Using trade to fight COVID-19: Manufacturing and distributing vaccines

 All countries need vaccines, but not all are able to produce them

Vaccine manufacturing is a sophisticated process that requires access to specialised equipment and inputs, storage facilities, and highly skilled labour.

Trade data can provide useful insights into the supply and demand conditions that existed for vaccines prior to COVID-19, thereby helping to identify the production capacities and existing trade infrastructure that can be exploited for the distribution of new vaccines. Vaccines (for human use) are classified under a single Harmonised System (HS) code (300220).1 This facilitates the analysis of broad supply and demand conditions, albeit at the expense of more detailed information on which vaccines are traded by which countries.

The most recently available trade data reveal that while vaccines are imported by most countries around the globe, they are in relative terms exported by few countries (Figure 1).2 Vaccines are imported by 208 economies (relative to other products, vaccines are in the 6th percentile in terms of the total number of importing countries); whereas they are exported by 90 economies (relative to other products, vaccines are in the 35th percentile in terms of total number of exporting countries). All countries need vaccines but not all are able to produce them.

 

Figure 1. All countries need vaccines, but not all are able to produce these

Note: These graphs rank products according to how many countries import/export these. For instance, in terms of imports, vaccines, imported by 208 countries, are the 347th most imported product out of a possible 5 384 traded products; in contrast, mobile phones are the 50th most imported product and frozen tuna the 5 327th most imported product. Where exports are concerned, vaccines are exported by 90 countries, making these the 1 904th most exported product.

Source: Own calculations using BACI database.

There is significant concentration in the exports of vaccines. The top 10 exporters account for 93% of global export value (80% in terms of volume). Ireland is the top exporter by value, accounting for 28% of global exports, followed by Belgium (which is the top exporter by volume) representing 21%3 (Figure 2). Rankings of export volumes differ from value rankings, revealing significant heterogeneity in unit prices across suppliers. Imports are, in relative terms, less concentrated in both value and volume although the top 10 importers still represent 72% of global import values (69% in terms of volume). The United States is the top importer with 24% of global imports, followed by Belgium with 22% of global imports (Figure 2b).4

 

Figure 2. Exports of vaccines are concentrated in few countries

Note: Share of global export and import values and volumes in 2018.

Source: Own calculations using BACI database.

Developing economies depend on high-income countries for vaccines. The European Union (EU) is the main source of vaccine imports for all regions. In particular, South Asia and Sub-Saharan Africa import more than two-thirds of their vaccines from the European Union (Annex A). East Asia and South Asia are nevertheless increasingly becoming a source of vaccines for other developing regions.

Countries with higher per capita GDP export vaccines having higher unit values, suggesting that richer countries specialise in higher-end, more complex vaccine production (Annex A). However, in terms of imported vaccines there is less dispersion in unit values.5 This indicates strong specialisation patterns along comparative advantages: countries will specialise in the production of some types of vaccine but use imports to access others.6

 There are strong trade interdependencies along the vaccine supply chain

The safe and timely delivery of vaccines depends on the efficiency of the supply chains that underlie their production and distribution. Although each vaccine will involve different components, the vaccine supply chain can be broken down into three, and sometimes four, key steps (depending on the vaccine) (Figure 3). The first is the drug discovery process, the second mass production, the third distribution and administration, and the last the reverse logistics (in the event that products such as cool boxes need to be returned). Different stages of this supply chain will be located in different countries. Indeed, while mass production might be geographically concentrated, many of the ingredients needed in production or for primary and secondary packaging will come from different sources. This means that trade will play an important role in enabling mass production, distribution, and administration of vaccines.

 

Figure 3. The vaccine supply chain

Note: For illustrative purposes only as the supply chain will differ across different vaccines.

Source: Authors’ elaboration.

Vaccine production involves a complex range of steps that require not only significant up-front investment in R&D (WTO, 2020[2]), but also in selecting suppliers of key ingredients, setting up manufacturing processes7 and quality checks, and sourcing primary and secondary packaging. Each vaccine has specific active components (the antigen) that generate different immune responses. Some contain an inactivated form or component of the disease-causing organism; in the case of some of the novel COVID-19 vaccines, a blueprint enables the intercellular production of the antigen.8 The latter will determine the manufacturing process and the type of production facility that is needed.

Vaccine production requires more than the core ingredients, however. Vials and rubber stoppers are needed to store the vaccines, cold boxes to transport9 them, and dry ice to keep these at appropriate temperatures. Drawing on trade data and product codes identified by the Asian Development Bank (ADB),10 Figure 4 highlights the diverse origins of the ingredients and goods needed to produce, distribute and administer vaccines, from adjuvants to vials. As was the case with the goods needed to fight COVID-19 (OECD, 2020[1]), trade data reveal a high degree of trade interdependence in the goods needed to produce, distribute and administer vaccines.

