Ban on PPE Exports Under Defense Production Act

 On March 18, 2020, President Trump issued an Executive Order (EO) focused on Prioritizing and Allocating Health and Medical Resources to Respond to the Spread of COVID-19. This EO stems from authority granted under the Defense Production Act of 1950 (DPA) and seeks to “ensure our healthcare system is able to surge capacity and capability to respond to the spread of COVID-19.”

Two days later in a press briefing, President Trump formally announced that the federal government had begun to use the DPA, as previously stated in the EO to direct US companies to shift their focus on producing emergency supplies of protective masks and other necessary medical devices.

What is the Defense Production Act?

The Defense Production Act (DPA) was initially enacted in 1950 during the Korean war to grant the president the authority to direct what the private sector can produce in the interest of national defense. If the DPA is invoked by the president, federal agencies have the authority to direct domestic industrial entities to produce essential goods and materials necessary for national defense.

Through this Act, the US Department of Defense has historically requested private companies to assist in military readiness, but the Act has been amended over time to broaden the scope beyond that to include essential goods and materials needed for recovery and response to natural hazards and other national emergencies. President Trump EO from March 18, 2020 invoked this Act which had three sections detailing how it would come into effect.

FEMA’s Temporary Halt

The Federal Emergency Management Agency (FEMA) is issued a temporary rule to allocate certain scarce or threatened materials for domestic use, so that these materials may not be exported from the United States without explicit approval by FEMA. The rule covers five types of personal protective equipment (PPE):

1. N95 Filtering Facepiece Respirators, including devices that are disposable half-face-piece 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;

2.      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;

3.      Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges; 

4.      PPE surgical masks, including masks that cover the user’s nose and mouth and provide a physical barrier to fluids and particulate materials; and

5.      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.

While this rule remains in effect no shipments of the five types of PPE may be exported from the United States without explicit approval by FEMA.

This temporary rule is scheduled to be published in the Federal Register on April 10, 2020, at which point it would become effective until 120 days after date of publication in the Federal Register. Once in effect, it will amend FEMA’s preparedness regulations and that includes the types of PPE the temporary rule aims to restrict exports for, which had already been laid out in a previous presidential memoranda from April 3, 2020. FEMA issued their temporary rule drawing authority from the DPA, multiple EOs, and the memoranda.

What is the Process to Export these Products?

From all the information provided so far, no federal export control agencies are involved in this process, meaning FEMA has developed their own process for authorization of the exports.

According to the temporary rule, the process is as follows:

·         Customs and Border Protection (CBP) will notify FEMA of any intended exports of the restricted PPE.

·         CBP would then temporarily detain the export while the FEMA administrator decides whether to return the shipment for domestic use or issue a rated order for part or all of the shipment.

·         The FEMA administrator makes a decision within a reasonable time frame after CBP notifies of the intended export.

·         If it is decided the shipment is needed for domestic use, FEMA will purchase the shipment.

Potential Penalties

The FEMA administrator may apply for a preliminary, permanent, or temporary injunction, restraining order, or other order to enforce compliance. Any violations are subject to penalties available under section 103 of the DPA. The criminal and civil penalties are a potential $10,000 fine and/or one year of imprisonment. Penalties under 18 U.S.C. 554 are also applicable and criminal with a potential 10 years’ imprisonment and/or a fine.

The FEMA administrator has authority under section 705 of the DPA, with adequate scope and purpose, to:

·         Conduct investigations;

·         Request information or testimony; and

·         Inspect records or premises;

The administrator, with their judgment, would determine if any person has engaged or is about to engage in acts or practices to violate any provisions of the temporary rule to proceed accordingly with penalties.

Allocation of Intended PPE Exports

FEMA has established criteria to determine whether or not to allocate PPE for domestic use and will consider the following factors:

·         The need to ensure that scare or threatened items are appropriately allocated for domestic use;

·         Minimization of disruption to the supply chain, both domestically and abroad;

·         The circumstances surrounding the distribution of the materials and potential hoarding or price-gouging concerns;

·         The quantity and quality of the materials;

·         Humanitarian considerations; and

·         International relations and diplomatic considerations.

What Exemptions Exist?

An important exemption to note is that U.S. manufacturers can apply to FEMA for an exemption if they meet the following criteria:

1.      The U.S. manufacturer has  a continuous export agreement in place since at least January 1, 2020.

2.      At least 80 percent of the manufacturer’s domestic production was distributed in the US in the preceding 12 months.

It is important to note that even if you qualify for the exemption, FEMA can waive this exemption if the FEMA administrator deems it necessary or appropriate for the promotion of national defense.

FEMA will have authority to decide whether an export qualifies for the exemption and exporters cannot make this determination on their own. FEMA will continue to work with CBP through this exemption process.

On April 9, 2020, CBP published a memorandum superseding the one published on April 4^th. This memorandum serves as an updated guidance for the allocation of certain scarce or threatened health and medical resources for domestic use. The focus of the allocation is on commercial quantities defined as shipments valued at $2,500 and containing more than 10,000 units of gloves, masks, or other commodities referenced above. In the Memo, CBP noted that the following circumstances also qualify for an exclusion to the export ban:

·         Exports to Canada or Mexico;

·         Exports to U.S. Government entities such as U.S. military bases overseas;

·         Exports by U.S. Government agencies;

·         Exports by U.S. charities;

·         Exports by critical infrastructure industries for the protection of their workers;

·         Exports by the 3M Company;

·         Express or Mail Parcels that do not meet the commercial quantity definition above;

·         In-transit shipments.

Export shipments that do not meet the exclusions would receive document reviews and physical examinations conducted at the port to determine if the commodity fits the definition of scarce or threatened. Only when commodity expertise is required should there be consultation with the COVID-19 Cargo Resolution Team.

Diaz Trade Law specializes in customs and international trade matters. Our Customs and International Trade Law attorneys are available at info@diaztradelaw.com or 305-456-3830.