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.

The Department of Commerce’s Bureau of Industry and Security (BIS) has issued a notice seeking public comment on the risks in the semiconductor manufacturing and advanced packaging supply chains. This request is a direct result of President Joseph Biden’s recent Executive Order 14017 and the need for resilient, diverse, and secure supply chains for critical and essential goods. Under the Executive Order, the president has 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. Accordingly, the Secretary of Commerce must submit such a report identifying the risks in the semiconductor manufacturing and advanced packaging supply chains and propose policy recommendations to address these risks.

BIS is seeking comments and information from the public to assist in preparing the report. In particular, comments on the following elements are encouraged:

  1. Critical and essential goods and materials underlying the semiconductor manufacturing and advanced packaging supply chain;
  2. Manufacturing and other capabilities necessary to produce semiconductors, including electronic design automation software and advanced integrated circuit packaging techniques and capabilities;
  3. The availability of the key skill sets and personnel necessary to sustain a competitive U.S. semiconductor ecosystem;
  4. Risks or contingencies that may disrupt the semiconductor supply chain (including defense, intelligence, cyber, homeland security, health, climate, environmental, natural, market, economic, geopolitical, human-rights or forced labor risks);
  5. The resilience and capacity of the semiconductor supply chain to support national and economic security and emergency preparedness;
  6. Potential impact of the failure to sustain or develop elements of the semiconductor supply chain in the United States on other key downstream capabilities, as well as the potential impact of purchases of semi-conductor finished products by downstream customers;
  7. Policy recommendations or suggested executive, legislative, regulatory changes, or actions to ensure a resilient supply chain for semiconductors (e.g., reshoring, nearshoring, or developing domestic suppliers, cooperation with allies to identify or develop alternative supply chains, building redundancy into supply chains, ways to address risks due to vulnerabilities in digital products or climate change);
  8. Any additional comments relevant to the assessment of the semiconductor manufacturing and advanced packing supply chains required by the Executive Order.

For full details on each element, please refer directly to the notice.

Comments will be accepted until April 5, 2021. All written comments must be submitted on BIS Docket No. BIS-2021-0011, addressed to “Semiconductor Manufacturing Supply Chain” and filed through the Federal eRulemaking Portal at http://www.regulations.gov. The notice provides further details on filing any comments and the handling of any business confidential information. Thompson Hine attorneys and professionals have extensive experience in filing regulatory comments.

On February 24, 2021, President Joseph Biden signed an executive order seeking “to create more resilient and secure supply chains for critical and essential goods.” Noting shortages over the past year of medicine, food and computer chips, the president stated that, “While we cannot predict what crisis will hit us, we should have the capacity to respond quickly in the face of challenges. The United States must ensure that production shortages, trade disruptions, natural disasters and potential actions by foreign competitors and adversaries never leave the United States vulnerable again.” The executive order directs federal government departments and agencies to initiate a review of U.S. supply chains and identify ways to secure U.S. supply chains against a range of risks and vulnerabilities.

The executive order directs an immediate 100-day review across all federal agencies to address vulnerabilities in the supply chains of four key products:

  • Active pharmaceutical ingredients (APIs), which are the part of a pharmaceutical product containing the active drug.
  • Critical minerals, which are part of defense, high-tech, and other products used for national defense and emergencies.
  • Semiconductors and advanced packaging, which are necessary for innovation and technological advances.
  • Large capacity batteries, which are necessary for new energy technologies like electric vehicle batteries.

The 100-day review “will identify near term steps the administration can take, including with Congress, to address vulnerabilities in the supply chains for these critical goods.”

The executive order also directs a one-year review of a broader set of U.S. supply chains, including: (1) the defense industrial base; (2) the public health and biological preparedness industrial base; (3) the information and communications technology (ICT) industrial base; (4) the energy sector industrial base; (5) the transportation industrial base; and (6) supply chains for agricultural commodities and food production. Under this more in-depth review, federal departments and agencies are instructed to review a variety of risks to supply chains and industrial bases, including identifying critical goods and materials within supply chains, the manufacturing or other capabilities needed to produce those materials, and any vulnerabilities created by failure to develop domestic capabilities. This assessment will also include identifying locations of key manufacturing and production assets, the availability of substitutes or alternative sources for critical goods, the state of workforce skills and gaps for all sectors, and the role of transportation systems in supporting supply chains and industrial bases. At the conclusion of the review, each department and agency must make specific policy recommendations to address risks.

