Corona and Cross Border Trade

Corona

The Corona virus has put the world in a headlock. This extraordinary situation has an enormous impact on society, as well as local and global economies. The MME Cross Border Trade Team evaluates the challenges that international trade now faces.

 

Commercial and Distribution Law

Deficiencies in performance in commercial contracts can lead to damages. At present, however, disruptions in performance are not only to be expected with regard to service providers, but service recipients may also wish to withdraw from existing contracts (purchase contracts, framework contracts) or adapt them. In balancing the evolving commercial needs of both parties, it’s important to assess how the existing legal framework may allow both parties to mitigate loss over the long term (liability, force majeure, contract adjustment and contract termination) by means of an agile crisis intervention plan. Information on special considerations under Force Majeure may be found here.

 

Supply Chain

The availability of transport modalities has also changed. Lockouts mean that production and services cannot be maintained. Supply chains are interrupted, SLA's cannot be kept and supply is affected by a reduction in workforce. We also observe considerable price increases that are not compatible with existing contracts, which may lead to complex problems in distribution chains.

 

Transport and Logistics Law

Air freight capacities have been greatly reduced by the discontinuation of passenger transport, however in certain cases, passenger aircrafts have shifted their services to accommodate a growing demand for cargo. For airlines that can no longer meet their obligations, either as passenger or freight carriers, the legal consequences must be carefully examined on the basis of established contracts. Decisive factors here are contracts with airline suppliers, the airports and the transport modalities to and from the airports.

In sea freight, not only are freight rates falling, but the global distribution of containers (overcapacity in China) is another growing problem.

Road and rail transport also suffer from the tightened customs regulations within the EU (see below) but continue to form the backbone of logistics in Europe.

Logistics and other transport services themselves have so far only been partially affected by official orders. In niche segments such as "last mile delivery", certain opportunities may even arise.

 

Customs Law/ Export Compliance

Currently, the borders for goods transport are still open and goods can still be declared, however signs of trade restrictions on medical material and equipment are beginning to emerge. Examples include export prohibition imposed by Germany, Italy and other EU member states in past weeks. Adding to the complexity, the EU has imposed regulations requiring that certain products flow freely within the Union but require exporters to obtain authorization prior to export from the Union (EU Regulation 2020/402). This new regulation will likely supersede trade restrictions imposed by individual member states. In the future, such measures could be extended to other goods as soon as they become scarce in individual countries.

 

Insurance

Delays in the supply chain or cancellations of orders can lead to damage caused by delays, damage from non-fulfilment of contracts or damage from an officially ordered closure of operations. Although the Swiss Authorities have promised assistance measures, some of these damages are potentially also covered by insurance policies. We therefore recommend to analyze existing insurance policies (especially epidemic/hygiene insurance, which is often included in property/maritime insurance, all-risk insurance or business interruption insurance). Difficult legal questions may arise with regard to coverage, as the policies are often not tailored to the current situation, which does not mean per se that there is no coverage. In the event of any coverage, the damage must be reported to the insurance company as soon as possible. Failure to do so may result in a reduction of insurance benefits or even exclusion from cover.

 

Dept Enforcement and Insolvency

At present, the state has ordered an extraordinary legal standstill in debt enforcement and bankruptcy matters until 19 April 2020 (legal standstill in addition to the Easter debt enforcement holiday). During this period, no debt enforcement action can be taken. This means that payment orders will not be served and bankruptcies cannot be opened. Debtors can still be put in default with a reminder, so that the risk for the goods is transferred to the debtor and default interest is incurred (Force Majeure in Contract Law). Likewise, periods of limitation can still be interrupted by the filing of a debt collection request.

 

Conclusion

With a view to maintaining long-term contractual relationships, we recommend quick and consistent action to secure the legal position, but pragmatic solutions that do justice to the extraordinary situation. Appropriate action in the current crisis situation can be an opportunity to secure long-term customer relationships.

March 2020 | Author: Raphael Brunner

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