 

Figure 4. Top exporters of items needed in the production, distribution and administration of vaccines

Share in global exports (%), 2018

Note: For illustrative purposes only. See Annex B for the list and description of products covered, including HS codes. Note that many of these products will belong to broader categories of goods than those captured in the shares, meaning that these include other products which might not be directly relevant to vaccine production, delivery and administration.

Source: Own calculations using CEPII BACI data and the Asian Development Bank database.

The distribution of vaccines will also require the use of specialised warehousing, different modes of transport, and last-mile delivery. Once distributed, vaccines will require qualified personnel and a range of goods to store (freezers) and administer (syringes, needles and vials). Lastly, and particularly for vaccines that require a specialised cold supply chain, some of the secondary packaging will need to make its way back so that it can be re-used.

 Manufacturing capacity for COVID-19 vaccines is concentrated in few countries

Leveraging existing manufacturing capacity to meet global COVID-19 vaccination goals will require moving goods into factories and transporting finished products to their final destination. Existing evidence on production capacity is scarce, especially in light of the uncertainty on which vaccine(s) will be administered the most extensively.

Survey results from the Coalition for Epidemic Preparedness Innovations (CEPI) highlight that potential manufacturing capacity is concentrated in a few high income and emerging economies, with the United States, the People’s Republic of China (hereafter “China”), and India being the largest potential producers. These are followed by several economies in the European Union, Australia, Brazil, Canada, the Russian Federation, and the United Kingdom (CEPI, 2020[3]).11

Visualising the location of potential COVID-19 vaccine manufacturers and distributors (Figure 5) confirms this, and highlights the strong degree of concentration of producers and distributors in high income and emerging economies (ADB, 2020[4]). Few firms are registered as vaccine distributors in South America or Southeast Asia, and no producer or distributor firms are registered in Africa and Central Asia12 (Figure 5).13

This geographical concentration underscores the importance of trade links for the production and supply of COVID-19 vaccines, and the logistical challenge of supplying vaccines globally. Vaccines will need to be shipped from relatively few locations to individuals across the entire globe. Ensuring their timely delivery and maintaining them at adequate temperatures would favour air freight as mode of delivery. However, belly cargo capacity continues to be constrained.14 Recent data proxy for cargo availability shows that for most trade lanes, air cargo capacity was between 2% and 50% lower in Q4 2020 as compared to the same period in 2019 (Figure 6) (IATA, 2021[5]).

Monitoring specific air cargo capacity available across main trade routes will be key to enabling the effective supply of vaccine ingredients to manufacturers and the distribution of finished vaccines and ancillary equipment. Many of the most impacted trade lanes are those that might be significant in distributing COVID-19 vaccines and related ingredients (e.g. Asia, Europe, and North America exporting to other regions such as Asia-Pacific, Middle East, Central and South America, and Sub-Saharan Africa) (IATA, 2021[5]). Constrained capacity directly relates to higher air freight costs, and prioritisation of COVID-19 vaccines is also likely to have displacing effects on other trade that travels via air.

 

Figure 5. COVID-19 vaccine manufacturing and distributing firms are geographically concentrated

Red dots = manufactures; orange dots = distributors

Note: Based on ADB’s Mapping on Supply Chains for Pandemic-fighting Products (2020), data extracted 1 December 2020; the ADB continues to update the database. Includes distributors and manufacturers of COVID-19 vaccines at all levels of relevance (1, 2 and 3); excludes observations for which location information was not available at the city-level. Red dots overwrite orange dots.

Source: ADB (2020[4]).

 

Figure 6. Air cargo capacity for most trade lanes remains constrained

November 2020, year-on-year % change

Note: CTK is used as proxy for available air cargo capacity, using information released by IATA. The trade lanes labelled in red highlight regions such as Asia-Pacific, Europe and North America which are likely to be exporting vaccines to other regions such as Asia, Middle East, Central and South America, and Sub-Saharan Africa. For the routes where November 2020 data are not available, information for October 2020 is used (IATA, 2020[6]).

Source: IATA (2021[5]).

 Trade policies should be leveraged to enable the manufacturing and distribution of COVID-19 vaccines

 While tariffs on vaccines are unlikely to pose a major challenge, they remain a barrier in selected markets and for important vaccine-related inputs

Tariffs are unlikely to pose major challenges to the vaccine distribution efforts overall: the simple average world tariff on vaccines is 0.76% (Figure 7) – about one-tenth of the average tariff imposed on total trade (7.1%). Out of 183 countries, four-fifths apply zero duties.15 This still means that one-fifth of countries have positive duties on vaccines, with 8% having a duty equal to or greater than 5%. So while tariffs are less likely to pose major challenges, additional steps could be taken to ensure that vaccines meet zero duties in all countries.

