Improving The International Supply Chain Through IPEF

By Ayah Ighneim, Janine Little and Sarah Rathke on Posted in supply chain

How IPEF Builds On Prior Trade Relationships Negotiated By The Biden Administration:

In May 2023, the Biden Administration announced the Indo-Pacific Economic Framework for Prosperity (IPEF), a commitment to improving supply chains between the U.S., and the Indo-Pacific nations of Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam.

The stated goal of the IPEF is “to coordinate actions to mitigate and prevent future supply chain disruptions and secure critical sectors and key products for our manufacturers.”

The IPEF also responds to increasing tensions between the U.S. and China that have impacted the U.S. economy. Following the COVID-19 case surge in China at the end of 2022, a shortage of workers for critical supply-chain sectors in China hindered U.S. production. Additionally, since 2022, the U.S. government has placed sanctions on many large Chinese manufacturers that the U.S. suspects participated in “human rights abuse, intellectual property theft, and threatened national security.”

Therefore, IPEF will prevent future supply-chain issues from hindering future manufacturing while also strengthening ties between the U.S. and the Indo-Pacific parties, as a counterbalance to China.

In addition, the launch of the IPEF also comes five years after the United States’ withdrawal from the Trans-Pacific Partnership (TPP). Without IPEF, the region, led by China, lacks clear rules for supply chain functionality between countries. In contrast, the IPEF sets forth “rules-based approach” for critical supply-chain manufacturers in the region.

The Biden Administration also stated that it will continue to put workers and U.S. businesses first through IPEF by “establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts.”

Finally, the United States sent an interagency delegation team to the Third Indo-Pacific Economic Framework (IPEF) Negotiating Round in Singapore from May 8 through May 15, 2023 to negotiate a new trade agreement. Following the negotiation, the parties formulated an agreement to prioritize supply-chain related issues among all members, which includes provisions for increased communication, transparency, and prioritizing workers.

Provisions

The Biden Administration set out four primary “pillars” for economic engagement focusing on trade, supply chain, clean economic practices, and fair economic practices.  In what the White House refers to as the “Resilient Economy” provision, the trade agreement sets out “first-of-their-kind” supply chain commitments, as follows:

  1. Establish Criteria For Critical Sectors And Goods:

Members agree to identify key economic sectors and identify supply chain issues that could materially impact these critical sectors, which include national security, health and safety, and any other sector that could create widespread disruption if interrupted.  As part of this commitment, IPEF members have agreed to identify the “raw material inputs, manufacturing, or processing capabilities, logistics facilitation, and storage needs” of any affected supplies.

  1. Increase Resiliency And Investment In Critical Sectors And Goods

Members agree to address manufacturing industries where there is only one source of supply and expand production of the goods in these industries by:

  • identifying areas within critical supply chains in which a sole source comes from one geographical region and developing options in their supply chains through other regions;
  • strengthening industries by investing in critical sectors; and
  • supporting the advancement of new manufacturing techniques for current and potential manufacturers.
  1. Establish An Information-Sharing And Crisis Response Mechanism

Members agree to create a government-to-government information sharing system. Members also seek to identify mitigation measures, best practices, and improvements to policies or processes to prevent potential supply chain crises.

  1. Strengthen Supply Chain Logistics

Members agree to improve supply chain logistics transportation via air, waterway, maritime, shipping, and port infrastructure by:

  • collecting and utilizing relevant data on supply chain logistics while ensuring business confidentiality;
  • investing in infrastructure; and
  • maintaining border and transport links where supplies are imported and exported.
  1. Enhance The Role Of Workers

Members agree to prioritize the role of workers in manufacturing industries by:

  1. Improve Supply Chain Transparency

Members agree to improve visibility between members into potential supply chain risks by:

What IPEF Means For U.S. Businesses And Workers:

Though the agreement is international in scope, it entails effects for U.S. businesses. U.S. businesses will be able to anticipate supply chain shortages based on IPEF’s information sharing system, enabling them to mitigate negative effects such as price spikes and disruptions in production.

