Perhaps it is already a cliché at this point, but the last months have taught me many lessons. One of them is that our – global – supply chains can prove vulnerable in times of crisis.
Take face masks, for example. In the face of a demand surge, various countries banned or limited their exports to maintain local supply. Meanwhile, India’s restriction of exports on dozens of pharmaceutical ingredients and medicines (such as paracetamol) led to fears about shortages. German consumer group Verbraucherzentrale Bundesverband highlighted that while the EU might export medical devices and products, it does not manufacture basic substances or protective equipment.
The result of this export-import drama: a major discussion on ‘reshoring’ (that is, bringing the production back home) versus ‘diversification’ of supply chains (ensuring that you can import from different suppliers and countries). I appreciate that the practicalities of this debate – like the supply chains themselves – are extremely complex, depending on whether one speaks of face masks, an apple (the fruit, not the company) or a niche component for the car sector.
Now, consumer groups would be cautious about a blanket approach. Instead, it is important to consider the impact on consumer choice and price, as well as the risk of lowering consumer protection in certain sectors. Let us nuance the debate.
For example, there might be value in boosting domestic (that is, European) production for essential medicines. Trade policy would have to ensure then that ‘trade rules’ do not prevent such an effort to increase the EU’s resilience. Boosting domestic production, however, cannot be the only solution: It is very important the EU and its Member States team up with global partners to prevent future supply disruptions and to have a geographically diverse set of import sources in the event of another pandemic.
An agreement between members of the World Trade Organization (WTO) could help by eliminating tariffs on medical goods, devices and vaccines. It could also set clear rules during a pandemic, look into diversifying the production of active pharmaceutical ingredients, and improve the exchange of information on drug shortages.
COVID-19 has highlighted the limits and weaknesses of globalised and intricate supply chains in the food sector, too. Countries tend to highly specialise their agricultural production. For example, the EU is a global champion in milk production and potatoes. But overspecialisation and export orientation can, in times of crisis as is the case with COVID-19, leave countries vulnerable to trade restrictions and sudden shifts in demand. A practical example: As producers could not sell to restaurants and were less able to export, Belgians were urged to eat frites twice a week and the French to eat more cheese. But eating fries twice a week will not solve supply chain issues.
This makes the food sector an area where more local, diversified – say, growing more pulses and beans – and sustainable production from shorter supply chains makes sense. This is one of the objectives of the EU’s Farm to Fork strategy. Here, the EU’s trade policy must not run counter to the bloc’s efforts to bring the ‘farm’ closer to the ‘fork’ in a bid to achieve a more resilient and sustainable food system.
Let us also take a look at another sector, that of essential chemicals: were we to fully reshore their production, we might see immediate calls for deregulation. This is because competitiveness in many essential chemicals is driven primarily by energy and feedstock prices, which are lower in for example the United States. As a result, ethylene – the basic chemical building-block in plastics – is about twice as expensive in Europe than in the US. That would leave (claimed!) ‘regulatory burdens’ as the one cost factor the EU can tweak to allow EU producers to better compete with foreign ones. The ‘price’ to pay for reshoring essential chemicals could thus easily turn out to be the EU’s ability to protect its consumers, workers and environment.
There is no easy answer to the supply chain weaknesses we have witnessed in the first half of 2020. That is why we call for a case by case approach in the European Commission’s upcoming review of its trade policy.
Cover picture by Andrew Buchanan (via Unsplash)