Welcome to the latest edition of our quarterly global supply chain horizons providing you with a update on the key developments from around the world.
Cross-Border
UK/South Korea: Agreement to strengthen technology, defence and security partnership
On 20 November, the 'Downing Street Accord' was announced. This is a new long term agreement signed between the UK and South Korea. The partnership will focus on increasing technology sharing, defence cooperation and supporting regional security at sea, on land and in cyberspace.
Impact: The Downing Street Accord, which follows the signing of similar UK partnerships with Singapore and Japan earlier this year, is aimed at deepening the relationship between the UK and South Korea. Among the announcements included in the Accord, are the launch of negotiations on an updated Free Trade Agreement and flagship semi-conductor partnership, aimed at securing future supply chains.
US/Asia: IPEF partners sign Supply Chain Agreement
On 14 November, the 14 Indo-Pacific Economic Framework for Prosperity (IPEF) partners, signed the IPEF Supply Chain Agreement.
Impact: the Supply Chain Agreement intends to establish structures that will enable the IPEF partners to work together on supply chains. This includes developing a shared understanding of regional supply chains and improving crisis response capabilities for disruptions. The agreement also references that IPEF partners should facilitate investment to strengthen supply chains and for them to promote supply chain resilience in critical sectors. And promote labour rights and workforce developments across IPEF supply chains.
Asia
China: Graphite export impact on batteries used in electric vehicles
Since 1 December, exports of graphite require governmental approval. Graphite is a key material for the batteries used in electric vehicles. This new measure is based on legislation aimed at strengthening export controls on strategic materials.
Impact: The export restriction follows similar curbs imposed on chipmaking materials, such as gallium, and controls on rare-earth metals (see below). The restriction comes as China aims to position itself at the heart of global automotive supply chains.
China: rare earths export restrictions
On 7 November, China's Ministry of Commerce announced that it has added rare earths to a list of bulk commodities in respect of which traders would be required to report export and import information. This new reporting requirement is an update to the commodity reporting regulations published in 2022 by China's Statistics Bureau and will apply until the end of October 2025.
Impact: Although at this stage the government has not yet specified which minerals would be subject to the new reporting requirement, it has confirmed that information about the material type of rare earths (which would include compounds and alloys) being shipped, and the destinations for export must be disclosed.
China: New Rules on Quality of Distribution and Use of Drugs published in China
On 27 September, the State Administration for Market Regulation (SAMR) published new rules to remove outdated requirements related to quality management in the drug supply chain, and reflect changes made in the Drug Administration Law and the Vaccine Administration Law in 2019.
Impact: The new rules supersede existing rules governing drug distribution activities in China and will take effect on 1 January 2024.
Europe
EU: CS3D – Council and Parliament have struck a deal
On 14 December, the Council and European Parliament reached a provisional deal on the Corporate Sustainability Due Diligence Directive (CS3D). CS3D will set obligations for large companies regarding actual and potential adverse impacts on human rights and the environment.
The provisional agreement reached now needs to be endorsed and formally adopted by the Council and Parliament. Member states thereafter need to transpose the Directive into national law. CS3D, if passed, would establish minimum standards for corporate due diligence obligations throughout the EU.
Impact: Under the agreement reached, CS3D will apply to EU companies that have more than 500 employees and a net worldwide turnover of €150 million. It will also apply to non-EU companies if they have a €300 million net turnover generated in the EU, three years from the entry into force of CS3D. Initially (subject to later review), the financial sector will be largely excluded from the scope of the Directive (it will, however, need to develop transition plans in line with the Paris Agreement and adjust remuneration plans).
For companies that fail to pay fines imposed on them in the event of violation of the directive, the provisional agreement includes several injunction measures, and takes into consideration the turnover of the company to impose pecuniary penalties. The draft also envisages that compliance with the Regulation may be a criterion for the award of public contracts and concessions.
EU: Critical Raw Materials Act update
On 7 December 2023, the European Parliament's (EP) Industry, Research and Energy Committee endorsed the Critical Raw Materials Act (it was informally agreed by the Council of the EU and the EP on 13 November 2023). Depending on the EU elections, it's expected to become law in early 2024.
