Within just a few weeks of its introduction into the United States, the SARS-CoV-2 virus and the COVID-19 disease caused by the virus have had a dramatic impact on every individual and business in the United States, and, indeed, throughout most of the world.
It is far too early to predict the lasting impacts on the US economy, US trade policies, and, indeed, our way of life. Nevertheless, businesses must be aware of near-term measures that are currently being considered by decision makers and possible measures that some have proposed for implementation over the longer term.
Obviously, businesses are acutely aware of the disruptions to operations, travel restrictions on employees, and disruption of contract fulfillment due to forced closures. The purpose of this article, however, is to provide a snapshot of some near-term and long-term measures with respect to trade policy, in an effort to help businesses keep these issues on their radar screens and be ready when significant changes emerge with respect to US regulation of cross-border business.
Stimulus Measures for the Energy Sector
The global pandemic and a price war between Russia and Saudi Arabia have led to a historic drop in oil prices. As a result, various measures are being considered by the Trump Administration and advocated for by industry stakeholders to help the U.S. oil and gas market and boost the price of oil. These measures include the potential restrictions on international trade discussed below.
Possible Sanctions on Russia and Additional Pressure on Saudi Arabia
Trump administration officials are reportedly considering diplomatic measures to persuade Russia and Saudi Arabia to decrease their energy production levels. These measures include negotiations with both countries and the threat of additional sanctions on Russia. The Russian energy sector is already subject to sanctions on activities involving exploration of and production from shale, deep water, and offshore Arctic reservoirs, but these sanctions could possibly be expanded to target additional upstream or midstream activities and to restrict any business with Russian energy companies that are now only subject to targeted sanctions.
Consideration of an Embargo on Oil Imports
On March 18, 2020, Senator Kevin Cramer of North Dakota sent a letter to President Trump calling for an embargo on imports of crude oil from Russia, Saudi Arabia, and other OPEC members. This import embargo could be implemented through Section 232 of the Trade Expansion Act of 1962—the same authority the President has recently used to impose tariffs on steel and aluminum imports from certain countries. Normally, any such action could only be taken after the Commerce Department conducts an investigation and finds that the product is being “imported into the United States in such quantities or under such circumstances as to threaten to impair the national security”; however, in the present extraordinary circumstances, it is possible that the President could act within the authority granted under the International Economic Emergency Powers Act.
Antidumping and/or Countervailing Duty Actions on Oil Imports
Additionally, Harold Hamm, the Executive Chairman of Continental Resources, Inc. and the Chairman of the Domestic Energy Producers Alliance, has reportedly been lobbying the Trump Administration to conduct antidumping and/or countervailing duty investigations of Saudi Arabia and Russia for selling oil at below-market prices. If such an investigation is commenced, it would typically take a minimum of several months before a determination to impose duties is made; however, if the threat of such an investigation is substantial enough, merely initiating such an action could have a material influence on the pricing policies of oil exporters in Russia and Saudi Arabia.
Potential Reduction in Tariffs on Steel and Aluminum Products and Products Imported from China
With the looming shortages of medical supplies and the overall economic downturn, greater attention is being given to the detrimental impact of the tariffs imposed by the Trump Administration on steel, aluminum, and Chinese-origin products. In the past few weeks, the Administration has issued exemptions from the increased duties levied against Chinese-origin imports on various medical equipment items, including personal protective equipment, and on March 21, the Office of the U.S. Trade Representative (USTR) issued a request for comments on further measures to remove the tariffs imposed on Chinese-origin medical-care products. As such, it appears likely that the Administration will provide additional tariff relief for medical supplies imported from China. Additionally, it is possible that, as the economic downturn continues, the Administration may also provide tariff relief in other areas, to the extent there are shortages in critical supplies or to the extent such actions would aid US manufacturers by reducing raw material costs.
Invocation of the Defense Production Act
President Trump on March 18 issued an executive order invoking the Defense Production Act (DPA), in response to the COVID-19 pandemic. However, he has since resisted calls by congressional Democrats to employ the law to mobilize industries to produce critical equipment. President Trump said Friday, “When we need something, we’ll use it.” His March 18 executive order specifically invoked Section 101 of the DPA, which allows the President to require companies to accept contracts and to perform contracts in preference to other contracts or orders. It also allows the President to allocate materials, services, and facilities. Although the executive order does not directly regulate international trade, it could have a direct impact on business’s international contracts for medical resources. Thus far, the President has said that the US private sector has been so responsive that demands under the DPA will not be needed.
