What COVID Taught Us About International Trade and Supply Chains
by Dan Minutillo
International Trade Law
Pre-COVID, international supply chains were usually only disrupted by a component supply shortage, or an overabundance of orders which overloaded cargo transportation companies resulting in a slowdown of component and product movement. Occasional, devastating attacks on cargo ships or weather issues clogging shipping lanes made products and components late to a destination, but each incident was usually regionally specific, not global.
Pre-COVID, there were always alternatives to move goods from one place to the other without interruption as a secondary or even tertiary method to get goods to a company on time. Most companies had these secondary and tertiary supply chain methods instituted as part of their process to ensure goods were received on time for integration into a final product.
The COVID Era
The COVID pandemic was global. Disruption in supply chains was no longer regionally specific or restricted to pre-COVID shortages, waterway incidents, or clogged transportation lanes. The entire world was turned on its head, from component manufacture, distribution, and COVID predictability in end-product sales. COVID radically disrupted global supply chains. Reduced product mobility, changed market demand, and prompted wild swings in consumer preferences adding to international trade confusion.
Lockdown policies differed from country to country and often within regions, states, or communities within a country. Political whim and advantage also created inconsistent pandemic policies, adding confusion and irregularity in commercial markets which further affected product demand, inventories, and profit.
Lessons Learned
From a supply chain international trade perspective, many companies changed product content to include more domestic components to cope with pandemic international trade disruptions; or modified software and hardware components for products dependent on international parts, to ensure a higher domestic content; or relied on components more available from diverse, multiple markets not to be held hostage by one or two manufacturers of that component.
Consequence
Post-pandemic, companies that learned how to substitute a modified component, use more domestic components, or switch suppliers rather than endure COVID disruptions set themselves up for a quicker post-pandemic recovery. This natural consequence to adjust to the rigors of coping during the pandemic helped companies shape their long-term viability.
Legal Issues
The above-mentioned changes create a new set of legal issues that must be addressed from an international trade perspective:
- Suppose products or components are now imported or re-exported from a different country than pre-pandemic. Is there a change in duty or tariff when those products are imported into the destined country (whether that be the US, an EU country, or otherwise)?
- Do marking requirements on the product relating to country of origin, place of manufacture, safety (electrical, product use restrictions), and environmental considerations need to change?
- Does this change cause anti-dumping duties assessed by the country of import?
- Do “type of material” and “new material” composition for a product require marking changes on the product?
- If a drug component or even an agent (elemental catalyst) changes because of a new supplier, does this create safety re-evaluation by a government’s drug administration (like the US FDA)?
- Does the new supply chain trip customs re-export issues when a product moves from country to country before it reaches its final destination?
- What is a product’s new country of origin or place of transformation if, post-pandemic, different components from other countries are used in an end-product?
The above seven international trade legal issues can be addressed based on the import, export, re-export, marking, and transformation rules and directives of the countries involved.