Topics Economic Security Seminar "Economic Security and the Pharmaceutical Industry
On June 26, 2023, the Economic Security Seminar "Economic Security and the Pharmaceutical Industry" was hosted by the Economic Security Task Force of the Industrial Policy Committee of the Pharmaceutical Manufacturers Association of Japan (PMAJ) in a web-based format for member companies. The seminar was attended by 143 participants and featured a lecture and Q&A session by Yoshiyuki Sagara, Senior Fellow of the Asia Pacific Initiative (API) and Senior Fellow of the Institute of Geoeconomics.
About the Economic Security Task Force
The Economic Security Task Force, which hosted this seminar, was established in October 2021 by the Industrial Policy Committee based on the idea that the Pharmaceutical Manufacturers Association of Japan (PMAJ) needs an organization to deal with economic security in light of the economic security legislation in the country triggered by the decoupling movement between the U.S. and China and the movements of economic organizations in response to such legislation. The Task Force was established by the Industrial Policy Committee in October 2021. The task force holds study sessions with experts from related ministries and think tanks, exchanges opinions with the Ministry of Health, Labor and Welfare, and holds seminars for pharmaceutical association member companies. In response to the Economic Security Promotion Act enacted in May 2022, the Pharmaceutical Manufacturers Association of Japan (PMAJ) submitted public comments on the related draft cabinet order and ministerial ordinance.
Background of the Seminar
The COVID-19 pandemic has revealed that the supply chain for vaccines and medicines has become increasingly complex, and that the supply chain for vaccines and medicines has become increasingly complex, and that the supply chain for vaccines and medicines has become increasingly complex, and that the supply chain for vaccines and medicines has become increasingly complex, and that the supply chain for vaccines and medicines has become more complex. The COVID-19 pandemic revealed that the supply chain for vaccines and medicines has a direct impact on the lives and health of the population. The supply of personal protective equipment (PPE), such as masks and medical gowns, is still fresh in our minds. In addition, the EU's export restrictions on vaccines also hampered Japan's imports, and the country's dependence on China for PPE and on the West for vaccines has created momentum for the need to promote Japan's economic security ( Fig. 1 ).
Figure 1: Japan's Economic Security Policy Structure
On the other hand, the Japanese business community is troubled by the fact that it has businesses in both the U.S. and China, both of which are important, and that it cannot choose between the two if it is forced to choose between them. Many Japanese companies have factories in China, and many local employees work there. In the context of economic security, it is difficult to know how to look at such business risks, and it is impossible for individual companies to overcome the rough waves of the U.S.-China confrontation alone. Regarding the impact of economic security on the pharmaceutical industry and how to respond to it, including the position of the life science and biotech industries in the race for technological hegemony and geopolitical and geoeconomic competition between the U.S. and China, as well as the strengthening of supply chains, etc., we have examined the Japanese government's response to the new coronavirus, with experience working at the UN and the Ministry of Foreign Affairs, and we have also examined the Japanese government's response to the new type of coronavirus, and have asked Cabinet Mr. Yoshiyuki Sagara, who has worked for the United Nations and the Ministry of Foreign Affairs, gave a lecture on the impact of and response to economic security and the pharmaceutical industry, including the resilience of the supply chain. The following is a summary of the session.
Lecture
Economic Security and the Pharmaceutical Industry
Mr. Yoshiyuki Sagara, Senior Fellow, Asia Pacific Initiative (API) and Senior Fellow, Institute of Geoeconomics
(1) U.S.-China Conflict and Economic Security
The U.S. hard line toward China, made known by the Trump administration's "decoupling" of the U.S. and China, is now considered to have a consensus that transcends Republican and Democratic party lines. In reviewing the history leading up to the U.S.-China confrontation, key events include the following
| 2001: | China's accession to the World Trade Organization (symbolic event for the U.S. policy of engagement with China) |
| 2008: | China's relative rise during the global financial crisis |
| 2010: | China embargoes rare earths to Japan after a collision with a Chinese fishing boat off the Senkaku Islands (China weaponizes its economic dependence on Japan) |
| 2017: | Inauguration of the U.S. Trump administration takes a hard line against China |
| 2020: | COVID-19 crisis strengthens hard line against China, making U.S.-China cooperation difficult even in international health and infectious disease countermeasures, where cooperation was previously considered possible. |
Economic security" was first defined in Japan in the National Security Strategy approved by the Cabinet in December 2022. However, even here, economic security threats are not specified. We believe that the greatest threat to economic security is the weaponization of economic dependence (economic coercion). Other threats include preferential treatment of domestic products in government procurement (also a risk in the U.S.) and China's emphasis on "rule by law.
Even after China's "Anti-Foreign Sanctions Law" was passed in 2021, China has been cautious about implementing countermeasures operationally to avoid intensifying the U.S.-China conflict, but the ban on government procurement of semiconductor giant Micron in May 2023 is seen as a reaction to the outcomes of the G7 Hiroshima Summit. China is an attractive market, but we need to be aware that such economic intimidation may be implemented in the future (after his speech, the Chinese government announced tighter export controls on gallium-germanium related items).
(2) Pharmaceuticals and biotechnology as a focal point of economic security
There is a perception in China today that it is being unfairly suppressed by Western countries and that it needs to develop and commercialize its own technologies in areas such as semiconductors. In recent years, it has also shown great interest in biotechnology ( Figure 2 ).
