Symposium | Building Resilience: Advancing Local R&D and Production of Health Products in the WHO Pandemic Agreement
Navigating the Tensions Between Self-Reliance and Global Cooperation in Pandemic Preparedness
By Ronald Eberhard Tundang
Published on 13 November 2024
Introduction
The COVID-19 pandemic has fundamentally altered the global landscape of pharmaceutical supply chains, exposing critical vulnerabilities and driving a shift toward greater self-reliance. As geopolitical tensions and economic nationalism intensify, countries are increasingly prioritising the security of their medical supplies. This shift is reflected in the latest draft of the Pandemic Treaty, which seeks to balance global interdependence with national self-reliance through policies that encourage local research and development (R&D) and production, while fostering international cooperation. The purpose of this note is to emphasise that a pandemic treaty alone—even if adopted—would be insufficient for encouraging local R&D and production. What is often ignored in this debate is that encouraging local R&D and production is impossible without adopting local industrial policies. As such industrial policies are likely in breach of existing international trade and investment law, a prerequisite would be to amend international trade and investment laws.
Global Landscape: Shifting Dynamics in Pharmaceutical Supply Chains
The pandemic highlighted the risks inherent in over-reliance on global supply chains, particularly when key components of the pharmaceutical production process are concentrated in a few countries. In response, the United States and the European Union have moved to bolster domestic manufacturing capabilities, aiming to secure their supply chains against future disruptions. This trend represents a departure from the globalisation-driven model of the past, where cost-efficiency was the primary concern. Instead, the focus has shifted to national resilience and security, as countries seek to protect their populations from the vulnerabilities exposed during the pandemic.
The draft Pandemic Treaty recognises the need to address these vulnerabilities by promoting sustainable and geographically diversified production (Article 10, Sustainable and Geographically Diversified Production). The hard truth, however, is that achieving this goal requires more than just policy declarations; it necessitates the development of robust industrial policies that can support the creation of local production capacities, particularly in low- and middle-income countries (LMICs).
Policy Shift: The Critical Role of Technology Transfer
In the face of rising global health challenges, particularly those exposed by the COVID-19 pandemic, the need for effective technology transfer policies has become more urgent than ever. Technology transfer is a crucial element of any health industrial policy, especially for LMICs that seek to build local pharmaceutical manufacturing capacities. Technology transfer often involves large multinational enterprises sharing proprietary knowledge or know-how, licensing patents, and capacity building for manufacturers in LMICs. By transferring technology to local manufacturers, countries can secure a more stable and controllable supply of critical medicines and strengthen their healthcare systems.
However, despite its importance, developed countries continue to restrict technology transfer through Free Trade Agreements (FTAs), which often include provisions that limit the ability of LMICs to access critical technologies. FTAs often contain prohibition of performance requirement clauses, restricting host countries from imposing requirements on foreign investors. These prohibitions limit the ability of host countries to mandate technology transfer. Consequently, technology transfer becomes a discretionary action by the investor rather than a stipulated investment condition, potentially decreasing technology spillovers as foreign entities may choose to tightly control their proprietary technologies. Furthermore, FTAs often include investor-state dispute settlement mechanism that allow investors to challenge host country regulations, including performance requirements, if they believe these measures violate the treaty provisions. This can deter host countries from imposing performance requirements due to the risk of costly litigation.
The United States, a key player in global trade, does not have a technology transfer policy aiming to benefit developing countries. Instead, its focus has primarily been on protecting intellectual property rights and ensuring that technological advancements remain under the control of private entities. This approach is evident in the various FTAs that the US has negotiated. These FTAs often include TRIPS-plus provisions that further restrict the ability of LMICs to conduct research and development on still-patented drugs, which is essential for building the capacity of LMICs to produce critical medicines and respond to public health emergencies.
The draft Pandemic Treaty acknowledges the importance of technology transfer in achieving sustainable and geographically diversified production (Article 11 on Transfer of technology and know-how for the production of pandemic-related health products). However, without a concerted effort to revise existing trade agreements and remove barriers to technology transfer, the objectives of the treaty will be difficult to achieve. Current trade and investment rules, particularly those enshrined in FTAs, place significant restrictions on the ability of developing countries to implement the industrial policies needed to build their own pharmaceutical industries.
For LMICs to truly benefit from global health innovations and develop self-reliant pharmaceutical sectors, there must be a shift in international policy that prioritises technology transfer. This shift would require developed countries to not only allow but actively support the transfer of technology, including through the relaxation of restrictive provisions in FTAs. Such a policy shift would enable LMICs to develop the capacity to manufacture essential medicines, thereby reducing their dependency on imports and enhancing their ability to respond to future health crises.
R&D Subsidies: A Key Element of Health Industrial Policy
One crucial element of any health industrial policy is R&D subsidies. These subsidies are essential for fostering innovation and supporting the development of new pharmaceutical products, particularly in areas that may not be immediately profitable for the private sector, such as vaccines for emerging infectious diseases.
