How should the EU secure the supply of goods during a crisis? How should trade policy be designed to improve economic resilience? These are questions discussed by the National Board of Trade Sweden in a new report.
What are your conclusions?
The question we focused on was whether security of supply would increase if the EU pursues a trade policy based on reshoring, or whether deepened economic integration with the rest of the world is a better strategy. Our conclusion is that an integration strategy is more effective, mainly because it gives the greatest flexibility for firms. Such an approach allows quick adaptation and the possibility to change suppliers. It also reduces the risk that the supply of certain goods are completely interrupted.
The best way to achieve greater economic resilience is through integration with a wide range of countries, with an increased flow of of goods, services, capital, data and people. Multilateral trade liberalization within the framework of the WTO is the preferred solution from this point of view.
So having production closer to home is not a guarantee that there will be no shortage of goods in a crisis?
No, because we do not know in advance what kind of crisis we will face or where it will occur geographically.
Is there any way to prevent us from ending up in a situation as in the beginning of the corona crisis when there was an immediate shortage of personal protective equipment and medicines?
The only way to guarantee that there is no interruption of supply at all, even short term, is by stockpiling goods. Stockpiling can be done both nationally and via a division of labour within the EU.
For medical equipment and personal protective equipment, however, imports increased rapidly during the spring, a few months after the outbreak of the corona crisis. Already at the beginning of the summer, the shortage had been remedied with supplies from countries that had already passed the most acute phase of the crisis. When it comes to medicines, our own production and exports increased rapidly so that the EU could help other countries reduce their shortages.
80-90 percent of EU supplies of medicines and vaccines are traded between EU countries, the United Kingdom and Switzerland, but are there still any risks?
Because the EU is such an important producer of medicines, problems can arise in a crisis that affects the production of medicines and supply chains within the EU. Although this did not happen in the pharmaceutical sector during the first phase of the corona crisis, it did happen in the automotive sector. For instance, Swedish vehicle manufacturers had to shut down production due to interruptions in supply chains within the EU.
At the beginning of the corona crisis, we also saw how France seized millions of protective face masks at the Swedish company Mölnlycke's warehouse in Lyon. The episode shows that supply chains can be interrupted due to political measures within the EU. In future crises, it is crucial that we have no more such Mölnlycke moments.
The report is a contribution to the review of EU trade policy. What do you want the EU to do to provide the best conditions for a resilient supply of goods in the event of various types of crisis?
At the beginning of the corona crisis, the European Commission responded quickly by removing barriers to imports, simplifying trade procedures and facilitating the transport of goods across borders through so-called green corridors. In preparation for new crises, it is important that the EU does not reintroduce obstacles that have now been removed. It could create unnecessary delays in the crisis response.
Unfortunately, the EU also imposed export restrictions on, among other things, personal protective equipment. From experience, we know that export restrictions are very ineffective. Although they were lifted relatively quickly, the example shows the importance of not panicking by taking ineffective measures during crises.