Roughly two weeks ago, I noted here on this blog that “[s]o far, 54 countries have implemented some form of export restriction on medical supplies.” The number has increased since then, and it appears that the United States will be joining the club.
Recently, President Trump issued a “Memorandum on Allocating Certain Scarce or Threatened Health and Medical Resources to Domestic Use,” which including the following passage about personal protective equipment (PPE):
On March 25, 2020, the Secretary of Health and Human Services designated under section 102 of the Act 15 categories of health and medical resources as scarce materials or materials the supply of which would be threatened by accumulation in excess of the reasonable demands of business, personal, or home consumption, or for the purpose of resale at prices in excess of prevailing market prices (“scarce or threatened materials”). These designated items include certain PPE materials. To ensure that these scarce or threatened PPE materials remain in the United States for use in responding to the spread of COVID-19, it is the policy of the United States to prevent domestic brokers, distributors, and other intermediaries from diverting such material overseas.
An accompanying statement clarified:
Nothing in this order will interfere with the ability of PPE manufacturers to export when doing so is consistent with United States policy and in the national interest of the United States.
The memorandum was a bit strangely worded, and these kinds of announcements from the Trump administration sometimes don’t lead to much, so I wondered where this was going. But now it has gone somewhere. Last night, FEMA put out a temporary final rule (scheduled for publication in the Federal Register on April 10) entitled “Prioritization and Allocation of Certain Scarce or Threatened Health and Medical Resources for Domestic Use.” This rule will give FEMA the authority to block exports of PPE (such as N95 respirators, gloves, and masks) in particular circumstances. The key part of the rule states:
Following consultation with the Secretary of HHS; pursuant to the President’s direction; and as an exercise of the Administrator’s priority order, allocation, and regulatory authorities under the Act, the Administrator has determined that the scarce or threatened materials identified in the April 3, 2020 Presidential Memorandum (“covered materials”) shall be allocated for domestic use, and may not be exported from the United States without explicit approval by FEMA. See new 44 CFR 328.102(a).
The rule is necessary and appropriate to promote the national defense with respect to the covered materials because the domestic need for them exceeds the supply. Under this temporary rule, before any shipments of such covered materials may leave the United States, CBP will detain the shipment temporarily, during which time FEMA will determine whether to return for domestic use, issue a rated order for, or allow the export of part or all of the shipment under section 101(a) of the Act, 50 U.S.C. 4511(a). FEMA will make such a determination within a reasonable time of being notified of an intended shipment and will make all decisions consistent with promoting the national defense. See new 44 CFR 328.102(b). FEMA will work to review and make determinations quickly and will endeavor to minimize disruptions to the supply chain.
In determining whether it is necessary or appropriate to promote the national defense to purchase covered materials, or allocate materials for domestic use, FEMA may consult other agencies and will consider the totality of the circumstances, including the following factors: (1) the need to ensure that scarce or threatened items are appropriately allocated for domestic use; (2) minimization of disruption to the supply chain, both domestically and abroad; (3) the circumstances surrounding the distribution of the materials and potential hoarding or price‐gouging concerns; (4) the quantity and quality of the materials; (5) humanitarian considerations; and (6) international relations and diplomatic considerations.
This rule contains an exemption that the Administrator has determined to be necessary or appropriate to promote the national defense. See new 44 CFR 328.102(c). Specifically, the Administrator has determined that FEMA will not purchase covered materials from 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. The Administrator decided that this exemption is necessary or appropriate to promote the national defense because it would limit the impact of this order on pre‐existing commercial relationships, in recognition of the importance of these commercial relationships to the international supply chain, and for humanitarian reasons, in consideration of the global nature of the COVID-19 pandemic. If FEMA determines that a shipment of covered materials falls within this exemption, such materials may be transferred out of the United States without further review by FEMA, provided that the Administrator may waive this exemption and fully review shipments of covered materials subject to this exemption for further action by FEMA, if the Administrator determines that doing so is necessary or appropriate to promote the national defense. 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.
What does all this mean in practice? What impact will the rule have on exports of PPEs? How many exports will fall under the exemption described in the last paragraph? It’s hard to say and we’ll have to see how FEMA applies the rule. It is possible that FEMA will apply it strictly and try to divert a fair amount of these products to the domestic market rather than let them be exported. It is also possible that FEMA will apply it flexibly, and only block exports if they would clearly undermine coronavirus‐related global health policy. In making its decision on whether to allow export, FEMA is supposed to consider a number of factors, including “humanitarian considerations” and “international relations and diplomatic considerations.” Blocking exports of medical supplies being sent abroad to help people in other countries would seem to undermine those goals.
Generally speaking, I’m not too worried about the existence of regulations like this one in principle. It seems to me that governments should be tracking where these products are right now, in order to coordinate with each other and help those most in need at a given time. If an export regulation such as this one is used mostly as a monitoring mechanism, to track where these products are being sold, it would be fine. And to take an extreme hypothetical, if it were used to prevent an order being shipped somewhere for a big halloween party where everyone wants to wear surgical masks, that’s OK too. And it’s even all right if governments keep the products in their country if they are at the peak of the crisis while the export destination country hasn’t been hit yet.
The key is to talk to other governments about what you are doing. The exercise shouldn’t be a purely unilateral one. The instruction in the rule to take into account “international relations and diplomatic considerations” should serve as the basis for cooperating with other countries in the implementation of this rule. Let’s hope it does. If the Trump administration uses the regulation as a way to hoard medical supplies, it’s going to cause retaliation by our trading partners in the short– and long‐terms, as they apply tough export restrictions of their own and begin to lose trust in the United States as a reliable trading partner. Hoarding is not the answer here. Instead, governments should focus on encouraging increased production and should work together to make sure those with the greatest need have access to the necessary supplies.
This article by Simon Lester first appeared in CATO on April 4, 2020.
Image: A specialist wearing protective gear sprays disinfectant inside the FOOD CITY wholesale and retail market to prevent the spread of the coronavirus disease (COVID-19) in Moscow, Russia April 9, 2020. Andrey Nikerichev/Moscow News Agency/Handout via REUTERS.