However, R&D subsidies are subject to scrutiny under the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM). The SCM Agreement disciplines subsidies that distort international trade, and R&D subsidies can be challenged if they are perceived to give domestic firms an unfair competitive advantage. This issue has been at the center of high-profile disputes, such as those involving Boeing and Airbus, where R&D subsidies were found to violate WTO rules.
Given the unique challenges posed by the global health landscape, it is imperative that flexibility be granted for R&D subsidies in the pharmaceutical sector, particularly when these subsidies are implemented to achieve sustainable and geographically diversified production. Unlike the aerospace industry, where subsidies can lead to significant market distortions, R&D subsidies in the pharmaceutical sector are often necessary to address public health needs that the market alone may not fulfil. These subsidies can support the development of critical medicines, ensure the availability of essential vaccines, and build the capacity of LMICs to participate in global supply chains.
The draft Pandemic Treaty recognises the importance of such investments (Article 9, Research and Development), and to implement this vision effectively, the WTO’s trade and investment rules may need to be revisited. This would allow member states to provide the necessary R&D subsidies without fear of violating international trade obligations, thereby enabling a more equitable and resilient global health system.
Risks of Repatriation: Market Distortions and Global Trade Concerns
While repatriation of pharmaceutical production has its advantages, it also carries risks. Fragmenting global supply chains can lead to inefficiencies and increased costs, potentially exacerbating disparities in access to medicines. Moreover, aggressive industrial policies in high-income countries could create market distortions that disadvantage LMICs, particularly if these policies include protectionist measures that violate WTO rules.
The draft Pandemic Treaty addresses these concerns by promoting transparency in trade and procurement practices (Article 13, Supply Chain and Logistics), and by encouraging international collaboration to avoid the pitfalls of unilateralism. However, Article 13, which establishes the Global Supply Chain Network (Network) to identify pandemic-related products and promote their distribution where most needed, may face significant challenges in its implementation due to power dynamics. During the COVID-19 pandemic, high-income countries hoarded most of the critical medical supplies, often outbidding poorer nations and undermining global equity. Given these historical power imbalances, the effectiveness of the Network will depend heavily on the willingness of powerful nations to adhere to principles of equity and solidarity, rather than prioritising their own interests.
Solution via Regional Hubs: A Balanced Approach
To mitigate the risks of repatriation and ensure a more equitable distribution of pharmaceutical production, the creation of regional production hubs is a strategic solution. These hubs would centralise manufacturing in various global regions, reducing reliance on any single country and fostering a more diversified supply chain. For LMICs, regional hubs offer a way to build local capacity while benefiting from economies of scale and shared resources.
In 2008, the WHO facilitated the creation of a technology transfer hub for influenza vaccines (ITPIV), which supports eleven manufacturers in LMIC. ITPIV has been successful with the increased capacity of those manufactueres. Another example is the Developing Countries Vaccine Manufactueres Network (DVCMN), a public health-driven alliance of vaccine manufacturers from developing countries. The DVCMN provided manufacturers in developing country with in-house capacity, a feature which traditional licensing method won’t be able to achieve. Lastly, the WHO mRNA Hub is an ongoing effort to develop mRNA vaccines production capabilities in 15 LMICs.
Regional hubs could serve as a middle ground between global interdependence and self-reliance. However, the effectiveness of these hubs is currently constrained by existing trade and investment rules. For example, many investment treaties prohibit performance requirements, making it difficult for developing countries to mandate that foreign investors contribute to building local capacities. Furthermore, TRIPS-plus provisions in FTAs limit the ability of generic manufacturers in developing countries to conduct research and development on still-patented drugs. While there is some flexibility through compulsory licensing, this flexibility is generally only applicable during public health crises, which does not account for the ongoing needs of developing countries outside of such crises.
Conclusion: Revisiting Trade and Investment Rules
As the international community negotiates the Pandemic Treaty, it is crucial to strike a balance between self-reliance and global interdependence. The development of industrial policies that support local production, particularly in LMICs, is key to achieving this balance. A critical component of these policies is the flexibility to provide R&D subsidies in the pharmaceutical sector, especially when they are aimed at achieving sustainable and geographically diversified production.
In sum, to enable local production of pandemic related goods, a pandemic treaty, even if adopted, is not enough. Rather, there is a need to reform international trade and investment law too. In particular, I have highlighted the roles of the WTO SCM Agreement, FTAs and bilateral investment treaties that have TRIPS-plus provisions. This includes allowing greater flexibility for R&D subsidies, as well as addressing the restrictions posed by performance requirements and TRIPS-plus provisions in FTAs and bilateral investment treaties. Without such changes, the potential of regional hubs as a viable solution to balance self-reliance with global interdependence will remain limited. Revisiting these rules would not only support innovation and equity in global health but also help build a more resilient and cooperative international system capable of responding to future pandemics.
Ronald Eberhard Tundang is a Ph.D. Scholar at Chinese University of Hong Kong