Minister of Small Business, Export Promotion and International Trade appearance before the House Standing Committee on International Trade on Impact on Canada of the European Union Transparency and Authorisation Mechanism for Exports of COVID-19 Vaccines – Briefing material

2021-02-01

Table of contents

1. Qs and As
2. Backgrounder
3. Analysis on Canada’s interim order respecting drug shortages

Mary Ng, Minister of Small Business, Export Promotion and International Trade

Q and A’s: EU’s Export Measure on COVID-19 Vaccines

What is the export measure that the EU has put in place?

• On January 29, the European Commission implemented Regulation (2021/111). In effect, the Regulation establishes an export licensing regime for COVID-19 vaccines covered by Advanced Purchasing Agreements (APAs) that the EU negotiated with pharmaceutical companies located in the EU.
• Under the Regulation, Member States are responsible for authorizing exports, but they must consult with the European Commission, who will evaluate the impact of the exports on the EU’s own APAs.
• The Commission then issues an opinion. The Member State in question must decide if export authorisation will be granted in accordance with the EU Commission’s opinion.
• We understand why Canadians are concerned in response to this measure, and we share the urgency of Canadians to ensure access to life-saving vaccines as rapidly as possible.

What is Canada doing to resolve this situation? 

• Everything we can. We are engaging with our European counterparts at the highest levels.
• Both the Prime Minister and I, as well as Minister Hajdu, have spoken on several occasions to our European Commission counterparts to raise Canada’s concerns and we have received assurances from them all that Canada’s contracts will not be affected.
• We are now speaking with our counterparts in EU Member States where Canada’s vaccines are being manufactured and through which our vaccines are being exported to ensure processes are smooth and delays are minimal.
• Our departmental officials and Canada’s Embassies across the EU are in constant contact with officials in the Commission and the Member States to better understand the new processes and ensure no supply disruptions.
• Finally, we are collaborating with other members at the WTO, G7 and G20.  We are well-positioned through our work with the EU on the WTO Trade and Health Initiative. 
• Officials are prepared to raise the issue at a G7 Sherpa's meeting tomorrow and Italy has made it clear that universal access to vaccines should be a central concern for the G20 during the Italian Presidency.

Which EU Member States is Canada importing vaccines from?

• Canadian missions across the EU are also reaching out to Member State governments where Canada’s vaccine contracts with both Pfizer and Moderna are being manufactured and/or through which they are being shipped to Canada.
• This includes Spain, Belgium, France, Germany, Switzerland and potentially Italy.
• We are currently receiving vaccine shipments from Pfizer (manufactured in Belgium) and Moderna (shipped from Spain and exported from Belgium) via our APAs.

Why didn’t Canada foresee this export measure’s implementation? Why didn’t Canada choose to establish contracts for production in the U.S.?

• From the beginning, the government, informed by experts in the vaccine task force, sought to secure access to those vaccines that were most promising in clinical trials.
• We knew there would be challenges with the global supply chains around vaccines as they were developed, which is why we set out and succeeded in signing more contracts with more different companies for more doses per Canadian than any other country in the world.
• The government is in close contact with Pfizer, Moderna and other companies with which we have APAs.
• We are working together to get vaccines into Canada and keep supply chains open with both our European and American colleagues, given manufacturing locations in both regions.

Is the EU in violation of its obligations under CETA or the WTO with this measure?

• While international trade rules generally prohibit export restrictions, these rules provide for some limited exceptions for temporary measures to prevent critical shortages of essential supplies.
• These exceptions must be applied in a non-discriminatory manner.
• [REDACTED].

Why isn’t Canada retaliating?

• Retaliation is not likely to solve the problem, and has the potential to escalate very quickly.
• We are focusing our efforts on working with the EU to ensure there are no inadvertent impacts on imports of vaccines into Canada. 

Does Canada have any similar measures?

• On November 26, 2020, the Minister of Health issued an Interim Order Respecting Drug Shortages (Safeguarding the Drug Supply).
• The measure is a specific response to changes in U.S. drug import policies that have the potential to significantly impact drug supplies in Canada.
• Canada’s drug market is too small to meet the demand for prescription drugs of both Canadian and American consumers. Canada represents only 2% of global pharmaceutical consumption, whereas the U.S. represents 44%. 
• The measure complies with Canada’s international trade obligations, including GATT Article XI.
• The measure is transparent, temporary, targeted and proportionate.

