the onset of the COVID-19 pandemic (excluding China), January 2020 to March 2022

to firms engaged commercially in the medical goods sectors have been documented, and state resources have been provided in the following ways, among others:45 financial grants (99); state loans (78); tax or social insurance relief on imported medical goods (27); loan guarantees (25); and production subsidies (10).

State resources were made available along the entire production chain of COVID-19–related medical goods. Following is a breakdown of the types of medical goods firms receiving state support since January 1, 2020 (a subsidy may be given to a firm operating in more than one line of business): 45 percent of subsidy awards were received by medical equipment producers (such as manufacturers of ventilators); 62 percent were received by makers of medical supplies such as PPE; 45 percent were received by firms involved in discovering or producing medicines, including vaccines; and 71 percent of specific subsidy award decisions benefited firms involved in biologics production.

There are societal gains to be made by supporting the private medical sector both to accelerate manufacturing capacity investments at risk and to expand capacity beyond the profit maximizing level. Vaccine production can illustrate the point. A profit maximizing firm would wait until after resolution of uncertainty associated

Figure 2.12 Weekly breakdown of active subsidy policy interventions affecting medical goods since the onset of the COVID-19 pandemic (excluding China), January 2020 to March 2022

Cumulative number of active subsidies in force 300

275

250

225

200

175

150

125

100

75

50

25

0 01/01/2020 04/01/2020 07/01/2020 10/01/2020 01/01/2021 04/01/2021 07/01/2021 10/01/2021 01/01/202203/13/2022 Source: Global Trade Alert database. Note: The figure’s data excludes subsidies in China.

with the lengthy phase 3 clinical trials. Furthermore, if prices for vaccines are relatively fixed, firms have little incentive to substantially increase production capacity to fill orders faster, especially because there is little risk of entry by competitors given the lack of options for consumers (Budish and Snyder 2021). (During COVID-19, prices were set in the range of US$6–US$40 per course of vaccination, well below their estimated social value of US$5,800 per course [Castillo et al. 2021]). Experts therefore recommend using “push contracts” for these types of subsidies. Thus, governments should not only provide subsidies to multiple vaccine sponsors to diversify scientific risk but also should do so at their own risk so that firms could begin building their manufacturing infrastructure in parallel with the phase 3 clinical trials.

Government procurement The COVID-19 pandemic strained government procurement systems. One core responsibility of governments in the context of a pandemic is to procure medical goods such as PPE, vaccines, diagnostics, and therapeutics to respond to the crisis and support the provision of medical services to the population. It is thus not surprising that government procurement appeared at the forefront of the response to the COVID-19 pandemic in many jurisdictions. The resilience of government procurement systems was put to the test with the rapid and sustained increase in global demand for medical goods and services and the decrease in production capacity (see, for example, OECD 2020c).

Although some economies were prepared to respond quickly, others had to adjust existing government procurement rules and policy options to address challenges arising from the pandemic. These challenges included speeding up procedures to ensure timely availability of medical goods and services; addressing the potential lack of qualified domestic suppliers; engaging foreign suppliers; and encouraging or preserving competition among suppliers to keep prices down.

Framework agreements setting out the medical goods and services likely needed during the COVID-19 pandemic enhanced resilience and ensured a rapid response. These agreements helped governments avoid using limited tendering and emergency contracting. For example, early in the COVID-19 pandemic, the Italian Central Purchasing Body (Consip) acquired emergency medical goods through framework agreements with multiple suppliers (OECD 2020b).

Special emergency government procurement rules and flexibilities came into play. Some of these rules and flexibilities aim to accelerate the government procurement process—for example, by shortening applicable deadlines to be observed by suppliers. To some extent, this approach safeguards transparency and supplier competition. Economies such as the EU and Switzerland issued additional guidance and recommendations on the use of existing rules and flexibilities in their government procurement systems to ensure rapid and efficient procurement of medical goods and services (EC 2020b; Swiss Confederation 2020). Such existing flexibilities included

reliance on electronic procurement and related e-tools and shorter time periods for competitive tendering.

Limited tendering was used for the timely procurement of medical goods and services. Under this method, the procuring entity contacts one or more suppliers of its choice and can waive most transparency and procedural requirements. For example, during the COVID-19 pandemic, the Slovak Republic purchased medical supplies amounting to €54.1 million through limited tendering (OECD 2020b).

Some countries aggregated demand through joint procurement or similar mechanisms to ensure the supply of essential medical goods and services.The urgency caused by the COVID-19 pandemic made the planning of demand very challenging, and governments quickly found themselves in competition with each other to procure essential medical goods and services from a limited number of global suppliers. This shifted bargaining power from the procuring entities to the suppliers, resulting in less value for money—an increase in prices and substandard goods (Kohler and Wright 2020). To address these challenges, countries including Canada, Colombia, and Italy used joint procurement or mechanisms such as pooled or centralized procurement. This has proved beneficial for increasing the bargaining power of procuring entities, achieving economies of scale, and avoiding excessive competition among buyers for a limited supply of essential medical goods and services. Such procurement tools have also been used at the regional level, as in the case of the EU (as further discussed in chapter 3).

Governments sought to preserve core principles of the government procurement systems—transparency, value for money, and accountability. Measures included (a) issuing standard technical specifications for different products, such as PPE and ventilators, to avoid substandard medical goods and ensure value for money; and (b) creating databases to ensure transparency of transactions related to the pandemic.46

Competition policy Competition law and policy helped governments address health sector-related challenges. During a pandemic, competition law and policy play important roles, and competition authorities must be vigilant to ensure that competition remains effective. At the same time, the urgent need to ensure the availability of medical goods and services may call for additional flexibilities in the enforcement of competition laws and for allowing some forms of cooperation between competitors under certain conditions. Competition authorities can perform an important advocacy role by informing governments about the potential competitive impacts of proposed economic measures taken in response to a pandemic (ICN 2020; UNCTAD 2020).

Competitors cooperated to meet the increased demand for medical goods and services. To facilitate cooperation, several jurisdictions issued new rules (for example, block exemptions) or guidelines on the implementation of competition laws as well as information on how cooperation between private companies in the health sector would be assessed during the pandemic. The EU, for instance, issued a temporary framework for assessing competition issues related to business cooperation.47 South Africa enacted