Impact: Among other things, the new regulation sets out to improve resilience of supply chains by providing for the monitoring of CRM supply chains, and information exchange and future co-ordination on strategic raw materials stocks among member states. Certain large companies will have to perform an audit of their supply chains, containing a company-level stress test.
EU: Amendments to Net-Zero Industry Act to include the entire supply chain
On 21 November, the European Parliament (EP) plenary session agreed its negotiating position on the proposed Net-Zero Industry Act, adopting amendments to the text and referring the file back to the ITRE Committee to start informal trialogues.
Impact: In their amendments, the EP broadened the scope of the draft legislation to include the entire supply chain (including components, materials, and machinery for producing net-zero technologies). In their wider list of technologies to be covered, EPs included nuclear fission and fusion technologies, sustainable aviation fuels, and specific industrial technologies.
EU: Late Payment Regulation update
On 14 November, the European Parliament's Internal Market and Consumer Protection Committee adopted its draft report on the proposed rules on late payments in commercial transactions in Europe. The proposal revises the existing directive from 2011 and aims to "bring fairness in commercial transactions, increase the resilience of SMEs and supply chains, foster a more widespread use of digitalization, and improve the financial literacy of entrepreneurs."
Impact: The 5 key changes in the Late Payments Regulation:
- Streamlined payment terms - a 30-day maximum payment term from receipt of invoice (provided that the goods or services have been received) for business-to-business transactions. This is a stark reduction from the previous 60-day limit
- Elimination of extended payment terms - no ability to agree a longer payment term in the contract, even in cases where such longer term wouldn't previously have been deemed 'grossly unfair' to the creditor
- Restriction of acceptance or verification procedures - which will only be permitted where strictly necessary due to the specific nature of the goods or services and will be limited to a maximum of 30 days from receipt of the goods or services.The maximum payment period is then 30 days from completion of the acceptance or verification procedure
- Mandatory interest on late payments - debtors are automatically liable for interest on late payments, as well as prohibiting the ability to waive this interest. This interest accrues at a rate of 8% above the base rate, reinforcing the regulation's stance against delayed payments.
- Enhanced enforcement and redress mechanisms - member states designate specific authorities to oversee and enforce compliance, who are required to ensure fair and objective treatment of both private enterprises and public authorities.
- Retrospective effect - the Regulation will apply to commercial transactions which occur after the Regulation takes effect even where under a contract which predates the Regulation.
EU: Clearer classification for hazardous chemicals
On 4 October, the European Parliament adopted its position on the revision of the Classification, Labelling and Packaging Regulation, which aims to better identify and classify hazardous chemicals, improve communication on chemical hazards, and address legal gaps and high levels of non-compliance. Parliament is now ready to start negotiations with EU member states on the final law.
Impact: The revised rules aim to introduce new requirements designed to make labels more readable, and which must be applied by all relevant actors in the supply chain, including those selling products online.
EU: Chips Act update
On 21 September, the Chips Act entered into force. The Chips Act is intended to promote the development of a European industrial base in the field of semiconductors, attract investment, promote research and innovation and prepare Europe for any future chip supply crisis. It intends to mobilise public and private investment to double the EU's global market share in semiconductors by 2030.
Impact: Europe is currently too dependent on chips produced abroad (highlighted during the pandemic when industry and key sectors faced such as health and energy faced supply disruptions and shortages). The Chips Act aims to reduce this vulnerability.
UK
UK: Battery Strategy
On 26 November, the government announced its overarching strategy for achieving a globally competitive battery supply chain by 2030. The strategy is geared towards enhancing the domestic supply chain for batteries to reduce the reliance on imports, which the government aims to pursue in a way that "supports economic prosperity and the net zero transition". The battery strategy is based around a design-build-sustain approach and through this strategy, the aim is that the UK will:
- design and develop batteries of the future
- strengthen the resilience of UK manufacturing supply chains
- enable the development of a sustainable battery industry
Impact: The strategy outlines how the government will invest £2 billion into new capital and research and development across the electric vehicle and battery sectors, including their supply chains. The funds will be injected over the next five years and £11 million will be allocated between 20 competition winners which have proposed technological advancements across all stages of the supply chain.
