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The new coronavirus, SARS-CoV-2, and the disease it causes,
COVID-19, have created diverse, complex, and immediate challenges
for world governments, multinational businesses, and other
international institutions and projects. While the effects of
COVID-19 are first and foremost a humanitarian issue, its effects
also cut across many aspects of international trade, including
supply chain management, business travel, immigration,
manufacturing, sales, importing, exporting, customs, and
logistics.
This alert highlights important developments and offers related
analysis and tips regarding the international trade impacts of
COVID-19. The alert is designed particularly for in-house
international trade professionals, including compliance personnel
and trade attorneys, although it may be helpful to a wide audience
in business and government. Specifically, we highlight
challenges for trade compliance professionals, provide trade
compliance considerations and a checklist, and compile relevant
articles related to government actions and industry impacts that
are representative of some of the issues that have emerged in
international trade.
Effects on International Trade and Trade Compliance
Professionals
As governments continue to act to respond to the virus,
companies may begin contemplating significant and potentially
far-reaching decisions to adjust to the new reality of COVID-19:
questioning the reliability of supply chains and examining sales,
operations, and manufacturing plans to react and adapt to new and
rapidly evolving risk factors. The tariff and regulatory actions of
the past several years have already led some companies to examine
their international trade flows more closely. As events continue to
unfold, a serious evaluation of changing suppliers, altering
logistics routes, and updating sourcing will become more likely as
companies navigate these events in search of a safe harbor.
Trade compliance professionals should be connected to these
changes within their organizations to help ensure that the new
reality does not result in inadvertent compliance issues,
violations, or penalties—as well as operational costs to
unwind noncompliant activities—in the future. No organization
wants to redesign their business activities and incur significant
transaction costs and disruption only to find out later that their
redesign is in violation of export control, customs, sanctions, or
other trade laws. As the situation continues to develop, global
trade compliance professionals should be monitoring these issues at
their organizations to ensure that they, and their compliance
programs, are part of the evolving conversation and that key
stakeholders are making decisions with the benefit of input from
trade compliance.
The following are highlights of trade-related government actions
and effects on companies:
- Over 80
countries have issued travel
restrictions applicable to visitors from China, South
Korea, Iran, Italy, and other regions. - Germany, France, India, and
other countries have issued export bans on medical
protective equipment, drug ingredients, and medicines, citing
increased global demand and concerns of domestic undersupply. - The United Kingdom
has asked pharmaceutical suppliers to carry out risk and impact
assessments of coronavirus on their business and to retain existing
stockpiles of medical supplies, while urging the public and the
National Health Service (NHS) not to stockpile supplies to avoid
critical supply chain disruptions. - France has ordered a
review to identify French industries that rebuild “economic
and strategic independence” from Asia-based supply chains,
highlighting the pharmaceutical industry as over-reliant on Asia,
as well as the automotive and wine industries. - The United States
enacted an $8.3 billion emergency spending bill to fund the U.S.
response to COVID-19, tripling the President’s budget
request. - The U.S. Office of Foreign
Assets Control (OFAC) has issued guidance on authorized
humanitarian aid to Iran and warning against unlicensed
transactions, such as those with Specially Designated Global
Terrorists like the Iranian Revolutionary Guard Corp, which is
playing a significant role in Iran’s COVID-19 response. - Electronics
manufacturers have been told by suppliers to expect
COVID-19-related shipping delays, and greater than a third of
electronics manufacturing executives expect delays of up to six
weeks or longer. - The global shipping
industry is losing approximately $350 million per week due
to COVID-19, and the effects of canceled sailings and upended
logistics are causing major issues in global shipping industry,
such as a surplus of refrigerated containers stranded in China and
short-supply elsewhere, although there are some signals last week
that China manufacturing is coming back online, and related ocean
container traffic and trade flows may follow. - The airline industry
may lose an estimated $60 billion to $110 billion, while the
business travel industry is losing an estimated
$46 billion per month as companies cut business travel.
More detailed summaries of particular actions and hyperlinks to
sources are provided below.
Trade Compliance Program Continuity, Considerations, and
Checklist
Compliance program continuity should be maintained as business
disruptions proliferate. To the extent that compliance personnel
need to conduct travel and site visits for audits, compliance
training and education, internal investigations, or compliance
consultations, companies should identify and deploy alternative
means to accomplish the same objectives. Alternatives may include
the use of videoconferencing and web tools, establishment or
reallocation of regional compliance personnel, utilization of
outside consultants or advisors, or other means that can
demonstrate continuity in the implementation of compliance program
safeguards. For example, compliance communications are an effective
means of reminding personnel of the importance of maintaining
effective compliance safeguards despite disruptions in other areas
of operations. Such communications also generate a record that
reflects well on a company and can be shared, if necessary, with
regulators, stakeholders, or investors to document continuity in a
company’s compliance program commitments.
