On Thursday 4 March, the Italian Government, backed by the EU Commission, blocked the export to Australia of 250,000 doses of COVID-19 vaccines manufactured in Italy. This action was taken in accordance with a newly adopted EU Commission mechanism that allows member states to deny export authorisation to vaccine manufacturers if the company making them has not honoured existing contracts with the EU. These export control measures will affect some 100 countries worldwide (including the UK) although it is important to note that there are a number of exempt nations, including an exhaustive list of developing nations. In this blog we unpick the legal basis behind these export controls and consider the contractual position for vaccine manufacturers that are impacted by export volume commitments.
Where do these export restrictions come from?
The measures are referred to by the EU Commission as a temporary export transparency and export authorisation mechanism, which we shall refer to here as the "Temporary Export Authorisation Mechanism").
What was the catalyst for these measures?
The Temporary Export Authorisation Mechanism was adopted by the Commission on 30 January 2021 and runs until 31 March 2021. It is widely understood that this Commission action was precipitated by the contract dispute between the EU Commission and AstraZeneca in relation to the quantities and timing of vaccine doses to be manufactured and supplied by AstraZeneca to the Commission. AstraZeneca was impacted by manufacturing production delays across its EU manufacturing plants leading to a shortage of vaccine supply. AstraZeneca have argued that the nature and spirit of the agreement on vaccine manufacture and distribution is subject to the contractual principle of 'best endeavours' i.e., it was required to do only as much as it reasonably could to fulfil the EU’s initial order with stock produced within the EU. This has become a delicate political issue and over the last few days, tensions have escalated between the EU Commission and the UK Government with the Commission reportedly threatening to halt Astra Zeneca's vaccine exports to the UK.
The Temporary Export Authorisation Mechanism will mean shipments of the vaccine from the EU to the UK (and other third countries that are not on the list of exemptions) will require express export authorisation from the member state in which a vaccine is manufactured.
How do they apply
These measures are specifically targeted at exports of COVID-19 vaccines covered by an advance purchase agreement ("APA") with the EU. The legal mechanism enabling these measures is time limited and enables the use of restrictions for a maximum period of 6 weeks. However, it is important to note that this 6 week period can be extended and at the time of writing, we understand that the EU intends to extend the measures into June 2021.
Member states are required to set up export authorisation regimes. Vaccine manufacturers then need to request an export authorisation in the member state where the vaccine is manufactured. In deciding whether to grant an export authorisation, member states, in consultation with the Commission, assess whether the intended volume of exports is acceptable and does not risk the performance of the APA that the EU has in place with the vaccine manufacturer. In short, an export authorisation will be granted provided the APA between the vaccine manufacturer and the Commission is performing as intended and there are no forecasted vaccine shortages.
Impact on manufacturers and third countries
The new measures impose additional burdens on vaccine manufacturers seeking export consent. In particular, the processing of an export authorisation requires the vaccine manufacturer to produce export data detailing vaccine exports from 29 October 2020 up to the date of the first request for export. Manufacturers must also provide data on the number of vaccine doses distributed in each member state from 1 December 2020. Failure to provide this information may lead to export authorisations being refused.
In a Q&A document dated 29 January 2021, the Commission stated that it is mindful of APAs contracted by third countries, and "will endeavour to ensure that the expectations of these countries to obtain their deliveries will be met." However, as we have seen from the recent decision taken by the Italian Government, a third country such as Australia can be adversely impacted when an export authorisation is refused.
The Commission's adoption of export restrictions has attracted considerable scrutiny from a number of political and industry commentators. Some commentators have pointed to the apparent tension between the EU centric objective of the measures versus the overriding objective of the EU's global relationship with the rest of the world. In particular, Article 21 of the Treaty on European Union provides that a core objective is to “encourage the integration of all countries into the world economy, including through the progressive abolition of restrictions on international trade”. Critics of the export controls argue that they risk undermining global efforts to tackle the pandemic. Vaccine manufacturing within the EU relies on an inherently global supply chain and critics of the scheme have emphasised the importance of cooperation and cohesion as vital components to support global production networks. Indeed, "the challenge of getting vaccines to everyone, everywhere – without delay – will only be met through a collaborative global effort to scale manufacturing and speed distribution efforts."
Unpicking contract law concerns
There must be doubt as to whether a non-EU country that entered into an APA with a vaccine manufacturer (with manufacturing operations in the EU) prior to 30 January 2021 could have foreseen that the Commission would impose export restrictions that could deny the export and distribution of contracted vaccination doses. For the contract lawyers reading this blog, this issue raises a range of considerations such as:
- does the Commission's intervention give grounds for either a third country or the vaccine manufacturer to terminate the APA?;
- do the export restrictions amount to a force majeure event under the APA?; and
- what is the service level requirement under the APA? For instance, is the performance obligation by the vaccine manufacturer limited to 'best endeavours' similar to the AstraZeneca agreement with the Commission or is there a stronger legally binding commitment enforceable on the manufacturer?
These contract law concerns are live issues that both third countries and vaccine manufacturers will need to work through in navigating the current tensions with the Commission. Meanwhile, the Temporary Export Authorisation Mechanism has become a highly charged political issue and the concern is that a more widespread use of this mechanism by the EU may raise public expectations that the measures will be taken for each and every incidence of manufacturing delays or if supplies fall behind schedule.