Additionally, U.S. companies that have been identified as producing critical supply chain goods may increase employment to maintain supply chains in the long-term.

Ultimately, IPEF will help American manufacturing be more secure in their supply chain expectations and employ more American workers while also enhancing the diplomatic relationships between the U.S. and other members of IPEF.

What Needs To Happen For IPEF To Go Into Force:

A successful conclusion to the IPEF trade agreement will require member states to opt into the provisions in which they wish to participate. Because the IPEF is broad in scope and implicates potential geopolitical relationships with China, IPEF members may make their opt-in decisions accordingly. As stated by U.S. Commerce Secretary Gina Raimondo, “We intend for the framework to be flexible and inclusive so that many different countries can participate.”

Practically speaking, the success of the IPEF trade agreement is vested Indo-Pacific in the members with the largest economies, including “major Southeast Asian economies such as Indonesia, Thailand, and Vietnam.” The success of IPEF will ultimately come down to who is willing to participate and how invested those members are.

Supply Chain Webinar: “Drafting Standard Forms for the Purchase of Goods From Suppliers: RFQs, Quotes, Purchase Orders, Long-Term Agreements”

By Squire Patton Boggs on Posted in supply chain

 

SPB’s Alexis Chandler will be participating in a CLE webinar on June 6, 2023 at 1pm EDT to discuss Drafting Standard Forms for the Purchase of Goods From Suppliers.  The webinar will discuss requests for quotations, seller’s quotes, purchase orders, and long-term agreements, and how parties can minimize disputes between buyers and suppliers with carefully drafted terms and conditions of purchase.

As a bonus, you can receive CLE credit for attending.  If you would like to attend, please register here.

UFLPA Enforcement Remains Work in Progress

By Alexis Chandler, Bradford Ellison, Michael Hawthorne, Ludmilla Kasulke and Sarah Rathke on Posted in supply chain

U.S. Customs and Border Protection’s (“CBP”) implementation of the Uyghur Forced Labor Prevention Act (“UFLPA”) remains a work in progress, as importers work to mitigate shipment detentions and respond to UFLPA reviews and enforcement actions. Emerging best practices may guide stakeholders as they navigate these uncertainties.

Develop a Due Diligence System

Due diligence systems allow companies to proactively evaluate forced labor risks within their supply chains through comprehensive information gathering and robust risk assessments, which can mitigate the legal and reputational consequences of forced labor.

To establish a due diligence system, a company should:

  • Continuously collect information on Tier 1 – Tier 3 suppliers, to maintain comprehensive supply chain traceability;
  • Incorporate robust geographic and product-relevant risk assessments;
  • Develop policies that are responsive to the company’s unique risk profile and aligned with international standards; and,
  • Proactively monitor for future risks.

Be Proactive

An effective due diligence system is essential to facilitating imports. An effective due diligence system will:

  • Safeguard against an importer’s suppliers engaging in forced labor;
  • Consist of updated policies and supplier standards to express a zero tolerance for forced labor;
  • Facilitate regular engagement with suppliers to offer training and encourage information sharing that maximizes reliability.

A due diligence system is critical because UFLPA and the original forced labor import ban, under Section 307 of the Tariff Act of 1930, as amended, affirm the United States’ zero tolerance for the import of goods believed to have been made with forced labor.  Both laws prohibit the importation of goods “manufactured wholly or in part” with forced labor. Thus, there is no de minimis standard allowing for entry of goods that have only a small quantity of potentially violative inputs. One bad apple spoils the bunch, costing importers nearly $20 million in denied shipments in 2023 YTD.

In recent months — including at CBP’s 2023 Trade Facilitation and Cargo Summit — CBP and other agency members of the Forced Labor Enforcement Task Force (“FLETF”) have consistently emphasized that importers should “know [their] supply chain,” underscoring the heightened expectation that importers adopt effective due diligence standards. For the importer, this may mean adopting new policies, supplier agreements and trainings that align with emerging best practices. Dedicating supply chain staff, authorized to implement and enforce such updated policies, can signal to CBP an importers’ seriousness regarding forced labor compliance.

