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On April 3, 2020, President Trump issued a Presidential Memorandum directing the Department of Homeland Security, through the Federal Emergency Management Agency (“FEMA”), to utilize the Defense Production Act to restrict the export of scarce domestic materials being used to respond to the spread of COVID-19, including certain personal protective equipment (“PPE”).

Effective Tuesday, April 7, FEMA implemented this Order through a Temporary Final Rule (the “TFR”) that restricts U.S. exports of 5 specific categories of PPE products that were previously designated by the Department of Health and Human Services (“HHS”) as “scarce or threatened materials.” Both U.S. Customs and Border Protection (“CBP”) and FEMA have since issued additional guidance on the TFR that provides further detail on the scope of the restrictions as well as key exclusions for certain U.S. exporters.

The TFR differs from traditional U.S. export control regulations, such as those administered by the U.S. Departments of Commerce and State, in that there is no licensing system in place and FEMA’s determination is not based on the proposed end-use or end-user of the product – rather, FEMA will assess all U.S. exports of designated PPE materials and reallocate those products domestically as required. Because FEMA is not an agency that traditionally administers U.S. export control regulations, it is critical for manufacturers, suppliers, and distributors of PPE products and related medical materials to be aware of the specific articles impacted by the TFR, the scope of the restrictions, the timeline for implementation, consequences for non-compliance, and the potential for expanded product coverage.

PPE Export Restrictions Overview

The TFR providing for PPE export restrictions is effective as of April 7, 2020 for a period of 120 days. The TFR designates 5 of 15 categories of materials previously identified as “scarce or threatened materials” by HHS. In particular, the subject restricted PPE “covered materials” are the following:

-N-95 Filtering Facepiece Respirators, including devices that are disposable half-face-piece non-powered air-purifying particulate respirators intended for use to cover the nose and mouth of the wearer to help reduce wearer exposure to pathogenic biological airborne particulates;

-Other Filtering Facepiece Respirators (e.g., those designated as N99, N100, R95, R99, R100, or P95, P99, P100), including single-use, disposable half-mask respiratory protective devices that cover the user’s airway (nose and mouth) and offer protection from particulate materials at an N95 filtration efficiency level per 42 CFR 84.181;

-Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges;

-PPE surgical masks, including masks that cover the user’s nose and mouth and provide a physical barrier to fluids and particulate materials; and

-PPE gloves or surgical gloves, including those defined at 21 CFR 880.6250 (exam gloves) and 878.4460 (surgical gloves) and such gloves intended for the same purposes.

Before any shipments of the above-listed PPE materials can be exported from the U.S., CBP will temporarily detain the shipment so that FEMA can determine whether to (i) prohibit the export and return the shipment for domestic use; (ii) utilize the Defense Product Act (“DPA”) to issue a “rated order” for the materials (a priority contract or order placed in support of a national defense program under the DPA), or (iii) allow the export of part or all of the shipment.

In making its determination, FEMA may consider the following factors: (1) the need to ensure that scarce or threatened items are appropriately allocated for domestic use; (2) minimization of disruption to the supply chain, both domestically and abroad; (3) the circumstances surrounding the distribution of the materials and potential hoarding or price-gouging concerns; (4) the quantity and quality of the materials; (5) humanitarian considerations; and (6) international relations and diplomatic considerations.

Scope and Exemptions

On April 9, 2020, CBP issued an updated internal guidance memorandum (the “CBP Internal Guidance”) to its field operators to clarify key definitions and general exceptions to the PPE export restrictions provided for in the TFR. CBP highlighted that the focus of the TFR is on “commercial quantities” of PPE exports, currently defined as shipments valued at $2,500 or more and containing more than 10,000 units.

