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Post Covid-19 Value Chains: Options for Reshoring Production Back to Europe in a Globalised Economy

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Post Covid-19 Value Chains: Options for Reshoring Production Back to Europe in a Globalised Economy STUDY Requested by the INTA committee Post Covid-19 value chains: options for reshoring production back to Europe in a globalised economy Policy Department for External Relations Directorate General for External Policies of the Union EN PE 653.626 – March 2021 DIRECTORATE-GENERAL FOR EXTERNAL POLICIES POLICY DEPARTMENT STUDY Post Covid-19 value chains: options for reshoring production back to Europe in a globalised economy ABSTRACT Against the background of supply shortages with respect to medical products during the COVID-19 pandemic, and the shift in the international order towards geopolitical rivalry between the US and China, reshoring of production has become a topical issue in the recent EU policy debate. The study discusses economic and political justifications for reshoring with respect to security of supply concerns and the debate on the EU’s strategic autonomy. With reshoring pre-COVID-19 having remained an empirical phenomenon of limited significance, potential for reshoring at the sector and GVC level are assessed in light of recent economic changes, the digital transformation and the changing geopolitical environment. Though reinforced in the recent past, the success of reshoring policies of the US, the UK and Japan is found to have been modest. While a more proactive policy approach to mitigate security of supply concerns and to promote strategic autonomy in the EU is important, reshoring should be primarily focused on specific critical sectors and products with pronounced supply bottlenecks. EP/EXPO/INTA/FWC/2019-01/LOT5/R/07 EN March 2021 – PE 653.626 © European Union, 2021 Policy Department, Directorate-General for External Policies This paper was requested by the European Parliament's Committee on International Trade. English-language manuscript was completed on 19 February 2021. Printed in Belgium. © European Union, 2021 Author(s): Werner Raza (Director, ÖFSE – Austrian Foundation for Development Research, Vienna/Austria), Jan Grumiller (Researcher, ÖFSE – Austrian Foundation for Development Research, Vienna/Austria), Hannes Grohs (Research Assistant, ÖFSE – Austrian Foundation for Development Research, Vienna/Austria), Jürgen Essletzbichler (Professor of Economic Geography and GIScience, Vienna University of Economics and Business, Vienna/Austria), Nico Pintar (Researcher, Vienna University of Economic and Business, Vienna/Austria). Official Responsible: Mario DAMEN Editorial Assistant: Balázs REISS Feedback is welcome. Please write to: [email protected]. To obtain copies, please send a request to: [email protected] This paper will be published on the European Parliament's online database, 'Think tank'. The content of this document is the sole responsibility of the author and any opinions expressed therein do not necessarily represent the official position of the European Parliament. It is addressed to the Members and staff of the EP for their parliamentary work. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the European Parliament is given prior notice and sent a copy. ISBN: 978-92-846-7831-0 (pdf) ISBN: 978-92-846-7832-7 (paper) doi: 10.2861/118324 (pdf) doi: 10.2861/428 (paper) Catalogue number: QA-05-21-009-EN-N Catalogue number: QA-05-21-009-EN-C (paper) Post Covid-19 value chains: options for reshoring production back to Europe in a globalised economy Table of contents List of Figures and Tables v List of Abbreviations vii Executive Summary ix 1 Introduction 1 2 Trends and drivers in the transformation of global production processes 3 2.1 Slowbalisation and the trend towards more regionalised production structures 3 2.2 The growing vulnerability of global value chains 6 2.3 The crisis of the liberal international order and the renaissance of geopolitics 8 2.4 Digitalisation and its impact on production 11 2.5 Synthesis: Assessing the likely impact of economic, technological and political drivers 13 3 Reshoring — concepts and policy frameworks 15 3.1 Conceptualisations of reshoring 15 3.2 Reshoring in EU policy frameworks 17 3.2.1 The debate on the resilience of Global Value Chains 17 3.2.2 (Open) Strategic Autonomy 21 3.2.3 Towards a comprehensive concept of strategic autonomy? 23 4 Potentials for reshoring to Europe of selected economic sectors and their value chains 26 4.1 The empirical record on reshoring pre-COVID-19 26 4.2 Sector-specific potentials for reshoring 28 4.3 Case Study 1: Pharmaceuticals 32 4.4 Case Study 2: Medical products 39 4.5 Case Study 3: Semiconductors 46 4.6 Case Study 4: Solar energy 53 4.7 Comparative conclusions 59 iii Policy Department, Directorate-General for External Policies 5 Overview of the reshoring policies in selected major EU trade partners 62 5.1 The United States of America 62 5.2 The United Kingdom 66 5.3 Japan 68 5.4 Conclusion 70 6 Conclusions and Policy Recommendations 73 6.1 Key findings 73 6.2 Key policy recommendations 74 References 78 iv Post Covid-19 value chains: options for reshoring production back to Europe in a globalised economy List of Figures and Tables Figure 1: FDI, trade, GDP and GVC trends, 1990–2019 ............................................................................................5 Figure 2: Share of intra-regional goods trade in total trade ..................................................................................5 Figure 3 Economic loss from catastrophic weather events, 1970–2019, in billion USD ...............................6 Figure 4: Types of shocks to GVCs and their frequency ..........................................................................................7 Figure 5: Modes of reshoring ...................................................................................................................................... 16 Figure 6: Dimensions of and motivations for technological sovereignty ....................................................... 25 Figure 7: The potential for value chains to shift across borders over the next five years depends on economic and non-economic factors.............................................................................. 29 Figure 8: Length and geographic distribution of international production and key archetypes............. 30 Figure 9: Relevance of development trajectory, by industry.............................................................................. 31 Figure 10: Sector-specific propensity to reshore ..................................................................................................... 32 Figure 11: Three development paths of pharmaceutical products .................................................................... 33 Figure 12: A typology of pharmaceutical GVCs ........................................................................................................ 34 Figure 13: Global trade shares of APIs and FDFs by volume (2019) .................................................................... 35 Figure 14: Estimated share of supply for European demand of APIs by region .............................................. 35 Figure 15: Overview of CEPs, APIs, and manufacturers by region (2000–2020) .............................................. 37 Figure 16: GVC of medical devices ............................................................................................................................... 40 Figure 17: Regulation of medical devices in the EU according to the level of risk.......................................... 41 Figure 18: Comparison of EU exports and imports of medical products in the first halves of 2019 and 2020, in billion EUR ............................................................................................................... 43 Figure 19: Top 5 EU suppliers of selected key COVID-19 medical products ..................................................... 44 Figure 20: Global trade shares of integrated circuits and discrete semiconductors by volume, 2019............................................................................................................................................ 50 Figure 21: Comparison of EU exports and imports of semiconductor products from 2017 to 2019, in billion USD....................................................................................................................... 51 Figure 22: Annual solar PV cumulative installed capacity per region, 2000 to 2019...................................... 57 Figure 23: Global trade shares of solar cells and modules by volume, 2018 and 2019 ................................. 57 Figure 24: Comparison of EU exports and imports of solar cells and panels from 2017 to 2019, in billion USD....................................................................................................................... 58 v Policy Department, Directorate-General for External Policies Table 1: Assessing the potential of economic, technological and political factors upon the spatial configuration of GVCs.................................................................................................. 14 Table 2: Semiconductor sales — top companies................................................................................................. 49 Table 3: Major solar energy companies, 2018....................................................................................................... 56 Table 4: Indicative overview of reshoring potentials to EU for case study sectors ..................................... 61 Table 5: Identified national policy
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