On March 7, 2024, the Office of the U.S. Trade Representative (USTR) published a Federal Register notice seeking public comments to help develop trade and investment policy initiatives aimed at making supply chains more resilient.

The USTR is interested in responses to one or more of the twelve questions outlined in the Federal Register notice.  These questions cover a broad range of topics, including ways to support domestic manufacturing, prevent offshoring, enhance coordination on labor and environmental standards, and develop sector-specific resilience strategies.  Comments are also sought on policy tools that could enhance resilience in sectors like aerospace, agriculture, automobiles, call centers, critical minerals, metals, pharmaceuticals, semiconductors, renewable energy, and textiles.  The process aims to gather diverse viewpoints to build a more resilient and inclusive trade environment that benefits all interested parties. 

To gather insights and proposals, the USTR has opened the window for written comments until April 22, 2024, with plans to host a public hearing on May 2, 2024 (requests to testify at the hearing are due by April 12, 2024). 

This is an opportunity for interested individuals and organizations to share their views and suggestions on enhancing supply chain resilience across various sectors.

The USTR’s press release on this process is available here.

On Saturday, May 27, 2023, the 14 partners of the Indo-Pacific Economic Framework for Prosperity (IPEF) announced the substantial conclusion of negotiations for the IPEF Supply Chain Agreement (see U.S. Department of Commerce’s press statement here). The IPEF partners – Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, the United States, and Vietnam – concluded the agreement at the IPEF Ministerial Meeting in Detroit, Michigan. The agreement aims to enhance the resilience, efficiency, productivity, sustainability, transparency, diversification, security, fairness, and inclusivity of supply chains among the participating countries. The partners will undertake further steps, including domestic consultations and legal reviews, to finalize the proposed agreement before it undergoes each partner’s signature, ratification, acceptance, or approval processes.

The proposed IPEF Supply Chain Agreement focuses on understanding significant supply chain risks, improving crisis coordination and response, benefiting workers and businesses, preparing for and resolving supply chain bottlenecks, promoting regulatory transparency, upholding labor rights, and ensuring the availability of skilled workers.

The agreement also contemplates the establishment of three new bodies: the IPEF Supply Chain Council, IPEF Supply Chain Crisis Response Network and IPEF Labor Rights Advisory Board. These bodies will facilitate cooperation, information sharing, and collaborative actions among the IPEF partners on supply chain issues.

The supply chain agreement is the first outcome of the IPEF initiative. Negotiations are continuing for the other three pillars of the IPEF: (1) encouraging free and fair trade; (2) accelerating the development and deployment of clean energy technologies; and (3) promoting fair competition and enforcing tax, anti-money laundering and anti-bribery regulatory regimes (see Updates of September 9, 2022 and May 24, 2022).

In February 2021 and pursuant to Executive Order 14017, “America’s Supply Chains,” President Joe Biden directed a review across all federal agencies to address vulnerabilities in the supply chains for critical goods. See Update of February 25, 2021. Subsequent federal agency reviews and a White House report found five key U.S. supply chain vulnerabilities, acknowledged the need to strengthen international trade rules, and recommended steps to strengthen supply chain resilience, including increased international coordination. See Update of June 11, 2021.  The Government Accountability Office (GAO) recently released a report, “Supply Chain Resilience – Agencies Are Taking Steps to Expand Diplomatic Engagement and Coordinate with International Partners,” highlighting additional federal government steps to expand diplomatic engagement and coordination with trade partners to strengthen supply chains.

The report notes, as of October 2022,  that “the agencies have initiated over a dozen dialogues, working groups, forums, and other channels to coordinate with allies and partners on supply chain resilience. The agencies have coordinated with allies and partners to develop supply chain principles and plans for action to strengthen supply chain resilience. These efforts aim to address challenges including disruptions from the pandemic and war in Ukraine.” Among the issues covered in the report, the Office of the U.S. Trade Representative (USTR) found that “current U.S. trade agreements generally were not designed to address supply chain disruptions or build resiliency,” but instead have “historically focused on trade liberalization and maximizing economic efficiency.” While trade agreements and trade preference programs “can serve as tools for addressing supply chain resiliency concerns,” the USTR is attempting to identify ways to use free trade agreements to strengthen collaboration and cooperation on supply chain challenges. However, the USTR noted that this may require renegotiating current agreements, negotiating new agreements, or modifying trade preference programs.

The report also notes that the Departments of Commerce and State, as well as the USTR, continue to address data collection challenges that will assist in diplomatic coordination on supply chain resilience. In their FY 2023 budget request, these agencies have requested authorization for additional personnel and increased funding for these efforts.