The CBP Internal Guidance then lists the following export circumstances that are excluded from the FEMA restrictions:

-Exports to Canada or Mexico;

-Exports to U.S. government entities such as U.S. military bases overseas;

-Exports by U.S. Government agencies;

-Exports by U.S. charities;

-Exports by critical infrastructure industries for the protection of their workers;

-Exports by the 3M Company;

-Express or Mail Parcels that do not meet the “commercial quantity” definition above;

-In-transit shipments.

On April 21, 2020, FEMA published additional guidance in the Federal Register on the full scope of the initial list of 10 exemptions, which are described as follows:

-Shipments to U.S. Commonwealths and Territories, including Guam, American Samoa, Puerto Rico, U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands (including minor outlying islands).

-Exports of “covered materials” by non-profit or non-governmental organizations that are solely for donation to foreign charities or governments for free distribution (not sale) at their destination.

-Intracompany transfers of “covered materials” by U.S. companies from domestic facilities to company-owned or affiliated foreign facilities.

-Shipments of “covered materials” that are exported solely for assembly in medical kits and diagnostic testing kits destined for U.S. sale and delivery.

-Sealed, sterile medical kits and diagnostic testing kits when only a portion of the kit is made up of one or more “covered materials” that cannot be easily removed without damaging the kits.

-Declared diplomatic shipments from foreign embassies and consulates to their home countries.

-Shipments to overseas U.S. military addresses, foreign service posts (e.g. diplomatic post offices), and embassies.

-In-transit merchandise: Shipments in transit through the U.S. with a foreign shipper and consignee, including shipments temporarily entered into a warehouse or temporarily admitted to a foreign trade zone.

-Shipments for which the final destination is Canada or Mexico.

-Shipments by or on behalf of the U.S. federal government, including its military.

Certain exclusions will require the submission of a letter of attestation certifying to FEMA the purpose of the shipment of covered materials that will also be placed on file with CBP.

Practical Advice and Next Steps

All U.S. manufacturers, suppliers, and distributors of PPE materials or other products designated by HHS as “scarce or threatened” (the relevant HHS guidance can be found here) that are considering exporting their products for sale need to have a comprehensive understanding of the FEMA TFR and applicable export restrictions. It may be the case that additional FEMA guidance will be issued regarding products identified by HHS as “scarce or threatened” in connection with the fight against the spread of COVID-19, and those additional items could be added to the list of restricted products for exports, including portable ventilators and certain drug treatment products that contain chloroquine phosphate or hydroxychloroquine HCl. Additional export, exporter or product-based exclusions may be issued in the finalized published FEMA/CBP guidance as well.

In the meantime, U.S. exporters of PPE products can expect delays at CBP ports around the country as FEMA and CBP develop and implement the TFR and related policy guidance. If you have any questions about the TFR, the impact of the TFR on exports of PPE products, or whether a particular product or proposed export is covered by a CBP exclusion, please contact a member of Baker Donelson’s Global Business Team.

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Alan Enslen is a shareholder with Baker Donelson and leads the International Trade and National Security Practice and is a member of the Global Business Team. He can be reached at aenslen@bakerdonelson.com.

Julius Bodie is an associate with Baker Donelson who assists U.S. and foreign companies across multiple industries with international trade regulatory issues. He can be reached at jbodie@bakerdonelson.com.

There is little doubt that our economy will not be the same in the post novel coronavirus world. American businesses long have shown the scars of national trauma: Devastating fires, for example, spawned major factory regulations. World War II hastened the entrance of women into the workforce. September 11^th drastically heightened security protocols. Analysts say the novel coronavirus pandemic could push broad societal shifts and human behavior. There will essentially be a “new norm” where new businesses will start, others will thrive, and many will disappear. As human beings in this New Era, this article will identify how the human perspective will influence business and consumer trends.

One of the most apparent human factors consumer impacts from the coronavirus outbreak is a shortage of toilet paper stemming from panic buying originating from video’s that went viral such as this one from Australia.

However, upon a human perspective evaluation, there is a supply chain shortage of toilet paper, not an inventory shortage. Consumers are now buying for their homes as the toilet paper supply in offices, restaurants, airports, hotels, and schools go unused.

