Coronavirus - Impact on International Trade & overview of unilateral protectionist measures

• United Kingdom

• Competition, EU and Trade
• Coronavirus

06-03-2020

Introduction

Following the declaration by the World Health Organisation (WHO) on 30 January of a Public Health Emergency of International Concern (PHEIC) in response to the coronavirus crisis (please see our last briefing here), the virus – and, with it, the infectious disease known as COVID-19 – has been spreading globally, causing disruption to trade and travel. 

As the global coronavirus spread continues, various stakeholders with vested interests in affected countries (N.B. the list continues to grow!), including importers, exporters, and business travellers, are expected to experience large-scale disruption to their businesses. The shipping industry is one of the most exposed industries to the consequences of COVID-19, as the demand for vessels has drastically reduced over the last couple of months. However, other industries, most notably the medical products and protective equipment sector, are likely to be the next in line as governments introduce export bans on items deemed essential to contain the spread of the virus.

This note aims to provide an update on the impact of the coronavirus outbreak on global businesses. As the virus continues to spread, its impact on trade becomes particularly stark. We will strive to keep you updated with regard to developments going forward.   

Significant decline in the number of port calls and cargo volumes

The severe outbreak in Asia in the last few months could result in a large-scale disruption of the shipping industry globally, since the continent is home to some of the world’s most important container ports: according to the UN Conference on Trade and Development, seven out of the world’s ten busiest container ports are in China alone, with other Asian countries, such as South Korea, also hosting ‘mega’ ports.

The reduced number of port calls in China in recent weeks is testament to the disruptive effect that the coronavirus outbreak has had on the shipping industry. According to the Windward Maritime Analytics[1], the number of vessels calling at the ports in China during the first five weeks of 2020 plummeted, with a 20% decline in Week 4 (i.e. the Chinese New Year week) as compared to Week 3. The Chinese New Year period usually sees a slight slow-down in activity, however, the figures for 2020 are quite unprecedented and cannot be explained by seasonality alone. [2]

Demand for vessels has been curtailed with many Chinese factories being closed down beyond the end of the Chines New Year holidays due to the virus outbreak. For example, several giant shipping companies have reduced the number of vessels on routes connecting China and Hong Kong with India, Canada, the United States and West Africa. Some logistics companies have advised customers to consider shifting shipments from China to air cargo.[3]

Outside of China, cargo volumes at ports in the U.S. are also anticipated to be down by 20% or more on a year-on-year basis (as compared to 2019) due to the coronavirus outbreak[4]: the Port of Los Angeles has reportedly already cancelled 40 sailings to the port from 11 February 2020 to 1 April 2020, which results in a drop of 25% from the typical shipping volume[5].

Given the continuous development of the coronavirus outbreak globally, it is necessary to follow the introduction of any unilateral measures that governments in various countries may implement. These could include restrictions on travel, additional checks and quarantine procedures, closing down of entry points, personnel reductions in public offices, etc. Such measures may cause practical difficulties and negative impact on trade. Manpower shortages alone, resulting from reduced working hours or employees not being available due to sickness, can lead to disruptions to laytime and customs clearance.

It is evident that businesses calling at various ports around the world have already experienced delay and disruption due to the coronavirus outbreak. For example, the port of Annaba, Algeria, notified all local agents that all vessels that called at Italian ports prior to arrival will be put on quarantine until a licence certifying that the vessels are free from infectious diseases is obtained[6]. Moreover, some countries, such as Australia, refuse to allow ships that recently called at Chinese ports to enter the Australian ports until the crew is declared virus-free[7].

Trade control measures on medical products

Governments worldwide have also started to introduce controls on certain trade activities, particularly relating to the export of medical products and protective equipment, in response to the virus outbreak.

To date, the following countries have imposed trade restrictions on certain medical products.

• China – the world’s major face mask supplier, has banned the export of face masks, which has caused a worldwide shortage.
• Taiwan – placed a temporary ban on exports of face masks, including exports to China.
• South Korea – has ordered local face mask manufacturers to cut exports to less than 10% of their total production. In addition, manufacturers are requested to sell more than half of production output to designated sellers (including post offices, pharmacies, medical institutions, and supermarkets operated by the National Agricultural Cooperative Federation).
• Thailand – imposed a ban on exports of face masks without government authorisation, and has fixed the prices of face masks to prevent a further surge. All local manufacturers of face mask are requested to strive to maximise supply.
• Russia – suspended the export of all face masks and hazmat suits (excluding exports for humanitarian reasons).
• Iran – imposed a ban on exports of face masks to secure sufficient domestic supply.
• France – issued a decree to requisition face masks for key health workers and coronavirus patients, and has regulated the price of hand sanitisers.
• India – the world’s main supplier of generic drugs, has restricted the export of 26 Active Pharmaceutical Ingredients and formulations, including antibiotics, in order to prevent domestic shortages of medication.
• Germany – banned the export of medical protection gear, including masks, gloves and suits, on public security grounds and in order to avoid domestic supply shortage.
• Czech Republic – imposed a ban on the export of respirators.
• Italy – restricted the export of medical masks.

