The Covid-19 Vaccine Production Club: Will Value Chains Temper Nationalism?



Simon J. Evenett | Bernard Hoekman | Nadia Rocha | Michele Ruta | The World Bank Group

1. Introduction*

That vaccines for COVID-19 were developed so quickly during 2020 was a welcome source of hope in an otherwise bleak year. The approval of several vaccines at the end of last year was seen by many as a turning point in the global response to the pandemic, raising expectations that the threats to public health would soon be tackled through national inoculation strategies and that, ultimately, restrictions on everyday life could be lifted (IMF 2020).

The optimism witnessed in the New Year dissipated in the face of delays to the production of COVID-19 vaccines (Harford 2021)6 and reports that mutations of the coronavirus have resulted in new “variants,” some of which pose a greater public health threat than the original strain. The former has resulted in some governments losing trust in certain vaccine manufacturers, which in turn has triggered a controversial trade policy response (Evenett 2021a). The latter has led to the realization that COVID- 19 may become a permanent threat to global public health, potentially requiring different approaches by governments and by international organizations as vaccines race against new variants of COVID-19 (The Economist 2021a).

These developments amplify the tension between policy responses that tend to be national and a virus that does not respect jurisdictional borders. In turn this has raised the risk that governments engage in Vaccine Nationalism, taken to be zero-sum steps that come at the expense of the public health of the populations of other nations (Bollyky and Bown 2020, Freund and McDaniel 2020).

Vaccine Nationalism can take the form of overt export bans or limits—that aim at increasing domestic availability of vaccines at the expense of foreign supply—or they can take less transparent but often equally effective forms. Subtle mechanisms that are available to governments of vaccine producing nations include delays in shipments and conditioning delivery abroad on imports of vaccine from other production locations (Evenett 2021a). Finger-pointing between governments in February 2021 highlighted the potential for both covert as well as overt limits on vaccine exports.

Whether the world trading system will fail its COVID-19 vaccine-related stress test will depend on the incentives confronting governments. A potentially important factor in this regard is the existing pattern of cross-border value chains involved in the production and distribution of COVID-19 vaccines. A government that pre-ordered vaccines from producers located abroad may think twice before curtailing exports of vaccines or vaccine ingredients manufactured at home.7 This is suggested by the broader hypothesis in the international trade and business literatures that the presence of cross-border value chains reduces the incentive of governments to engage in protectionism (Gawande et al. 2015;Blanchard et al. 2017, Baldwin 2018, Krugman 2018, World Bank 2020).8 Could vaccine-related value chains provide a bulwark against Vaccine Nationalism, to the benefit of populations at home and abroad? If so, during the current pandemic this particular configuration of international business would have broader societal as well as commercial benefits by inducing governments to keep trade routes open. The backdrop to these vaccine-related developments is the return of geopolitical rivalry and associated Economic Statecraft (Baldwin 1985; Aggarwal and Reddie 2020, 2021), which may color the policymaking calculus.

Recent actions and statements by large trading countries make clear that the risk of export curbs on vaccines and vaccine ingredients cannot be discounted. The purpose of this paper is to examine the degree to which international value chains implicated in the production of COVID-19 vaccines satisfy the necessary conditions to temper resort to this form of Vaccine Nationalism—between states where final vaccine manufacturers are located, between final vaccine manufacturers and producers of vaccine ingredients, and between states within and outside the COVID-19 vaccine value chains.

We use information from detailed regulatory filings to identify the key ingredients of COVID-19 vaccines, other ingredients that are used in vaccine production, and selected products used for distribution (Annex Table 1). We then draw upon a number of commerce-related data sources—monthly customs data for the EU, annual global trade flows data from UNCOMTRADE, and firm-level data on pharmaceuticals’ headquarters and affiliates from Orbis—to obtain a picture of the supply chain of COVID-19 vaccines. The data clearly point to high concentration and self-reliance in COVID-19 vaccine production among a group of 13 countries9 that we refer to as the “COVID-19 Vaccine Producers’ Club” or simply the “Vaccine Club”.10 These countries are not only where the headquarters of the companies currently producing COVID-19 vaccines are found—they are also where 91% (783 out of 857 subsidiaries worldwide) of the subsidiaries of these companies are located. They also account for 60% of total confirmed advance purchasing agreements with pharmaceutical companies for vaccine doses.