Background

• EU-wide Transparency and Authorization Mechanism: Adopted on January 29, and entered into force January 30. The mechanism requires manufacturers of vaccines to seek an authorization from Member States (MS)’s competent authorities before any vaccines are exported to destinations outside the EU.  The MS will issue such an authorization upon consultation with the Commission, and in accordance with its opinion regarding the extent that the volume of export poses a threat to the execution of Advanced Purchase Agreements (APAs) between the EU and vaccine manufacturers located in the EU.  The scheme will not apply to intra-EU trade, and a number of exceptions have been made for the EU’s neighbouring countries (Western Balkans and Eastern Partnership countries), EFTA, as well as 92 low and middle-income countries, COVAX beneficiaries.  The mechanism is in place until March 30 but can be extended.
• Despite assurances by European Commission President Ursula von der Leyen to Prime Minister Trudeau, and Executive Vice President (EVP) Valdis Dombrovskis’ commitment to you last week,  that the mechanism would not affect vaccine exports under Canada’s existing Advanced Purchase Agreements, both European Commissioner for Health Stella Kyriakides and EVP Dombrovskis have been clear in public that they aim to ensure that the Commission’s existing APAs are fully fulfilled before exports will be authorized.
• EVP Dombrovskis has indicated that the transparency and authorization procedures will be expeditious and the Commission is looking for ways to streamline them. Export authorizations will be issued through the European Commission’s Health Directorate (DG SANTE). As such, Minister Hajdu scheduled a call with Commissioner Kyriakides on Sunday, January 31 to reiterate Canada’s concerns, including uncertainty over new procedures that will likely cause shipment delays to Canada in the coming weeks.
• Vaccine shipments from EU: As of midnight January 29, all COVID-19 vaccine shipments are being held by customs officials pending additional information on MS’s new export authorization regime for vaccines as required under this newly implemented mechanism. Current understanding is that vaccine manufacturers will have to submit an export license permit for every shipment. The permit will be reviewed within a 48-hour window by the Commission and approved if the volume of exports is not such that it “poses a threat to the execution of the EU’s Advance Purchase Agreements (APAs)”.  Customs will only be permitted to release shipments once an export license is confirmed. In a best-case scenario (barring no additional delays) vaccine manufacturers will need to submit export license permits at least three days in advance of planned shipments. Vaccine manufacturers are also required to provide relevant data on their exports from the last three months (since October 2020) along with their first export authorization application.
• Canada’s vaccines contracted with Pfizer are being manufactured in Belgium, and will therefore require export licenses from Belgium’s export authorization regime. On Friday, Pfizer sent 79,000 doses to Canada via the US. They are expected to arrive in Canada today, January 31, at multiple points of entry. The next shipment is scheduled for later next week, however, we are awaiting shipping confirmation from Pfizer.  
• Moderna vaccines are manufactured in Switzerland/Spain. Therefore, these exports will need to be authorized via Spain's General Directorate for Trade Policy.  Moderna’s vaccines are currently shipped to Belgium via FedEx before onwards export to Canada (through Paris – Charles de Gaulle airport). Moderna’s next shipment to Canada is planned to leave Belgium on February 3 and arrive in Canada on February 4, pending the granting of an export license.
• Advocacy efforts - Canadian missions across the EU are reaching out to Member State governments where Canada’s vaccine contracts with both Pfizer and Moderna are being manufactured and/or through which they are being shipped to Canada. This includes Spain, Belgium, France, Germany, Switzerland and potentially Italy. Ministerial and Prime Ministerial engagement is also being planned or considered.
• Canada’s Pfizer-BioNTech contract: On December 13, 2020, the first shipments of the Pfizer-BioNTech COVID-19 vaccine arrived in Canada from Belgium via the U.S. The initial 30,000 doses were sent to 14 primary distribution sites across the country. As of January 7, 2021, the Pfizer vaccine had been delivered to over 60 locations across Canada. On January 12, 2021, Prime Minister Trudeau announced that Canada reached an agreement to purchase another 20 million doses of the Pfizer-BioNTech vaccine bringing Canada’s secured total to 96 million doses.
• On January 15, 2021, reports emerged that Pfizer was experiencing delays by three to four weeks due to renovations at their manufacturing plant in Belgium.  The company is adjusting in order to be able to manufacture 2 billion doses (versus 1.3 billion originally).  Multiple markets including the EU and Canada have been impacted.  Canada’s total allocations for Q1 (four million doses) is not expected to be reduced, but there is no allocation schedule to confirm this at this time. 
• On January 22nd, Prime Minister Trudeau spoke with CEO of Pfizer. The head of the company had reassured him it would meet Canada’s vaccine order in full by the end of March 2021.
• PSPC is assessing potential impact on Canadian vaccine supply and the National Operations Centre for the distribution of vaccines has made adjustments to allocations.
• Canada’s Moderna contract: On December 23, 2020, Health Canada authorized use of the Moderna vaccine candidate, the second after Pfizer. On December 24, 2020, a little over 24 hours after it was approved for use, an initial shipment of 168,000 doses of Moderna's vaccine arrived in Canada from Europe. A second shipment of 171,000 doses arrived on January 13, 2021. PSPC and PHAC have yet to receive a detailed schedule for the year but expect to be receiving shipments approximately every three weeks. Canada has secured 40 million doses through its agreement with Moderna.
• Relevant trade rules on export restrictions: CETA allows for export restrictions on a good as long as the implementing measure for the restriction is: (1) temporarily applied; (2) necessary to prevent or relieve critical shortages; and (3) the good (vaccines in this case) is deemed essential to the EU.  But the manner in which a Party implements the measure is also important, and the Department has undertaken a plenary examination of the EU’s approach to implementation to ensure its respecting WTO and CETA commitments (see attached “Assessment of EU Implementing Regulation 2021/111, Authorization regime for exports of COVID-19 Vaccines”. 
• The principles applied by the EU under this mechanism apply equally in the context of recently announced Canadian measures to limit exports of pharmaceuticals in order to prevent shortages here in Canada (although adopted in a different context – U.S. policy to promote bulk importation from Canada) (see attached “Interim-order respecting drug shortages”). The Canadian measure was developed with trade obligations in mind. The EU has asked multiple questions about the Canadian measure, but has not to date suggested it may contradict our CETA or WTO obligations. Notably, the EU is the champion of the WTO Trade and Health Initiative, which calls on no new unjustified export restrictions on medical goods (including vaccines). 