As the situation develops, given the soaring demand for certain medical and protective equipment, we may see other countries introducing similar measures over the coming days and weeks.

The UK Government has powers under the Civil Contingencies Act 2004 to impose a broad variety of measures in the event of an emergency. An ‘emergency’ is broadly defined, including events that threaten human welfare or that would cause disruption of services relating to health. In addition, new regulations introduced in England under public health legislation provide new powers for medical professionals, public health professionals, and the police to allow them to detain in and direct individuals to quarantined areas who are at risk of, or suspected of having, the virus. As part of the port health measures, direct flights arriving into the UK from countries within the UK Chief Medical Officer’s case definition (please see the ‘Coronavirus action plan’ referred to below for further details) are required to provide a declaration (General Aircraft Declaration) to airport authorities stating that all their passengers are well, 60 minutes prior to landing. Similarly, the Maritime Health Declaration Form is required for all vessels arriving from any foreign port. For Scotland, parallel measures are in place. The Government also said that treatment and the requirement for medicines and other clinical countermeasures might start to increase, with the possible need to draw down on existing stockpiles of the most important medicines, medical devices and clinical consumables.

The UK Government has been actively engaged in contingency planning and, on 3 March, published a policy paper setting out a ‘Coronavirus action plan’. The phases of the Government’s plan in response to COVID-19 are as follows:

• Contain: detect early cases, follow up close contacts, and prevent the disease taking hold in this country for as long as is reasonably possible;
• Delay: slow the spread in this country, if it does take hold, lowering the peak impact and pushing it away from the winter season;
• Research: better understand the virus and the actions that will lessen its effect on the UK population; innovate responses including diagnostics, drugs and vaccines; use the evidence to inform the development of the most effective models of care; and
• Mitigate: provide the best care possible for people who become ill, support hospitals to maintain essential services and ensure ongoing support for people ill in the community to minimise the overall impact of the disease on society, public services and on the economy.

The UK Government’s response to the spread of the virus is likely to be guided by the international situation and measures implemented by other countries. The nature and scale of the response will depend on the course of the disease, which cannot be predicted accurately at this point in time. The Government is committed to issuing further detailed advice about what to expect if and when further measures become necessary.

Disruption of shipment and operation of “force majeure”

Where shipments are seriously disrupted, counterparties affected by coronavirus (either through employee illness, quarantine measures or other governmental restrictions on trade or travel) may attempt to suspend or terminate shipping contracts by relying on ‘force majeure’ principles (sometimes referred to as ‘acts of God’).

However, different jurisdictions have different conventions in relation to force majeure. For example, English common law does not recognise, as a standalone principle, the right of a party to be released from contractual performance as a result of ‘force majeure’, unless there are express contractual provisions in the contract granting such rights to either party.

Force majeure clauses are likely to be found in contracts relating to shipments (e.g. supply agreements, freight contracts, charter parties, etc.). The evidential threshold for force majeure is high unless the clause in question is broadly drafted. The China Council for the Promotion of International Trade is already issuing force majeure certificates to assist local enterprises, who seek to rely on force majeure clauses to suspend performance of their contractual obligations due to the coronavirus outbreak. These certificates demonstrate that the enterprises are unable to perform their contractual duties due to circumstances beyond their control. For further information on the operation of force majeure in the context of the coronavirus outbreak, please see our previous briefing here.

Concluding note

Given that the coronavirus outbreak has been rapid and unpredictable, it is impossible to estimate the scope of its economic impact on international trade. Given that most healthcare professionals believe that COVID-19 has not yet reached its peak, it is expected that governments around the world will continue to impose restrictive measures, potentially closing down ports, and introducing formal quarantine protocols.

Export restrictions on medical products and protective equipment are the latest measures introduced by many countries in order to secure domestic supply of critical items to help contain the spread of the virus.

It is therefore prudent for market players to continue to monitor the developments closely, and consider their rights and obligations under contracts where performance becomes practically impossible.

[1] More information available here:

[2] The average drop amounted to 30% in 2020, while it was only 11-12% every year in 2014-2019 (ibid).

[3] https://edition.cnn.com/2020/02/05/business/shipping-coronavirus-impact/index.html

[4] https://www.nytimes.com/2020/02/27/business/economy/china-coronavirus-shipping-ports.html

[5] Ibid.

[6] https://www.nepia.com/industry-news/coronavirus-outbreak-impact-on-shipping/

[7] https://edition.cnn.com/2020/02/05/business/shipping-coronavirus-impact/index.html