On March 15, European Commission President Ursula von der Leyen announced a new set of export controls that require government authorization for exports of personal protective equipment (PPE) utilized by healthcare providers, including gloves, masks and protective clothing. The measure is intended to ensure that healthcare workers in the European Union (EU) have the supply necessary to address the ongoing novel coronavirus (COVID-19) pandemic. The European Commission (Commission) passed these measures in response to the overall increased demand for such equipment due to the COVID-19 pandemic and in response to similar measures taken by other countries on either a formal or informal basis. These measures are temporary, automatically expiring after six weeks, but include a provision discussing potential future procurement procedures for PPE as a long-term countermeasure to restrictions passed by other countries and which could be finalized as early as the beginning of April. The measure was announced around the same time that news broke regarding alleged attempts by the Trump Administration to convince a German pharmaceutical company to move its production of a potential COVID-19 vaccine to the United States.1
The March 14 Commission Implementing Regulation (EU) 2020/402 ("Implementing Regulation"), which the Commission adopted on March 15 and made effective immediately, requires authorization by the EU Member State in which the exporter is established for the exportation of PPE outside the EU. The Commission amended the Implementing Regulation on March 19 with the Commission Implementing Regulation (EU) 2020/426, and on March 20, issued additional guidelines ("Guidance Note") regarding the application of the Implementing Regulation, clarifying that exports to the United Kingdom would not be considered exports to a third country and exempting exports to countries in the European Free Trade Association, i.e., Norway, Iceland, Liechtenstein and Switzerland, from the Implementing Regulation. The Guidance Note also provides further detail regarding the criteria to be applied in reviewing export authorization requests.
The Implementing Regulation was adopted pursuant to Regulation (EU) 2015/479 of the European Parliament and of the Council, which sets common rules on restrictions of exports in situations of shortages of essential products. Regulation (EU) 2015/479 and some of its implementing measures at both the EU and Member State level set forth detailed processes applicable to such situations. The new Implementing Regulation identifies PPE as a product to which the export authorization requirement under Regulation (EU) 2015/479 applies. Specifically, Annex I of the Implementing Regulation lists the PPE and applicable tariff codes covered, which include protective spectacles and visors, face shields, mouth-nose-protection equipment, protective garments, and gloves.
The Implementing Regulation requires that applications for export authorization be submitted to and reviewed by the national export authorities in the Member State where the exporter is established. However, Article 2 of the Implementing Regulation establishes a new set of "consultation" procedures. In particular, the Implementing Regulation requires that the Member State receiving the application consult with all other Member States in which the product covered by the application is produced. Each consulted Member State can submit objections to authorizing exportation within 10 days of being consulted.
The practical application of the new Implementing Regulation and the Commission's Guidance Note are hard to predict. While the Implementing Regulation itself is not very clear as to the conditions upon which export authorization requests will be reviewed, the Commission's Guidance Note indicates that "it is not the intention of the Union to restrict exports any more than absolutely necessary, and the Union also wishes to uphold the principle of international solidarity in this situation of a global pandemic. This is why Member States can and should grant export authorisations inter alia in the cases listed in Article 2(3) of the Implementing Regulation, but also where the shipment in question poses no threat to the actual need for PPE within the Union and serves to satisfy a legitimate need for official or professional medical use in a third country." We anticipate inconsistency between the Member States regarding review and authorization, as each Member State is individually responsible for implementation.
The Commission's action is at least partially a response to national measures implemented by Germany and France, which not only restricted exports to third countries but also to other EU Member States. The Guidance Note indicates that the Implementing Regulation was adopted with the understanding that such national restrictions would be revoked, noting that "preserving the integrity of the single market is one of the objectives pursued by the Commission during the current crisis." Both Germany and France agreed to align their measures with the Implementing Regulation, and Germany has already issued an order lifting its domestic export restrictions.
Further restrictions by the Commission on a broader category of healthcare products cannot be ruled out. A Commission press release stated that the six-week time frame would allow for consultations with Member States "on the potential adaptations and scope of the current measure and future steps." Further, as noted above, the Implementing Regulation itself requires further consideration of potential future procurement procedures for PPE, which could be imposed as soon as April.
Broader Context and Implications
The EU's Implementing Regulation is only the latest set of such restrictions to emerge in response to this public health crisis. Countries around the world are grappling with the COVID-19 outbreak, and we expect public health-based trade restrictions and controls to continue proliferating. Existing restrictions imposed in at least 50 countries vary significantly in form and include such measures as overt export restraints; burdensome paperwork or export requirements that may make exporting essentially impossible (or highly costly); restrictions on the sharing of intellectual property in a way that hinders the sale of medications abroad; and political, social or other types of pressure on local pharmaceutical producers that impose economic or other burdens if they decide to export. For example, on March 2, Russian Prime Minister Mikhail Mishustin signed an order prohibiting the exportation of some medical supplies starting on June 1. In the United States, President Donald Trump is reportedly considering an Executive Order that would require federal agencies to "Buy American," i.e., to purchase medical equipment, pharmaceutical inputs, drugs and vaccines from suppliers in the United States. Further, as described in a previous Client Alert, President Trump has already issued an executive order paving the way for the government to use the Defense Production Act (DPA) to prioritize and compel production of materials used to respond to the COVID-19 crisis. This could increase U.S. supply of these products to a point where the U.S. Administration could also impose export restrictions. A recent study by Global Trade Alert noted that as many as 54 countries have already imposed some sort of export restriction on products used to combat COVID-19.2
As COVID-19-related trade restrictions further proliferate, they are likely to put additional pressure on supply chains, increase shortages and impose additional barriers to trade at a time when the impacted products are already in short supply. At least some of these types of restrictions may be vulnerable to challenges by trading partners at the World Trade Organization (WTO). It is likely, however, that WTO members imposing such measures would seek to rely on public health exceptions and defenses to justify their measures if they were challenged. Some of these measures may in fact be necessary in order to prevent price gouging, critical shortages when supplies are needed most, or other unintended and undesirable effects. WilmerHale is closely tracking the development of new restrictive measures and working closely with companies and other stakeholders to navigate those that already exist.
WilmerHale has also assembled a task force of legal authorities across the wide array of disciplines implicated by the outbreak of COVID-19 that stands ready to assist clients as they develop legal and operational plans and protocols.
Footnotes
1 See, e.g., Aitor Hernandez-Morales, "Germany confirms that Trump tried to buy firm working on coronavirus vaccine," Politico (March 15, 2020), available at https://www.politico.eu/article/germany-confirms-that-donald-trump-tried-to-buy-firm-working-on-coronavirus-vaccine/.
2 Tackling COVID-19 Together: The Trade Policy Dimension, Global Trade Alert Team, University of St. Gallen, Switzerland (Mar. 23, 2020), available at https://www.globaltradealert.org/reports/download/51.
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