SMEI could require EU-based companies to prioritise orders and provide sensitive business information on production capacity and stocks of strategic goods
In brief
On 19 September 2022, the Commission unveiled its proposal for a Regulation for the New Single Market Emergency Instrument (SMEI) to secure crucial supply chains in future emergency situations. The Commission describes the SMEI as a crisis governance framework to ensure the free movement of goods, services and persons and the availability of critical goods and services within the EU during emergencies. The SMEI is not specific to health but applies to all kinds of crises having an impact on the functioning of the single market and its supply chains. ‘Crisis’ is quite vaguely defined as an exceptional unexpected and sudden, natural or man-made event of extraordinary nature and scale that takes place inside or outside of the Union. The definition would benefit from further clarification of what circumstances constitute a crisis.
If approved in its current form, the SMEI would bestow on the Commission’s far-reaching powers to interfere in markets. The Commission would, for instance, be enabled to monitor critical supply chains and to enforce stockpiling of strategic products. In addition, the Commission could request sensitive business information from companies on production capacities and stocks of crisis-relevant goods, and even make the companies prioritize certain orders to guarantee that key products get to where they are needed the most in the view of the Commission. A failure to comply will expose companies to hefty fines: Companies that do not fulfill the Commission’s priority orders could face fines of up to 1 % of their average daily turnover and companies that do not provide the correct information could be fined up to EUR 200,000.
Does SMEI apply to pharmaceutical or medical devices companies?
Medicinal products, medical devices or other medical countermeasures (any other goods or services for the for the purpose of preparedness and response to a serious cross-border threat to health) are generally excluded from the scope of the initiative due to the existence of a dedicated crisis-relevant framework in these areas (See footnote 1 for an overview of health sector-specific measures).
However, a few caveats need to be made:
- For borderline products classification will be key in determining the applicable regime. In limited cases there may be some unclarity about what regime would apply.
- Starting materials for medicines, intermediaries or components for medical devices are not specifically excluded under the SMEI. But they can – and in our view should – be excluded in light of the proposed measures under the Proposal for a Council Regulation on a framework of measures for ensuring the supply of crisis-relevant medical countermeasures in the event of a public health emergency at Union level1.
- SMEI provisions relating to free movement during a Single Market Emergency, and in particular those designed to re-establish and facilitate free movement as well as the notification mechanism (Articles 16 to 20) apply to medicines, medical devices and other medical countermeasures. The same goes for supportive IT infrastructure (Article 41); These provisions have Member States and European Commission as primary addressees but ensure rights which companies can rely on.
Overall, the SMEI Proposal has raised concerns for being too ‘interventionist’ and it remains to be seen how much of their powers Member States will be prepared to hand over to the Commission.
Link to download the SMEI Proposal available here.
Overview of EU level crisis management instruments particularly relevant to pharma and medical devices industry
The Commission decision established the Health Emergency Preparedness and Response Authority for coordinated action at Union level to respond to health emergencies, including monitoring the needs, swift development, manufacturing, procurement and equitable distribution of medical countermeasures.
The Regulation provides a framework to monitor and mitigate potential and actual shortages of centrally and nationally authorized medicinal products for human use considered as critical to address a given ‘public health emergency’ or ‘major event’.
The proposal provides for crisis response tools such as joint procurement, mandatory information requests for businesses about their production capacities, and repurposing production lines in case of public health crises once a public health emergency would be declared. The declaration of an EU emergency situation would trigger increased coordination and allow for the development, stockpiling and procurement of crisis-relevant products. The proposal covers medical countermeasures defined as medicinal products for human use, medical devices and other goods or services that are necessary for the purpose of preparedness and response to serious cross-border threats to health.
The proposal aims at strengthening the EU’s health security framework, and reinforcing the crisis preparedness and response role of key EU agencies with respect to serious cross-border health threats. When adopted, it will strengthen the preparedness and response planning and reinforce epidemiological surveillance and monitoring, improve data reporting, strengthen EU interventions.
This article was written by Els Janssens, Counsel, Brussels and Arlyn Wiener, Trainee Lawyer, Brussels.
1 COM(2021) 577 final: This Proposal sets forth measures for finished products as well as their raw materials
