Cross-Post from CompanyWeek: The new American manufacturing policy should be clear: No job left behind

This is a Cross-Post from CompanyWeek.  Please contact Sarah Rathke with any questions.

It is a new age, and the US faces challenges when competing against the global manufacturing leader, China.  The article here recaps a recent panel discussion sponsored by CompanyWeek (on which SPB partner Sarah Rathke was a panelist), discussing how American manufacturing policy would benefit US industries with the capability of reshoring domestic production.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the Firm, its clients, or any of its or their respective affiliates.  This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Interview with DC Velocity: China and U.S. face “reckoning” over trade disruptions in 2021

Please contact Sarah Rathke with any questions.

SPB supply chain lawyer Sarah Rathke was interviewed by Ben Ames of DC Velocity regarding the potential international trade disruptions with China in 2021.  Sarah discusses the potential challenges facing the Chinese international trade supply chain and the difficulties in predicting Chinese policies this year.  You can read the full article here.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the Firm, its clients, or any of its or their respective affiliates.  This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Interview with Supply Chain Dive: Biden invokes DPA to combat supply shortages, but experts say it’s no ‘magic wand’

Please contact Sarah Rathke with any questions.

Through a recent executive order, the Biden administration has the authority to use the Defense Production Act (DPA).  Recently, SPB supply chain lawyer Sarah Rathke was interviewed by the Supply Chain Dive concerning use of the DPA.  The Supply Chain Dive article here explains how the DPA order will require suppliers of DPA-rated manufacturers to prioritize orders, provide government funding to companies to expand manufacturing capacity, and provide legal protection to the manufacturers.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the Firm, its clients, or any of its or their respective affiliates.  This article is for general information purposes and is not intended to be and should not be taken as legal advice.

DHS’s China “Strategic Action Plan” and Bringing Together China Supply Chains and China Policy

The year 2021 will likely be a year of geopolitical reckoning between the United States and the People’s Republic of China, which will inevitably have direct and indirect flow-down effects into US supply chains.  While the Biden Administration has not yet unveiled many specifics as to what its approach to China will be, on January 12, 2021, the Trump Administration’s Department of Homeland Security (“DHS”) released its “Strategic Action Plan to Counter the Threat Posed by the People’s Republic of China” (the “Action Plan”), indicating what its viewpoint has been. The report details efforts by DHS to combat purported threats rising from the People’s Republic of China (“PRC”), as well as strategies to address key potential vulnerabilities (whether or not actually implemented). The Action Plan addresses Border Security, Economic Security, Cybersecurity, and Maritime Security.

Summary

The Action Plan focuses heavily on Border Security and Immigration issues and praised the work of various federal agencies in screening and vetting foreign individuals, even in the face of resistance from the Chinese Communist Party (“CCP”).  The plan lists actions taken by the Trump Administration that were aimed at improving the efficacy of border security, suggesting that PRC citizens should face additional scrutiny in obtaining visas or be subjected to targeted programs such as Presidential Proclamation 10043, which led to the revocation of the visas of more than 1,000 Chinese students in the summer of 2020.

In addressing Trade and Economic Security, the report draws significant attention to intellectual property and supply chain security. The Action Plan emphasizes the vulnerabilities in our economic dependency on China. Perhaps recognizing that the Trump Administration made little actual policy in this area, the DHS suggests that it plans to draft multiple policy papers with recommendations for proactive measures, while working to advance public awareness and engagement.

FEMA and CISA are the core of the DHS Cybersecurity and Critical Infrastructure strategy. The Action Plan calls for broad cooperation between DHS components, state and local agencies, and industry partners to fortify vital infrastructure and plan exercises to ensure readiness for potential attacks.

Finally, the Action Plan addresses Maritime Security, highlighting the role of DHS and the United States Coast Guard (“USCG”). According to the DHS, USCG should have a larger role in international relations, including nurturing relationships with countries like the Philippines, while also taking a larger role in international bodies like the Arctic Council.

Analysis

Despite being presented as a strategy for future conduct, the Action Plan contains few specific policy recommendations and leaves the Biden Administration considerable space to forge ahead with its own agenda.  Indeed, it is likely that the Biden Administration will deemphasize purported immigration controls and instead seek to focus or “right-size” the US’s economic relationship vis-à-vis the PRC.

This is no small task.  It is easy to say that US companies should be “reshoring” or moving manufacturing back home.  Implementation, however, is much more difficult.  Our complacency with the US-China economic relationship over the past several decades now means that there are numerous critical components and products (often in the high-tech area) made exclusively in China – and changing this fact will require major industry and perhaps governmental investment.  Collaboration in this area of course presents its own challenges – from an antitrust perspective in the case of private industry collaboration, and from a WTO perspective in the case of government subsidies.  Tariffs have often proven to be too blunt a tool, with negative unintended consequences on US companies.  And while sanctions on bad actors are often effective, with only a few exceptions, we have barely begun to determine what actors in China we consider to be “bad,” and what we intend to do about it.