Be Organized

As part of an effective due diligence system, importers should have access to information that indicates a product’s evolution from raw materials to a finished good. Indeed, UFLPA’s rebuttable presumption shifts the burden of proof to importers to provide CBP clear and convincing evidence that shipments were not produced using forced labor or that UFLPA does not apply to the shipment. While CBP takes an average of two weeks to review evidence, reviews are frequently delayed because CBP deems evidence incomplete or poorly formatted. While only 500 shipments have been denied under UFLPA to date, over 1,700 shipments are under review. These shipments represent over $540 million in shipment value and innumerable reputational costs from delayed customer deliveries.

Potential legislative or administrative changes to UFLPA enforcement may further increase seizures or lengthen reviews. In April, U.S. lawmakers on the bipartisan Congressional-Executive Commission on China expressed concern over potential UFLPA enforcement gaps, such as deceptive shipping practices and direct-to-consumer shipments. At the commission’s first hearing on UFLPA’s implementation, House Commission Chair Rep. Chris Smith (R-New Jersey) expressed the sense of Congress:

that UFLPA will prick the consciences of corporate actors and encourage them to scour their supply chains to make sure they are free from the taint of forced labor. For those that are incorrigible and seek to skirt the law, we will seek enforcement action and bring public scrutiny to bear.

Senate Chair Jeff Merkley (D-Oregon) reiterated the same: “Compliance with this law requires a paradigm shift . . . . Companies that resist compliance or look to exploit loopholes need to be held accountable.”

It is essential for importers to take UFLPA seriously by developing a due diligence system and effectively maintaining traceability information to facilitate CBP’s review and protect against future enhanced scrutiny. With readily available and reliable supplier data and clear submission formatting, CBP will be able to easily review all import information, facilitating an importer’s success importing goods.

 

 

Postal Code For Chinese Manufacturers To Be Required By U.S. CBP Beginning This Weekend

By Alexis Chandler, Ludmilla Kasulke, Janine Little and Sarah Rathke on Posted in supply chain

As part of a continued effort to enforce the Uyghur Forced Labor Prevention Act (UFLPA) and to provide early warning to importers and their representatives that goods may have been produced in the Xinjian Uyghur Autonomous Region (XUAR), U.S. Customs and Border Protection (CBP) will require businesses to provide a valid postal code for Chinese manufacturers from which they are importing goods when reporting via the Automated Commercial Environment (ACE) system beginning on March 8, 2023.   The following Q&A will help your business understand the steps it needs to take to comply with the requirement:

Q.   When does this requirement go into effect?

A.     CBP first announced this requirement in its Notional Development & Deployment Schedule for Automated Commercial        Environment with a target deployment date of November 2022.  (CBP Publication No. 2027-1022).  However, on November 1, 2022, CBP announced that deployment was postponed until further notice to address concerns raised by impacted users.  (CBP Bulletin No. 53838846).  On January 26, 2023, CBP announced that the requirement would go into effect on March 18, 2023.

Q.     What is the purpose of the requirement?

A.      As stated by CBP in its January 26, 2023 Uyghur Forced Labor Prevention Act Region Alert, the postal code requirement “will provide an early notification to importers and their representative of goods that may have been produced in the [XUAR] and may be excluded from importation into the United States.”

Q.     What applications in ACE are subject to the postal code requirement?

A.     A postal code is not required for all applications in ACE. Rather, ACE will require postal codes of manufacturers in (1) “Cargo Release” applications if the country of origin is reported as China, and (2) “Manufacturer Identification Code” applications if creating or updating a Manufacturer Identification Code with a city located in China.

