By Kenneth Maxwell

Welcome to what the Russian Government owned international news network “Sputnik” is calling the “New Technological Cold War. “

In November last year Huawei launched an Artificial Intelligence (AI ) backed cloud service in Brazil.

Quin Dan the CEO of Huawei Cloud Brazil said at the launch ceremony in São Paulo: “We have the technology, experience, security and support so our clients can transform and expand their businesses.” Erick Schanz, the company’s business manager, said that Huawei Cloud is set up to compete in Brazil, Latin America’s largest economy, with U.S. companies that provide similar services such as Microsoft, Amazon and Google.

Huawei noted in a statement that “another important benefit of cloud is that it is linked to the development in Brazil of 5G technology.”

The company also presented its Huawei Cloud Partner Network (HCPN) which has 291 partners in Latin America and 80 in Brazil. An auction is expected this year for frequency space in Brazil.

The Brazilian 5G auction will be among the largest spectrum sales ever and telecom companies from all over the world are expected to compete for the contract.

The recent UK decision by the Boris Johnson government over Huawei and 5G, which would restrict Huawei to 35% participation in the periphery of the network which connects devices and equipment to mobile phone masts, and exclude it from sensitive core areas such as nuclear installations and military bases, has already had an impact in Brazil which sees the British model as one to follow.

In Britain the potential competitors to Huawei, Ericsson of Sweden and Nokia of Finland, and Samsung, would delay 5G technology rollout and increase costs.

Which is why in the British case the use of Huawei for 5G is supported by Vodafone and BT, both of which have already embedded Chinese telecom technology in their telecom systems.

Most components come from Southeast Asia, principally from China.

Yao Wei, the outgoing President of Huawei in January 2020 met with the Brazilian President Jair Bolsonaro at the palácio do planalto in Brasilia. He was following up on the two meetings between Bolsonaro and Chinese President Xi Jinping in Beijing during a state visit to China in October and at the BRICS summit in Brasília in November.

Bolsonaro had said that “China should be buying in Brazil, not buying Brazil.”

But pressure from the Brazilian agro-business sector had persuaded him to modify his tone.

He sent his Vice President, general Hamilton Mourão, to China in May where he met with Huawei technology company’s founder, Ren Zhengfei, and discussed Huawei plans to build a 5G network in Brazil.

The Chinese have been lobbying General Hamilton Mourão and the minister of science, technology, innovation and communication (MCTIC), Marcos Pontes since then, and Huawei has been dangling the possibility of a major US$800 million investment in a factory in São Paulo to manufacture smart  phones according to João Doria, the governor of São Paulo.

There are major issues at stake here beyond 5G and Artificial intelligence services. In recent years China has been rapidly expanding its influence in Brazil and in Latin American more broadly.

Most significantly China is Brazil’s most important trading partner.

The coronavirus crisis in China has had an immediate impact on Brazilian trade. Brazilian exports to China falling by 3.5% over the first weeks after the crisis hit according to the Brazilian Association of External Commerce. Brazil’s dependence on commodity exports makes it especially vulnerable to any decrease in Chinese demand. China is a major importer of Brazilian beef and soy. Powerful Agro-business interests in Brazil, major political supported of Jair Bolsonaro’s Government, have a huge stake in the preservation of good commercial relations with China.

Brazil is a major part of China food security strategy.

Soy is China’s main food commodity which it imports to feed its pigs. Chinese state companies invest  directly in Brazil’s supply chain and China buys 70 to 80% of Brazilian soy and has in Brazil some 7,500 employees. The Chinese pledged an investment of US$100 billion in Brazil at the last BRICS summit in Brasília, and have committed US$ 3.1 billion to two BRI (belt and road) Projects in Brazil.

A high voltage transmission system for the belo monte dam in Mato Grosso, and toward the expansion of the port of São Luís in Maranhão, and possibly on support the construction of a new railroad link from Mato Grosso to bring soya to the ports on the Amazonian Tapajos river.

The replacement of tropical rain forest by cattle and soy in the inevitable consequence of Chinese commodities demand.

