The outbreak of COVID-19 is impacting international trade as global markets deal with uncertain supply and companies and governments work to ensure personal safety while developing contingency plans for handling the virus. In this OnPoint, we address key points for navigating international trade risks.
COVID-19 Virus Samples Are NOT Export-Controlled, But Equipment May Be Controlled
Companies operating in the life sciences industry, including pharmaceutical companies, equipment manufacturers and distributors, face export control and sanctions restrictions on the global distribution of their products – challenges which must be addressed even as the urgent global demand for their products expands.
The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) is one of the U.S. agencies with authority to regulate export transactions in U.S. goods. BIS’ controls apply to many life sciences goods, including human and animal pathogens and viruses.
Included in the list of viruses that are subject to a BIS export license requirement is the SARS virus, defined in the regulations as “Severe acute respiratory syndrome-related coronavirus (SARS-related coronavirus).” On February 7, 2020, the International Committee on Taxonomy of Viruses (“ICTV”) officially named COVID-19 “severe acute respiratory syndrome coronavirus 2" (“SARS-CoV-2”). Due to the similarity in nomenclature, BIS issued guidance that COVID-19 is distinct from the SARS virus and is considered uncontrolled for export purposes. Companies operating in the vaccine industry should continue to monitor for potential controls on COVID-19.
In addition to the virus itself, equipment used to manufacture vaccines (such as fermenters, centrifugal separators and filtration systems) and products designed to protect against biological threats (such as protective suits and respirators) may be subject to export licensing requirements based on the product, where the product will be sent and who will use the product. Items such as latex gloves and surgical masks (as well as the COVID-19 virus) are considered uncontrolled for export, meaning an export license is generally not required. However, an export license for such uncontrolled items may be required if the end user is subject to restriction or the destination of the export is subject to sanctions (i.e., Iran, Cuba, North Korea). License exceptions authorize the export of many medical-related products to sanctioned countries. Prior to engaging in any export to a sanctioned country, companies should evaluate the applicable license exception and ensure the entire transaction, including payment terms, fully complies with the relevant exception. If an exception cannot be used, and a license is required, companies will need to get a license.
Humanitarian Assistance to Iran and Other Sanctioned Territories
The U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) has responded to the COVID-19 outbreak in Iran by issuing General License (“GL”) 8, which authorizes transactions involving the Central Bank of Iran where such transactions involve the authorized export of food, medicine and medical devices to Iran. OFAC has also issued guidance highlighting other exemptions and general licenses in place that authorize the making of humanitarian donations to Iran and activities of non-governmental organizations ("NGOs") in Iran.
OFAC may issue additional general licenses given the likelihood that the virus will spread into other countries subject to U.S. sanctions. Companies and NGOs seeking to provide humanitarian assistance or trade in sanctioned countries should pay close attention to the terms of such authorizations and, where transactions are not explicitly authorized, engage proactively with OFAC and the U.S. State Department to secure the requisite licenses.
Contracts and Force Majeure: Sanctions Precedent
As the global community works to mitigate the impact of COVID-19, it is becoming increasingly common for businesses to suspend or limit operations. When an entity integrated in a global supply chain limits its operations, and therefore its ability to provide products and services, a breach of contract can occur.
Sanctions provide an analogous precedent for dealing with situations like COVID-19. Force majeure often is invoked when sanctions are imposed. There are almost always notification and mitigation requirements. Successfully navigating the use of force majeure expertise resides with the company’s sanctions compliance team.
Trade Compliance While Working Remotely
In preparing response plans of action, all companies – not only those in the life sciences industry – should evaluate how their interim procedures may impact export compliance risks and procedures. For many companies, enabling employees to work from home, or reassigning employees to alternative work locations, may help prevent against the spread of the virus. However, remote work and the use of a virtual private network, or operating at new locations, may impact export controls obligations for companies that deal in export controlled technology, operate under a government-authorized export license or use license exceptions. When assessing mitigation plans, companies should engage compliance personnel to ensure that performance of work at alternative locations, use of software, access to information and employee travel do not impact export license authorizations or security obligations.