In early June, Shanghai finally relaxed its strict COVID control measures, measures that had been in place for more than two months. These allowed for production of goods and international shipping to resume. Given Shanghai’s important role in the global supply chain and its status as a major shipping hub in China, the lockdown has had far-reaching effects, once again bringing the issue of supply chain resilience back to the public eye.

In mid-May, after researching first-quarter earnings calls or financial statements of global companies, Bloomberg found that more than 180 companies around the world have mentioned terms including “China” and “lockdowns” in those documents, indicating the impact on the stability of the global supply chain by the control measures in Shanghai since mid-March.

Bloomberg then revealed a list of affected companies, which includes many big names, like Toyota, Honda, Volkswagen, Ford and Tesla in the automobile industry, Shiseido in the consumer goods industry, and LG, General Electric, Olympus, and Sony in the manufacturing industry. Toyota said some production lines in Japan were suspended briefly because of the Shanghai lockdown; meanwhile, Tesla’s Shanghai plant was closed for three weeks in April.

In another interview, head of Deutsche Post DHL Group’s freight business told Reuters that “lockdowns in China are having greater impact on global supply chains than the war in Ukraine.”

Frank Pan, senior counsel at FenXun, Baker McKenzie’s joint operation partner in China, says that clients in both the high-technology and traditional manufacturing industries were impacted by the pandemic control in Shanghai.

“The supply chain challenges were on various fronts,” says Pan, citing imports as an example. “Although most of the maritime ports and airports in Shanghai remained operational during the lockdown, we heard that in some ports, preference for import clearance was given to containerized cargoes over international express mails, which are the primary means of transport for high technology companies. In some cases, even if the goods had arrived at the gateway port in Shanghai, the last mile delivery was challenging due to the lockdown in the city.”

And it was even more difficult for export. “The outbound shipments from Shanghai were more severely impacted, as most of the manufacturing facilities were operating at minimum capacity or simply shut down during the lockdown. We heard that this had caused disruption to the global supply chains of some multinational clients,” Pan recalls.

Talking about the “urgent legal needs” that the affected clients have sought from the law firm, Pan points out they can be divided into two categories. The first is to “address the contract disputes arising from delayed delivery,” and second is to “provide advice on qualification for the new facilitation measures that Customs has rolled out.”

“The new customs measures should expedite the import and export clearance and alleviate the related compliance burden post-lockdown. For example, we are currently acting for a client to negotiate with customs about the possibility of concluding a longstanding audit case on a more lenient and expedited basis shortly after the local customs office reopened,” says Pan.

With Shanghai announcing a full return to “normal production and living order” from June 1, according to Caixin, Shanghai Port’s throughput has recovered about 80 percent, and the road transport capacity in Shanghai and surrounding areas has also recovered to 70-80 percent. The short pains felt by global supply chains appear to end soon.

However, it also depends on whether factory production has actually gone back to normal. DHL remained cautious. telling Reuters that “it will take longer than we had thought until the t system normalises again, and the global supply chain problems would probably continue beyond the crucial Christmas shopping season and into next year.”

Also, China’s COVID-Zero policy means that other regions might still face on-and-off lockdowns in the future, which brings many people to reopen the discussion of the China Plus One strategy. The diversification of supply chains geographically, especially by moving factories to some emerging Southeast Asian countries, might solve the problem in the long term.

“Supply chain resilience is a topic that has been discussed for years,” says Pan, “It entails, among other things, diversifying supply chains, and reshoring and near-shoring production. The decisions of multinational corporations to adopt these strategies are driven by various factors, including geopolitical tensions, costs, in addition to pandemic shocks.”

Pan believes that the new supply chain shocks caused by the pandemic control will likely expedite the process of relocating production out of China, “but anyhow, the changes still cannot happen overnight. There could be extremely complex legal issues involved in migrating a manufacturing operation, ranging from customs, tax, regulatory to foreign direct investment. Companies would have to use a holistic approach to address all the potential challenges and pitfalls.”

Over the years, Pan and his firm have assisted quite a few Chinese companies in relocating production facilities to Southeast Asian countries, and the legal considerations are often highly complex.

“Firstly, the companies need to ensure the products they manufacture in the new locations qualify as “originating” in these countries, so as to optimize their tariff burdens when the products are imported by their customers into the countries of destination, especially the United States,” says Pan.

“They also need to make sure their upstream supply chains in China remain operational and entitled to the duty saving benefits under the regional free trade treaties.”

Finally, “they need to deal with the legal risk that the overall supply chain planning be regarded as a “circumvention” scheme to go around the antidumping measures, if applicable, which could give rise to more challenging enforcement actions taken by the foreign governments.”

Pan cites one recent example relating to the Chinese solar panel companies that have migrated their final assembly lines to the Southeast Asian countries which are now alleged by the U.S. government to have “circumvented” the antidumping tariffs imposed on the China origin products.

Therefore, a resilient supply chain strategy doesn’t just mean the choice of the right place, but also “a holistic review of all the related issues and careful planning from a legal perspective,” Pan suggests.