COVID-19 Regulatory Changes Impacting Importers and Exporters

The ongoing COVID-19 crisis has presented unique challenges for the U.S. supply chain, and for the U.S. economy as a whole. Front and center is the shortage of critical medical equipment and personal protective equipment (“PPE”), including ventilators, respirators, masks, gloves, swabs and other related equipment. Meanwhile, state and local governments across the country have ordered “non-essential” businesses to shutter operations indefinitely. These circumstances have resulted in regulatory changes that affect both U.S. importers and exporters, which we categorize as follows:

Measures to facilitate imports of PPE and other medical equipment. Both the Food and Drug Administration (“FDA”) and U.S. Customs and Border Protection (“CBP”) have implemented measures aimed at easing regulatory restrictions and providing tariff relief for imports of PPE and other medical equipment.
Restrictions on exports of PPE. The Federal Emergency Management Agency (“FEMA”), acting in conjunction with CBP, is empowered to detain and purchase certain exports of PPE. However, certain exports qualify for exemptions from these restrictions.
Tariff relief for importers experiencing “significant financial hardship.” Due to state and local government-mandated lockdowns impacting many importers across the U.S., CBP is authorizing importers to postpone duty payments for 90 days for certain shipments entered between March and April 2020.

We provide below further discussion of each of the COVID-19-related measures referenced above.

1. Measures to Facilitate Imports of PPE and other Medical Equipment

A. FDA: Emergency Use Authorizations and other Measures

In the past few months, the FDA has used certain emergency measures to ease regulatory burdens on importations of PPE and other medical equipment, including issuing Emergency Use Authorizations (“EUA”) and easing enforcement of FDA requirements.

To put these emergency measures into context, it’s helpful to understand how the FDA typically regulates PPE. Under FDA regulations, PPE, such as face masks, face shields, and respirators are regulated as “medical devices” when they are intended for a medical purpose, such as prevention of infectious disease transmission (including uses related to COVID-19). A “medical device” is defined to include any device intended for use “in the cure, mitigation, or prevention of disease” in humans. The FDA considers a number of factors in determining whether an item is a “medical device,” including, whether:

They are labeled or otherwise intended for use by a health care professional (“HCP”);
They are labeled or otherwise for use in a health care facility or environment; and
They include any drugs, biologics, or anti-microbial/anti-viral agents.

Generally, FDA-regulated PPE must meet the FDA’s registration and listing requirements and may also require submission of premarket notices (510 (k)), depending on the category of PPE in question. FDA-regulated PPE can generally be categorized as follows:

Respirators, which are designed to cover the whole nose and mouth and protect both the user and patient from pathogens.
Surgical masks, which cover the nose and are primarily designed to protect the patient; and
Everything else, including face shields, gowns, surgical suits, and gloves, which are designed to protect the user.

Depending on the “medical device” “Class” in question, the manufacturer or importer must register and list the “medical device” and/or submit a premarket notice (often referred to as a “510 (K)”). To register and list a device, the manufacturer pays a fee and agrees to follow certain FDA requirements, including monitoring device distribution and reporting injuries caused by the device. Meanwhile, submission of a premarket notice requires submitting an application along with documentation demonstrating that the device meets certain regulatory standards.

Respirators and surgical masks are Class II “medical devices,” which means that these items generally require a manufacturer’s registration and listing, as well as submission of a premarket notice. The remaining PPE are Class I “medical devices,” which generally require registration and listing, but not premarket notices. However, due to the ongoing shortage of PPE in the U.S., the FDA has taken steps towards temporarily easing these requirements. In the case of respirators, the FDA has issued Emergency Use Authorizations (“EUAs”), with differing requirements depending on whether the respirators are approved by the National Institute of Occupational Safety and Health (“NIOSH”). NIOSH-approved respirators can be imported under the EUA, provided they meet certain labeling and use instructions. Meanwhile non-NIOSH masks can be imported under the EUA if the masks have marketing authorization by another country. The approving country must be among the countries that allow the FDA to verify the approval. However, to use this EUA, the manufacturer must email the FDA and request approval along with proof of the foreign marketing authorization. Once the FDA lists the manufacturer on “Appendix A” the masks may be imported under the EUA.

