Global trade uncertainties put chemical companies at risk

Hogan Lovells

Hogan Lovells

Beset by ongoing tariff wars, Brexit fallout, heightened sanctions, and other geopolitical tumult, global value chains now face a deeply uncertain trade environment.

The situation poses substantial risks for chemical companies.

If, for instance, the UK now chooses not to depart from REACH (the principal legislation regulating chemicals in the EU), chemical operators doing business on both sides of the Channel will be left in tricky waters. And following the WTO’s finding on the EU-U.S. civil aircraft dispute, new, U.S.-imposed tariffs might ensnare select chemical exports as well. When damages are decided in the Boeing case after the summer, the EU will have authorization to retaliate with tariffs of their own.

Certain suppliers may have a good case for temporary exemption from such tariffs, while others might review their product classification to establish if their products originated outside the U.S.

On another note, given the EU's dual use regulation, which is currently being reviewed, and other applicable laws, it’s imperative that chemical companies know who they’re dealing with, where the product is ultimately going, and what it’s being used for. This is particularly true of chemicals with possible military applications – as one German company, who sold ingredients with potential use in painkillers and nerve gas to a Syrian drug-maker, found out the hard way.

On that count, U.S. sanctions pose risks, too – and their reach is broader than one may think. Even when a product is not subject to U.S. law, so-called “primary” U.S. sanctions administered by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) can still apply: if, say, a non-U.S. company is making or receiving payments in U.S. currency or U.S. citizens are involved (even if they live in the EU). Moreover, certain activities that have no U.S. nexus can still create exposure for EU companies under secondary U.S. sanctions; for instance, “significant” or “material” dealings with certain OFAC-designated parties – even outside a sanctioned country.

The global trade landscape moving forward may remain uncertain, but chemical companies must stay vigilant about what they can be certain of – their product’s classification, its various uses, and who they’re dealing with at every point in their supply chains.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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