Q.     What happens if the provided postal code is invalid?

A.     A user that provides a postal code that is not a valid Chinese postal code will receive an error message.

Q.     What happens if the provided postal code is from the XUAR?

A.     A user that provides a postal code that is from the XUAR will receive a warning message. This will alert the importer that the rebuttable presumption of forced labor established under the UFLPA likely applies to the goods, and that shipments from that manufacturer could be detained.  (For more information regarding the rebuttal presumption under the UFLPA, see our blog post here.)  CBP states that “importers may request an exception to the rebuttable presumption from CBP during a detention, after an exclusion, or during the seizure process” as described on page 9 of the UFLPA Operational Guidance for Importers, which is available here.

Q.     What should your business do to prepare?

A.     CBP will not be providing a list of valid Chinese postal codes or a list of postal codes in the XUAR because “importers have an obligation to conduct due diligence on their supply chain.”  (UFLPA Region Alert and Postal Code Requirements, Frequently Asked Questions, CBP Publication No. 3064-0323).  It is therefore incumbent upon businesses to understand their entire supply chains–including the names and addresses of each of their manufacturers.  Our team is here to assist you with that due diligence.

Aluminum Is Now A Hot Topic In Supply Chain And Trade

By Alexis Chandler, Ludmilla Kasulke, Janine Little and Sarah Rathke on Posted in supply chain

Last Friday, February 24, 2023, the Biden Administration issued a Proclamation on Adjusting Imports of Aluminum into the United States.  You can read the full proclamation here.

The Proclamation states that, beginning on March 10, 2023, a 200% ad valorem tariff will be imposed on all aluminum articles and derivative aluminum articles produced in Russia.  Additionally, on April 10, 2023, a 200% ad valorem tariff will be imposed on aluminum articles where any amount of primary aluminum or derivative aluminum articles used in the manufacture of the articles was smelted or cast in Russia.

The purpose of the Biden Administration’s Russian aluminum tariff is, according to the President, to respond punitively to Russia’s “unjustified, unprovoked, unyielding, and unconscionable war against Ukraine.”  Indeed, the Russian aluminum industry is a key part of Russia’s defense and has played a major role in supplying Russia with weapons and ammunition.  In addition, Russia’s conflict in Ukraine has caused global energy prices to rise, causing direct harm to the United States’ aluminum industry.

According to the Proclamation, Russia has been among the major sources of aluminum used in the United States.  While US aluminum imports from Russia have declined since 2018, Russia remains the fifth largest source of imported aluminum in the United States, and imports of aluminum from Russia increased in both 2021 and 2022.  Notably, Russia’s aluminum industry is extremely export oriented.  In fact, Russia was the largest exporter of unwrought aluminum in 2021, while Russian’s own consumption accounted for just 22% of its production in 2021 and 2022.

The Biden Administration is not only scrutinizing Russian aluminum imports; aluminum has also received increased scrutiny from U.S. Customs and Border Protection (CBP) under the Uyghur Forced Labor Prevention Act (the “UFLPA”).

As we have blogged about here, here, here, here, here, and here, President Biden signed the UFLPA into law in December 2021, which went into effect June 21, 2022.  The UFLPA creates a rebuttable presumption that “any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region [XUAR] of the People’s Republic of China” (or by an entity included on a list required by the Act) is prohibited from importation into the US under 19 U.S.C. §1307.  Indeed, CBP has not been sitting idle in its enforcement of the UFLPA, but rather has been actively assessing and analyzing the import of goods into the United States to ensure the goods meet the evidentiary standard to rebut the presumption.

At the outset, CBP specifically identified cotton, polysilicon, and tomatoes as high-risk commodities.  Imported aluminum, however, is now receiving greater attention by CBP.

According to A.P. Moller – Maersk (“Maersk”), a global supply chain logistics solution company, CBP has begun issuing detention notices for aluminum products pursuant to the UFLPA. Maersk reported that the CBP will most likely “focus on aluminum automotive commodities and other commodities classified in Chapter 76 (Aluminum and articles thereof)” in its forced labor assessment function.

