Risk managers face sharp focus on supply chain ethics in the US

Leading US law firms are expecting supply chain ethics to be a big issue for risk managers this year, with a particular focus on forced labour in China.

US and international firms that are active in the country will have to keep a close eye on a wide range of initiatives from the Biden administration, as it develops policies to protect several critical supply chains.

The US Commerce Department is expected to take further measures to regulate imports of information and communications technology and services from countries deemed to be adversaries, including China.

For now, the sharp focus is on supply chain ethics.

As of 21 June, US law will broadly prohibit imports of products from China’s Xinjiang Uyghur Autonomous Region (XUAR), along with additional companies determined to be related to supply from that region.

In a note issued late last week, Aaron Hutman of New York-based Pillsbury said those wishing to import affected products to the US will need to supply evidence that demonstrates they were not made with forced labour, and meet pending compliance standards.

“Many companies will require advance planning to assess the business and legal risks posed to their supply chains by these rule changes, and develop appropriate compliance and due diligence mechanisms,” said Hutman.

“The year 2021 brought supply chain challenges to the centre of the national conversation. In 2022, legal developments look to focus the attention of the business community on ethics in the supply chain and introduce new due diligence and compliance challenges,” he continued.

The initiative focused on Uyghur forced labour came though the introduction of the Uyghur Forced Labour Prevention Act (UFLPA) in the US. It is designed to prevent goods made with forced labour in China’s XUAR from entering the US market.

As of June, the UFLPA will require US Customs and Border Protection (CBP) to presume that all goods from the XUAR and from entities listed pursuant to the UFLPA are made with forced labour, and therefore ban them from import to the US under Section 307 of the Tariff Act of 1930.

“Importers of record will have a path to overcome that rebuttable presumption by showing that the items are not mined, produced or manufactured wholly or in part by forced labour, and demonstrating other elements of compliance,” explained Hutman.

Brooks Allen of Washington-based law firm Skadden agreed that risk managers, as well as their legal and supply chain colleagues, will have to watch legal and compliance developments in the US very closely.

“President Biden opened his administration by proclaiming that ‘resilient, diverse and secure supply chains’ will ensure US economic prosperity and national security, and he directed several cabinet agencies to review and report on recommended regulations to strengthen them,” said Allen in a recent note.

“In June 2021, the administration published reports identifying vulnerabilities and making policy recommendations to ensure long-term availability of several critical product categories: semiconductor manufacturing and advanced packaging, electric vehicle and other high-capacity batteries, critical minerals and other strategic materials, and pharmaceuticals and active pharmaceutical ingredients. Similar reports are to be finalised in early 2022 for other broader economic sectors: defense, public health and biological preparedness, information and communications technology, energy, transportation and agricultural commodities, and food products,” continued the lawyer.

“Multiple departments have solicited industry and public input on appropriate government initiatives to strengthen supply chains: defense, transportation, energy, agriculture, commerce, and health and human Services. They have been charged with devising policy recommendations, both ‘positive’ (e.g. workforce development, financing opportunities, stockpile creation) and ‘negative’ (e.g. addressing surveillance and cyber risks). Agencies should begin work on regulatory or legislative proposals later in 2022,” he added.