Trump invokes Defense Production Act to block exports of Personal Protective Equipment

With reports of widespread shortages of personal protective equipment (PPE) and ventilators and the COVID-19 pandemic continuing to expand nationwide, the Trump Administration has turned to the Defense Production Act (DPA) – a statute that includes emergency procurement and manufacture allocation authority – to restrict exports of protective masks and gloves.  In the last few weeks the administration has invoked its DPA “rated order” authority to compel manufacture of PPE/ventilators and respirators for the Federal government.  Most recently, the administration has taken steps to protect the domestic supply from being depleted by exports, by using the extraordinary “allocation” authority, which has not been used by a President since the end of the Cold War, to require products to be kept and stored within U.S. borders––essentially applying an export ban for covered PPE.

Trump Administration DPA Actions

The Trump Administration has taken an expansive approach to interpreting the President's powers under the DPA.

  • On 2 April 2020, the President directed the Secretary of Health and Human Services (HHS) to use “any and all authority available under the Act to acquire, from any appropriate subsidiary or affiliate of 3M Company, the number of N-95 respirators that the Administrator determines to be appropriate.” While section 4562 of the DPA expressly limits its application to U.S. territory, the reference to any “subsidiary or affiliate” in the President’s memorandum appears to be an attempt to ensure that supplies produced in 3M’s overseas facilities in China would be shipped to the United States.
  • On Friday, 3 April, the President issued a Memorandum on Allocating Certain Scarce or Threatened Health and Medical Resources to Domestic Use directing the Department of Homeland Security (DHS) (through FEMA) and HHS to use any and all authority available under section 101 of the DPA (50 U.S.C. §4511) to “allocate to domestic use certain scarce or threatened materials” designated by the Secretary of HHS, “including N95 masks, other respirators, surgical masks, and gloves.”  The DPA doesn't mention export restrictions, but the Administration is employing the President's priority and allocation authority under section 101 of the Act to achieve an indirect limit on exports.  Moreover, while the President has invoked the DPA and instructed HHS/FEMA to issue rated orders to prioritize manufacture of ventilators and respirators for purchase by the Federal government, this recent Presidential memo goes beyond the order/purchase authority and addresses restrictions on products that would otherwise be exported to foreign customers.  
  • On 7 April, FEMA issued a temporary final rule (effective on 7 April, to be published on 10 April, and effective for 120 days after 10 April) that implements the agency’s allocation authorities with respect to the following PPE:
  • N95 respirators;
  • Other filtering face piece respirators;
  • Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges;
  • PPE surgical masks;
  • PPE gloves or surgical gloves.

The rule effectively imposes 100% domestic allocation requirements for the specified types of PPE, and does not allow any of the “covered materials” defined in the rule to leave the United States without FEMA authorization.

If shipment does not have prior approval it can be seized by U.S. Customs and Border Protection (CBP) until there is a later FEMA determination as to whether it can be exported in light of various factors listed in the rule.  These factors are broad and give FEMA/HHS extensive discretion.  The rule also states decisions will be made within a “reasonable time” but there are no specified time limits and thus there is no assurance that a shipment could not be tied up for long periods.

The rule provides a limited exemption for U.S. manufacturers that mainly supply their PPE products to domestic customers, but have longstanding agreements to supply particular foreign customers.  To invoke the exception, the U.S. manufacturer must have a supply agreement with the foreign customer that existed before 1 January 2020 (and thus predated the COVID-19 outbreak) and be able to demonstrate that at least 80% of its domestic production of the item in the preceding 12 months was distributed in the United States.  

What does this mean?

The April 7 FEMA rule leaves a number of important questions unanswered, which creates the potential for uncertainty and delays at the border as CBP attempts to implement these requirements.  For example, while the rule requires CBP to detain all export shipments, it does not create procedures for FEMA's determination whether to return an export shipment for domestic use or issue a rated order for part or all of the shipment, after it has been detained by U.S. Customs.  In addition, the rule does not contain procedures for demonstrating a company’s eligibility for the exemption.  The rule only notes that “FEMA may develop additional guidance regarding which exports are covered by this exemption, and encourages manufacturers to contact FEMA with specific information regarding their status under this exemption.”  FEMA may also expand this exemption or create additional exemptions going forward. 

In the absence of clear guidance from FEMA, CBP agents at the border are likely to detain all covered materials until further authorization is received from FEMA.  The lack of a clear timeframe or process for FEMA to make decisions regarding particular shipments also raises the possibility of indefinite and lengthy detentions of goods at the border, with minimal recourse for affected companies.  Even items that do not meet the criteria specified in the rule may end up being detained by CBP if the agency cannot clearly distinguish between those products and the covered materials subject to the rule’s restrictions.

While FEMA has authority to authorize exports of covered PPE on a case-by-case basis, it seems unlikely that FEMA will make any substantial exceptions without clear directions from senior FEMA/DHS officials, or the White House, at least until either the shortages have been alleviated throughout the country or the incidence of COVID-19 has subsided. 

In addition, while only certain kinds of PPE are presently specified in the rule, the list of covered materials could be expanded to include other items (e.g., certain medicines, ventilators, sanitization or sterilization equipment and materials), potentially expanding the scope of materials subject to detention by CBP.

Manufacturers eligible for an exemption should consider compiling data to demonstrate their eligibility, and contact FEMA in advance of any anticipated shipments in order to ensure timely processing and to avoid indefinite detention at the border.  Companies should also consider if other grounds for additional exemptions may be warranted, and how they can demonstrate the need for such exemptions to FEMA.  Finally, manufacturers might consider shipping critically needed PPE supplies directly to foreign customers, instead of routing them through U.S. ports or distribution operations.

If you have any questions about how use of these expanded procurement tools may affect your company, please do not hesitate to contact our team.

 

Authored by Joy Sturm, Ajay Kuntamukkala, Dave Burgett, Warren Maruyama, Craig Lewis, Annie Vanselow, Adam Berry

Contacts
Joy Sturm
Partner
Washington, D.C.
Ajay Kuntamukkala
Partner
Washington, D.C.
David Burgett
Senior Counsel
Washington, D.C.
Warren Maruyama
Partner
Washington, D.C.
Craig Lewis
Partner
Washington, D.C.

 

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