The coronavirus crisis has sharpened the need for Europe to bolster the resilience of critical industrial supplies ranging from pharmaceutical ingredients to raw materials used in advanced batteries, the EU’s internal market commissioner has warned.
Thierry Breton said the bloc must review the reliability of its supply chains, diversify its sources and cut the risk of interruptions, while also building domestic capacity in crucial sectors including pharmaceuticals.
“In a crisis of this magnitude everything that we predicted will probably be accelerated,” Mr Breton told the Financial Times, referring to efforts already under way before the pandemic to deal with supply vulnerabilities. This meant looking “extremely carefully at the behaviour of every country where we have a supply chain”.
The early weeks of the health emergency exposed Europe’s reliance on China, in particular, for critical medical equipment as well as some pharmaceutical ingredients, triggering a dash by policymakers to find ways of boosting domestic industry.
Mr Breton said a pharmaceutical strategy due to be published later this year would seek to address the “vulnerability, sustainability and security of supplies”.
He highlighted a plan by French pharmaceuticals company Sanofi to build up European manufacturing capacity for active pharmaceutical ingredients, pointing out the continent’s heavy reliance on imports of antibiotic drug precursors from China.
He added that the bloc would have to consider whether it wanted to stockpile strategic reserves of some medicines or set up other mechanisms to improve its pandemic readiness.
“The current crisis has shown that we need to see innovative tools to ensure the fair allocation of many things,” Mr Breton said.
Pharmaceutical industry observers warn that the Commission and EU member states may need to review price regulatory frameworks and strategies to cover the higher costs of bringing back production to Europe or creating excess emergency capacity in factories.
Drugs companies have already lobbied the EU to create an equivalent of the US government’s Biomedical Advanced Research and Development Authority, which often finances the manufacture of new drugs to speed the response to pandemic influenza and emerging infectious diseases.
Mr Breton said the supply dimension of the commission’s pharmaceutical strategy was part of a wider EU effort to boost its domestic industrial capacity.
The commission will warn in an upcoming report that the EU faces “major challenges” to secure supplies of critical raw materials including lithium, cobalt and rare-earth metals used in high-tech industrial goods.
To meet climate goals, industries will need 60 times more lithium by 2050, as well as 15 times more cobalt, while demand for rare earths used in permanent magnets required in electric vehicles, robots or wind generators could increase tenfold, Mr Breton said.
Europe is 100 per cent reliant on imports of lithium, which is used in battery production, with 78 per cent of supplies coming from Chile alone, he added.
The EU has gaps in its capacity to process, recycle and separate lithium and rare earths, and even when it mines certain materials within Europe these sometimes then have to leave the continent for further processing.
The report will also highlight a lack of investment in domestic exploration and mining, while arguing that the continent needs to forge a strategic trade agenda to build sustainable partnerships with key countries including Australia and Canada.
The effectiveness of the EU’s post-pandemic industrial strategy will hinge in part on efforts to agree a recovery fund that will aim to boost the continent’s industrial resilience. Mr Breton said the fund should be between €1tn and €2tn.
Grants would be needed for urgent economic repair, whereas a programme of loans would be focused on building up investments for the future, Mr Breton said.
However, member states remain divided over the size, purpose and funding for the programme, which the commission is hoping to launch this month.
Mr Breton said that so-called frugal states in the north should swing behind the plan, given the extent to which their manufacturers benefit from the single market, as well as the scale of defence spending by southern European states.
Intra-EU trade accounts for 59 per cent of German exports, and 74 per cent of Dutch exports, for example. “Export-oriented member states are among the main beneficiaries of integration,” said Mr Breton. “Ultimately, we are all better off together.”