While surgical masks do not have an associated EUA, the FDA has used its enforcement discretion to facilitate imports of these items. Namely, the FDA has established temporarily product codes for surgical masks that allow these items to be imported without registration and listing. Alternatively, surgical masks can be imported under the correct product code, while only meeting the registration and listing requirement. Finally, like surgical masks, there is no EUA for all other PPE, but these items can be imported under the correct product code without meeting registration or listing requirements.

We recommend that importers of PPE ensure that products are properly registered with the FDA. For example, we have seen instances where manufacturers have registered surgical masks as scavenger masks, which are designed to cover the nose and deliver anesthesia. This error would also represent a violation of the FDA’s prohibition on misbranding. We further recommend that importers that take advantage of the FDA’s temporary measures also consider simultaneously following the processes for premarket notification (where applicable) and registration and listing. This would entail, among other things, obtaining any required testing and/or certifications. Following these procedures will ensure that the PPE can continue being imported once the FDA suspends the temporary emergency measures.

B. CBP: Section 301 Exclusions, COVID-19 Cargo Resolution Team, and Informational Resources

Like the FDA, CBP and the U.S. Trade Representative (“USTR”) have taken measures to facilitate imports of PPE and other medical equipment, including issuing exclusions from Section 301 for certain critical equipment and establishing the COVID-19 Cargo Resolution Team (“CCRT”). CBP has also published certain helpful informational resources to assist importers of PPE.

Section 301 Exclusions for PPE and Other Equipment. The USTR has issued a number of exclusions from Section 301 tariffs that cover a broad range of PPE and other medical supplies, including items such as soap, gloves, disinfectant wipes, masks, gowns, and other items (See 85 FR 13970 (Mar. 10, 2020); 85 FR 15051 (Mar. 16, 2020); and 85 FR 15244 (Mar. 17, 2020)). Furthermore, USTR is soliciting comments from interested parties on other potential exclusions in light of COVID-19 (See 85 FR 16988 (Mar. 25, 2020). Namely, USTR has requested comments on products that are “needed to respond to the COVID–19 outbreak.” Thus, importers of PPE or other items that are used in a health care setting or that otherwise have a nexus to efforts to combat COVID-19, should consider submitting comments to USTR. Comments are due by June 25, 2020, but this period may be extended by USTR as needed.

COVID-19 Cargo Resolution Team. In an effort to coordinate inquiries regarding the import of PPE and other medical supplies, CBP’s Pharmaceuticals, Health and Chemical Center of Excellence and Expertise has established the CCRT, which is described as “a multidisciplinary team to triage incoming inquires, coordinate with affected ports, and respond directly as appropriate.” Importers of PPE and other medical supplies that experience delays at the ports, or that have other inquiries, can contact the CCRT at [email protected]. To better assist CBP in responding to requests and/or inquiries, CBP recommends providing as much data about the shipment as possible, including information on the shipment (e.g., manifest or air waybill number), conveyance information, cargo description, country of origin and export, and parties involved.

Informational Resources for Importers. In order to streamline communications and support the trade community, CBP launched the CBP COVID-19 Updates and Announcements webpage specifically dedicated to the most recent trade-related information and messaging on the impacts of COVID-19. Information found on the webpage includes Federal Register Notices and Cargo Systems Messaging Service (“CSMS”) communications related to COVID-19, as well as updates and announcements in trade programs and cargo security. CBP has published a particularly helpful reference guide that provides the tariff code for a number of critical supplies, such as COVID-19 test kits, masks, face shields, gloves, thermometers, disinfectants, sterilizers, and ventilators, among other items.

2. Restrictions on Exports of PPE

On April 3, 2020, the President directed the Department of Homeland Security (“DHS”), acting through FEMA, to “allocate to domestic use…the following scarce or threatened materials:”

N-95 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;

Other Filtering Facepiece Respirators (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;

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.

FEMA has since published a Temporary Final Rule and subsequent notice in the Federal Register on April 10 and April 17 that implements the allocation order. Under FEMA’s rules, CBP must temporarily detain any export shipment of covered PPE and notify FEMA of the intended export. FEMA will then proceed to either:

Purchase part or all of the shipment, using a “rated order” pursuant to the Defense Production Act (“DPA”);
Return all or part of the shipment for distribution in the domestic supply chain; or
Allow all or part of the shipment to proceed as planned for export.

