By Marco Verch
For the last three or so months, our China lawyers have been confronted with a host of legal issues related to the coronavirus. This should not be surprising because China was the seminal coronavirus epicenter. For the past two months or so, our Seattle lawyers have been working on a host of legal issues related to the coronavirus. This too should not be surprising because Seattle was the initial U.S. coronavirus epicenter. For the past month or so, all this has become true for our Spain lawyers as well, as Spain too became an epicenter and a few weeks ago went into a full lockdown as well. Our Los Angeles, San Francisco and Portland lawyers have also in the past few months been hit with a slew of coronavirus related legal matters.
The coronavirus has and will continue to impact all societies and economies and this has meant our law firm has been seeing and dealing with the same sort of legal issues in all the countries in which we work. This sameness of legal issues around the world has led us to create a cross-border multi-disciplinary legal team to assist companies with their legal issues arising from or related to the coronavirus, using the knowledge and experience our lawyers have gained in one jurisdiction to determine best practices in the other jurisdictions.
In this series of posts, we’ve been discussing the legal issues our lawyers in China, the United States, and Spain have been confronting, with the goal of making this blog a repository of information on coronavirus law and especially on how to handle legal matters that have arisen due to the coronavirus.
In Part 1, we focused on employment law issues because those were the first issues we saw and those are the issues that continue to arise most often. In Part 2, we looked at force majeure “in real life.” In Part 3, a couple of our international trade lawyers analyzed how coronavirus is impacting tariffs and duties in the short term and how we see it impacting tariffs, duties and global trade in the future. In Part 4, one of our insurance coverage lawyers discussed key insurance coverage matters stemming from COVID-19 because a massive number of companies have or will have coronavirus insurance claims and insurance coverage lawsuits. In Part 5, we discussed how the coronavirus is giving nearly free license to foreign manufacturers to provide bad product, counterfeit product, or no product at all and this is especially true of the products most needed to fight against the virus: surgical masks, N95 masks, ventilators (really anything PPE), and cleaning products and how overseas product procurement and IP have never been at greater risk. In this Part 6, we discuss how the USTR is seeking comments how it could adjust or eliminate tariffs to help the United States in fighting the coronavirus and how company comments should call on it to eliminate all tariffs so as to stimulate the economy.
On Friday, March 20, 2020, USTR issued a press release “USTR: Response to Coronavirus” in which the United States Trade Representative (“USTR”) invited anyone to submit comments to identify additional products that would be helpful to the U.S. in fighting the coronavirus. The press release did not set a deadline for these comments, but only provided a link to submit comments here.
USTR’s press release asserted that, in administering the Section 301 tariffs against Chinese imports, it had always “prioritized health considerations.” USTR noted it had not imposed tariffs on many health related products, such as ventilators, oxygen masks, and nubilators, and it also had recently granted exclusions for other health related products.
However, a recently released report from Peterson Institute for International Economics (PIIE) disagreed, noting that President Trump’s tariffs had in fact hampered the current fight against the coronavirus. The China tariffs had been imposed on a broad range of health related products, including medical protective gear such as sterile gloves, goggles; disposable medical equipment such as hospital gowns, surgical drapes; and high-tech medical equipment such as CT systems, oxygen concentrators, x-ray equipment, patient monitors, and pulse oximeters. The tariffs increased the cost for these products and this had caused the volume of imports for many of these products to drop significantly. In other words the tariffs had directly contributed to the current shortage of medical supplies currently hampering medical personnel from testing, diagnosing, and treating coronavirus patients.
USTR was specifically warned about this worst case scenario by several healthcare officials in public hearings in August 2018 that addressed the potential impact of the proposed Section 301 tariffs. “Placing tariffs on these products [like gloves, isolation gowns, specimen bags, wet wipes] would lead to product shortages and further public health challenges during times of crisis. It would significantly limit the ability of all levels of government, as well as the commercial healthcare supply chain to adequately support response efforts during emergency events. ” said Matt Rowan, president of the Health Industry Distributors Association. “With infection prevention as a key initiative throughout healthcare, usage of these products should be encouraged, not inhibited by tariff associated cost increases or disruptions.”
Lara Simmons, President of Medline Industries, explained in her June 2019 USTR presentation that it would not be possible to find alternative suppliers for many of the healthcare products then being sourced from China. “Starting production in the U.S. or any third country would be a time consuming and expensive process due to the FDA [Food and Drug Administration] regulatory procedure that is required for these products,” As a result, the tariffs will increase the costs for these products, and thus hospitals and healthcare facilities with fixed budgets will buy less.
Though few would question the benefits of the United States reducing its dependency on imports for medical and healthcare products, that policy debate needs to be tabled until after the current worldwide pandemic is brought under control, not just here in the United States, but around the world. An emergency response needs more free trade, not less. We can’t wait for American companies to start up or ramp up production to meet the immediate need for those products. Critically needed supplies need to be acquired from anywhere they are available. Now.
So, what should people say in response to USTR’s invitation to comment on whether Section 301 tariffs should be modified in light of the coronavirus crisis?
First, the immediately obvious response is that any and all products remotely related to fighting the coronavirus should be exempted from the Section 301 tariffs. Though USTR may have recently granted certain exclusions or partial exclusions for some medical protective gear, there are still Section 301 tariffs on other types of medical protective gear, hand sanitizer and other health related products. Lifting the tariffs on these products would at least relieve U.S. healthcare providers from the financial burden of paying a tax for scarce medical supplies.
Second, beyond the no-brainer that all medical and health safety products should cease being hit with tariffs, USTR should consider lifting the Section 301 tariffs for ALL products — at least temporarily. The worldwide economy is reeling from the coronavirus outbreak, with major cities locked down, travel restricted, restaurants, bars, shops and movie theaters closed, and all sports and concert events suspended or canceled. The just-signed coronavirus bailout bill will provide much needed economic stimulus, including funding to help businesses pay workers wages while sheltering in place, expanding unemployment and other social safety net plans, and even providing direct cash payments to every American, but nobody disputes that more will be needed.
Another economic stimulus would be to grant immediate full exclusions and full or partial refunds for all tariffs (Section 301 tariffs on China and Section 232 tariffs on steel and aluminum). The global supply chain is buckling under the pressures caused by the coronavirus; nearly everyone in the supply chain is hurting. Providing retroactive refunds of all tariffs already paid by US importers would provide a wide swath of American companies with a much needed jolt of cash. Suspending the tariffs would also relieve much of the pressure on international supply chains by eliminating one key financial burden and source of uncertainty.
For all the small to medium-sized US companies that have been struggling with the tariffs and now the coronavirus, here’s your chance to tell USTR what needs to be done with the Section 301 tariffs. President Trump still insists China paid the tariffs, but we all know that is not entirely true. See Who Pays the Tariffs on China Imports? President Trump vs. CNN and What YOU Can do NOW to Reduce Your China Prices
Here is your chance to let the US government know that American companies – importers, distributors, retailers, and consumers too – are paying a price for these import taxes. Not just China. Sure, China’s IP and market blocking practices are bad and need to be addressed, but not with tariffs that hurt American companies and consumers who cannot afford them now in this coronavirus crisis. Lifting and refunding at least some portion of the tariffs would provide much needed assistance when most needed.
By Marco Verch