Interim Order Respecting Drug Shortages – Background and Key Messages for WTO Members

Current status

On November 26 (TBC), 2020, the Minister of Health issued an Interim Order Respecting Drug Shortages (Safeguarding the Drug Supply). The interim order introduces new measures to help safeguard the Canadian drug supply by preventing foreign bulk importation frameworks, such as the one recently established by the United States (U.S.), from causing or exacerbating a drug shortage in Canada.

More specifically, the interim order prohibits a drug establishment licence (DEL) holder (e.g. a fabricator, wholesaler, or distributor) from distributing certain drugs intended for the Canadian market to another person (i.e. individual or business) for consumption or use outside Canada, unless the DEL holder is able to demonstrate that the sale will not cause or exacerbate a shortage. This interim order applies only to drugs for which a shortage would have the highest impact on patient health and safety (e.g. prescription drugs, controlled substances and biologics). The prohibition does not apply to sales made by a person who is not required to hold a DEL (e.g. consumer-level pharmacy). Sales of products manufactured in Canada solely for export are also not included in the scope of the prohibition.

Context

On October 1, 2020, the U.S. published the final rule on the Importation of Prescription Drugs. The rule comes into effect on November 30, 2020, and creates a pathway to allow licensed U.S. pharmacists or wholesalers to import in bulk certain prescription drugs intended for the Canadian market. There has been significant state-level support for the bulk importation of drugs from Canada. Canada represents only 2% of global pharmaceutical consumption, whereas the U.S. represents 44%. Therefore, changes to U.S. import policies have the potential to significantly worsen drug shortages in Canada and put the health of Canadians at risk.

[REDACTED].

Key messages

• The measure is a specific response to changes in U.S. drug import policies that have the potential to significantly impact drug supplies in Canada.
• Canada’s drug market is too small to meet the demand for prescription drugs of both Canadian and American consumers. Canada represents only 2% of global pharmaceutical consumption, whereas the U.S. represents 44%. 
• The measure complies with Canada’s international trade obligations, including GATT Article XI.
• The measure is transparent, temporary, targeted and proportionate:
  • Canada intends to promptly notify the WTO of the measure.
  • The interim order is not an export prohibition.
  • The sale of drugs for consumption outside of Canada continues to be permitted when such sales will not cause or exacerbate a drug shortage in Canada. Assessments will be made on a case-by-case basis.
  • The scope of the order is limited only to drugs intended for the Canadian market for which a shortage would have the highest impact on patient health and safety.
  • Sales of products manufactured in Canada solely for export are not impacted by the new measure.