Protective Measures for Healthcare Supplies
In the same way that the misappropriation of US technology and hacking of US information systems has become a major irritant in US/China trade relations, and has caused the US Government to look at increasing protections for key US technologies, initiatives focused on maintaining the integrity and effectiveness of the US healthcare sector could have wide-ranging impacts that result in new trade controls in the healthcare sector.
Healthcare May be Treated as Critical US Infrastructure
The Trump Administration is reportedly preparing one or more new executive orders that would mandate the production of pharmaceuticals and critical medical products in the United States in an effort to reduce dependency on foreign sources, particularly China. These measures would reportedly tighten “Buy American” requirements on federal agencies that purchase pharmaceuticals, face masks, ventilators, and other medical products; streamline regulatory approvals for US-made products and domestic manufacturing facilities; implement measures to encourage pharmaceutical manufacturers to invest and locate manufacturing facilities domestically; and provide funding to advanced manufacturing technologies to aid drug production.
Possible Restrictions on Exports of Healthcare Supplies
The European Union has already taken steps to restrict exports of certain personal protective equipment, and the United States might not be far behind. Under the Export Control Reform Act of 2018, the President has the authority to control the export of items for use in “activities undertaken specifically to cause significant interference with or disruption of critical infrastructure.” This authority could be used in the current environment to place greater controls on pharmaceuticals and medical supplies that are currently classified as EAR99 under the Export Administration Regulations and so have very few barriers to export.
Healthcare Assets Becoming a Tool of Geopolitical Trade Relations
Finally, in addition to the obvious pressures that the current crisis is likely to produce toward the further straining of the US-China trading relationship, the eruption of the COVID-19 virus has inserted an entirely new dynamic into the political-economic relationships of trading partners. Complaining of the lack of EU assistance during the crisis in Italy, Matteo Salvini, who heads Italy’s largest political party, said, “Italy needed help and it has been given a slap in the face.” Meanwhile, Russia will be sending to Italy nine colossal military cargo planes with medical supplies, eight mobile medical teams, and aerosol disinfection trucks to aid Italy’s hardest-hit regions. China, rewarding Italy as the first western European country to join its Belt and Road initiative, is providing Italy with large shipments of medical masks and other protective equipment, as well as dozens of Chinese medical personnel and virus experts, to assist Italy in combating the COVID-19 virus. Even Cuba is sending fifty doctors to assist Italy, while the United States and Italy’s fellow EU countries are absorbed in fighting their own crises.
This dynamic is likely to produce real consequences even in the near term. For example, if the US were to impose additional sanctions upon Russia’s energy sector and urge the EU to adopt similar sanctions, it can be expected that Italy would work to block any such measures having adverse consequences for Russia.
As the COVID-19 virus continues to spread globally, countries with significantly less domestic production capacity than the United States, and with less-developed healthcare infrastructure, will be facing the same health crisis as the United States, but with fewer resources to respond. Countries unable to obtain needed drugs and medical supplies from US and EU sources will not soon forget a perceived abandonment and may turn to other sources, such as China and Russia. On the same day that the EU announced restrictions on exports of medical supplies, the president of Serbia, a candidate for EU membership, said, “European solidarity does not exist. That was a fairy tale on paper. I have sent a special letter to the only ones who can help, and that is China.”
For many years, the United States managed its influence over smaller countries by offering to include such countries in either a formal alliance, such as NATO, or in an informal alliance based upon economic and security ties. As countries come to perceive that their greatest threats are not from invading armies but from invading pathogens, the terms of diplomatic influence and trade relations with such countries may change significantly, a dynamic that some commentators have already dubbed “coronavirus diplomacy.” It may soon become clear that maintaining influence with US trading partners will require the United States to demonstrate leadership and support in providing assistance in combating health risks as well.
Perhaps the earliest signs of this new dynamic entering into US trade relations can be seen in the fact that President Trump has sent a letter to North Korea’s Kim Jong-un offering cooperation on fighting the COVID-19 virus, notwithstanding the current US trade embargo on North Korea.
In recent years the regulatory environment in the area of cross-border trade and investment has already been extremely dynamic. Even so, the COVID-19 pandemic will bring additional issues into play and add additional complexities and dynamism to various US trade policies and initiatives, which will, as always, present both challenges and opportunities for businesses adjusting to the new realities.
For more information on how this can impact your business, contact:
- Martin Lutz, Partner (firstname.lastname@example.org, 512-495-6024),
- Lindsey Roskopf, Attorney (email@example.com, 713-615-8534),
- Justin Cawley, Senior Counsel (firstname.lastname@example.org, 202-812-2644), or
- Another member of the McGinnis Lochridge International Trade and Transactions Practice Group