In particular, communications should be structured to remind
business personnel to spot and raise issues that could have trade
compliance impacts as they react to, and take action in, the
changing commercial environment. For example, business personnel
should be sensitized to the following:
- Are you considering changing a
supplier? - Are you considering selling to a new
customer or country? - Are you thinking of using different
inputs or materials in manufacturing? - Will you be adjusting operations to
involve new or modified items? - Will your new plans require you to
alter importing or exporting activities in any other way? - Will you need to use a new customs
broker, freight forwarder, or carrier? - Will travel restrictions require
non-U.S. personnel to access new IT databases or locations? - Will a new third party or country be
involved in any other way? - Will the end-use of your items be
changing? - Will the company provide ongoing
services or support to new parties or countries?
Such simple questions could help surface a range of issues in
international trade compliance, as well as:
- Restricted party screening;
- Export and sanctions
licensing/authorization requirements; - New country of origin issues under
customs laws, and foreign direct product and de minimis issues
under export laws; - Access to export-controlled
information; and - Customs tariff impacts resulting from
new supply chain routes and product mixes.
Trade compliance personnel should tailor the analysis to their
business. They should also keep updated on information through
sources that they might not normally check. For example, in
addition to reviewing online guidance from U.S. officials
(e.g., U.S. Customs and Border Protection, Bureau of
Industry and Security, Office of Foreign Assets Control, Import
Administration, Directorate of Defense Trade Controls, and White
House), trade compliance personnel should stay informed and updated
through other public and private resources. Online resources to
track as the situation develops include:
- Johns Hopkins University COVID-19 Tracker and
Dashboard (aggregates, cross-references, and visualizes
COVID-19 outbreak data in real-time from the World Health
Organization (WHO), Centers for Disease Control and Prevention
(CDC), European Centre for Disease Prevention and Control (ECDC),
and other international sources). - IATA – Coronavirus Travel Restrictions by
Country (updated with global travel restrictions related to
COVID-19). - WHO Coronavirus Homepage (global updates,
FAQs, and guidance). - U.S. CDC Coronavirus Homepage (U.S. updates,
FAQs, and guidance). - U.S. State Dept. Coronavirus Notifications
(updates on U.S. travel and immigration policy). - European CDC Coronavirus Homepage (EU updates,
FAQs, and guidance). - DXY Coronavirus Homepage (online community of
Chinese health care professionals).
More generally, U.S. employers should consider applicable legal
frameworks (such as Occupational Safety and Health Administration
(OSHA) requirements for safe work places and relevant CDC
guidelines) and be proactive in developing measures to respond to
the impact of COVID-19. Monitoring developments, establishing an
infectious disease outbreak response plan and infrastructure, and
engaging in strategic contingency planning are all steps that
companies can take to mitigate negative effects of the virus. For
additional guidance, see Akin Gump’s recent special bulletin,
Guidance to Employers for Responding to the Coronavirus (Mar.
3, 2020) and Akin Gump’s
COVID-19 Resource Center.
Examples of Trade-Related Government and Industry Actions and
Impacts
This section provides examples, along with links to sources, of
trade-related government and industry actions and impacts. The
information in this section are summaries of the information
contained in the sources and has not been independently validated
by Akin Gump.
Responses by Government and Public Institutions
This section of the report summarizes notable developments and
responses from governments, health organizations, and other public
institutions, including guidance, advisories, regulatory changes,
and legislative developments.
Over 80 Countries Issue Travel Restrictions Related to
COVID-19 as U.S. Reduces Services and Staff in China
Over 80 countries have issued travel restrictions related to
COVID-19. Most of the restrictions apply to inbound travelers from
or transiting through China, South Korea, Iran, and Italy. The
restrictions vary from quarantine periods to outright denial of
entry. The United States bars visitors that have been to China and
Iran 14 days prior to arrival, implementing a 14 day quarantine.
The U.S. State Department has suspended regular visa services in
China embassies and consulates. (IATA, accessed Mar. 5, 2020)
U.S. Directs In-Bound Flights from China and Iran to
Certain Airports
The Secretary of the Department of Homeland Security (DHS)
directed all flights to the United States carrying persons who have
recently traveled from, or were otherwise present within, the
People’s Republic of China, as well as flights covered by
arrival restrictions regarding Iran, to arrive at one of the United
States airports where the United States Government is focusing
public health resources: JFK, ORD, SFO, SEA, HNL, LAX, ATL,
IAD, EWR, DFW, and DTW. (CBP, accessed Mar. 9, 2020)
Countries Have Begun Issuing Export Bans on Medical
Protective Equipment, Drug Ingredients, and Medicine to Protect
Domestic Supply
A number of countries have implemented or are considering export
bans on medical protective equipment, drug ingredients, and
medicine to counter concerns of short-supply. Despite
recommendations from the Health Security Committee and continued
attempts to engage in joint procurement, the European Union (EU)
has so far failed to convince France, Germany, and other member
countries to coordinate further on supply chains for medical
protective equipment, resulting in export bans on those items.
