Export Compliance Manager Issue 1 - MARCH 2020

Katherine Peavy

With the Covid-19 coronavirus having brought the US stock market to a crashing halt on 9 March, it’s increasingly clear that the epidemic is no flash in the pan, and that its economic impact will be far-reaching.

On 23 January, two days before the Lunar New Year holiday was scheduled to start, China’s central government quarantined the city of Wuhan, a key manufacturing and transport hub, in Hubei Province due to the number of patients and quick spread of a coronavirus (later named Covid-19). The quarantine was successively implemented in the rest of Hubei Province, as well as less stringently in other cities in China. Initially all passenger rail and air travel from Wuhan was suspended, but as the Lunar New Year holiday soon followed, commercial air and rail travel were suspended as well.

Once the World Health Organization declared the virus a global emergency on 30 January, China’s authorities extended the Lunar New Year holiday through 10 February to try to arrest the spread of the virus. For export and logistics teams, this meant that the typical delays due to the Lunar New Year period were extended by a week.
On 5 February, all US airlines cancelled flights to and from China into March and April causing significant delays to air freight. As of publication, offices, factories and ports in China, while technically allowed to operate normally, may be short-staffed or working remotely, causing further delays of shipments by sea. One export compliance manager called the situation “a commercial disaster”.

Outside of China, South Korea, Italy and Iran are reported to have suffered the highest levels of infection, with the European country’s government imposing a ‘lock-down’ on the entire country.

Supply chain concerns
Björn Wahlström, managing director at Current Consulting Group, a firm that specializes in supply chain risk and audits told Export Compliance Manager, “Aside from the bottleneck in transportation and logistics, the main issue now across industries is getting access to factory and port areas without facing quarantine either on arrival, or when returning to a larger city. For compliance teams this means potentially trying to assess compliance issues remotely, while working out a safe access plan for auditors.”

For trade compliance managers, any crisis affecting the supply chain creates high-risk alerts for issues other than commercial and labor challenges. Tony Lugg, Chairman of Transported Asset Protection Association (“TAPA”) APAC, says: “During any ongoing crisis, occasions may occur where criminal gangs, unscrupulous organizations or other embargoed countries would try to exploit the ongoing crisis and import, export and provide the movement of goods and technology and/or services that are prohibited.”

Some typical examples of where export controls could be breached, says Lugg, are when shipments are described as humanitarian aid and sent as expedited.

Amanda deBusk, partner at the DC office of law firm Dechert, told ECM, “Other supply chain threats include the fact that the massive reduction of outbound freight from China means a dearth of empty shipping containers – with sea-bound freight between non-Chinese ports affected.” deBusk said that trade lawyers are fielding myriad questions about Covid-19. Key amongst industry concerns are the impact of the virus on the shipping industry, which is largely staffed by crew from China and other Asian nations.

According to Lugg, “Critical infrastructure and utilities companies are asking themselves questions such as: ‘At what point would we close a key facility – such as an oil refinery? At a rate of 1% of employees infected? Or 5%?’ [They are] trying to put in place continuity plans in the event of further infection.”

Crisis management
Even in times of crisis, trade compliance managers are responsible for implementing a trade compliance program that identifies risks, and prevents and mitigates damages related to the customs laws of countries where the company operates and the loss of key personnel in the business, such as trade compliance could result in severe fines or other punishments.
As a result of these risks, Lugg suggests that “Trade compliance managers should be regarded as key or critical personnel and should be segregated away from the mass workforce to prevent cross-infection of key people. It appears that key personnel sometimes only extends to the senior management team.”