As of February 22, 2022, President Biden and the Departments of State, Commerce and the Treasury have implemented an array of sanctions and export controls severely restricting international trade and financing involving Russia, Ukraine and Belarus in response to the Russian invasion of Ukraine. These have been primarily imposed and implemented pursuant to executive orders, the Ukraine-/Russia Related Sanctions Regulations and the Russian Harmful Foreign Activity Sanctions Regulations. Below are summaries of the sanctions most relevant to the automotive and other mobility industries.

As a result of these restrictions, businesses in the auto and mobility sectors are carefully reviewing any transactions related to Russia. The restrictions, as well as political considerations, have led many OEMs to suspend or limit current operations in Russia.

Blocking and other restrictions imposed against major financial institutions in Russian and Belarus. Sanctions have targeted major financial institutions in Russia and Belarus. For example, most significant Russian banks have been placed on the Specially Designated Nationals and Blocked Persons (SDN) list, including Foreign Economic Affairs Vnesheconombank, VTB Bank Public Joint Stock Company and most recently, Public Joint Stock Company Sberbank of Russia. As of the date of their designation to the SDN list by the Treasury Department’s Office of Foreign Assets Control (OFAC), all property and interests in property of the SDNs, including all entities and property owned 50% or greater, directly or indirectly, individually or in the aggregate, by the SDNs are blocked and cannot be dealt in by any U.S. person unless generally or specifically authorized by OFAC.

Other financial institutions have been placed on non-SDN lists by OFAC, which impose other restrictions pursuant to Directives 1-4 under EO 14024 or Directives 1-3 under EO 13662. The Directives impose restrictions on new debt, new equity and corresponding payable through accounts at banks designated pursuant to the Directive. For more information on what is restricted and what is authorized pursuant to blocking and non-blocking sanctions against these financial institutions, see our March 9 update.

These sanctions have a significant impact on financing and payment arrangements with not only the designated banks but also, in many instances, their global subsidiaries. As a result, transactions involving the auto industry in Russia require careful scrutiny of not only parties to a transaction (suppliers, customers, OEMs, carriers) but also the financial institutions that will be facilitating payment.

New export controls on trade with Russia and Belarus involving all items on the CCL and “luxury goods.” The Departments of Commerce, State and Treasury have also imposed hefty export controls on Russia and Belarus. For example, as of April 8, 2022, all exports, reexports and in-country transfers of goods, technology and software to Russia or Belarus “subject to Export Administration Regulations (EAR)” and listed on the Commerce Control List (CCL) are prohibited absent a license from Commerce’s Bureau of Industry and Security (BIS). In addition, BIS expanded the “foreign direct product rule” to provide that many items manufactured outside the United States through the use of U.S. origin technology are now subject to the EAR and require a BIS license for export to Russia. In the auto industry, many companies are realizing that fairly standard items such as semiconductor chips and ECMs for car components may be subject to the new export controls. For additional information, see our April 11 update.

President Biden also issued EO 14068 on March 11, 2022, which, among other things, prohibits the “exportation, reexportation, sale or supply, directly or indirectly, from the United States or by a U.S. person, of luxury goods.” On that same date, BIS issued a final rule restricting the export, reexport or in-country transfer of “luxury goods” to Russia or Belarus as well as those “that are destined for Russian and Belarusian oligarchs and malign actors, regardless of their geographical location.” The list of luxury goods includes many automobiles and motorcycles. For additional information, see our March 14 update. The European Union has issued similar, and perhaps broader, restrictions. Together these measures are greatly restricting supply chains serving automotive manufacturing facilities in Russia.

Embargo against the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) of Ukraine. While the United States had previously imposed a comprehensive embargo against the Crimea region of Ukraine in 2014, it expanded the embargo to also cover Ukraine’s so-called DNR and LNR regions. Nearly all direct or indirect transactions, dealings or trade in or with the DNR, LNR or persons in these regions is prohibited. For more information on what is restricted and what is authorized in the region, see our March 9 update.

Pending sanctions on export of certain “services” to Russia and Belarus. On April 6, 2022, President Biden issued EO 14071, which, among other things, prohibits the “exportation, reexportation, sale or supply, directly or indirectly, from the United States or by a U.S. person” of certain services to any person in Russia. The types or categories of services that will be banned are yet to be determined by the Secretary of the Treasury Department.

These sanctions and export controls have wide-reaching implications across industries and have severely disrupted mobility and automotive supply chains in the region. In addition to financial institutions, many other state-owned entities in Russia and Belarus have been designated to the SDN list, impacting not only financing but also logistics, shipping and production. Businesses in the automotive and mobility industries should continue to monitor these changes and ensure that their investment, trade and financing activities in the region comply with U.S. sanctions and export controls.