 

Figure 7. Tariffs on vaccines are significantly lower than average tariff rates on total trade

Boxplot of simple applied average tariffs on vaccines and total trade, 2019 or latest available year

Note: Vaccines are identified using the HS code 300220 - 'Vaccines for human medicine'. This figure includes data for ad valorem tariff rates in the period 2012-19 for 183 countries. The boxplot shows that countries imposing tariffs on vaccines tend to be outliers (blue boxplot), whereas the median average tariff imposed on total trade is 5.75%, ranging between 2.6% (25th percentile) and 11.5% (75th percentile) (red boxplot). Some countries also apply average tariffs on total trade as low as 0% or as high as 23.7%.

Source: TRAINS database.

Higher tariffs remain on vaccine-related inputs, increasing the final price. For instance, average world tariffs on vaccine ingredients such as preservatives, adjuvants, stabilisers, antibiotics range between 2.6% and 9.4%. Tariffs on materials to administer vaccines, such as syringes and needles, are in a similar range (4.4% and 4.5%). Tariffs for primary packaging (e.g. vials and stoppers) or distribution materials (such as cold boxes, freezers, or dry ice) can go up to 12.7%.

 A high number of standards and regulations apply to pharmaceutical products and organic chemicals

Pharmaceutical products and organic chemicals, which include vaccines as well as a number of their ingredients, are among the products that attract the highest number of non-tariff measures (NTMs). In OECD countries, these two sectors must comply with on average around 38 and 29 different NTMs respectively – mainly in the form of technical barriers to trade (TBT), sanitary and phytosanitary measures (SPS), price-control measures, and import licensing measures (Figure 8).16

 

Figure 8. A high number of standards and regulations apply to pharmaceuticals products and organic chemicals

Average number of NTMs per product in OECD countries, 2018 or latest available year

Note: Products grouped by section of the Harmonised System of classification. Non-technical measures include import licensing, price-control measures, finance measures, measures affecting competition, investment measures, distribution restriction, and intellectual property measures. This figure includes measures of partial coverage though only measures applied to all countries are included (Partner=World). NTMs for the European Union are reported for the group as a whole. Products of the Chemical and allied industry (Harmonised System Section VI) exclude HS Chapters 29 and 30.

Source: UNCTAD (2020[7]) TRAINS, latest available data.

While some of these standards and regulations can reduce information asymmetries and strengthen confidence in imported products (Cadot, Gourdon and van Tongeren, 2018[8]), they also translate into compliance costs and controls at the border. These regulations are undoubtedly important to protect the health and safety of citizens, but there may be areas where unnecessary duplication or cumbersome processes exist. Mapping the relevant regulatory requirements, processes, and approvals for access to different markets will therefore be key to enabling more efficient vaccine distribution and reducing unnecessary trade costs.

 Policy implications

A wide range of uncertainties remain in manufacturing and distributing COVID-19 vaccines across the globe. These include: the variety of inputs needed; the manufacturing capacity and pace of production; the roll-out schedules for administering vaccines; the requirements for transport and storage; and the availability of cargo. These uncertainties affect the ability to make decisions and reduce the level of preparedness.

This note highlights the importance of trade in the effort to produce, distribute, and administer vaccines. As not all countries can produce these, trade enables access to vaccines and to their key ingredients, as well as to the goods needed for their distribution and administration.

In the face of existing uncertainties, trade needs to provide an environment that is conducive to broader vaccine distribution by:

• Reducing remaining tariffs and streamlining non-tariff measures to trade in vaccines, key related ingredients in their production, and the goods needed to safely distribute and administer these.

• Avoiding export restrictions to ensure the effective functioning of supply chains and the distribution of vaccines globally, in light of the concentration of input sourcing and vaccine manufacturing capacities.

• Increasing co-operation within and between Customs and other relevant agencies with a view to expediting processes at the border, ensuring better co-ordination of logistical processes, and relaxing, where possible and without prejudice to safety, trade-related regulatory burdens. The continued implementation of the WTO Trade Facilitation Agreement (TFA) is essential to streamlining border processes, while specific logistics and border challenges could be addressed through public-private consultation structures such as National Trade Facilitation Committees. This would include investing in the adoption of digital infrastructures and processes.

• Improving transparency and information sharing across the entire value chain to enable the different actors to find each other and enable more efficient production and distribution via trade channels. This could be achieved through the use and promotion of online information hubs, such as those undertaken by the Asian Development Bank (ADB).