Germany issued a ban on the export of medical protective equipment
used to prevent the transmission of infectious diseases, effective
immediately and implemented to mitigate the potential for domestic
undersupply, with German authorities citing significantly increased
global need as a contributing concern. While the EU has initiated a
joint procurement effort, sufficient supplies may not be available
before April. India has also banned the export of certain drug
ingredients, and medicines made from them, over fears of a global
shortage, and Thailand has initiated a ban on mask exports. Export
bans have also been implemented by Russia and Turkey. The drug
ingredient and medicine bans in particular may exacerbate existing
issues resulting from the overall suspension of output from drug
ingredient makers in China and other affected markets. White House
adviser Peter Navarro criticized the export bans by “putative
allies” and cited them as evidence that the U.S. was
“alone” when it came to global public health emergencies.
(BAFA, Mar. 4, 2020) (BBC, Mar. 4, 2020) (Reuters, Mar. 6, 2020)(Health Security Committee Report, Mar. 2,
2020) (FT, Mar. 5, 2020)
UK Department of Health and Social Care Advises Against
Stockpiling Medical Supplies
Pharmaceutical suppliers have been asked to carry out risk
assessments of the impact of COVID-19 on their business and retain
existing stockpiles of medical supplies. The UK Department of
Health and Social Care urges the public and the NHS not to
stockpile, as this could aggravate supply chain issues. Health
Minister Nicola Blackwood noted that there are no current medicine
shortages in the UK. (Department of Health and Social Care
Statement, Feb. 11, 2020)
French Finance Minister Orders Re-Evaluation of Asia
Supply Chains, Calling Out Pharmaceuticals, Automobiles, and
Wines
The French Finance Minister, Bruno Le Maire, pressed for a
review to determine which French industries need to reduce their
dependence on suppliers from China and Asia and rebuild
“economic and strategic independence.” The pharmaceutical
industry was highlighted in particular, with Le Maire claiming that
80 percent of the raw materials for active agents in some drugs are
sourced from China or Asia. The automotive and wine industries were
also cited for their over-dependence on Asian suppliers. However,
Le Maire estimated that supply chain issues caused by COVID-19
would only shave off 0.1 points on French economic growth. (Reuters, Feb. 21, 2020)
U.S. Enacts $8.3 Billion Emergency Spending Package to
Fund COVID-19 Response
On March 6, 2020, President Trump signed an emergency spending
bill approved by the U.S. Congress the prior day to address
COVID-19 issues. The spending package includes $3 billion to fund
COVID-19 vaccine research and development, as well as $2.2 billion
to help the CDC fund the response by federal, state, and local
health agencies. The bill also includes $1.25 billion to fund
related State Department operations and humanitarian assistance
abroad. The remaining funds will be used to address various other
COVID-19-related issues, such as funding to support low-interest
loans for small companies affected by the outbreak. The spending
package more than tripled the size of the Trump
administration’s budget request and consists of all new money,
instead of drawing from programs addressing other issues, such as
Ebola. (WaPo, Mar. 4, 2020) (NBC, Mar. 4, 2020) (The Hill, Mar. 6, 2020)
U.S. Officials Issue Guidance on Authorized Humanitarian
Aid to Iran Amid Sanctions
On March 6, 2020, OFAC issued guidance in the form of online
FAQs regarding authorized humanitarian trade to Iran in response to
the outbreak of COVID-19. The guidance highlights that the United
States government maintains exemptions and authorizations that
permit donations, commercial sales, and exports of humanitarian
goods (including medicine and medical supplies) to Iran or the
Government of Iran, subject to certain conditions. OFAC advises
individuals, companies, and non-governmental organizations
contemplating such activity to consult the relevant sections of the
Iran Transactions and Sanctions Regulations and associated guidance
to ensure compliance with U.S. sanctions laws. Importantly, OFAC
highlights that any such business cannot involve unlicensed
transactions with Iranian persons or entities designated as
Specially Designated Global Terrorists. This designation applies to
Iran’s Islamic Revolutionary Guard Corps (IRGC) which,
according to recent media reports, has taken a lead role inside of
Iran in responding to the COVID-19 outbreak. (OFAC, Mar. 6., 2020) (NYT, Mar. 7, 2020)
Responses and Impacts on Global Industry and Supply Chains
This section of the report summarizes notable developments and
responses from global industry and private actors, including supply
chain disruptions and other impacts.
