Trump is Only One of Many Who Could Steal Vaccines from European Companies
“La Curée,” in the French hunting vocabulary, is the moment when remains of a freshly hunted venison are thrown to the dogs as a reward. This is what Europe is risking if it can’t overcome the challenges of the 2020s: being torn apart for the world to feast on.
Europe, the Most Open Market in the World, Vulnerable During the Covid-19 Pandemic
The European Union tries to hold itself together in these times of pandemic and economic hardship. Yet, Europe is not in a position of power right now, as the second wave of coronavirus threatens its citizens' lives, the trust they have in their governments, and Member States economies.
Europe was already seeking to gain a foothold in the duopoly between the United States and China. The EU is careful not to support or trust either one, with little to no choice, as the global superpowers fight over the share of the European pie.
Europe Pays the Price of Massive Offshoring
Within the last few decades, European countries saw their industries flying away, mostly in Asia, where the workforce is less expensive. European leaders started to worry about long production lines as they decreased the countries' autonomy. If a crisis broke out, there was a risk of shortage.
The crisis is here. And it highlighted the pharmaceutical industry flight to Asian countries, especially India and China, according to Vera Jourova, Vice President of the European Commission. For example, the medication “paracetamol,” used to lower fever and pain, commercialized in France, is produced at 95% in Asia. The French President, Emanuel Macron, announced the production would be relocalized back to Europe.
Yes, there is a risk of shortage in several strategic industries, and governments will try everything to avoid it.
The worst is yet to come. As the sanitary situation is on red alert, Member States struggle to protect their economies. Some of them have decided to impose a second quarantine.
Meanwhile, foreign investors seek opportunities to buy companies at low prices. A scandal erupted in Germany. A newspaper accused Donald Trump of making a proposition to “CureVac,” a pharmaceutical company, to buy their Covid-19 vaccine and commercialize it to the United States exclusively. The Chinese Foreign Ministry took this opportunity to tell the world China will share its vaccine with the world. It was clearly in response to Donald Trump’s move.
Why is the EU so vulnerable?
The European Union doesn’t possess many energy resources and compensates with the import/export market. According to the European Commission, it’s the most open market in the world.
Foreign investments represent 6,441 billion euros and 16 billion direct Jobs. Besides, the import market is worth 40% of the European Union GDP, against 20% in China and the US. Europe can’t play the same strategy as Donald Trump and apply tariffs on foreign goods to protect its economy, as he did for Chinese imports or certain European products and services.
What Will Be Europe’s Plan After the Covid-19 Crisis?
The European Commission has developed a two-part strategy to rebuild an autonomous economy: Relocating industries within the European borders and protecting European companies from predatory-investment.
1. Bringing industries home
Yes, there is an industrial potential in Europe, in the East especially, “the little China of Europe,” as described by Tomislav Donchev, the Vice-Prime Minister of Bulgaria. In western European countries, the industry represents between 17% and 23% of the GDP, twice as high as in the West.
Not every industry can be relocalized, according to Xavier Dupret, a Belgian economist.
“Clearly, what can be relocated are sectors with high added value. And, yes, part of the production, especially pharmaceutical, will have to be relocated because we have run out of products .” Said Xavier Dupret to RTBF, a Belgian newspaper.
But we can’t relocate everything. If it were technically possible, Europeans' purchasing power would decrease by 4%, that’s not counting the crisis impact. It will be difficult to convince citizens to support these relocations. Funding would also be expensive for taxpayers, as states must allocate a budget to encourage businesses’ return to Europe. As a result, the EU's goods and services could become more expensive than imported from abroad.
It’s at the national level that EU countries will work this out. Unlike the US, the European Union is not a federation of states: sovereign powers are in the states' hands, not the Union’s. The EU is often accused of being too elitist, bureaucratic, and even anti-democratic by European citizens, who are not trained to understand its functioning. The EU is indeed an elitist organization: it must find solutions to the most complex issues of finance, economy, and law.
However, it has many strengths: First, a single market where goods, services, and people circulate freely. It can coordinate the trade policy of Member States and release common funding for significant projects.
In light of relocation, there is one tool often used: the creation of European standards. EU standards have a reputation for being the strictest in the world. Of course, this is a benefit for consumers who are more protected.
But these standards have another function: to encourage companies that sell in Europe to place their production lines on European territory. Indeed, international companies prefer to let Europeans fend for themselves with production because they know their laws better.
This process was called European “precautionism” by Pascal Lamy, a former European Commissioner. It is protectionism, but smart.
For example, the Convention regulating agricultural policies between the EU and Canada mostly favors the first. Canada imports European products but does not export to Europe because meeting EU standards would be too complicated for the Canadian agri-food industry.
2. Evict predators from the European market
The second battle is played out in the legislative arena.
Beyond recovering essential industries, the EU must prevent foreign investors from getting their hands on European companies. Similar to the “Curevac” case, investors are trying to buy companies at discount prices.
In October 2020, a new legal instrument came into force: the Foreign Direct Investment Screening, a policy of cooperation between member states and the European Commission to identify and prevent predatory investments.
Executive Vice-President Valdis Dombrovskis said: “The EU is and will remain open to foreign investment. But this openness is not unconditional. To respond to today’s economic challenges, safeguard key European assets and protect collective security, EU Member States and the Commission need to be working closely together. If we want to achieve an open strategic autonomy, having an efficient EU-wide investment screening cooperation is essential. We are now well equipped for that.”
There are strategic industries Europe must protect. According to the European Commission, these are critical technological materials, food, infrastructures, security, pharmaceutical industries, defense, space, and raw materials. The Commission has also identified “key enabling technologies” that must be protected at all costs: micro and nanoelectronics, nanotechnology, industrial biotechnology, advanced materials, photonics, and advanced manufacturing technologies.
Without these strategic industries and technologies, Member States could no longer be autonomous: a State which doesn’t control its defense, for example, is prey to the outside world.
The new legal instrument works like this: If an investor wants to buy shares of a European company, the screening mechanism allows Member States to stop the purchase if it gives the investor too much power. It only works if the investment targets strategic industries, representing a threat to public security and public policy. Member States will be able to take restrictive and even coercive measures.
To justify the new mechanisms in force, the EU refers to Article 65 of the TFEU, the European Union's constitutional basis. It allows Member States “to take measures which are justified on the grounds of public policy or public security.”
The European Union is taking action in the face of the crisis. Nonetheless, European legal scholar Bianca Nalbaldian perfectly sums up the challenge of the success of this policy. According to her, Europe should choose between:
“On one hand, the protection of the EU through real cooperation and solidarity among Member States and EU institutions, and on the other, a plurality of European protectionisms based on isolation”.
Will European countries stay united to face the crisis, or will they seek solutions individually? Will Europe resist the tense international context, in the middle of major powers such as the United States, China, or even Russia?
This article was made possible thanks to Fondapol.org, A French think tank for European integration and free economy, and Yves Bertoncini’s analysis on relocation.