Of course, during the review process, an importer can demonstrate that imported goods are not sourced wholly or in part from the XUAR or an entity on the UFLPA Entity List.  To do this, importers need to provide documentation produced in the ordinary course of business (and translated into English if necessary), including, but not limited to:

  • Transaction and Supply Chain Records:
    • full records of transactions and supply chain documentation that demonstrate the country of origin and its components (e.g., packing list, bill of lading, manifest)
  • Documents Demonstrating the Parties Participating in the Transaction:
    • all parties involved in the manufacture, manipulation, or export of a particular good (e.g., summarize the roles of parties involved as substantiated by other supporting documents, flow chart of supply chain)
  • Documentation Relating to the Payment and Transportation of Raw Materials:
    • the origin of the raw materials, and documentation showing that these business transactions (e.g., invoices, contracts, purchase orders) have occurred financially (e.g., proof of payments) and physically (e.g., documents to support goods were transferred from one entity to another.)

To prevent any goods from being detained, companies importing aluminum products or commodities with aluminum components should take proactive measures to ensure compliance with the UFLPA.  A few resources to aid compliance can be found here and here.

 

 

The German Supply Chain Act On Corporate Diligence Obligations in Supply Chains Is In Effect

By Squire Patton Boggs on Posted in supply chain

Previously, we have posted on the German Supply Chain Act on Corporate Diligence Obligations in Supply Chains.  That legislation is now in effect, as of January 1, 2023, and requires companies that have their central administration, their principal place of business, or any branch with over 3,000 employees in Germany to implement specific risk management practices to detect and combat child labor, forced labor, poor environmental practices, and other problematic issues.  Our German supply chain team has published an update on what is required.  Please access it here.

The Automotive Recall Landscape in the US: Advancing Innovation Safely in a Time of Regulatory Uncertainty

By Squire Patton Boggs on Posted in Automotive, Legal Analysis, supply chain

Colleagues Patricia Doersch, Jennifer Satterfield, and Jennifer Tharp have prepared a legal insight outlining the regulatory challenges litigators face as the technology of the autonomous vehicle (AV) industry quickly evolves.  The legislative uncertainty in the US leaves the safety standards of these self-driving/self-parking vehicles up to the US Department of Transportation (DOT) and National Highway Traffic Safety Administration (NHTSA).  To learn more on how DOT and NHTSA are approaching the regulatory and recall challenges surrounding self-driving vehicles and how soon you might start seeing autonomous vehicles on the road read the full insight here.

Cross-Post from Law360: How A Michigan Case Could Upend Auto Part Contracts

By Sarah Rathke and Alexis Chandler on Posted in Automotive, supply chain

This is a cross post from Law360.  Please contact Sarah Rathke or Alexis Chandler with any questions.

In the US, the UCC Statute of Frauds’ (2-201) requirement that a contract must contain a written quantity term to be a binding contract, has been the law of the land in all 49 states that have adopted the UCC.  This is now being questioned by a pending Michigan Supreme Court case, which is considering whether a “blanket purchase order” that sets forth no firm quantity can nevertheless constitute a binding agreement – a testament, no doubt, to the power of the automotive industry in Michigan.  Read more analysis in this article recently published in Law360 by Alexis Chandler and Sarah Rathke here.

Cross-Post from The Trade Practitioner: Proposed Rule Would Require Government Contractors to Disclose Climate-Related Risks

By Squire Patton Boggs on Posted in government contracts, supply chain, US

This is a Cross-Post from The Trade Practitioner.  Please contact Karen Harbaugh or Sarah Vilms with any questions.

The Biden Administration recently released the Federal Supplier Climate Risks and Resilience Proposed Rule requiring contractors of the federal government to disclose climate-related risks.  Read more on the proposed requirements here.

Common Signs of Business Stress and Distress

By Squire Patton Boggs on Posted in Legal Analysis, supply chain

Our UK colleagues, John Alderton (Leeds), Russ Hill (Birmingham), Monika Lorenzo-Perez (London), Charlotte Møller (London), and Devinder Singh (Birmingham)  have prepared a legal insight outlining how the failure to recognize signs of business stress can cause a company to face a period of distress.  To help identify some of the common signs of business stress and distress read the full insight below:

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