Recent supply-chain resilience initiatives by the US, EU and UK, and like-minded partners, provide opportunities to address shared vulnerabilities and to maintain trade-openness, with a key role for the WTO.
A number of countries have launched initiatives to strengthen supply-chain resilience. While most efforts are focused on domestic policy, the shared concerns and the universal desire to build more resilient supply chains offers an opportunity for international collaboration. Some initiatives specifically include an element of working with trusted partners. While this chapter focuses on existing efforts for supply-chain resilience in the US and Europe, initiatives by other countries (such as Japan) or among groups of countries are included to examine best practice and identify scope for greater collaboration between like-minded partners. Finally, global initiatives are discussed, with a particular focus on the WTO, not only because these efforts have implications for transatlantic measures to build resilient supply chains, but also because the US and Europe play an important role in driving these multilateral efforts.
The US
Initiatives to bolster supply-chain resilience have proliferated in the wake of the outbreak of COVID-19, but efforts predate the pandemic. In 2012, for instance, the Obama administration released the National Strategy for Global Supply Chain Security, which highlighted the importance of the global supply-chain system to US national security and economic prosperity. And in 2017, President Trump issued an Executive Order on Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States.
Following the onset of the coronavirus pandemic, various pieces of legislation aimed at the medical supply chain have been introduced in the US. The Coronavirus Aid, Relief, and Economic Security Act (also known as CARES – a $2.2 trillion economic stimulus package signed into law in March 2020) provided for the assessment of gaps and the strengthening of supply chains for drugs and medical devices. In May 2020, the Trump administration invoked the Defense Production Act and issued an executive order authorizing the International Development Finance Corporation to provide funds for expanding domestic production of strategic resources and strengthening the resilience of relevant domestic supply chains. Subsequent executive orders were aimed at strengthening the US medical supply chain and addressing import dependence on ‘foreign adversaries’ in the supply of critical minerals.
On his first full working day – 21 January 2021 – President Biden issued an executive order focused on securing supply chains of critical items needed to respond to the COVID-19 pandemic. On 24 February, the Biden administration ordered a government-wide review of critical supply chains, including for (1) pharmaceuticals and APIs, (2) semiconductors, (3) large-capacity batteries and (4) rare-earth elements. In June 2021, the administration published the findings of this 100-day review. In assessing supply-chain vulnerabilities in these four areas and providing recommendations, the report stressed the need to expand domestic production of critical goods, while strengthening international trade rules and ‘work[ing] with America’s allies and partners to strengthen collective supply chain resilience’. By 24 February 2022 (i.e. within one year of the original executive order), the Biden administration intends to complete its review of six critical sectors.
While the Biden administration’s emphasis on working closely with allies represents a break with the mostly unilateral approaches of the Trump administration, there are nonetheless similarities between the two approaches. First among these is an emphasis on increasing domestic manufacturing. Second, many of the same sectors – notably medical goods, pharmaceuticals, semiconductors and critical minerals – are at the focus of efforts to strengthen supply-chain resilience. Finally, supply chains in these sectors are considered vulnerable because of alleged over-reliance on ‘foreign adversaries’ – especially China.
While the Biden administration’s emphasis on working closely with allies breaks with the mostly unilateral approaches of the Trump administration, there are similarities between the two in terms of safeguarding critical supply chains.
Legislative actions have also been taken in the US to safeguard critical supply chains in the face of strategic competition with China. In June 2021, the US Innovation and Competition Act was passed by the Senate with bipartisan support. The Act encompasses seven major divisions by combining different bills, including the Endless Frontier Act and the Strategic Competition Act of 2021. The overall US Innovation and Competition Act seeks to establish ‘a supply chain resiliency and crisis response program’ within the US Department of Commerce. It also includes measures explicitly aimed at helping US companies diversify their supply chains away from China. In this regard, the act specifically mentions working with transatlantic partners.
Europe
Diversifying and strengthening supply chains has become a strategic priority for the EU, and specifically for the European Commission, which considers it to be a key tool in pursuit of its goal of ‘open strategic autonomy’. Supply-chain resilience is also closely linked to the renewed focus on industrial policy for Europe. In its resolution of 25 November 2020 on a New Industrial Strategy for Europe, the European Parliament has emphasized the need to increase supply-chain resilience and has called for ‘smart reshoring [to] relocate industrial production in sectors of strategic importance for the Union’. In order to enhance the EU’s industrial and strategic autonomy, the European Commission is focused in particular on securing the supply of critical raw materials (for instance by launching the European Raw Materials Alliance) and pharmaceuticals (by adopting a Pharmaceutical Strategy for Europe). In May 2021, the European Commission updated its 2020 New Industrial Strategy, including an in-depth review of a number of sectors and supply chains that are considered strategic for Europe’s interests, such as raw materials, semiconductors and APIs. Moreover, progress has been made in efforts to strengthen mandatory due diligence requirements for EU companies concerning human rights and environmental considerations in global supply chains.
