulatory and other steps necessary to execute such a plan in short order, including:
- The suspension of import tariffs, quotas or other curbs for a fixed period;
- The suspension of the levying of value-added and sales taxes on imported and domestically produced medical goods for a fixed period; and
- Implementation at airports, ports and customs houses of trade facilitation measures to ensure the rapid despatch and receipt of cross-border shipments, including potentially the creation of special lanes for the shipment of medical goods.
Such plans would be triggered by the declaration of a national, regional or global public health emergency.
A confidence-building MoU backed up by dedicated official support
There is no global consensus on developing new multilateral trade obligations for medical goods, as the discussion of EU proposals for reforming medical trade demonstrated at the General Council of the World Trade Organization (WTO) in December 2020. That is not to say that cooperation cannot be achieved, however. It can develop instead through a process of policy deliberation in ‘concentric circles’ – starting with a core group of G7 countries and potentially widening out to other like-minded governments, including other G20 members. This would build on the recent proposals for keeping supply routes for essential goods open, as advanced by various coalitions and parties – including a group led by New Zealand and Singapore; the so-called ‘Ottawa Group’ of WTO members; and various other WTO members.
Officials should prepare a draft non-binding memorandum of understanding (MoU) for adoption in principle at the G7 leaders’ summit in June 2021. That draft could then be shared with other G20 members and like-minded nations, with an eye to adoption at the UN General Assembly in September 2021 by as many governments as are interested. Ideally, the MoU would cover an agreed list of medical goods and commit signatories to the following steps during a future crisis:
- Upon declaration of a regional or global public health emergency, each participating nation’s trade facilitation plan (as mentioned above) would be locked in place for 12 months. This measure could be renewed at six-month intervals after the first year.
- Each signatory would eschew export controls of any type, or at minimum significantly proscribe their application or scope, for 12 months. Again, this measure could be reviewed and renewed at six-month intervals after the first year.
- A joint commitment would be made to limit competitive (and, in the context, ruinous) bidding on global markets, with participants instead establishing joint-purchasing arrangements to be triggered during regional or global public health emergencies.
- Signatories would exchange lists detailing the contents and size of their stockpiles of medical goods, and update these lists over time.
- Signatories would establish swap arrangements for such stockpiles.
- Signatories would develop common guidelines on methodologies for assessing risks from the overconcentration of suppliers in different regions.
- An independent unit would be empowered and resourced within an international organization to (a) conduct active surveillance of pertinent national policymaking; (b) identify best practices through analysis of public policy interventions; and (c) foster dialogue among governments and between governments, the private sector and other relevant stakeholders.
Net importers of medical goods have a strong interest in keeping trade routes open, and in avoiding ruinous bidding wars for whatever supplies are available on international markets. Yet in the absence of assurances on these matters, it should not be surprising if such nations subsidized the substitution of imports with domestic production, notwithstanding the evident inefficiencies involved in doing so. At a time when public finances are under great strain in many countries, avoiding further demands on national budgets is clearly desirable. So, too, is avoiding the trade tensions that would result from another wave of crisis-induced subsidization.
Net exporters of medical goods, in addition to national public imperatives, have a commercial interest in keeping foreign markets open for their producers. Plus, to the extent that health procurement systems in other countries may start to penalize excessive sourcing from particular countries or regions, exporters have a stake in the creation of mechanisms to ensure the transparent and even-handed application of any resultant trade restrictions that might come into force.
As the largest exporters of medical goods, China, the EU and the US all have a significant commercial interest in reducing policy-induced uncertainty in the trillion-dollar trade in medical goods.
As the largest exporters of medical goods, China, the EU and the US all have a significant commercial interest in reducing policy-induced uncertainty in the trillion-dollar trade in medical goods, and in discouraging the development of inefficient domestic substitutes in their trading partners.
Although China is not a member of the G7, nothing in principle would prevent engagement with trade officials from Beijing early in the process of drafting the above-mentioned G7 MoU. For those seeking to ease the trade tensions of recent years, finding common ground between G7 members and China on keeping trade routes open for medical goods will be a lot easier than deliberations over subsidies and related level-playing-field matters.
There is also plenty of scope for international cooperation to reduce the policy-induced uncertainty and trade barriers which, during fraught times such as a pandemic, might otherwise discourage manufacturers from scaling up the production of medical goods. Reassuring corporate executives in the medical goods sector on this point is important, as the scaling up of supply capacity is essential if shortages are to be tackled sooner rather than later.
In conclusion, enlightened self-interest and joint action by governments to facilitate the flow of medical goods, including vaccines, across national borders can help to counter supply shortages that may arise from demand spikes during public health and other emergencies. Expectations of what trade policy can deliver should be realistic, however. Trade is part of the solution, but so is ensuring that demand for medical goods does not rise too much in the first place.