Other observed human factor trends are a shortage of Viagra where Pfizer is allegedly at full production capacity of Sildenafil at its Amboise France Facility (Now managed by Fereva). Lastly, figuratively related, in Food Science, packets of yeast are also at shortage levels as homebound bakers now have more time on their hands to take the time required to bake fresh bread.

Lastly, the best performing commodity during this epidemic has been frozen concentrated orange juice rising over 20% (Akin to the 1983 film Trading Places)

The most significant impact economists say will likely be dramatic losses in local retail and dining options, with millions of jobs disappearing as the most prominent and wealthiest companies — especially those that do much of their business online — extend their gains. Giants such as Amazon, Walmart, Target, and Costco — and the rest of the industry. Companies selling groceries and staples are thriving, while the rest are barely hanging on.

Telework, online education, and streaming video services have grown sharply, while movie theaters, schools, and traditional workplaces close their doors. Some will never reopen in a world where the shift from real to virtual suddenly has gone into overdrive. In the entertainment industry, Universal Pictures announced this week that its animated adventure “Trolls World Tour,” due for release in April, instead will be available for streaming. Such shifts, if they take hold long term, could imperil movie theaters, especially small and independent ones that run on narrow margins based heavily on concession revenue.

Virtually any business practices, such as remote work and the online medical visits or telehealth, which were slow to win widespread adoption because of behavioral inertia, will now speed adoption of such unfamiliar ways of doing business. Any traditional face-to-face encounter — going to an accountant’s office, sending children to class, traveling for a business meeting — will seem less necessary as more remote options become publicly acceptable and widespread.

An economic silver lining will emerge for janitors, child-care workers, grocery store clerks, and servers who will be able to demand higher pay and better working conditions in the post-coronavirus world, some analysts predict. Many have called these workers “heroes” in the crisis.

It’s impossible to say what ripple effects these massive disruptions could cause. One analyst pointed to groceries: When few people opted for home delivery, the scale of the enterprise ensured the costs were high, and availability was low. But as crowds of people opt for delivery, the route drivers will grow denser, and customers will expect everything is dropped off at home. Deliveries of items that were generally in-store purchases — fresh foods, prescription drugs — could usher in new economies of scale.

Businesses dependent on prime real estate and bringing people together could be especially vulnerable as people opt against public gatherings, including shopping at malls. That could have other impacts, too: One analyst said he suspected conspicuous consumption — high fashion, expensive sneakers, sparkling jewelry — might suffer when people “don’t have anywhere to parade.”

Other firms may become winners, too. Blue Apron, the food-delivery service, struggled for months to convince investors that people would pay $60 a box for all of the ingredients they need to make home-cooked meals. But the firm saw its stock price skyrocket more than 500 percent last week amid a flurry of new interest. The company said it is hiring workers at its fulfillment centers in California and New Jersey to meet demand.

But as surgical masks become desperately desired items, schools from Japan to Ireland sit closed, airlines scrap flights, trade shows are canceled, and stock markets plunge, the pandemic seems likely to alter the contours of globalization and human behavior. However, one thing we all can agree is human beings will prevail over the virus. As the Great Winston Churchill said: “If you are going through hell, keep going.”

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Frank Orlowski is an accomplished Senior Finance Executive and Board Member with more than 25 years of success in the pharmaceutical, medical devices, contract manufacturing, and healthcare industries. Leveraging extensive experience leading manufacturing, operational, and financial strategies across 35 countries. Frank has also implemented over 30 FCPA Compliance/ Controls Remediation and Certification Programs across 25 countries.

Contact:

Email: frank@ationadvisory.com

Website: www.ationadvisory.com

COVID-19 Trade Update: FEMA Implements Export Controls and Exclusion Guidance for Personal Protective Equipment

PPE Export Restrictions Overview

Scope and Exemptions

Practical Advice and Next Steps

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