The EU’s Open Strategic Autonomy in the Field of Pharmaceuticals

The establishment of HERA

The pandemic has shown that coordinated action at the European level is necessary to counter public health crises. In view of the trade dependencies that have become ap­parent and the fragility of supply chains, a central task of HERA will be to secure the European population’s supply of healthcare goods.

The establishment of HERA is based on a decision issued by the European Commission on September 16, 2021. Institutionally, HERA is set up as a Directorate-General and reports to the European Commissioner for Health and Food Safety. It is thus less autonomous from the EU Commission than an Agency. In essence, HERA is intended to ensure member states’ unified and coordi­nated approach in two “working modes”, namely preparedness and crisis response. Although member states are directly in­volved in the execution of tasks by way of their inclusion in the “HERA Board” and the “HERA Advisory Forum”, this constitutes their only direct influence over the Authority, since the establishment and bud­get of Directorates-General are carried out by the Commission. This creates ten­sion, as member states’ health policies and health care regimes are exempt from harmonisation by Article 168(5) of the Treaty on the Functioning of the EU (TFEU). Although HERA’s mandate is not focused on harmo­nisation, its establishment as an Agency as opposed to a Directorate-General could have reduced member states’ concerns and created more transparency vis-à-vis the European Parliament (EP) and the Council of the European Union.

HERA has five tasks nested under the preparedness “working mode”: (1) monitoring and assessing potential threats and developing countermeasures, (2) promoting research, (3) advancing knowledge and skills in preparedness and response, (4) pro­curing, stockpiling, and distributing medi­cal supplies, and (5) “addressing market challenges” and strengthening “open stra­tegic autonomy”.

The budget to fulfil these tasks is € 6 bil­lion over six years. Comparatively, the Bio­medical Advanced Research and Development Authority (BARDA) in the US had a $1.6 billion working budget in 2022, there­fore, it would seem that HERA’s funding is at a similar level in terms of GDP although the US has a smaller population than the EU and BARDA has less tasks. HERA’s fund­ing is provided through the Multiannual Financial Framework 2022–2027 and NextGenerationEU. In 2022, € 165.3 million have been allocated to strengthening “open strategic autonomy” in the field of health commodity manufacturing.

HERA’s mission aligns with the EU’s over­all trade policy objective of achieving more “open strategic autonomy” as formulated in the Trade Policy Review. This desired “open strategic autonomy” is defined as the ability to make decisions independently while taking into account one’s own interests and values. The word “open” indicates that free and fair trade with partners is not decoupled from the approach, but always in the foreground. In the health sector, similar conflicting objectives and problems arise to those that emerge in other areas where supply chains are currently restructured. This dynamic will be analysed below through the lens of the EU’s quest to iden­tify depen­dencies in the trade of healthcare goods via HERA.

The identification of dependencies

A key part of HERA’s work will initially be to identify import dependencies. As early as 2020, the EP highlighted the importance of the geopolitical dimension of drug imports, as China and India, for example, produce 60 to 80 per cent of active pharmaceutical ingredients (APIs). In addition, according to the German Federal Institute for Drugs and Medical Devices (BfArM), there are already significant supply shortages of active in­gre­dients in Germany.

While all medical goods are of interest in this context, a special focus should be placed on antibiotic APIs. This is because antibiotic APIs can currently hardly be produced at cost-covering levels in the EU, which is why there are few incentives to reshore their production. The problem therefore lies less in the creation of production capacities, but rather in the fact that investments in this sector are unprofitable due to high labour costs and low (fixed) prices. This reality is compounded by supply shortages and re­search and development needs resultant of growing antimicrobial resistances (AMR). This is particularly problematic as antibiotics are used at all stages of medical treat­ment, whether conservative or surgical.

According to UN Comtrade data, the vol­ume of EU antibiotic imports has decreased slightly since 2001. This is also in line with the findings of the European Centre for Disease Prevention and Control (ECDC), according to which the use of antibiotics in human medicine has been declining in the EU. The same also applies to the import surplus, which has been in decline.

Still, the data nonetheless indicates that the EU is dependent on imports for its anti­biotics. To determine whether these depen­dencies are concentrated risks that have the potential to limit the EU’s open strategic autonomy, the relevant trading partners must be identified. Important in this analysis is the distinction between finished pharmaceutical products (FPPs) and APIs. The following analysis excludes FPPs and only looks at APIs, as these are the key element for the production of antibiotics in the EU.

Ensuring open strategic autonomy in the field of antibiotics first requires the iden­tification of dependencies in antibiotic API imports. Figure 1 (see p. 4) shows the total volume of antibiotic API imports (for human and veterinary use, HS 2941) distributed among the EU’s five largest trading partners in 2021, since 2001. Replication materials for Figures 1 and 2 are available at https://doi.org/10.7802/2492. A remainder that cannot be attributed to any partners is not in­cluded. This figure clearly shows the EU’s increasing dependency on Chinese anti­biotic APIs. While about 37 per cent of all EU API imports came from China in 2001, this share more than doubled to about 79 per cent in 2021. Even if the un­allocated remainder of imports is taken into account, China’s overall share of all EU API imports is still around 66 per cent. The US, on the other hand, lags far behind in second place, accounting for only about 6 per cent. Twen­ty years ago, the US was the EU’s largest API trading partner, accounting for around 48 per cent of its API imports. Thus, there is an extraordinarily strong import concentration of Chinese APIs.