One uncomfortable truth for US policymakers – and for US companies when they experience the flow-down effects of any policy decisions that are made with regard to China – is that China did not create the balance of trade and intellectual property rights issues that it has with the United States without the US’s considerable cooperation.  Another uncomfortable truth is that the world is too interconnected for us to simply flip a switch and regard China as our enemy.  Any recessionary effects China feels as a result of US policy inevitably will be felt in the US as well.  Thus, while China has never been aggressive militarily, the leverage China holds more closely resembles the bomb strapped to its own chest.

Furthermore, any alienation China experiences as a result of US punitive measures will inevitably impact our effectiveness at enlisting China’s help on US policy initiatives that require global cooperation (most notably, but not exclusively, climate change and the environment).  Finally, while China presents outwardly as able to easily maneuver its enormous economy and population, the reality is by no means effortless, as China struggles to create major economic and social change, without any accompanying political change.  This may work in economic good times; but such a strategy has no successful precedent once a society becomes economically uncomfortable.  China’s grasp on its controls is therefore more tenuous than it seems.

This is where the “solution” paragraph should end this essay.  But there isn’t one.  The US’s approach going forward with China will not and cannot be a simple approach.  Rather, it should and hopefully will be a carefully calibrated balancing, industry specific and guided by experienced policymakers who are China experts – no small feat, given this Foreign Policy’s grave observation of the decreasing number of China experts in the west.  This is a call, therefore, for new type of collaboration in the United States – between supply chain and manufacturing experts and China policymakers.  Any policy that goes forward where one perspective is heeded and the other is not will be incomplete and likely incorrect.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the Firm, its clients, or any of its or their respective affiliates.  This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Cross-Post from American University Business Law Review: Why Choose LTAs? An Empirical Study of Ohio Manufacturers’ Contractual Choices Through a Bargaining Lens

This is a Cross-Post from American University Business Law Review.  Please contact Sarah Rathke with any questions.

The  American University Business Law Review recently published an article entitled Why Choose LTAs? An Empirical Study of Ohio Manufacturers’ Contractual Choices Through a Bargaining Lens. In this study Case Western Reserve University Professor Juliet Kostritsky and now-Squire Patton Boggs Associate Jessica Ice address why and when suppliers choose to engage in Long Term Agreements (LTAs) and when they opt-out.

To analyze this question, the researchers conducted a survey of 63 Ohio manufacturers to better understand when and why they use LTAs. The survey results indicated that manufacturers who incurred significant capital expenditures or produced highly customizable goods reported that they used LTAs in a larger proportion of their transactions. However, manufacturers that made fungible goods and did not need to incur significant capital expenditures often operated under more flexible contractual arrangements such as terms and conditions or purchase orders.

LTAs also provided suppliers with information sharing protocol and dispute resolution procedures. Most manufacturers who frequently used LTAs indicated that they would share information with suppliers, even if not required to do so under the LTA. Manufacturers indicated that they were most likely to share information if the buyer was a large company or OEM.

These results indicate that although negotiating long term agreements may incur some costs upfront, there can long term benefits and protections to suppliers, especially if the supplier is producing customizable goods or incurring capital expenditures. Thus, the decision to engage in an LTA can be part of an overall cost minimization strategy for suppliers.

For more information view the article here.

Citation: Juliet P. Kostritsky & Jessica Ice, Why Choose LTAs? An Empirical Study of Ohio Manufacturers’ Contractual Choices Through a Bargaining Lens, 9 Am. U. Bus. L. Rev. 337 (2020).

Cross-Post from Employment Law Worldview:  EEOC Publishes Guidance on Employer Mandatory COVID-19 Vaccination Policies (US)

This is Cross-Post from Employment Law Worldview.  Please contact Daniel Pasternak with any questions.

U.S. Equal Employment Opportunity Commission’s (EEOC) updated COVID-19 guidance indicates that employers can implement and enforce mandatory COVID-19 vaccines for their employees.  The article here breaks down the key takeaways from EEOC’s updated COVID-19 guidance.

Cross-Post from Consumer Privacy World: ICE COLD MOVE: US Government Warns of Cybercriminals Targeting Cold Supply Chain for COVID-19 Vaccine

This is a Cross-Post from Consumer Privacy World.  Please contact Elliot Golding and Kristin Bryan with any questions.

Last week the US Homeland Security Department issued a warning regarding supply chain cyberattacks aimed at the cold chain delivery and storage of companies and government organizations responsible for the distribution of the coronavirus vaccines worldwide.  For further information on the warning and strategies to protect against these supply chain cyberattacks, read more here.

