The Trump Administration has imposed new restrictions on exports of personal protective equipment (PPE) pursuant to the Defense Production Act (DPA).
On April 10, 2020, the US Federal Emergency Management Agency (FEMA) is due to publish a Temporary Final Rule (TFR) restricting the export of five types of medical products. The TFR states that “[a]ll shipments of covered materials … shall be allocated for domestic use, and may not be exported from the United States without explicit approval by FEMA.”
Unlike other US export controls regulations, the TFR does not contemplate a new licensing regime administered by FEMA and does not limit exportation based on end-use and end-user. Instead, FEMA’s “explicit approval” will take the form of an opportunity to assess all exports from the United States of covered PPE and reallocate these items to domestic use. The TFR does not impose any new affirmative requirements on exporters, but parties to export transactions involving covered PPE should be prepared for delays and potential diversions of outbound shipments.
FEMA’s authority for the TFR derives from several recent executive orders issued pursuant to the DPA.1 Section 101(a) of the DPA authorizes the President to prioritize certain contracts or orders “which he deems necessary or appropriate to promote the national defense” as well as “to allocate materials, services, and facilities in such manner, upon such conditions, and to such extent as he shall deem necessary or appropriate to promote the national defense.”
These export restrictions by the United States are only the most recent restrictions on exports that have been imposed by over 50 countries and governing bodies, including the European Union, as discussed in a previous WilmerHale client alert.
This new rule, which will be in effect for a period of 120 days following its publication in the Federal Register,2 covers five types of PPE but also provides that the FEMA Administrator could later add products that it determines are “scarce and critical materials essential for national defense.” As discussed in a separate WilmerHale client alert, the Secretary of Health & Human Services (HHS) has already identified additional scarce materials subject to the DPA. FEMA may determine that some of these additional products identified by HHS should also be subject to its export review.
The PPE currently covered by the TFR include:
- N95 Filtering Facepiece Respirators, including devices that are disposable half-facepiece non-powered air-purifying particulate respirators intended for use to cover the nose and mouth of the wearer to help reduce wearer exposure to pathogenic biological airborne particulates;
- Other Filtering Facepiece Respirators (e.g., those designated as N99, N100, R95, R99, R100, or P95, P99, P100), including single-use, disposable half-mask respiratory protective devices that cover the user’s airway (nose and mouth) and offer protection from particulate materials at an N95 filtration efficiency level per 42 CFR 84.181;
- Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges;
- PPE surgical masks, including masks that cover the user’s nose and mouth and provide a physical barrier to fluids and particulate materials; and
- PPE gloves or surgical gloves, including those defined at 21 CFR 880.6250 (exam gloves) and 878.4460 (surgical gloves) and such gloves intended for the same purposes.
Under the TFR, US Customs and Border Protection (CBP) will temporarily detain all shipments of the covered products and will notify FEMA of the intended export. FEMA will then determine, on a case-by-case basis, whether to (1) issue a so-called rated order for all or part of the shipment and return the merchandise for domestic use (i.e., disallow the export and consign the products to FEMA’s own use to allocate and distribute for domestic consumption) and/or (2) allow the export of part or all the shipment. FEMA will make a determination regarding each planned export shipment “within a reasonable period of time of being notified of an intended shipment” by CBP and will “make all decisions consistent with promoting the national defense.” The TFR does not define what will constitute a “reasonable period of time” for the issuance of a decision. It does specify that FEMA will consider the following factors when making its determination, but provides no further guidance regarding what these considerations may entail:
(1) The need to ensure that scarce or threatened items are appropriately allocated for domestic use;
(2) Minimization of disruption to the supply chain, both domestically and abroad;
(3) The circumstances surrounding the distribution of the materials and potential hoarding or price-gouging concerns;
(4) The quantity and quality of the materials;
(5) Humanitarian considerations; and
(6) International relations and diplomatic considerations.
The TFR includes an exemption for certain US manufacturers (1) with continuous supply agreements with customers in other countries in existence since January 1, 2020, or earlier, and (2) where at least 80 percent of the domestic manufacturer’s product of covered materials was distributed within the United States during the preceding 12 months. Exports of covered PPE pursuant to such agreements can be made without further FEMA review. The TFR also provides that further exemptions may be established, as deemed appropriate by FEMA.
The TFR imposes significant penalties for anyone who “willfully engages in violations” of these restrictions, including fines of up to $10,000 and imprisonment of up to one year.
Ensuring the supply of medical equipment has been a top priority of President Trump’s approach to dealing with COVID-19. This initiation of FEMA’s export review follows criticism by President Trump of “profiteering” by “unscrupulous brokers, distributors, and other intermediaries,” which he claims have contributed to the medical supply shortages now faced by the US healthcare industry. In particular, the President released a statement on April 3, “Regarding the Defense Production Act,” in which he stated that “wartime profiteering is leading to hoarding and soaring prices for Personal Protective Equipment (PPE) like masks, gloves, and N-95 respirators, all of which are needed to protect American citizens, including our heroic healthcare professionals, battling on the front lines.” He noted that his Administration is engaged in an “ongoing fight to prevent hoarding, price gouging, and profiteering by preventing the harmful export of critically needed PPE.” The Trump Administration may expand the TFR or measures like it in its effort to secure the necessary domestic supply of PPE and medical products. Critics of this approach have suggested that export restrictions such as these can have adverse effects of limiting supplies and impacting supply chains if other countries retaliate by withholding their own exports of materials needed by the United States.
WilmerHale continues to monitor these and other regulatory developments enacted by governing bodies worldwide in the face of the COVID-19 pandemic. 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.