The Assistant to the President for National Security Affairs (APNSA) and the Assistant to the President for Economic Policy (APEP) have been tasked with coordinating these reviews and any actions necessary to implement this executive order. At the conclusion of the one-year review, the APNSA and the APEP must provide President Biden reports reviewing the actions and making recommendations. They will also establish and oversee a quadrennial supply chain review, including processes and timelines regarding ongoing data gathering and supply chain monitoring.

On December 22, 2020, the U.S. International Trade Commission (USITC) released a report providing information on the U.S. industries producing COVID-19 related goods and the market, trade and supply chain challenges and constraints affecting the availability of such goods. The report follows an earlier report that identified such goods treating and responding to the COVID-19 pandemic. That report identified the goods’ source countries, tariff classifications and applicable duty rates. For additional details on this earlier report, see Update of May 5, 2020.

The December 2020 report was prepared at the request of the U.S. House of Representatives’ Committee on Ways and Means and the U.S. Senate Committee on Finance  (see Update of August 24, 2020) and focuses primarily on the availability of goods from the onset of the COVID-19 pandemic through September 2020. The report notes that “some of the initial supply chain challenges have eased but a number remain. The improvement is attributable in part to U.S. manufacturers’ launching or boosting production, increased imports of critical COVID-19 related goods, and a better understanding of the virus. However, as the pandemic continues, difficulties remain, and for certain COVID-19 related goods, supply constraints are not expected to wane until 2022.” The report analyzes four key industry sectors: medical devices, personal protective equipment, pharmaceuticals, soaps and cleaning compounds. The report also includes case studies on ventilators, N95 respirators, surgical masks, surgical and isolation gowns, medical and surgical gloves, test kits, vaccines and hand sanitizers. These studies provide information on supply chain challenges and constraints, including a discussion of factors affecting domestic production and factors affecting imports of finished goods and key inputs.

According to the USITC:

  • U.S. demand for all products covered in the case studies substantially increased in the first half of 2020, as compared to 2019, leading to significant shortages.
  • The United States produced all goods covered in the case studies before the pandemic, as well as many of the inputs. The U.S. industry supplied only a relatively small share of the domestic market for certain medical PPE, such as medical gloves and gowns, but supplied a large share of the domestic market for goods like ventilators, vaccines, N95 respirators, and hand sanitizers.
  • U.S. imports of most COVID-19 related goods covered in the case studies increased substantially beginning around April or May 2020, depending on the product.
  • Some of the initial supply chain challenges have eased, such as those for ventilators, but a number remain, including for many PPE items.
  • The major factors affecting domestic production of COVID-19 related goods include the availability and costs of inputs, the time and cost of bringing additional production capacity online (including purchasing and installing new machinery), and the time needed to recruit and train new workers.
  • The most significant factor affecting imports was that global demand significantly exceeded available supply of many COVID-19 related goods, making it difficult for U.S. importers to procure sufficient quantities.

Two recent federal government actions have highlighted national security concerns related to the nation’s power grid. First, on May 1, 2020, President Donald Trump issued an executive order that will likely lead to restrictions on the procurement and use of electric equipment from certain foreign adversaries for use in the U.S. power grid. Second, on May 4, 2020, Secretary of Commerce Wilbur Ross announced the initiation of a Section 232 investigation into whether certain transformer components used in electrical power grids are being imported in quantities that threaten national security.

Key Notes:

  • By executive order, the secretary of energy is now authorized to review and block any acquisition, importation, transfer or installation of any bulk-power system electric equipment in which a foreign country or foreign person has an interest.
  • A list of prohibited suppliers of electric equipment may be forthcoming.
  • In addition, a Section 232 investigation has been initiated into transformers and certain components, which may result in increased tariffs on these items.

Continue reading: view this client update in HTML or PDF format.

There are growing concerns that the recent outbreak of a novel coronavirus, SARS-CoV­-2, which causes “coronavirus disease 2019” (abbreviated as COVID-19), will have a serious negative impact on the global economy. U.S. businesses who depend on Chinese suppliers may soon be facing product shortages and supply chain disruptions. This client update (i) addresses whether U.S. businesses need to be concerned about possible exposure to the virus from goods imported from China, and (ii) identifies contractual considerations to help companies manage potential supply chain risks based on their relationships with Chinese suppliers, customers and transportation providers.

Key Notes:

  • The risk of coronavirus transmission from imported goods is currently considered highly unlikely.
  • U.S. businesses should engage in contingency planning, including evaluating alternative sourcing and the potential future need for increased transportation capacity.
  • Disruptions may affect contracts between U.S. businesses and Chinese suppliers, and U.S. businesses and buyers of finished goods.
  • Transportation contracts should be reviewed for minimum volume commitments and capacity protections.

Continue reading: view this client bulletin in HTML or PDF format.