** Originally published by Peterson Institute for International Economics on 27 March 2020 **
The shortage of gloves, gowns, face masks and other personal protective medical gear to fight the COVID-19 pandemic illustrates what everyone should know: The United States depends on global (and hemispheric) supply chains. Take the plans of HanesBrands to shift production from t-shirts and underwear to cotton masks in factories in El Salvador, the Dominican Republic and Honduras. This production, under US federal contract, is expected to deliver 5 million or more protective masks weekly.
The United States and its trading partners can facilitate this commerce and avoid ill-advised policies that stifle it. For example, the European Union (EU) has made freely available its basic standards for certain personal protective equipment (PPE) and medical devices to expedite and increase production both in EU member states and in countries outside the bloc. Under this arrangement, firms will no longer need to purchase and use European standards according to intellectual property rules, allowing factories to convert their production lines quickly.
To complement this initiative, the European Commission has recommended speedier conformity assessment procedures and market surveillance of these products. On the downside, these smart moves run counter to the shortsighted recent EU export restrictions limiting sales of medical gear outside of the EU single market.
Similarly, Inditex, one of the world's largest fashion retailers, redirected its plants in China to produce PPE for export to Spain. Thankfully, recipient countries are not insisting on "Made at Home" requirements and can quickly source high-quality and safe products from competitive locations. In many cases, these production facilities are in developing countries and regions – for the United States, they are in nearby Central America, the Caribbean and Mexico.
Unfortunately, as exposure to the coronavirus rises, countries in Latin America and the Caribbean, as well as Africa, will also soon need increased medical gear to treat their own patients and protect medical workers. Developing countries have weaker health and infrastructure systems and more limited resources to fight the virus.
A compact to encourage global production and distribution of medical supplies could be forged based on the examples cited here and also examples from the past record on vaccines. A public-private partnership involving large manufacturers, international transportation and logistics firms, developing- and advanced-country governments, and international financial institutions could help. Here is what needs to happen.
Large manufacturers should expand and convert current production facilities to increase capacity, leveraging global and regional value chains; international transportation and logistics firms should prioritize movement of COVID-19-related gear and parts and components.
As in the examples of Inditex and HanesBrands, multinationals should move to retrofit production lines in their developing-country plants to produce PPE to serve the needs of patients, be they in New York or in Honduras. Nearshore locations would most likely have an advantage given the need for rapid turnaround. Despite the severe disruption, transportation and logistics companies are keeping up with delivery services, except where limited by government restrictions. A commitment to prioritize delivery of goods along COVID-19-related supply chains is indispensable for inputs to reach manufacturing plants and for final products to get to hospitals and patients in a timely manner.
Governments in developing countries should facilitate investment in and operation of companies and commit to trade policy measures that keep supply chains moving.
A supportive business environment, with expedited approval of investment authorizations and operation permits, would allow firms in developing countries to rapidly expand capacity in critical medical supplies. A conducive trade policy can facilitate imports and exports through reduced tariffs and nontariff barriers and dedicated lanes for release and clearance of goods. Also vital would be elimination of export restrictions, which defeat the purpose of supplying to global markets. Public health systems in these developing countries and their neighbors would also benefit from access to the products manufactured under such a compact.
Governments in advanced countries should ensure that procurement regulations do not hinder foreign sourcing, make product standards freely available, and expedite approvals of imported supplies. They also need to keep supply chains open and support poor countries hit by COVID-19.
Government procurement drives demand and production. But only if laws requiring domestic production of medical supplies, like the "Buy America" provisions, do not impede foreign sourcing. Governments should follow the EU example by making freely accessible technical standards needed for the production of certain medical devices and equipment, while expediting approval of COVID-19-related supplies. Governments should commit to keeping air and seaports open to support viability of supply chains, refrain from imposing trade barriers, and remove restrictions on supply of essential goods, as New Zealand, Singapore and five other countries have recently done.
The World Bank and other development institutions should provide development finance to complement private investment, technical advice to developing countries to strengthen their own public health response capabilities, and financial aid to poor countries.
The World Bank and other development banks, including their private arms, can help facilitate a compact among countries by providing resources and encouraging private investments. They may also provide financial, technical, and advisory support to governments to improve their response to the public health crisis and make supply chain administration more efficient. Development banks must also take the lead in providing relief to poor countries through access to medical supplies and services. Time is of the essence.
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