Venable recently hosted a webinar to help companies involved in international trade navigate the disruptions caused by the COVID-19 pandemic. Venable attorneys Ashley Craig, Lindsay Meyer, and Elizabeth Lowe explored six topics that are of particular importance to maintaining your cross-border business during uncertain times.
- Force Majeure Clauses and Supply Chain Interruptions. Contracts governing supply chain operations typically have force majeure provisions that can be invoked by either the provider/carrier or the consumer of services when an unforeseen event (i.e., an act of God) impacts performance. To avoid unintended consequences, however, all parties should carefully examine their contract's particular provisions and confer with counsel before invoking the clause. Supply chains are typically diverse, dynamic, and complicated and rely on a mix of providers; therefore, consider where in your supply chain potential problem areas may exist and work proactively with carriers to reach practical solutions that will mitigate the impact of detention and demurrage on their operations. The key is to maximize supply chain resilience for your business, even if it means appropriating your business activities in a new way.
- Guidance for Critical Infrastructure and Essential Businesses. The Cybersecurity and Infrastructure Security Agency (CISA) recently issued updated guidance regarding critical infrastructure sectors and workers. Although the CISA guidance is non-binding, it has been incorporated or referenced by most of the states that have already issued shelter-in-place orders to enable essential businesses to keep operating. As more states, as well as cities and counties, continue to impose stay-at-home or closure orders, companies should check with counsel to determine whether their business, or at least certain employees, could be considered essential. As a general rule, transportation and logistics are considered essential businesses, and so there should be no restrictions on the movement of goods. Some states also have a process by which companies can request an exemption from closure orders.
- Borders and Ports. While the northern and southern borders of the United States have been closed to non-essential traffic, and travel from Europe and other locations has been suspended, lawful commercial trade is still authorized and encouraged. The grounding of most long-haul flights has led to a reduction in air cargo capacity, however, so there has been an uptick in activity at many ocean ports. Furthermore, the abrupt shutdown of many "non-essential" businesses and warehouses has led to a backlog of "non-essential" goods at many ports. Updated CISA guidance has now deemed all warehouse activity "essential," however, so warehouse companies that previously thought they were subject to closure orders may soon reopen and help ease the backlog. Ports need to be able to clear their backlog of "non-essential" goods to ensure that "essential" goods can continue to get through.
- Pivoting Operations. With shelter-in-place orders forcing many businesses to temporarily close, companies must remain flexible and consider whether there are alternative ways for their business to remain operational. Even businesses that are deemed critical may experience disruptions in their operations as they contend with employee walkouts and possible issues related to the American Disability Act. Companies experiencing disruptions in their overseas supply chains should look to see if there are domestic sources that can fulfill their raw material or component needs. Companies normally involved in "non-essential" activities should consider pivoting operations to assist in the provision of critical items to fight the pandemic. Examples of such pivots include a distillery that is now producing hand sanitizer and an apparel manufacturer that is now fabricating face masks. Finally, where possible, companies should consider renegotiating the agreed costs of certain imported goods with their suppliers to minimize losses, bearing in mind that any change in price agreements should be formalized and must occur prior to foreign exportation.
- CARES Act, Tariff, and Other Regulatory Relief. Various sections of the CARES Act are targeted at certain industries, notably small businesses, financial services, and air carriers and related workers. Billions in funding has also been allotted to various government sectors to combat the COVID-19 outbreak, so companies should look out for subcontracting opportunities to support the government in providing services to help contain the epidemic. Companies should also monitor opportunities for tariff and regulatory relief. While there has been no broad relief from tariffs on imports from China so far, the USTR is extending certain product exclusions previously granted for Lists 1 and 2 of such imports; is extending certain exclusions for List 1 by 12 months; and is currently accepting extension requests for List 2 exclusions. Government agencies are considering possible relief for an extension on increases to bonds. Tariff relief has also been provided for the importation of medical devices, pharmaceutical products, and other health and safety products, and new relief measures continue to be considered.
- Practical Tips. While COVID-19 is unprecedented, looking back at how the trade community adapted to the disruptions of both the 2008 recession and 9/11 can provide some useful tips for responding to the unfolding situation. As this situation continues to evolve, companies should:
- Examine their force majeure provisions and be prepared for the possibility that some providers in their supply chain may invoke such a provision;
- Closely monitor border closings, stay-at-home orders, and curfews at international, federal, state, and local levels;
- Monitor for any regulatory changes that may ease certain restrictions on import clearance, or provide relief by means of tariff payment deferrals, and consider whether the stimulus package may benefit your business operations, among other changes;
- Reach out to government contacts and stakeholders to stay current and be open to any developing opportunities; and
- Confer with counsel regarding how any new changes or restrictions may impact your particular business operations.
Want to learn more? View the full webinar or find additional alerts, news, and resources at Venable.com/COVID-19.