On September 24, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a notice seeking public comment and input from domestic and foreign semiconductor design firms, semiconductor manufacturers, materials and equipment suppliers, and semiconductor intermediate and end-users regarding ongoing risks in the semiconductor supply chain. The goal of this public comment request is to facilitate the flow of information across the various segments of the supply chain, to identify data gaps and bottlenecks in the supply chain, and to determine potential inconsistent demand signals.  The notice acknowledges that  “ongoing shortages in the semiconductor product supply chain are having an adverse impact on a wide range of industry sectors.”

This effort was mandated by President Joseph Biden’s Executive Order (E.O.) 14017, which included a 100-day supply chain review of the semiconductor industry. For additional background on this issue and the E.O., see past Updates of February 25, 2021, March 11, 2021, March 29, 2021, and June 11, 2021. In its notice, BIS stated that it is specifically seeking information and data from (i) front- and back-end manufacturers and microelectronics assemblers, and their suppliers and distributors, on semiconductor product design; and (ii) intermediate users and end users of semiconductor products or integrated circuits. Key issues to be addressed include any order backlogs; identifying any current delays, disruptions or bottlenecks in the supply chain; any deferred, delayed or suspended production; and identifying semiconductor products in short supply.

Comments must be submitted no later than November 8, 2021 via the U.S. government’s eRulemaking portal at www.regulations.gov. Submissions must be identified by docket number BIS 2021-0036 or RIN 0694-XC084. BIS requires commenters to download and submit a fillable form from the BIS website at https://bis.doc.gov/semiconductorFRN2021. Submissions containing business confidential information must be clearly marked, include a statement justifying nondisclosure and provide a non-confidential version of the submission. Material submitted that is marked as containing “business confidential information,” and accepted as such by BIS, will be exempted from public disclosure.

Key Notes:

  • On July 13, the U.S. government released an updated version of the Xinjiang Supply Chain Business Advisory advising U.S. companies of the widespread, PRC-government sponsored forced labor and intrusive surveillance practices targeting ethnic and religious minorities in Xinjiang.
  • The Advisory urges U.S. companies with supply chains, ventures or investments connected to Xinjiang to undertake heightened due diligence efforts.
  • S. companies that do not exit supply chains or ventures connected to Xinjiang are at high risk of violating U.S. law.

On July 13, 2021, the U.S. government released an updated version of the Xinjiang Supply Chain Business Advisory (“Advisory”), originally released in July 2020. The Advisory warns U.S. companies that the People’s Republic of China (PRC) government continues to engage in “horrific abuses in the Xinjiang Uyghur Autonomous Region (Xinjiang) and elsewhere in China, targeting Uyghurs, ethnic Kazakhs, and ethnic Kyrgyzin,” including state-sponsored forced labor and other human rights abuses amidst ongoing genocide and crimes against humanity. Importantly, it highlights the high risk to businesses with supply chain or investment links to Xinjiang, which include risk of U.S. customs violations and seizure of goods and U.S. export control and sanctions violations. The U.S. Department of Labor and the Office of the U.S. Trade Representative have now joined as co-signatories to the Advisory, along with the U.S. Departments of State, Treasury, Commerce and Homeland Security. Companies should note that, although the Advisory highlights risks under U.S. law, the same activity may also violate non-U.S. laws targeting modern slavery or human rights abuses in various jurisdictions.

View this full client update in HTML or PDF format.

On June 8, 2021, the White House released its report analyzing the risks associated with supply chains for four key U.S. sectors – semiconductor manufacturing and advanced packaging; large capacity batteries; critical minerals and materials; and pharmaceuticals and advanced pharmaceutical ingredients.  The report, Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth, was prompted by Executive Order 14017, in which President Joseph Biden directed the U.S. government to undertake a comprehensive review of critical U.S. supply chains to identify risks, address vulnerabilities and develop a strategy to promote resilience.  See Update of February 25, 2021.

The report found five key “inter-related” themes and findings that have contributed to U.S. supply chain vulnerabilities:  (1) insufficient U.S. manufacturing capacity; (2) misaligned incentives and short-termism in private markets that focus on short-term capital returns and not on long-term investment and resilience; (3) industrial policies adopted by allied, partner and competitor nations that advance their own competitiveness; (4) geographical concentration in global sourcing; and, (5) limited international coordination on supply chain security.

