On Tuesday, April 7, 2020, the Federal Emergency Management Agency (“FEMA”) filed a temporary final rule (“Rule”) in the Public Inspection issue of the Federal Register to establish export restrictions on certain types of personal protective equipment products (“PPE Products”) used in the response to the COVID-19 pandemic. The Rule implemented the order via Presidential Memorandum (“Order”) dated April 3, 2020, in which the President directed the US Department of Homeland Security, of which FEMA is a part, to take action under the Defense Production Act (“DPA”) to prevent diversion of the needed materials overseas (see our blog post on that development here).
Is the Rule Effective Now?
Yes. Although the rule will not be published in the Federal Register until this Friday, April 10, it became effectively immediately upon filing in the Public Inspection issue. The Rule will remain in effect for 120 days from its publication, i.e., until August 8, 2020.
Which PPE Products are Subject to the Rule?
The PPE Products covered by the Rule are the same as those addressed in the Order. They are 5 of the 15 categories of materials that had been identified as “scarce or threatened materials” by the US Department of Health and Human Services (“HHS”) in a notice issued on March 25, 2020. Specifically, the PPE Products are:
- 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 (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;
- 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).
As noted in our previous blog post, the Order (and thus the Rule) does not include the other materials that HHS has identified as “scarce or threatened materials,” which could be targeted in future actions. That includes, among other things, drug products with the active ingredient chloroquine or hydroxychloroquine HC1; ventilators and related materials; certain sterilization services; certain sanitizing and disinfecting products; and medical gowns or apparel.
Is the Export of the PPE Products Now Prohibited?
Not necessarily, but all shipments of the PPE Products will be temporarily detained by US Customs and Border Protection so that FEMA can determine whether to: (1) return the shipment for domestic use (i.e., prohibit the export); (2) issue a rated order under the DPA (i.e., FEMA would place an order to purchase the products itself, and the seller would be required to prioritize FEMA’s order); or (3) allow the export of part or all of the shipment.
In reaching a determination about a particular shipment, the Rule states that FEMA will consider the totality of the circumstances, including the following factors:
- the need to ensure that scarce 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 any potential hoarding or price-gouging concerns;
- the quantity and quality of the materials;
- humanitarian considerations; and
- international relations and diplomatic considerations.
Who Must Comply With the Rule?
Anyone involved in an export of PPE Products from the United States must comply with the Rule. This includes manufacturers, brokers, distributors, exporters, and shippers.
Is There Grandfathering of Preexisting Contracts?
There is a narrow exemption for shipments by or on behalf of US manufacturers with continuous export agreements with customers in other countries since at least January 1, 2020. However, this exemption only applies to US manufacturers with a track record of distributing at least 80% of their supply of the PPE Products, on a per item basis, in the United States during the 12 months. The Rule notes that FEMA may develop additional guidance about this exemption, encouraging manufacturers to contact FEMA with specific information about their status under the exemption.
What are the Penalties for Violations?
Section 103 of the DPA provides for monetary penalties of up to $10,000 and/or imprisonment for no more than one year. In addition, under 18 U.S.C. § 554, anyone who fraudulently or knowingly exports anything from the United States contrary to US law, or who facilitates such a transaction, can face fines and/or up to 10 years’ imprisonment.
The US Government may issue further guidance about these DPA developments in the coming days. Baker McKenzie is actively monitoring any further guidance or development on these issues.