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.
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