Cross-Post from Capital Thinking blog: Transition 2020 | Biden Pledges to Expand Buy American Policies, Promote Domestic Supply Chains

This is a Cross-Post from the Capital Thinking blog.  Please contact Perrin Brown and Ludmilla Kasulke with any questions.

President-Elect Biden has pledged to strengthen Buy American orders and to implement a “Made in America” tax credit and other federal incentives to “Build Back Better” economic plan the will impact international supply chains.  Read the full article here for further details on President-Elect Biden’s economic plan including the promised executive orders during his first week of office and his tax policies.

 

Cross-Post from Employment Law Worldview blog: CDC Updates COVID-19 Guidance to Include Alternatives to 14-Day Quarantine Recommendation (US) Actions

This is a Cross-Post from Employment Law Worldview blog.  Please contact Melissa Legault with any questions.

On December 2, 2020 the U.S. Centers for Disease Control and Prevention (CDC) announced updated COVID-19 quarantine guidelines.  The updated CDC guidelines include 10-day and 7-day quarantined alternatives to the prior 14-day quarantine recommendation, which the CDC has determined through new emerging science, is adequate to balance a reduced burden against post-quarantine infection.  Read the full article here.

Addressing COVID-19 Vaccine Supply Chain Challenges

At the time of this writing, two companies, Pfizer Inc. and Moderna, Inc., have announced promising early results from Phase 3 of their COVID-19 vaccine trials.  Additional promising results are hoped for from Johnson & Johnson, and AstraZeneca soon, and perhaps from others later.  This is good news.

Developing a vaccine is one thing, however.  Distributing it is another.  Indeed, managing the COVID-19 supply chain will pose tremendous logistical challenges for health care providers and at all levels of government unequalled for any other pharmaceutical product in history – and the stakes could not be higher.  A complicating factor is, undoubtedly, the turnover of presidential administrations.  And while a carefully coordinated handoff from the Trump Administration to the Biden Administration would no doubt be ideal, that may not be forthcoming.  However, this turnover also provides an opportunity to reconsider and optimize the role the federal government could play in distributing COVID-19 vaccines to the U.S. population.

Recently, we wrote an article in Law360, describing “Key Government Tools for Addressing National PPE (Personal Protective Equipment) Shortages.”  Many of the observations in this article concerning how the federal government can normalize and optimize the supply of PPE to health care providers hold true for COVID-19 vaccine distribution as well – as we shall discuss here.

 

The Problem

One distribution challenge associated with the COVID-19 vaccines currently in Phase 3 trials is that each of the leading vaccine candidates requires cold-chain transportation and storage, often the case for vaccines.  The Pfizer COVID-19 vaccine is unique in that it requires extreme cold (-70 degrees C) storage and, even so, is projected to be viable for only 10 days after manufacture.  Accordingly, Pfizer has developed transportation boxes that will accommodate 1000 or 5000-dose shipments, packed in dry ice, and has signaled that it will forego the U.S. government-tapped McKesson Corporation for distribution, in favor of relying on its own systems instead.  These requirements for constant deep freezing, immediate use, and packaging into 1000 or 5000-dose containers likely means that the Pfizer vaccine’s use will be limited to large urban centers that can be reached quickly, stored properly, and have sufficient population to justify the batch size.  (Similarly, the Ebola vaccine also required extreme cold storage, which posed distribution challenges in many of the places in Africa where it was most needed.)

Moderna and the other three Phase 3 vaccine companies also have indicated that their COVID-19 vaccines will require cold storage and transportation, but only to the level of ordinary cold supply chain capabilities – approximately -20 degrees C.  This certainly makes their supply chains somewhat easier to manage, but challenges still remain.  Some sources report that vaccines will be constantly temperature-monitored during transit (rather than at intervals), to protect and ensure vaccine integrity.

Another large COVID-19 vaccine distribution challenge is coordinating the logistics of the supply chain, which will have to distribute COVID-19 vaccines to every person in the country.  While the federal government has instituted its “Operation Warp Speed” (OWS) – an intragovernmental agency collaboration between the U.S. Department of Health and Human Services (HHS) including the Center for Disease Control (CDC), the National Institutes of Health (NIH), the Biomedical Advanced Research and Development Agency (BARDA), and the Department of Defense (DoD) – so far, the OWS has been short on specifics for how this will be accomplished.

Evidently modelled on the federal government’s plan for the 2009 distribution of the H1N1 vaccine (a challenge of considerable, but still less, complexity), OWS has charged itself with funding the rapid development and manufacture of viable COVID-19 vaccine candidates and relaxing associated regulatory requirements.  However, OWS does not include a robust distribution plan to get COVID-19 vaccines to citizens.  Rather, like the H1N1 vaccine distribution plan, OWS plans to simply purchase the required vaccines, allocate them to the states using population-based modelling, and then allow the states to distribute the vaccines to their populations – without regard to whether the states have the funding or capabilities to actually do this.  And in most cases, they don’t.

