On April 3, 2020, President Trump issued an order via Presidential Memorandum (“Order“) invoking an obscure authority under Section 101 of the Defense Production Act, 50 U.S.C. § 4501 et seq. (“DPA“), to potentially restrict exports from the United States of personal protective equipment (“PPE”) needed in the response to the COVID-19 crisis. This is in the wake of numerous countries around the world implementing export bans on PPE and other medical supplies (see our previous blog posts on these non-US developments here). The White House also issued a statement (“WH Statement“) in connection with the Order that explains that it is intended to “prevent hoarding, price gouging, and profiteering by preventing the harmful export” of critically needed materials. The Order follows several days in which the Administration ordered specific US companies to accept and prioritize orders for ventilators and respirators and reportedly pressured at least one company not to export those materials.
Which Materials are Covered by the Order?
The Order covers certain of the 15 categories of materials previously identified as “scarce or threatened materials” by the US Department of Health and Human Services (“HHS”) in a notice issued on March 25, 2020. The materials covered by the Order (“Targeted Materials”) all fall into the category of PPE, specifically:
- 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)
The Order does not cover the other materials identified as “scarce or threatened materials” in the HHS notice, which 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. It is possible that these materials could be targeted in the future.
Who is Targeted by the Order?
The Order focuses on non-manufacturers and seeks “to prevent domestic brokers, distributors, and other intermediaries from diverting such material overseas.” The WH Statement issued in connection with the Order highlights “wartime profiteering” by these parties in secondary markets that “purchase domestic supplies of scarce and critical materials, hoard them while they engage in profiteering and speculation, and then export them.” The WH Statement explains that this may include “a large army of speculators and warehouse operators operating in the dark corners of our markets” and also “some well-established PPE distributors with the ability to unscrupulously divert PPE inventories from domestic customers, such as hospitals and State governments, to foreign purchasers willing to pay significant premiums.” The WH Statement provides the Order will not 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.”
Is the Export of these PPE Materials from the United States now Prohibited?
Based on its language, it appears that the Order will need to be implemented by the US Department of Homeland Security (“DHS”). Specifically, the Order directs DHS, through the Federal Emergency Management Agency and in consultation with HHS, to use its DPA Section 101 authority to “allocate to domestic use, as appropriate” the Targeted Materials. The Order uses the “allocation” authority in DPA Section 101 (which does not specifically mention exports) as the mechanism to implement the stated policy objective of preventing exports. The Order does not establish a broad-based prohibition on exports from the United States of the Targeted Materials, which could have been implemented through the Export Administration Regulations, 15 C.F.R. Part 730 et seq., which are administered by the US Department of Commerce’s Bureau of Industry and Security. In any event, this language indicates that further action by DHS is needed to implement the Order. We expect further clarity on in the coming days and will update this blog with any noteworthy developments.
Considering that no President has used the allocation authority under the DPA since the Cold War (according to this Congressional Research Service report), it is not immediately clear how DHS will allocate these materials for domestic use and prevent their export from the United States. (DPA Section 101 provides a separate priority authority that allows the President to require US companies to accept and prioritize government contracts. That DPA priority authority has been used regularly by various US Administrations, including in recent days.)
In a 2015 interim final rule, HHS had already established a framework called the “Health Resources Priority and Allocations System” to allocate health and medical materials to promote the national defense pursuant to the authority under the DPA as delegated to HHS. If DHS follows this framework established by HHS, one possible way to implement the Order would be to issue an “allocation directive” to specific brokers, distributors, intermediaries, and possibly other parties (e.g., manufacturers) determined to be profiteering by exporting the covered PPE products at a premium. Such an allocation directive could order a party to allocate all of Targeted Materials to domestic use (i.e., not to export any of the products).
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.
