News Covid-19 and its impact on international trade

March 27, 2020 Corona/Covid-19

Vinge’s experts within trade and shipping summarise some observations on how Corona impact international trade.

Transportation

Several borders have been shut down but notably many shutdowns exempt cross‑border transportation of goods. Delays in the cargo operations should be expected for various reasons such as health checks performed on truck drivers as well as lack of drivers, and lack of stevedores and restrictions on boarding vessels. Further, general travel restrictions may delay normal operations e.g. in the event a cargo surveyor is required.

As to the access of ports, it is understood all major Chinese ports remain open and fully operational with the exception of the river port of Wuhan. However, various countries have imposed a 14‑day quarantine period or even an entry ban for vessels arriving from countries in which COVID‑19 outbreak is recorded. Likewise are health declarations required and/or mandatory screening of crew. For instance, the port of Gothenburg – which remains open – requires a Maritime Health Declaration which stipulates that if a vessel reports that a member of the crew or a passenger on board is ill and has been in a WHO‑classified risk area, the port’s quarantine plan is activated, and an infectious disease physician is contacted. For requirements applying at a particular location, local and updated advice should always be obtained. One helpful tool is provided by Wilhemsen Ship Services by way of an interactive map which is updated on a daily basis, see coronavirus map. 

A summary of transport restrictions imposed by the various EU countries can be found on the EU Commission’s website  

The Covid‑19 related actions and measures taken by the Swedish Transport Agency can be found here

International Association of Classification Societies (IACS) have established a task force and adjusted procedures to facilitate fulfilment of class requirements. IACS website also contains information from the respective classification societies.

The International Group of P&I Clubs have issued a publicly accessible dashboard with country specific information to assist the shipping sector.  

It is clear that trade disruptions should be avoided to the greatest extent possible. The Secretary‑General of International Maritime Organisation (IMO) has stated that the ability for shipping services and seafarers to deliver vital goods  will be central to responding to, and eventually overcoming, this pandemic. IMO has therefore issued recommendations for governments and national authorities on the facilitation of maritime trade during Covid‑19 pandemic. The recommendations can be found here (pdf)

Production and trade laws

Several countries including France and Italy have suspended non‑essential industrial and productive activities. A key question is how “essential activities” are defined. There may be exceptions for activities that can be carried out by “smart working”. Clients involved in logistical chains are recommended to ascertain to what extent suspensions as well as exemptions have impact on operations. Contractual obligations should be analysed in the light of whether a suspension/exemption actually applies (see below). Further, numerous states have or are in process of providing massive financial injections into various industries which may enable business which today have been shut down or otherwise are at risk. In particular, US has announced a 2 trillion dollar stimulus package for the US economy.

Other notable legislative actions are:

  • The transportation sector in Norway has been granted a temporary exception from the Norwegian Competition Act regarding anticompetitive agreements and practices
  • Following an initiative by the EU Commission, several EU states have tightened screening of foreign investments to protect domestic strategic industries from third-country approaches Various countries have imposed export bans on certain medical equipment and EU has imposed export control requirements on the same (see below)
  • EU has issued a temporary relief in state aid rules, as well as numerous other remedies see European Coordinated Response on Coronavirus: Questions and Answers 

It is not unlikely that the Covid‑19 outbreak may trigger various protective and anti‑globalisation policies by countries going forward. Needless to say, such policies will have significant adverse impact on international trade.

Government actions regarding medical equipment

The below is a summary of some notable actions taken by governments regarding trade in medical equipment:

Contracts

Performance under contracts under times of severe trade obstructions is needless to say a key area. In a legal sense, the Covid‑19 outbreak – at the time it occurred – may constitute a so called force majeure event. It is doubtful if the same conclusion would apply regarding contracts entered into today ‑ in order for something to be force majeure, generally, the event must be totally unexpected and beyond the parties control.

The result of force majeure is that it exempts the parties from performance. The concept of force majeure is applied differently in different countries and, notably, application will depend on the wording of the relevant force majeure clause and its context. Legal advice should therefore always be obtained. For more information about force majeure from a Swedish perspective, see the following brief from Vinge on Possible contractual objections under Swedish law as a result of Covid-19

As a general advice, the pandemic is in its early stages and contracts drafted today should cater for the uncertain future development. In particular, it is recommended that contracts include a tailor-made “Corona clause” which preferably should also refer to different strains of the virus, allocating risks and seeking to address likely scenarios.

Leaving the fine art of contract interpretation aside, it is important for businesses to be pragmatic. The situation is constantly changing. Parties may therefore want to, if possible, be  patient and see how matters develop before exploring prospects to terminate contracts or obligations thereunder. For instance, a service, activity or production that is impossible or subject to prohibitions today may be possible tomorrow. This may be so in particular given the significant state aids which are in the pipeline. One other aspect is that, undoubtedly, the situation will one day normalise and we will then resume the business relationships. This may be a good time to show extra care for your business partners. It may therefore be sensible not to rush into irrevocable decisions but instead entertain open and solution-oriented discussions. Consensual solutions to difficult problems are often the best ones. Having said that, before making any decision it is advisable to ascertain the legal rights and duties.  

Insolvency

The economic challenges following from the outbreak of Covid‑19 have, and will continue to have, a serious effect on the financial situation of many companies during the foreseeable future. Aside from day‑to‑day challenges such as liquidity issues and need for cost cutting, borrowers must be aware of their obligations in relation to their lenders under their financing arrangements. This scenario of course has significant impact on logistical chains and international trade where long contractual chains not least in the shipping industry poses a particular challenge. Should your business be affected by own or others’ insolvency it is essential that correct and prompt action is taken.  For information about insolvency aspects under Swedish law, see Potential Covid-19 effects: financing arrangements, insolvency and public initiatives.

Future impact on supply chains

Looking forward, it is not unlikely that Covid-19 will have long lasting or even permanent impact on supply chains. The problems that the world encounter at the moment are reminders about the vulnerability of modern supply chains, which are signified by long distance transportations, dependencies and outsourcing. Business will no doubt look for ways how to mitigate this previously unencountered disruption risk. Perhaps we will see a development towards local production and stock-keeping in which case supply chains will have to adjust.  

 

Contact

In case you have any questions in relation to trade and the Covid-19 situation please contact

Anders Leissner

Björn Nicolai

Michele Fara

Paula Bäckdén

 

 

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