Today, as the world is reeling from the healthcare and economic crisis wrought by the rapidly developing COVID-19 epidemic, the United States stands at the brink of a life-and-death trade policy decision – should we limit the export of medical devices and protective equipment needed to save lives, or keep our borders open?
In recent days some of my legal colleagues have done excellent practical work summarizing the restrictions some countries are introducing on export of medical devices and protective equipment. In particular, my former colleagues at Arent Fox LLP have pulled together a very useful Reference Guide, listing the countries that have introduced export controls on medical equipment and providing known details – as well as the countries that have pledged to keep their borders open. My goal in this post is to do something I would not usually do in this blog – provide my opinion, adding my own voice to those who are advocating for keeping borders open to the flow of medical devices and protective equipment. Whereas usually I intend to use these pages to provide practical analysis and guidance to the trade community, today I feel compelled to cast my vote in favor of free trade because I believe that it is necessary to save lives and protect the world economy.
As is evident from recent news reports and the analysis put together by my legal colleagues, two distinct camps of countries with different approaches to trade in medical devices and protective equipment have emerged:
- Countries imposing export restrictions – led by the European Union (which adopted restrictions after this was done by several of its member states, which are not listed here), this group of countries also includes Switzerland, India, Brazil, Indonesia, South Korea, Malaysia, Bahrain, Egypt, Russia, Taiwan, Kenya, Thailand, and Vietnam.
- Countries keeping open borders – this group includes, China and Hong Kong, Canada, Australia, New Zealand, Singapore, Chile, Brunei, Myanmar, and, so far, the United States.
The instinct to stop the export of essential virus-fighting medical devices and protective equipment such as masks, eyewear, hazmat suits, and ventilators from one’s country is understandable. In the face of global shortages of such equipment and its potential to save thousands, if not millions, of lives, many governments may feel that their first responsibility is towards their citizens and the best immediate way to meet this responsibility is to keep the limited medical supplies that are available within their borders. Further, it is understandable that governments wish to combat price-gauging and profiteering from the current healthcare crisis that may result in foreign buyers outbidding domestic purchasers in competition for badly-needed medical supplies.
President Trump’s Administration clearly has the legal authority to prohibit or impose restrictions on the export of medical devices and protective equipment for “short supply” reasons. Originally, the authority for the “short supply” controls was provided by Section 7 of the Export Administration Act of 1979. The Export Control Reform Act of 2018 repealed that legislation and transferred its authorities to the International Emergency Emergency Economic Powers Act (“IEEPA”). Pursuant to IEEPA, 50 U.S.C. § 1702(a)(1)(B), the President has very broad authority to regulate or prohibit any export to deal with “an unusual and extraordinary threat.” Nothing presents a more unusual and extraordinary threat to the United States today than the COVID-19 epidemic.
Yet it would be a grave mistake for the United States to prohibit or impose export controls on medical devices and protective equipment, for the following reasons:
- Export restrictions on medical supplies and equipment would further disrupt supply chains. Global medical device and personal protection equipment manufacturers such as 3M, Honeywell, Johnson & Johnson, Medtronic, Abbott Laboratories, and Phillips depend on functioning supply chains for meeting escalating demands for their life-saving products. The supply chains that matter most to these companies are those for critical materials and components rather than for finished products. Yet the access to materials and components across borders is interdependent with access to finished goods. If the United States restricts the export of medical devices and protective equipment, then other countries may decide to restrict the export of their materials and components to boost their domestic (and less efficient) production of finished equipment. Perhaps this is why at least one of these global manufacturers, Phillips, has called for critical medical equipment to be made available across the world, prioritizing those communities and countries that need it the most.
- Trade restrictions in the current economic environment could encourage or cause retaliatory restrictions around the world, exacerbating worldwide economic disruptions. If history is to provide any guidance, we should recall that the United States’ raising of tariffs during the Great Depression caused other countries to retaliate in kind, leading to a 65 percent reduction in global trade. This exacerbated and prolonged the Depression, resulting in extreme economic suffering around the world and in the United States.
- Since the U.S. is a relatively rich country, our users of medical devices and protective equipment are unlikely to be very often outbid for their supplies by users in other countries.
- Once the current wave of COVID-19 in the U.S. is contained, the health of the U.S. population and economy will depend on the ability to suppress the epidemic in other countries. There will come a day when the worst of COVID-19 will be behind us in the United States, but new waves of infections from lesser-developed countries will threaten the U.S. Thus, the ability to move medical and protective equipment to the countries of greatest need will become essential to the U.S. health security. Persistent export restrictions would impede this.
- The U.S. must provide leadership in keeping borders across the world open to trade in critical medical equipment and supplies. On March 25, Australia, Brunei, Canada, Chile, Myanmar, New Zealand, and Singapore, issued a joint ministerial statement, recognizing that it is in their mutual interest to keep trade lines open and avoid the imposition of export controls or other restrictions on essential medical supplies. Commendably, China has averted such restrictions, despite initially being the epicenter of the epidemic. Yet the commitment to open trade in medical devices and protective equipment is far from universal. As the biggest economy in the world and a traditional promoter of open borders, the U.S. must join and assert its leadership in the club of the countries committed to trade to help limit the human life costs and economic damage of COVID-19.
It remains unclear whether the U.S. government will impose export controls on medical equipment and supplies in response to the epidemic, but it appears that this option is on the table. Currently, there are encouraging signs that the U.S. will avoid trade restrictions in that it is removing some of the Section 301 tariffs on medical goods from China. The U.S. Chamber of Commerce last week urged the U.S. government to refrain from adopting restrictions “to ensure that all nations work together to respond to this pandemic.” I add my voice to those calling for open borders and international cooperation over building fences in a futile attempt to isolate our nation from a global crisis.