UK: inquiry into manufacturing role in the supply chain for low-carbon energy projects
On 17 November, the Energy Security and Net Zero Committee launched an inquiry examining the potential for UK manufacturing to play a greater role in the supply chain for low-carbon energy projects. The Committee is inviting written submissions by 5 January 2024.
Impact: The inquiry will look at where in the sector is the greatest potential for UK manufacturers to make a difference and how growing a more local supply chain could help reach the goal of a secure, decarbonised electricity sector by 2035.
UK: Defra review into fairness in the egg supply chain
On 31 October, the Department for Environment Food and Rural Affairs (DEFRA) launched a consultation on contractual relationships in the UK egg industry. The key element to the consultation is to tackle unfairness where it exists in the agri-food supply chain. The consultation closes on 22 December 2023.
Impact: The consultation will focus on eggs produced by chickens for human consumption and follows similar consultations that have already taken place looking at the dairy and pig sectors. It is part of government steps toward the need for supply chain fairness regulations on a sector-by-sector basis.
UK: Procurement Bill receives Royal Assent
On 26 October, the Procurement Bill received royal assent. The new procurement regime is expected to come into force in October 2024. Whilst this is the last legislative step, there is still a considerable amount of secondary legislation that must now be introduced.
Impact: The Procurement Act 2023 represents a significant change to procurements and consolidates the existing EU law-based regime into a single set of rules covering works and services, concessions, defence and utilities contracts. Amongst other things, the Act introduces new measures for monitoring supplier performance, with the introduction of a central debarment list for suppliers who will be excluded from tendering for public contracts following poor performance.
UK: CMA Green Agreement Guidance
On 12 October, the Competition and Markets Authority (CMA) launched new guidance aimed at helping businesses understand how they can collaborate on environmental sustainability goals without breaking the law.
Impact: The new guidance explains how competition law applies to environmental sustainability agreements between firms operating at the same level of the supply chain, to help them act on climate change and environmental sustainability. The guidance sets out the key principles which apply, along with practical examples that businesses can use to make their own decisions when working with other companies on environmental sustainability initiatives. The guidance explains that the CMA does not expect to take enforcement action against agreements that are in line with the guidance.
US
US: First supply chain resilience council meeting
On 27 November, President Biden held the administration's first supply chain resilience council meeting, announcing 30 actions to improve access to medicines and healthcare products, and to make data available to track the production and shipment of goods. The Council is planning to complete its first quadrennial supply chain review by 31 December 2024 to define the products and sectors that are key to US economic security.
Impact: Announced actions include:
- The creation of the Council on Supply Chain Resilience
- Use of the Defense Production Act to make more essential medicines in America and mitigate drug shortages
- Cross-government partnerships to improve supply chain monitoring and strategy
- further actions and investments to support the development of energy and critical technology supply chains.
US: New export rules on advanced computing and semiconductor manufacturing items
On 6 November, the Bureau of Industry and Security (BIS) conducted a public briefing on two interim final rules released in 17 October. The new rules BIS announced on 17 October update and expand existing restrictions on the export of advanced semiconductors and related manufacturing equipment to a number of countries.
Impact: The new rules impose license or notification requirements on a broader scope of advanced computing chips and computers as well as the equipment used to manufacture certain advanced semiconductors.
US: Further Strengthening America's Supply Chains and National Security Act
On 26 October, the US Senator for Florida, Marco Rubio, announced that a new version the Further Strengthening America's Supply Chains and National Security Act had been introduced to combat America's dependence on other countries for pharmaceuticals and to address associated supply chain risks that lead to shortages of critical drugs.
Impact: If passed, the new law will close the loophole that has allowed drugs with foreign active ingredients to qualify for government procurement as though they were drugs made in the United States. It will also amend the foreign inspection risk factor list to improve oversight of facilities in certain countries. And, it will requires drug makers to share more information with the US Food and Drug Administration about where pharmaceutical ingredients are sourced.
Written by Clare Johnston (Regulatory Insights) supported by Claire Webb (Research) in Knowledge
Originally Published 14 December 2023
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