For its part, the UK government is reviewing vulnerabilities in supply chains for essential goods (with particular emphasis on the perceived over-reliance on China) in the light of the COVID-19 pandemic. However, few details have emerged about this internal exercise, named ‘Project Defend’.
Japan
As part of its emergency response to the outbreak of the COVID-19 virus, Japan announced a package of stimulus measures in April 2020, which included financial grants to firms undertaking projects to diversify their supply chains. It is noteworthy that the measures are not simply targeted at reshoring production, but also include funds aimed at shifting operations to other countries. As part of the Program for Promoting Investment in Japan to Strengthen Supply Chains, 146 firms were chosen to receive government subsidies, amounting to 247.8 billion yen (approximately $2.32 billion) in total. Meanwhile, the Japanese External Trade Organization (JETRO)’s Program for Strengthening Overseas Supply Chains offers financial support to Japanese companies which seek to strengthen supply chains between Japan and the 10 member states of the Association of Southeast Asian Nations (ASEAN), including by shifting production to those states and away from other countries. While China is not singled out directly, the measures are aimed at China-dominated supply chains. At the same time, these efforts do not amount to a policy of complete decoupling from China, but should rather be seen as part of a broader strategy of enhancing resilience.
‘Minilateral’ initiatives
A small number of countries are working together and have launched ‘minilateral’ efforts to strengthen supply-chain resilience. In March 2020, Australia, Brunei Darussalam, Canada, Chile, Myanmar, New Zealand and Singapore issued a statement highlighting their commitment to ‘maintaining open and connected supply chains’ and ‘removing any existing trade restrictive measures on essential goods, especially medical supplies’.
It is notable that the US is currently absent from the Supply Chain Resilience Initiative, given that it shares many concerns with Australia, India and Japan regarding supply-chain issues.
Meanwhile, Australia, India and Japan have been driving forward a cooperative effort to improve supply chains. In September 2020, the three countries issued a trilateral statement announcing their intention to collaborate on supply-chain resilience in the Indo-Pacific region, by means of a Supply Chain Resilience Initiative (SCRI). The SCRI was formally launched in April 2021, with representatives from the three countries stating that the initiative could be expanded to other countries in due course. It is notable that the US is currently absent from the collaboration, given that it shares many concerns with Australia, India and Japan regarding supply-chain issues in general – and in particular, regarding overdependence on China for some critical products. The US absence is doubly conspicuous in that the announcement of the SCRI coincided with proposals to boost regional security cooperation within the so-called ‘Quad’ – the Quadrilateral Security Dialogue between the US, Japan, Australia and India.
Even the Trump administration – which seldom seemed to favour collaboration with partners and allies – gave serious consideration to creating an Economic Prosperity Network, an alliance of like-minded countries, companies, institutions, and civil society organizations from Australia, India, Japan, New Zealand, South Korea and Vietnam. Although the future of this initiative under President Biden is not apparent, it is clear that the new US administration is engaging allies and partners on supply-chain issues. The Biden administration has suggested convening ‘a new Presidential Forum’ to expand engagement on supply-chain resilience with groupings of like-minded countries such as the Quad and G7.
Global initiatives
In May 2020, G20 trade ministers proposed a number of actions to support global trade in response to the COVID-19 pandemic and to build resilience in global supply chains. Ministers focused on short-term collective actions, such as refraining from implementing export restrictions and streamlining customs procedures, and on specific long-term measures, such as sharing information, improving transparency and supporting the multilateral trading system and WTO reform.
The WTO is at the centre of the multilateral trade regime. It is the key forum for countries to discuss issues related to trade, and plays a critical role in maintaining trade openness, which in turn is crucial to supply-chain resilience. In the wake of the COVID-19 pandemic, the WTO has played a role in strengthening supply-chain resilience and global trade more broadly.
First, the WTO Secretariat stepped up monitoring of its members’ policies with respect to trade and trade-related measures adopted in the context of the pandemic. Such transparency facilitates information sharing between governments, which in turn supports the flow of essential products at a time of crisis. While WTO members have submitted a total of 404 notifications related to the COVID-19 pandemic (as of 30 July 2021), the current notification process is not adequate. It understates the number of measures introduced when compared to other independent trade-policy monitoring accounts.
Second, the WTO plays a role in addressing the use of export restrictions. WTO rules generally prohibit export restrictions, but allow flexibilities in emergency situations. However, the widespread use of these measures has impeded worldwide access to medical supplies and vaccines during the COVID-19 pandemic. It has also raised questions about whether the measures are consistent with WTO obligations and about the impact on countries that rely on the import of such goods.
Third, a number of initiatives have been launched among a subset of WTO members. For instance, the Ottawa Group – led by Canada and consisting of 14 like-minded WTO members – is advancing a Trade and Health Initiative which includes efforts to strengthen the resilience of supply chains to respond to health emergencies.
In short, various endeavours to build resilient supply chains are under way – ranging from working bilaterally with trusted partners and cooperating with groups of like-minded countries, to multilateral efforts at the WTO. The next chapter includes recommendations to further build on these initiatives.