China has become a major in investor in Brazil’s pre-salt petroleum and takes two thirds of the Brazil’s total petroleum output. The Chinese offshore oil engineering company (CODEC) has constructed floating production, storage and offloading platforms for Brazil, due to bottlenecks in Brazilian yards. One of these platforms, Petrobras P-70, broke from it’s moorings in a storm in Rio de Janeiro’s Guanabara Bay off Niterói at the end of January this year having just arrived from China.

The platform was due to move to the Petrobras operated Atapu pre-salt field and is designed to produce 150,000 barrels of oil a day and day 6 million cubic  meters of natural gas and employ 160 people and be operational for 25 years.

President Donald Trump in an “apoplectic” phone call to Boris Johnson criticised his Huawei decision, and his Secretary of State, Mike Pompeo has also expressed his alarm and opposition to Boris Johnson’s Huawei and 5G decision, and both have also pressured Jair Bolsonaro over his potential decision over Huawei and 5G in Brazil.

Boris Johnson and Jair Bolsonaro are soul mates of Donald Trump to be sure, but material interest are pulling them in an opposite direction.

Featured Image: Friso Gentsch/picture alliance via Getty Images.

Also, see the following excellent overview on 5G in a strategic context:

5G Systems and Strategic Choices

The Institute for Integrated Economic Research – Australia has just released a report looking at Australia’s medical supply chain.

The report notes that “Australia imports over 90% of medicines and is at the end of a very long global supply chain making the nation vulnerable to supply chain disruptions.

Recently, I had a chance to talk with the founders of the Institute, Air Vice-Marshal (Retired) John Blackburn and Anne Borzycki.

It is very appropriate that we are publishing their interview and highlighting their report, for the launch point of their focus on this subject was our own work with Rosemary Gibson, who has done the pioneer work on the critical question of supply chain vulnerabilities for the United States.

Question: How did you get interested in this subject?

Answer: Having read on your website about Rosemary Gibson and then had the opportunity to speak with her about her book, we decided to examine the Australian medical supply chain. Rosemary has highlighted the key dependencies which the United States has upon China in terms of the medicine supply chain and the impacts on national security.

We examined the Australian case and found we have a similar problem but very few people have focused on it. An exception was Dr Simon Quilty who wrote an article in 2012 where he focused on the need for the Australian Regulator, the Therapeutic Goods Administration, to make it mandatory to have companies report medicine shortages.

We reached out to Simon regarding his article whilst he was visiting the UK studying their National Health system.  Following our discussions, he subsequently met with Rosemary Gibson in the United States to discuss her book and and he is now a Fellow of our Institute as well as a co-author of our report.

Question: What have you discovered in your research?

Answer: We found that Australia imports over 90% of the medicines Australians consume and that we are at the end of a very long global supply chain that makes us vulnerable to supply chain disruptions.  The Australian Therapeutic Goods Administration has itself acknowledged these supply chain risks when they reported that, at times, there may not be enough of a specific medicine in the Australian marketplace, leading to potential weaknesses in supply.

We concluded that Australia is particularly vulnerable to medicine shortages arising from factors outside our control.  These factors can include manufacturing problems, difficulties in procurement, political instability, pandemics, another global economic crisis and a range of natural disasters.  The current Coronavirus emergency is an example of this.

In effect we have incrementally outsourced almost all of our medicine supply chain to the global market.  We import a significant proportion of our medicines from the United States but, as Rosemary Gibson has underscored, a significant component of US medicine supplies come from China.

So, we suffer from the same problem described by Rosemary, i.e. we import from the United States which has itself ignored the vulnerability of its supply chain arising from its significant dependence on China for the manufacturing of medicines.

This dependence has been described in US Congressional Commission hearings as a risk to US national security.

Whilst Australians embrace free trade, it does not look like we have a level playing field.

We could see from Rosemary’s investigation that the Chinese Government, by using its financial power, has shaped the market by undercutting the US pharmaceutical industry.  We were surprised to learn that China is fast becoming one of the leading manufacturers of pharmaceuticals and the Active Pharmaceutical Ingredients (commonly referred to as APIs) that go into medicines.

The next challenge we found was to try to understand the medicine supply chain.  It has been difficult to analyse Australia’s medicine supply chain risks given the limited information available to the public.

