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What can the European Union learn from America's COVID-19 vaccine supply chain policy?

Photo Credit: REUTERS/Yves Herman

Prepared remarks delivered to the European Parliament hearing "Special Committee on COVID-19 Pandemic: Lessons Learned and Recommendations for the Future"

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Thank you to the Special Committee for the opportunity to share with you policy lessons for the European Union from my research on COVID-19 vaccine supply chains. For more details, I would point you to additional written materials that I am honored to provide.

Operation Warp Speed was the US federal government program for COVID-19 vaccine development and manufacturing. To begin, I want to acknowledge the criticism the United States deserves for its failure to share doses—i.e., to "export" them—once those vaccine doses had been manufactured. However, an important separate issue involves understanding what aspects of the US policy response under Operation Warp Speed allowed it to manufacture so many more earlier doses than its peers, especially in Europe. For example, according to data from Airfinity, US plants delivered 103 million doses by the end of February 2021. In contrast, India provided 40 million doses and the EU only 27 million. By the end of March, the United States supplied nearly 200 million doses, compared with 117 million for India and 140 million for the EU. While the EU and India produced hundreds of millions of more doses than the United States overall—by the end of 2021—the United States was relatively more successful at producing hundreds of millions of early doses.

In response to a pandemic, earlier vaccine doses save lives. Though the United States itself could have done better, I will identify basic lessons from the US approach that are important for the European Union and others to consider as they develop their own pandemic preparedness frameworks.

I will stress five key points.

First is the importance of diversification. In early 2020, the United States provided substantial funding for seven different vaccine candidates. Some of those candidates failed to make it through clinical trials, as expected. But three—the vaccines from Pfizer-BioNTech, Moderna, and Johnson & Johnson succeeded. Diversification also mattered when there were subsequent and highly publicized manufacturing problems for the Johnson & Johnson vaccine at its main production facility in the United States.

Second, the Operation Warp Speed subsidies were large and they were given early. The federal government provided financial support and coordination to help expedite costly Phase 3 trials. Importantly though, it also provided financial support early enough that companies could establish their production facilities, contract with input providers, and build out their supply chains—all from scratch, since these were new products—3 to 5 months before any candidates were approved for emergency use by the Food and Drug Administration. Without that early and guaranteed funding, the companies likely would have been unwilling to take the financial risk to sink all of those vaccine-specific investments. It would have made financial sense for companies to wait. By shifting the financial risk of a failed Phase 3 trial from the companies onto the government, the benefit in this instance was that tens of millions of doses were already produced and thus immediately available in December 2020, once the FDA approved some of the vaccines for emergency use. Put differently, the United States did not need to wait another 3 to 5 months from that point for the firms to then scale up their production facilities.

Third, at least some of the US arrangements with vaccine manufacturers had additional price benefits for early doses delivered. From what is publicly known about the contract with Moderna, for example, there was an additional incentive of $3.00 per dose to meet an emergency-use authorization deadline of January 31, 2021. This created incentives for firms to deliver more quickly and potentially install additional capacity. Contracting on capacity—for example, 100 million doses delivered by a particular date—would also have subsequent benefits for the rest of the world, in the form of being put to use to supply vaccine doses to other countries. Contracting on capacity—as opposed to simply signing up to doses, and being allocated a place later in a queue—is important in a global health emergency.

Fourth, US government officials were highly involved in the vaccine supply chains, working to quickly resolve any input bottlenecks. Because of priority-rated contracts written with the vaccine manufacturers under the Defense Production Act, the federal government had access to supply chain relationship information that would not have otherwise been known to policymakers, let alone the public. The US government thus sometimes knew what shortages to watch out for in many of those input supplier–output facility relationships. With inputs being scarce and multiple vaccines all scrambling for those inputs and attempting to scale up production at the same time, the US government could, in theory, help ration those inputs to their most socially productive use. (Normally prices ration inputs, but there are arguments why price signals may not work properly during such a health emergency.)

Fifth, in addition to rationing scarce inputs, the US government also actively subsidized some input providers to build additional capacity. This too would help minimize input shortages. Again, the laudable goal was that vaccine output objectives not be held back by preventable input shortages.

However, there were certainly imperfections with the US approach.  The US government was almost surely unable to subsidize capacity expansion of all of the relevant input suppliers, even for vaccines made locally.

Furthermore, when supply chains are cross-border, other problems will emerge that demand international policy coordination and cooperation. The United States did not have visibility into the input needs of European vaccine manufacturers sourcing from US suppliers, for example. Without that information, it was not able to ration scarce inputs in a way that was globally efficiently. (This was partially resolved beginning only in March 2021 when the White House and European Commission announced formation of a high-level task force.)

Yet another problem is that the United States would not have faced the right fiscal incentives to adequately subsidize expansion capacity of input providers also needed by vaccine manufacturers in Europe or any other country. For this reason, public health emergencies demand a coordinated subsidization across countries, across the entire supply chain, through an investment and trade agreement.

From my research, the implication for Europe is that it should have done much more of what the United States did well. It should have subsidized additional vaccine candidates as a form of diversification. It should have subsidized earlier clinical trials and provided public funding at risk so that the firms built out their production capacity and supply chains earlier—i.e., before resolution of Phase 3 trials and authorization by the European Medicines Agency—even though that would have meant (like the United States), some of those public investments would not bear fruit.

Earlier doses, and more doses, would have saved more lives, livelihoods, and would have reduced the economic costs of the pandemic.

What Europe did do well—and what the United State can learn from Europe—is to share doses once they are produced, and to show more support for an international vaccine distribution scheme in the spirit of COVAX.

What Europe and the United States need to do better, cooperatively, is to jointly subsidize to scale up their interdependent supply chains, to work together to identify input shortages, and to ration scarce inputs together to maximize total, joint vaccine production during such an emergency.

Thank you, and I am happy to take any questions.

References

Bown, Chad P., "The WTO and vaccine supply chain resilience during a pandemic," Journal of International Economic Law, forthcoming.

Bown, Chad P., "COVID-19 vaccine supply chains and the Defense Production Act," Oxford Review of Economic Policy vol. 38, no. 4 (Winter 2022): 771-796.

Bown, Chad P., "The US was quick to produce COVID-19 vaccines. Then it fell behind." PIIE Realtime Economics, June 21, 2022.

Bown, Chad P. and Thomas J. Bollyky, "How COVID-19 vaccine supply chains emerged in the midst of a pandemic," The World Economy vol. 45, no. 2 (February 2022): 468-522.

Bown, Chad P., "How COVID-19 medical supply shortages led to extraordinary trade and industrial policy," Asian Economic Policy Review vol. 17, no. 1 (January 2022): 114-135.

Bollyky, Thomas J. and Chad P. Bown, "The Tragedy of Vaccine Nationalism: Only Cooperation Can End the Pandemic," Foreign Affairs vol. 99, no. 5 (September/October 2020): 96-109.

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