Articles Posted in Supply Chain

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The EU’s new Joint Communication on a European Economic Security Strategy proposes a methodology for an EU economic security risk assessment and identifies measures to mitigate these risks. The Strategy is noteworthy because it offers a comprehensive view of the EU’s overarching strategy for multiple existing or proposed new EU legislative and policy tools including export controls, FDI screening and domestic investment in critical technology through the EU’s own proposed Chips Act, and how these tools would work together to reduce EU economic security risks. It also signals the EU’s intention to align more closely with the U.S. regarding China, including with respect to reducing supply chain dependencies and new tools like outbound investment controls.

(This is the second post of a three-part series on U.S., UK and EU alignment on economic security strategy.)

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The European Union has adopted the new EU Deforestation Regulation, whereby applicable companies must implement a rigorous due diligence process to ensure that certain products and commodities sold in or out of the EU are not the result of, or have led to, deforestation or forest degradation. The commodities subject to the Regulation are cattle, cocoa, coffee, palm-oil, soya and wood, as well as any products that contain, have been fed with or made using these commodities (e.g., leather, chocolate and beef). Once it enters into force, large companies will have 18 months to comply, while small and medium-sized companies will have 24 months. Failure to do so may result in a fine of at least 4% of total annual EU-wide turnover or the seizing revenue made from the sale of the commodities or products.

Companies should review whether (and how) they are caught by the new law and review existing processes, governance frameworks and supply chain risks to ensure that new obligations (e.g., with respect to due diligence) are adhered to.

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In response to Russia/Ukraine conflict, and Belarus’ ensuing support for Russia, the United States and global allies have imposed sweeping sanctions and export control restrictions on both Russia and Belarus. These actions are discussed extensively in our prior publications.

The sanctions and export controls restrictions especially target Russia and have had a significant impact on the Russian economy. Virtually every industry is impacted, and Russia’s financial institutions, businesses and prominent individuals are being targeted by ever-widening sanctions and export control restrictions imposed by the United States and global allies. As the situation evolves, further restrictions remain possible.

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Key Takeaways:

  • The Uyghur Forced Labor Prevention Act (UFLPA) went into effect on June 21, 2022, and requires the U.S. Customs and Border Protection (CBP) to presume that all goods manufactured wholly or in part in the XUAR, or by the entities identified by the U.S. government on June 17, 2022, are made with forced labor and banned from import to the United States, unless the importer demonstrates otherwise (a “rebuttable presumption”).
  • Guidance and Reports published in the week leading up to June 21 identify key information for companies seeking to comply with the law, maintain U.S. imports, and understand the supply chain information that may be required by U.S. Customs and Border Protection (CBP).
  • Where the presumption of forced labor applies, rebutting it will require an importer to overcome a high bar by providing “clear and convincing” evidence; however, this same high standard will not necessarily apply to demonstrating that imports have no connection with the XUAR.

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On January 24, 2022, the U.S. Department of Homeland Security (DHS) on behalf of the Forced Labor Enforcement Task Force (FLETF) issued a Notice Seeking Public Comments on Methods to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China, especially in the Xinjiang Uyghur Autonomous Region, into the United States (RFC). The notice is available here. Comments are due by March 10, 2022.

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On January 13, 2021, U.S. Customs and Border Protection (CBP) issued a withhold-release order (WRO) on all cotton and tomato products from China’s Xinjiang Uyghur Autonomous Region (XUAR) based on information that reasonably indicated that such products used forced labor. This action comes after CBP’s December 2020 WRO on cotton and cotton products produced by Xinjiang Production and Construction Corporation (XPCC). Continue reading →

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On January 19, 2021, the Commerce Department issued an interim final rule to implement the Executive Order on Securing the Information and Communications Technology and Services Supply Chain (E.O. 13873), which was issued on May 15, 2019. The interim rule comes after the November 2019 proposed rule implementing E.O. 13873.

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On December 2, 2020, U.S. Customs and Border Protection (CBP) issued an import detention or Withhold Release Order (WRO) against cotton produced by Xinjiang Production and Construction Corps (XPCC) based on information that reasonably indicated XPCC used forced labor within its cotton supply chains. This action comes after CBP issued five WROs in September 2020 on products found to be reliant on state-sponsored forced labor in Xinjiang. The U.S. government has expressed ongoing concern about human rights abuses of the Uyghur minority in this part of China.

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On July 1, 2020, the United-States-Mexico-Canada Agreement (USMCA) entered into force, replacing the 26-year-old North American Free Trade Agreement (NAFTA). The U.S. government has taken several steps toward implementation via executive order and proposed regulations, but the legal framework remains a work in progress.

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The U.S. government has issued several rules aimed at excluding, and in some cases removing, Chinese-origin equipment from U.S. telecommunications networks. Most of these rules apply to U.S. government networks, but some extend to private sector telecom infrastructure and services with no nexus to the U.S. government.

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