If FEMA chooses to purchase the shipment, using a “rated order,” the supplier must prioritize FEMA’s order over any other “unrated” orders. In effect, this means that the supplier must sell the goods to FEMA unless the goods are being shipped pursuant to an order with a higher priority rating or it qualifies for an exemption enumerated in FEMA’s Temporary Final Rule or subsequent notice.

Among the exemptions to FEMA’s allocation order, which allow for shipments to be exported automatically, are the following:

Shipments made by or on behalf of U.S. manufacturers with continuous export agreements with customers in other countries since at least January 1, 2020, so long as at least 80 percent of such manufacturer’s domestic production of covered materials, on a per item basis, was distributed in the United States in the preceding 12 months.

Exports of covered materials by non-profit or non-governmental organizations that are solely for donation to foreign charities or governments for free distribution (not sale) at their destination(s).

Intracompany transfers of covered materials by U.S. companies from domestic facilities to company-owned or affiliated foreign facilities.

Shipments of covered materials that are exported solely for assembly in medical kits and diagnostic testing kits destined for U.S. sale and delivery.

In-Transit Merchandise: shipments in transit through the United States with a foreign shipper and consignee, including shipments temporarily entered into a warehouse or temporarily admitted to a foreign trade zone.

Shipments for which the final destination is Canada or Mexico.

For most of the exemptions above, the exporter must submit a letter of attestation (“LOA”) with the shipping information submitted via the Automated Export System (“AES”) (for shipments to Canada, the LOA can alternatively be provided to the carrier and presented to CBP upon request). FEMA recommends that the LOA include a description of the merchandise, the exemption claimed, why the shipment qualifies for the exemption, and the expected end use of the merchandise. The LOA must also include “[a] statement confirming that the provided information is true and accurate to the best of the exporter’s knowledge, and that the exporter is aware that false information is subject to prosecution under the DPA, as described in the allocation order.”

There are a number of additional exemptions that do not require submission of a LOA, including among other things, shipments to U.S. territories, certain diplomatic shipments from foreign embassies and consulates, and shipments by or on behalf of the U.S. Federal Government.

3. Tariff Relief for Importers Experiencing “Significant Financial Hardship”

On April 20, 2020, CBP established a program that allows importers experiencing “significant financial hardship” to postpone the payment of duties, taxes, and fees for entries made in March or April 2020. Under the program, duties, taxes, and fees on eligible merchandise can be postponed for up to 90 days from the date that the deposit on such entries would otherwise have been due. An importer is deemed to be experiencing “significant financial hardship” if:

The importer’s operations are fully or partially suspended during March or April 2020 due to orders from a competent governmental authority limiting commerce, travel, or group meetings due to COVID-19; and

As a result of such suspension, the importer’s gross receipts for March 13-31, 2020 or April 2020 are less than 60 percent of the gross receipts for the comparable period in 2019.

Importers are not required to submit an application to CBP in order to postpone payments on eligible entries. However, importers that postpone payment under the program must maintain and be prepared to provide CBP with records demonstrating that the importer qualifies for relief.

Certain entries are not eligible for relief under the program, including entries that include any merchandise subject to antidumping/countervailing duties or Section 232, 201, or 301 tariffs (unless an exclusion applies).

In effect, importers that make duty payments on a transaction-by-transaction basis (i.e., daily) can continue to obtain relief for entries through April 30, 2020. Meanwhile, importers that pay on a monthly basis through periodic monthly statements (“PMS”) may postpone duty payments for up to three months, as defined by the 15^th working day of the third month. Thus, for the next PMS, due May 21, 2020, payments on eligible entries can be postponed until August 21, 2020.

4. Please Join us for our Webinar: COVID-19 Regulatory Changes Impacting Importers and Exporters

Given the fluid situation with respect to COVID-19 and the availability of PPE, importers should closely monitor for any announcements or updates from the FDA and CBP. We further recommend that PPE exporters be familiar with the five categories of merchandise covered by FEMA’s allocation order and the available exemptions.

If you are interested in learning more regarding any of the topics addressed in this article, we encourage you to join us on May 5, 2020 from 12 PM – 1 PM (EDT) for our webinar sponsored by the National Customs Brokers & Forwarders Association of America (“NCBFAA”), entitled “COVID-19 Regulatory Changes Impacting Importers and Exporters.”

For webinar details and registration, please click here.