The Effects of the Military Conflict in Ukraine on Supply Contracts

Our colleague, Dr. Christopher Eggers,  prepared an insight on how the effects of the military conflict in Ukraine are serious, far-reaching and, ultimately, unforeseeable at the present time. Supply relationships will not remain unaffected, and there are numerous questions regarding the consequences under contract law. Read our full insight.

Supply Chain Investigations and Legal Privilege

Regulators worldwide are increasing their demands that manufacturers and retailers know and understand all aspects of their supply chains as they relate to Environmental, Social, and Governance (“ESG”) goals. Keeping the findings, communications, information, and reports generated in connection with supply chain ESG investigations is imperative to ensure full and candid fact-finding and to manage brand integrity effectively. However, maintaining legal confidentiality is challenging when an investigation includes fact-finding of third parties such as suppliers.  To learn more on how to keep internal investigations privileged, click here.

Raw Material Surcharges Again on the Cartel Radar – German Authority Raids Cable Companies

In one of the first dawn raids of the New Year, the German competition authority have raided the premises of several cable manufacturers. The investigation arose in response to alleged coordination of metal surcharge calculations.

Metal and other raw material surcharges are used in many industries, in addition to the negotiated price, to allow for short-term changes in the metal/raw material procurement costs. They are particularly prevalent where the surcharge accounts for a high proportion of the final products’ total manufacturing costs.  Often, the mathematical formula used to calculate the surcharge is linked to prices quoted on exchanges, and therefore increases or decreases the price automatically.

Despite companies’ increased awareness of the limitations of antitrust and competition laws, surcharge reviews may fall through the gaps of compliance programs.  This may be due to, firstly, there being cut-throat competition in the industry on the base price, with the surcharge perhaps being in place for a decade or more, and secondly, because surcharges are in themselves a permissible instrument for passing on changes in raw material prices quasi automatically into the overall selling price of products, without the need for new negotiations.

However, suppliers are prohibited to form arrangements where they agree to introduce or maintain such a surcharge as a standard throughout the industry, thereby eliminating competition by way of other pricing models.  In past cases, authorities have found that even where the formulas for the calculation differed – the fact the concept had been agreed (potentially decades ago) was anticompetitive.  There have been a number of cases in the past, notably on quarto plates and steel, with the most well-known being Airfreight.  Here, airlines were found to have allegedly agreed fuel and security surcharges.  The case is still pending before the European Courts.

The recent raids on cable manufacturers are a reminder that companies using similar price mechanisms are well advised to review the origins of any surcharge formula to ensure there is nothing historically that could be construed as an agreement or concerted practice to implement a surcharge or continue to apply it.

Establishing Rules of the Road – DHS Soliciting Comments to Support UFLPA Implementation

On January 24, 2022, the Department of Homeland Security (DHS) began soliciting comments on a strategy to ensure goods alleged to have been made with forced labor are not imported into the United States from China, including the Xinjiang region.  The comment window reflects the first major requirement of a law passed by Congress addressing forced labor risks in these supply chains, known as the Uyghur Forced Labor Prevention Act (UFLPA, Pub. L. 117-78).  Over the coming months, administration officials will craft a strategy to implement UFLPA’s new rebuttable presumption that all goods originating from Xinjiang violate the import ban. Importers must be prepared to face this increased scrutiny of these supply chains.

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Fashion Sustainability and Social Accountability Act Proposed in New York

Happy New Year (are we still saying that?) from the Global Supply Chain Law Bog!  In our ever-evolving society, the fashion industry has taken new heights.  And with those heights, the industry is on pace to account for more than a quarter of the world’s carbon budget, according to the New Standard Institute.   Indeed, the group indicates that apparel and footwear are responsible for roughly 4-8.6% of global greenhouse gas emissions.  You may be wondering, “but how?”  Well after that sweater you bought last year (or even last month!) goes out of style, you may donate it.   According to CBS, some of those donations go overseas to Ghana, for example, to be sold.  The unsold clothes, however, end up as landfills creating an environmental nightmare.

As a result and in an effort to create more regulation, New York is taking action with respect to the environmental nightmare. Earlier this year, the New York legislator proposed a bill—the Fashion sustainability and social accountability act, which would amend the general business law, requiring fashion retail sellers and manufacturers to disclose environmental and social due diligence and policies.

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U.S. House and Senate Reach Agreement on Uyghur Forced Labor Prevention Act

On December 14, 2021, lawmakers in the House and Senate announced that they had reached an agreement on compromise language for a bill known as the Uyghur Forced Labor Prevention Act or “UFLPA.”  Different versions of this measure passed the House and the Senate earlier this year, but lawmakers and Congressional staff have been working to reconcile the parallel proposals. The compromise language paves the way for Congress to pass the bill and send it to President Biden’s desk as soon as this week.

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Upcoming CLE Hosted by Thompson Reuters:  Why Is Everything Broken? Understanding Pandemic Supply Chains

Partner Sarah Rathke is pleased to present an upcoming year-end CLE in connection with Thompson Reuters entitled, “Why Is Everything Broken? Understanding Pandemic Supply Chains” on December 20, 2021 at 2:00 pm ET.  This CLE will discuss areas causing stress to supply chains including changes in consumption patterns, the labor market, global diplomatic relationships, and logistics networks around the world.  In addition, this CLE will discuss emerging supply chain trends.

Click here to register.

Cross-Post from Lexis PSL: New Environment Act demands more diligence in supply chains

This is a Cross-Post from Lexis PSL.  Please contact Anita Lloyd and Simon Garbett  with any questions.

The Environment Act 2021 (EA 2021), first introduced to Parliament in 2019, received royal assent and became law on November 9, 2021.  EA 2021 places obligations on UK businesses to prevent deforestation.  As published on Lexis PSL on November 30, 2021, our colleagues Anita Lloyd and Simon Garbett examine these new obligations and explain how attorneys play a role in assisting UK businesses in meeting the new responsibilities now in place. Read the full analysis here.


Cross-Post from cleveland.com: Why are supply chains broken? Blame the ‘black swan’ tsunami: Sarah Rathke

This is a Cross-Post from The Plain Dealer and cleveland.com.  Please contact Sarah Rathke with any questions.

In this article written by partner Sarah Rathke, she explains dramatic strain COVID-19 has put on our logistics networks worldwide and the “‘black swan’ tsunai” effecting today’s global supply-chain.

From Supply Chain Management Review: Talking Supply Chain Podcast: The Legal Blacksmith

This is from Supply Chain Management Review‘s  Talking Supply Chain Podcast.  Please contact Sarah Rathke with any questions.

Partner Sarah Rathke, who co-authored The Legal Blacksmith with Rosemary Coates, discusses the legal implications of today’s supply chain crisis including the disputes supply chain partners face due to disruptions and labor and materials shortages with Bob Trebilcock of Editorial Director of Supply Chain Management Review.

You can listen to the podcast here and can subscribe to the Talking Supply Chain Podcast wherever you get your podcasts.

 

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