Clearly this is not a problem confined just to Australia.

As was noted in 2019 by the US Government’s US-China Economic and Security Review Commission, supply chains are not understood, vulnerabilities are not fully understood and no one agency seems to have responsibility or accountability.

Question: What can be done?

Answer: Let us return to the efforts of Dr. Quilty. He has argued for the need for mandatory reporting on drug labelling and accurate information on critical medicine supplies.

This is a great first step.

However, whilst such reporting is now occurring in Australia, we cannot see much, if any, action being taken by the Government to address the medicine supply chain vulnerabilities.

Scandinavian countries seem to be better organized that we are. There is a good example from Finland discussed in our report.  Like most nations, Finland has strategic stockpiles of key drugs and hospital supplies for what their Ministry of Defence calls ‘disruptive situations’ and ‘exceptional circumstances’.

However, the Finnish government has also recognized that these stockpiles are becoming increasingly reliant on imports and they see this as a risk to national security.  Furthermore, they recognize that the restructuring of the pharmaceutical industry may have a detrimental effect on Finland’s security of supplies in the future, especially as Finland is ceasing production of infusion fluids and vaccinations.  Finland recognizes this risk and acknowledges that options need to be explored to mitigate future vulnerabilities.

What we are trying to do with our report is to get the Australian people, and in turn our Government, to recognize the risks to our medicine supply chain and to acknowledge that options need to be explored to mitigate future vulnerabilities.

Question: You noted in your report that the Australian Therapeutic Goods Administration has mandated new medicine labelling requirements, but they do not require labelling of country of origin.  

Isn’t your earlier point that country of origin is not enough if the exporting country is not clearly indicating the SOURCE of their supply rather than being simply a transit point for re-export?

Answer: That is clearly a key part of the challenge.

We need to focus on building an approach which ensures security of supply.

To do that the supply chain must be transparent, all the way from ingredient supply through medicine manufacturing to the consumer.

Apart from not knowing where the APIs or specific medicines have been sourced, we in Australia have not done a comprehensive risk analysis of our Maritime Trade supply chains; that in a country that depends on maritime trade for 98% of its imports (by volume.)

Australia has almost no capacity to manufacture any active pharmaceutical products or most of the products listed on the World Health Organization list of essential medicines. We simply do not understand the risk to our national security by focusing primarily on lowest cost.

The lowest cost can come at a high price …

Question: What are the next steps to deal with the situation?

Answer: The US Congress has raised some fundamental questions about the current Chinese dominance situation.

We would like our Parliament to join in this effort, and to sort through practical steps to ensure medical supply security.

Question: Perhaps the Gibson focus on building national capacity for core ingredients which allows for ramp up of medicines to ensure supply of essential medicines in a crisis might make sense for Australia?

Answer: It does.

But any case, we need to build out national production capabilities and to build resilient reliable supply chains with partners.

This can only be done with a clear policy of transparency about countries of origin for medicines, as well as ensuring that we can produce essential drugs in a crisis, whether due to natural disaster or political manipulation by authoritarian powers.

Editor’s Note:  We recently interviewed Rosemary Gibson with regard to her recommendations about how to launch a proper response.

According to Gibson: “We’d have to see how much capability there is organizationally there is in the United States to ensure essential medical supply production and otherwise to actually do the work because we’re talking about thousands of medicines and many different kinds of active ingredients. It’s not going to happen overnight.

“That’s why we should start with those essential medicines that are core to any national health security and national security.”

She concluded: “We need a system just like we do for energy supplies and good commodities.

“We need an entity within the Federal government that does this tracking and projection of those vulnerabilities of global supply and demand current production levels for certain medicinal products so we can be prepared and know if this is shutting down what’s our alternative?”

See also the following:

Dealing with the Chinese Challenge: The Case of the Pharmaceutical Industry

The New Warfare: Rethinking the Industrial Base for National Defense and Security

And for recent stories which highlight the challenge facing the European Union as well as India, see the following:

https://newseu.cgtn.com/news/2020-02-14/EU-health-ministers-warn-COVID-19-could-lead-to-drug-shortage-O3JmH5XRyo/index.html

https://www.newkerala.com/news/2020/23876.htm