The trade data show that vaccine producers are both the main source and destination of exports of COVID-19 vaccine ingredients, especially when we narrow down the analysis to key ingredients. Trade data for the 2017-19 period show that vaccine producers sourced 88.3% of key ingredients from other vaccine producers. The shares of imports of key ingredients from other vaccine producers as a group ranged from a low of 76.4% (India) to 98.7% (United Kingdom). In contrast, 68% of vaccine producers’ imports of all goods came from the Vaccine Club. The two top exporters of key ingredients are the United States and the European Union, which accounted for half of total exports, followed by United Kingdom, Japan and China with significantly smaller shares. Monthly data for the European Union show that extra-EU imports and exports of vaccine ingredients took off sharply from the second quarter of 2020. Extra-EU imports grew faster from vaccine producers than from non-vaccine producers, strengthening the dependence of the European Union on the Vaccine Club—a pattern that would most likely apply to other vaccine producers as well.

What are the implications of the current structure of the COVID-19 supply chains for trade policy and the production and distribution of vaccines worldwide? To differing degrees, members of the Vaccine Club have leverage over other members; that is, they can retaliate along the COVID-19 vaccine supply chain. Governments outside this club, which constitute the overwhelming majority of nations, have no such leverage. However, other options are available to the latter nations (a statement of fact rather than an endorsement, as will become clear.) The existence of differential options may account for differences in how governments across the world react any outburst of Vaccine Nationalism, the risk of which will remain so long as glaring excess demand for COVID-19 vaccines remains unmet.

Our analysis yields four types of recommendation for both the private sector and the public sector. Although trade policies are implicated and should be carefully monitored, trade policy alone cannot eliminate the shortages of COVID-19 vaccines. We urge that particular attention be given to the private sector incentives involved, including the way government policies affect those incentives and have been shaped by unfortunate legacies from the past. We also identify a critical coordination problem that the creation of a clearing house could alleviate. The transfer of tacit knowledge—as opposed to ceding codified knowledge in the form of patents—between vaccine creators and vaccine manufacturers has been identified by numerous experts as essential to ramping up COVID-19 vaccine production. We therefore discuss means by which that knowledge can be transferred and the attendant capabilities of developing countries nurtured. As such, our approach departs from those seeking to suspend certain multilateral trade disciplines on intellectual property rights.

Our focus on the location of producers of COVID-19 vaccines and their ingredients, and on the resulting international trade between nations, addresses only one facet of the global distribution of vaccines needed to quell the current pandemic. Other recent analyses have emphasized different aspects of the global distribution of vaccines including transportation and trade facilitation challenges (ADB 2021; OECD 2021); the role of national and international intellectual property rights regimes (Abbott and Reichman 2020; Mercurio 2021; Nicholson Price, Rai, and Minssen 2020); allocation, affordability, and deployment of vaccines (Wouters et al. 2021); and the incentives created when procuring vaccines (Ahuja et al. 2021).11

Moreover, the ongoing race to develop and ramp up production of vaccines should be seen in light of longstanding concerns about the strength of private sector incentives to develop vaccines (Xue and Ouellette 2020) and the legacy of societal responses to previous pandemics, including the influenza A (H1N1) pandemic of 2009-10 and the West African Ebola virus epidemic of 2013-16. As will become evident, actions taken during the latter two episodes are likely to have influenced public and private sector decision-makers this time around.

The remainder of this paper is organized as follows. The next section outlines the current risks of policy-induced delays to vaccine exports and finds them credible. The third section deploys empirical evidence consistent with the existence of a club of COVID-19 vaccine producers. The fourth section discusses the policy implications of such a club and infers several implications for policy and the design of international cooperation. Concluding remarks on the impact of cross-border value chains on Vaccine Nationalism are offered in a final section.


To read the original report from the World Bank Group, please click here