Figure 1 also underscores the need to look at the actual weight of imports rather than just their value; because in reality, based on value alone, China would only account for about 28 per cent of EU API imports in 2021. Looking at the value thus leads to a representation that is distorted by price differences, thereby masking depen­dencies. Similarly, dependencies are underestimated when imports of antibiotic FPPs are considered: Here, China is still the most important import partner, but it ac­counts for only about 24 per cent of the EU’s overall FPP imports.

Pathways to open strategic autonomy in antibiotics

In line with HERA’s mission, the Commission’s Communication on the Pharma­ceutical Strategy explicitly references “open strategic autonomy”. Further, the Com­mission identifies three paths to reducing dependencies, namely by (1) producing in Europe, (2) diversifying value and supply chains, and (3) stockpiling.

Still, it is largely unclear which exact measures HERA will take in order to achieve the goals stated in the pharma­ceutical stra­tegy. Therefore, the following sections out­line how the path to open strategic autono­my could be realised in the field of antibiotics by looking at initiatives in other areas.

Incorporation into global health governance

While the EU’s pursuit of greater strategic autonomy is indispensable in safeguarding its values and interests, it must be careful not to undermine them at the same time. As a civil and normative power, the EU should not decouple from international partners in global health governance; doing so would be incompatible with its self-image and stated goal of achieving “open” strategic autonomy. Rather, its pursuit of this aim should only be seen as a means of overcoming concentrated import risks, and the EU should embed this aspiration in its overall geopolitical strategy, especially with regard to the EU’s relations with China.

Given China’s growing influence in Asia and Africa, the EU has already begun to strengthen ties with the African continent, most recently launching a € 300 billion investment plan under the Global Gateway Initiative. While strategic competition with China in Africa is particularly evident in the areas of infrastructure and lending, there are also increasing linkages between African countries and China in the health sector. These relate to disease surveillance and treatment and the supply of health commodities, such as antibiotic FPPs.

To shed light on these linkages, Figure 2 shows the export volume of antibiotic FPPs (HS 300410 and 300420) from China and the EU to African countries. While the EU’s volume has been relatively stable with minor fluctuations, Chinese exports have increased significantly since 2001. Therefore, in view of EU geopolitical strategies and HERA’s work, the dependencies of third countries must also be taken into account. In addition, the dependencies of other coun­tries in the global South outside of Africa need to be examined.

In principle, there are two ways in which HERA’s sought after diversification of anti­biotic supply can be incorporated into global health governance: (1) by collaborating with third countries where antibiotics may be needed, and (2) by integrating HERA’s activ­ities into WHO programs.

Although it would be difficult to fully produce antibiotics in third countries that would otherwise receive antibiotic FPPs by way of development cooperation, these countries could still be included in supply and value chains. This will also require ex­panding the WTO Pharma Agreement. It would also be possible to involve the Euro­pean and Developing Countries Clinical Trials Partnership (EDCTP) here.

In addition, it would make sense to in­tensify cooperation with the WHO in the context of building European production capacities and the planned stockpiling of medical goods in the EU. For example, EU purchase quotas for antibiotics produced within Europe could be an instrument to increase the attractiveness of producing in the EU, whereby the antibiotics acquired in this way could then be shipped to third countries within the framework of WHO programs or in the event of a disaster with­in the framework of rescEU. This would give the EU the opportunity to expand its role in global health as an “emergency pharmacy”.

Conclusion and recommendations

The EU’s newly created authority HERA is taking a central role in reforming the Euro­pean health architecture. One goal of this reform is to increase the EU’s open strategic autonomy in the field of pharmaceuticals. While this aim is relatively clearly stated, the path to achieving it is hardly spelled out. The current revision of the EU’s gen­eral pharmaceutical legislation, joint pro­curement of vaccines and plans to establish incentive structures for research into new antibiotics, are just the beginning of this journey. In view of seizing opportunities and developing strategies in this realm, the EU should:

• Identify dependencies: Concentrated import dependencies in the health sector must be comprehensively analysed. The EU’s strong import dependence on China in the area of antibiotic APIs has already been identified. Further, analyses must not only focus on the value of imports, but also on their quantity. Likewise, a distinction must be made between APIs and FPPs. In addition, individual com­ponents for production must also be con­sidered, such as nutrients.

• Pursue the paths to autonomy: Capacity building, import diversification and stockpiling appear to be suitable mea­sures to reduce the EU’s strategic dependencies. When it comes to the concrete design of these measures, it is ad­visable to adopt action from similar initiatives. The European Chips Act, the Critical Raw Materials Act, the European Raw Materials Alliance and the EU Civil Protection Mechanism are particularly suitable.

• Incorporate aims into global health governance: In the pursuit of strategic autonomy, the EU runs the risk of quickly de­coupling from partners and processes in global health governance. This can be avoided by building value and supply chains with third countries, many of which are currently dependent on China, and by embedding the EU’s new capacity and supplies into assistance programs.

In addition to pursuing these objectives, the German government should, first, move away from the current trade model in the pharmaceutical sector, in particular by re­locating production to the EU and by diver­sifying pharmaceutical trade. For geopolitical reasons, the existing model of importing low-priced pharmaceuticals from individual countries acting as “pharmacies of the world” must be overcome as quickly as possible. The law announced by the BMG intends to surmount supply shortages and is an important step in the right direction. However, it will be necessary to integrate it into EU strategies. To this end, Germany’s future budget contributions to the IPCEI should also be increased. Second, the Ger­man government must develop a way to deal with rising prices. The diversification of trade and supply chains will bring with it considerable costs, and the resultant rise in prices must be adequately communicated and comprehensively cushioned.