Figure 2: China Manufacturing 2025
Source: Excerpts from Mr. Sagara's presentation material
Meanwhile, in the U.S. Congress, both Republicans and Democrats agree on a hard-line policy toward China, and there have even been scenes of competition to see which party can be tougher on China. The U.S. is characterized by the perception that China could be a biological threat. The U.S. intelligence community is divided on the origins of COVID-19. For example, the U.S. Central Intelligence Agency (CIA) is of the view that "animal-to-human transmission" is highly likely, while the U.S. Federal Bureau of Investigation (FBI) is of the view that "the outflow (including unintentional outflow) came from the Wuhan virus laboratory.
In 2020, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce added two subsidiaries of the Chinese genetic analysis giant BGI Group to its list of entities subject to export controls, citing human rights damages in China's Xinjiang Uyghur Autonomous Region, among other reasons. In addition, concerns have been raised that genomic data for popular roots research and prenatal diagnosis in the U.S. are being leaked to the Chinese government and the People's Liberation Army through BGI affiliates that are contractors for genetic analysis, and in March 2023, three BGI-related companies were added to the Entity List.
In the context of economic security, the Japanese government used to focus on semiconductors, AI, and quantum, but recently there has been a growing interest in biotechnology and biomanufacturing ( Figure 3 ).
Fig. 3 Bio-technology of Growing Importance to Japan and the U.S.
Source: Excerpts from Mr. Sagara's presentation material
(3) Supply chain resilience
The U.S. and EU are leading the way in analyzing supply chain vulnerabilities, and it is said that end-to-end (E2E) supply chain visualization (in the pharmaceutical industry, from the starting material or drug substance to the patient) is necessary, but paper-based vouchers are still used in Japan. However, it has been pointed out that the collection of data from small and medium-sized enterprises in Japan is particularly difficult due to the current situation.
In addition, the threat to companies is not only from the Chinese government, but also from pharmaceutical companies in the U.S. and other like-minded countries that are partners in the Biden administration's "friend-shoring" supply chain, which is limited to allies and friends.
So far, only four ingredients in Category A of Stable and Secure Pharmaceuticals have been designated as "Specified Critical Supplies" in the Economic Security Promotion Act's supply chain strengthening, but is this sufficient? I believe that periodic reviews are necessary.
(4) Small yard, high fence; De-risking and diversifying
Currently, two important keywords in economic security are "Small yard, high fence" and "De-Risking. Since decoupling is not realistic, the U.S. government has adopted the concept of "de-risking," which Europe has been advocating since around March 2023, and which was included in the statement on economic security at the G7 Hiroshima Summit. Assistant to the President for National Security Affairs Sullivan has referred to the need to identify and treat "a narrow slice of technology.
If exports are made to sanctioned companies like BGI, they may be pursued not only by government export control authorities, but also by the media and shareholders. Financial institutions also take a hard look at points related to economic security.
(5) Measures required of Japan
We believe that politics, government, industry, and academia should work together with a common vision of protecting the lives and health of the people. In Japan, we believe that the jurisdiction of Medical Countermeasures (MCM) is unclear. We believe that the newly established Cabinet Office for Crisis Management of Infectious Diseases should oversee MCM supply chain management, resilience, and social implementation of emerging technologies, and establish a mechanism for cross-ministry collaboration. In the United States, the Department of Health and Human Services' Office of Strategic Preparedness and Response Management (HHS/ASPR) plays a similar role and is also working with the Food and Drug Administration (FDA), a regulatory agency.
The U.S. is pursuing economic and security cooperation with India, and India is an important geopolitical and geoeconomic partner for the Japanese government. Some say that India's active pharmaceutical ingredients (APIs) are unreliable, but at the U.S.-India summit in June 2023, an agreement was reached to strengthen the pharmaceutical supply chain. The U.S. and Europe are often negotiating behind the scenes, so care must be taken not to fall behind U.S. and European companies.
In order not to undermine competitiveness, we should analyze the situation and have a solid understanding of U.S. and Chinese moves. For example, the Institute of Geo-Economics (IOG) also provides useful information for its member companies.
Q&A session on the day of the seminar
After the conclusion of Mr. Sagara's presentation, a question-and-answer period was held, during which the following questions were raised.
| The event concluded with a speech by Mr. Takafumi Adachi, Director of Public Relations. | Potential disruption of pharmaceutical supply chains originating in China due to Taiwan contingency |
| The event concluded with a speech by Mr. Takafumi Adachi, Director of Public Relations. | Sharing of supply and demand network for APIs of essential drugs among Western countries |
| The event concluded with a speech by Mr. Takafumi Adachi, Director of Public Relations. | Sectors in the pharmaceutical industry that are well suited to be in charge of economic security (risk management) |
| The event concluded with a speech by Mr. Takafumi Adachi, Director of Public Relations. | Concerns about declining prioritization of vaccines within governments |
| The event concluded with a speech by Mr. Takafumi Adachi, Director of Public Relations. | On friend-shoring |
| The event concluded with a speech by Mr. Takafumi Adachi, Director of Public Relations. | Japanese companies should keep in mind that even among like-minded countries, ideas and policies may not be the same when it comes to issues with the U.S. |
| The event concluded with a speech by Mr. Takafumi Adachi, Director of Public Relations. | As Japan follows the small yard high fence, how each company should communicate and prepare for the need to protect important information |
( Chikara Yoshida, Leader, Economic Security Task Force, Industrial Policy Committee)