In late September 2020, OWS directed the states to submit their COVID-19 vaccine distribution plans by October 29, 2020, which most of the states have done.  However, most of the states’ plans at this point are aspirational and non-specific – which is not surprising, considering that the states did not even know in late October 2020 what the cold-chain requirements for vaccine distribution would be.  Virginia’s plan specifically called out a “Preparedness Gap,” describing the logistical and financial challenges facing it on this project.  On October 15, 2020 – 10 days before the states’ plans were due – the National Governor’s Association sent a letter to President Trump, imploring the administration to provide “additional guidance and clarification … on the roles and expectations of states in a successful COVID-19 vaccine distribution and implementation plan,”– and specifically requesting “a meeting with you and your team to discuss what is required to ensure a strong partnership” with the federal government.

In response, the White House provided few specifics, and referred the governors to OWS’s September 9, 2020 “COVID-19 Vaccination Program Interim Playbook for Jurisdiction Operations” (which was updated on October 29, 2020).  The Interim Playbook, however, even in its updated form, sets forth a series of what can be characterized as generalized statements of principle on subjects such as identifying critical populations, vaccine provider enrollment, and handling surplus doses.  However, it does not provide the nuts-and-bolts guidance that the states will no doubt need to distribute vaccines effectively.  (For example, the Interim Playbook recommends tabletop exercises and workshops to test distribution plans, but does not attempt to describe what such exercises would consist of.)

To be clear, delegation to the states follows the same model that was used with the H1N1 vaccine (which itself was adapted, albeit imperfectly, on the CDC’s Vaccines for Children Program), but H1N1 vaccine distribution involved less urgency (given its relatively low human-to-human transmission rate) and complexity.  Nor did the H1N1 vaccine involve an extreme-cold supply chain.  And, indeed, following the H1N1 vaccine distribution, the federal government attempted a comprehensive look-back to identify areas of improvement for the time a pandemic required wholesale distribution of vaccines.  But if OWS attempts to build on those lessons, the effort is not immediately obvious.  Nor is it obvious how the states will fund these vaccine distribution efforts.  Although the CDC has estimated that Congress will need to provide up to $6 billion to state and local authorities for vaccine distribution, to date, they have only allocated $200 million.

The Solutions

No matter how managed, distribution of one or more cold-chain COVID-19 vaccines to the U.S. population will pose unprecedented supply chain challenges.  However, it is likely inefficient – and probably ineffective as well – to require each of the states to design and implement separate vaccine distribution models and plans.  The federal government, on the other hand, has a number of tools at its disposal that can be used to smooth the vaccine supply chain.

First, the Defense Production Act (DPA) can be used to facilitate the distribution of vaccines, as we wrote that it could facilitate the distribution of PPE.  The Trump Administration has been parsimonious in its use of the DPA in responsive to COVID-19, asserting that the DPA should be invoked as a measure of last resort.  In reality, however, the DPA has been used to distribute millions of federal dollars every year since its creation in 1950, when needed by America.

Under the DPA, the federal government can marshal the resources necessary to actively coordinate the distribution of COVID-19 vaccines, including by requisitioning logistics providers and supply chain experts to assist in the effort to create a more centralized procurement and distribution process.  Importantly, if there are air transport shortages that impede vaccine distribution, the DPA authorizes the President to activate the Civil Reserve Air Fleet.

Second, part of what makes COVID-19 vaccine distribution so challenging are the unknowns.  While the states are scrambling to put together sensible distribution plans that adequately cover the entire U.S. population – and while the H1N1 vaccine distribution provides some guidance – the federal government is best poised to handle the information-gathering component of vaccine distribution.  This will be particularly helpful for distribution areas that cross state lines, for which intra-state distribution models are inefficient and impractical.  The federal government is also best poised to track feedback data nationwide – which will enable it to adjust distribution plans and quantities as consumption patterns emerge.

Third, the Strategic National Stockpile, which received its first real test under President George W. Bush following September 11, 2001, has played a role in addressing previous crises, including the H1N1 pandemic in 2009.  The knock on the Strategic National Stockpile has been that its planning capabilities have always exceeded its response achievements – but that means that this is its chance to shine.  And the Strategic National Stockpile’s greatest strength may be in its ability to act as a supplemental resource, smoothing out uneven or suboptimal resource distributions between markets and states.  A disciplined Strategic National Stockpile response, coupled with rigorous vaccine distribution information gathering, would take significant resource strain off state and local governments and health care institutions.

Conclusion

 The change in administrations provides an opportunity to re-evaluate the role of the federal government in distributing COVID-19 vaccines.  We should make use of this opportunity to address this national crisis.

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