As initial steps and realizing that a “whole-of-government effort” is required to strengthen domestic competitiveness and supply chain resilience, the Biden administration will immediately:

  • Support domestic production of critical medicines by having the Department of Health and Human Services work and build on public-private partnerships for the onshore (domestic) production of essential medicine products.
  • Secure an end-to-end domestic supply chain for advanced batteries with the Department of Energy releasing a “National Blueprint for Lithium Batteries” for a 10-year plan to develop a domestic supply chain and offering loans through the Advanced Technology Vehicles Manufacturing Loan Program.
  • Invest in sustainable domestic and international production and the processing of critical minerals by having the Department of Interior establish a working group to identify sites where critical minerals could be produced and processed in the United States, and as necessary, to identify gaps and or provide updates to mining statutes and regulations.
  • Partner with industry, allies, and partners to address semiconductor shortages identified by the Department of Commerce and to strengthen engagement with allies and partners to promote fair semiconductor chip allocations, increase production, and promote increased investment.

A summary of the report and its key findings is available here.  The report also acknowledges that strengthening international trade rules and trade enforcement mechanisms are issues to be addressed.  The Biden administration also announced that it will establish a new Supply Chain Disruptions Task Force to provide the “whole-of-government response” needed to address near-term supply chain challenges to the economic recovery.  This task force will focus on areas where “a mismatch between supply and demand has been evident: homebuilding and construction, semiconductors, transportation, and agriculture and food.”

The second phase of this supply chain review continues as to six critical industrial base sectors: the defense industrial base, public health and biological preparedness industrial base, information and communications technology industrial base, energy sector industrial base, transportation industrial base, and supply chains for production of agricultural commodities and food products.  This report is due to President Biden no later than February 24, 2022.

On June 9, 2021, President Joseph Biden issued an Executive Order (E.O.) to further address the threat posed to the U.S. information and communications technology and services (ICTS) supply chain declared in Executive Order 13873 (the “Telecom Supply Chain E.O.”; see Update of May 16, 2019).  The June 9, 2021 E.O. also revoked and replaced three E.O.s aimed to prohibit transactions with TikTok, WeChat and eight other communications and financial technology software applications (see Update of August 7, 2020).  According to a brief statement from the White House, the new E.O. “directs the use of a criteria-based decision framework and rigorous, evidence-based analysis to address the risks posed by ICTS transactions involving software applications that are designed, developed, manufactured, or supplied by persons that are owned or controlled by, or subject to the jurisdiction of a foreign adversary, including the People’s Republic of China, that may present an undue or unacceptable risk to the national security of the United States and the American people.”

The new E.O. seeks to continue to protect sensitive personal data and directs the Department of Commerce (Commerce) to evaluate foreign adversary-connected software applications and to take action as necessary.  The E.O. continues to apply the criteria established in E.O. 13873 but notes other potential indicators of risk:

ownership, control, or management by persons that support a foreign adversary’s military, intelligence, or proliferation activities; use of the connected software application to conduct surveillance that enables espionage, including through a foreign adversary’s access to sensitive or confidential government or business information, or sensitive personal data; ownership, control, or management of connected software applications by persons subject to coercion or cooption by a foreign adversary; ownership, control, or management of connected software applications by persons involved in malicious cyber activities; a lack of thorough and reliable third-party auditing of connected software applications; the scope and sensitivity of the data collected; the number and sensitivity of the users of the connected software application; and the extent to which identified risks have been or can be addressed by independently verifiable measures.

Commerce is also directed to consult with other federal government departments and agencies in preparing a report with recommendations “to protect against harm from the unrestricted sale of, transfer of, or access to United States persons’ sensitive data, including personally identifiable information, personal health information, and genetic information, and harm from access to large data repositories by persons owned or controlled by, or subject to the jurisdiction or direction of, a foreign adversary.” This report is due in 120 days (i.e., October 7, 2021).  Commerce has further been directed to make any additional recommendations for executive and legislative branch actions to address ICTS risks involving foreign adversaries no later than December 6, 2021.

 

On March 26, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) announced that it will hold a virtual forum on April 8, 2021 to allow the public to address policy objectives and concerns over President Joseph Biden’s Executive Order 14017, which seeks to address the need for resilient, diverse and secure supply chains for critical and essential goods. Under the executive order, the president directed numerous departments and agencies to submit reports within 100 days on certain findings and policy recommendations. See Update of February 28, 2021 for additional details. The comments received during the virtual forum are intended to assist the Department of Commerce in preparing the report.

Representatives from Commerce and other U.S. government agencies will serve on the virtual forum panel. The forum will run from 2:00 to 5:00 p.m. (EDT). Registration is required and will close on April 1, 2021. Requests to make a presentation must also be received by that date. More information on the virtual forum is available at: https://www.bis.doc.gov/semiconductorforum.