Electronics Manufacturers Expect Coronavirus to Delay
Shipments for Several Weeks, According to IPC Survey
A February member survey conducted by IPC, a global trade
association of electronics manufacturers, indicates that 65 percent
of members had been told by suppliers to expect, on average, delays
of up to three weeks due to COVID-19. However, confidence in
supplier estimates appears to be low—although 91 percent of
members reporting such delays had been quoted less than four weeks,
at least 37 percent of executives expect shipments to be delayed
for six weeks or longer. Overall, 84 percent were concerned about
the impact of COVID-19 on their workforce and business operations.
Due to the reliance of the electronics manufacturing industry on
international supply chains of parts, components, and
sub-assemblies, such disruption could have significant impacts in
regions outside of currently recognized outbreak areas (e.g.,
China). (
IPC Report, Feb. 2020) (CNBC, Feb. 25, 2020)
Shipping Industry Suffers $350 Million a Week Loss from
Supply Chain Slowdown, While Upended Shipping Logistics Cause
Problems at Major Ports
The International Chamber of Shipping estimates that the virus
is costing the shipping industry $350 million a week in lost
revenues. A record two million containers of seaborne shipping
capacity were idled in late February, more than the 1.5 million
idled at the height of the 2009 global financial crisis. In
particular, refrigerated containers remained stranded in China,
causing short-supply elsewhere. There has been an estimated 0.7
percent reduction in global traffic in the first quarter of 2020
alone, but the consequences could be much higher for specific
ports, depending on the duration of the crisis. In Europe,
Rotterdam and Hamburg have been hit the hardest. One estimate for
the port of Rotterdam shows an annual reduction of 1 percent, or
150,000 containers. In the U.S., the ports of Los Angeles and Long
Beach have been struggling with container logistics problems,
operating at a third of normal gate capacity and tripling drop
off/pick up times for container trucks as the effects of the
disruption cascade. Due to the time it takes goods to arrive from
Asia by sea, the full impact of subsequent distribution to U.S.
rail shipping may not be seen until late March or early April.
Shipping and logistics disruptions may be particular harmful to the
U.S. agricultural industry, which is still reeling from the trade
war and heavily reliant on refrigerated containers to access
international markets. Although the return of port workers and
truckers from the Chinese New Year holiday has helped mitigate some
of the immediate effects at Chinese ports, significant uncertainty
and problems remain. Companies that track international container
shipping reported that 77 container-ship voyages have been
cancelled due to the coronavirus. However, one company is
reporting that major Chinese ports are “coming to life”
as Chinese manufacturing took steps towards normal last week as
quarantine periods in many areas came to an end and travel
restrictions were eased. (International Chamber of Shipping Press
Release, Feb. 26, 2020) (European Commission COVID-19 Macro-economic
Outlook, accessed Mar. 5, 2020) (WSJ, Mar. 5, 2020) (American Shipper, Mar. 4, 2020) (American Shipper, Mar. 6, 2020)
Airline Industry Set to Lose between $60 billion to $110
billion in 2020 due to COVID-19 and Business Travel Industry Losing
Estimated $46 Billion per Month as Industry Cuts Business Travel
and U.S. Government Considers Federal Intervention
As major companies worldwide like Amazon, Nestle, L’Oreal,
Starbucks, and Facebook are restricting business travel and telling
employees to work from home, the airline and travel industry has
been reeling from the impacts of the virus. An airline industry
trade group estimated that COVID-19 could cost the industry between
$60 billion and $110 billion in 2020, and the Global Business
Travel Association estimates that the business travel industry is
losing $47 billion a month. Major airlines are reporting reductions
in ticket sales and airlines like American have suspended routes to
China and other locations with outbreaks, due in some cases to
decreased demand, and in others resistance from airline workers and
pilots to travel to countries with significant outbreaks. Also at
risk are the businesses supported by airports and traveler volume,
including taxis, hotels, restaurants, and retail outlets, and these
businesses support an estimated 12.5 million jobs in Europe alone.
United Airlines indicated it would reduce its international
schedule by 20 percent, and shares in airline companies were down
as much as 13 percent on March 5. Even domestic airlines have also
seen a recent and sharp drop in bookings compared to last year.
White House economic adviser Larry Kudlow confirmed that the Trump
administration was considering some kind of federal intervention or
assistance to affected businesses, singling out the airline
industry as facing particularly significant challenges. (NYT, Mar. 5, 2020) (AP, Mar. 4, 2020) (WaPo, Mar. 6, 2020)
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