The coronavirus crisis has clearly become an economic challenge for the whole world. The spread of the virus represents both a negative supply shock and a negative demand shock across the economy at large. Through a variety of intermediate inputs in economies with a strong division of labour, this quickly leads to production restrictions in other companies and is ultimately detrimental to the smooth functioning of international value chains.
Since January, waves of city-wide closures and quarantines in China have shut down factories in the world’s second-largest economy, disrupting supply chains globally. Economies in Europe can clearly feel this. We can already see that a delay in delivery is happening. This can be traced back to a shortage of goods, production capacity and supplies. Also, export restrictions as a consequence of the coronavirus crisis play its role in this development.
As a reaction to this unknown situation companies will tend to reduce their business relations especially with Chinese goods. At the same time, it should be considered how to deal with existing contracts. From the legal perspective, it has to be examined whose law is applicable. Companies should assess if an agreement conferring jurisdiction was concluded for the benefit of only one of the parties. Both German law and Chinese law have the legal institution of material changes to the basis of the contract. This legal institution plays an important but at the same time subsidiary role. Therefore, it has to be evaluated very closely if a company can rely on this.
It became evident that problems in customs clearance processes, export control and statutory management requirements are the results of this new and unknown situation. A breach of obligations or interference due to force majeure could occur.
It now appears likely that some places will experience a local resurgence as restrictions are lifted and economies reopen. However, it will probably take months to ramp up operations and catch up on lost output. So, it is important to take actions now. Therefore, we would like to give you the following recommendations to help you with this situation:
- It can be helpful to check on your contractual relationships to see if they are in need of reworking in the form of additional agreements due to situations like this.
- Also, there are numerous facilitations of tax and customs issues than can help your business with current liquidation problems.
- There are public economic help programs for help dealing with the crisis.
- There are changes to customers border processes, moving goods and clearing customs during the coronavirus outbreak: customs simplifications like AEO or simplifies procedures.
These measures should help to stabilize employment and company liquidity during a temporary crisis. Emergency response plans can help to deal with the effects on supply chains due to the crisis. If you feel that your company is affected by this crisis, don’t hesitate to contact us.
This content appears as a courtesy of Möllenhoff Rechtsanwälte, a proud member of the China Collaborative Group (CCG Association). It is informational in nature and does not constitute legal advice or establish an attorney-client relationship between you and its author, publisher or any member of CCG. For more information, please visit www.ra-moellenhoff.de.