On February 24, 2021, the White House issued an Executive Order on America's Supply Chains ("the EO"). The broad EO is directed toward using the powers and resources of the government to support enhancing the resiliency of the US supply chains. Among other purposes, this effort seeks to enable the country to address pandemics and other biological threats, cyber-attacks, extreme weather events, terrorist attacks, geopolitical and economic competition and other conditions that can reduce critical manufacturing capacity and the availability and integrity of critical goods, products and services.
Scope of the EO
Section 1 of the EO announces supply chain resiliency as a policy objective of the Biden administration.
Section 2 designates certain presidential assistants to coordinate the resiliency policy set forth in the EO, including the reports discussed below. The EO indicates that federal agencies shall consult outside stakeholders—such as industry; academia; non-governmental organizations; communities; labor unions; and state, local and tribal governments—in fulfilling the supply chain resiliency policy.
Section 3 directs four agencies to work with the White House to provide reports that identify certain risks in the supply chain and to make policy recommendations (to be submitted within 100 days from the date of the EO) addressing the identified risks. The agencies and risks identified in the EO that will be addressed in the 100-day reports are:
- Department of Commerce ("DoC"): Risks in the semiconductor manufacturing and advanced packaging supply chains.
- Department of Energy ("DoE"): Risks in the supply chain for high-capacity batteries, including electric-vehicle batteries.
- Department of Defense ("DoD"): Risks in the supply chain for "critical minerals" and other identified strategic materials, including rare earth elements (as determined by DoD).
- Department of Health and Human Services ("HHS"): Risks in the supply chain for pharmaceuticals and active pharmaceutical ingredients.
Section 4 requires agencies to provide additional detailed reports within one year. The reports are required from the following agencies on specific topics:
- DoD: Supply chains for the defense industrial base. DoD must identify areas where civilian supply chains that support DoD are dependent on competitor nations.
- HHS: Supply chains for the public health and biological preparedness industrial base.
- DoC and the Department of Homeland Security: Supply chains for critical sectors and subsectors of the information and communications technology ("ICT") industrial base, including for the development of ICT software, data and associated services.
- DoE: Supply chains for the energy sector industrial base.
- Department of Transportation: Supply chains for the transportation industrial base.
- Department of Agriculture: Supply chains for the production of agricultural commodities and food products.
The definitions of the industrial bases are to be determined by the relevant agencies. These one-year reports must address numerous concerns, including (i) "critical goods and materials" underlying the supply chain in question; (ii) "other essential goods and materials" underlying the supply chain in question, including digital products; and (iii) the manufacturing or other capabilities necessary to produce these materials, including emerging capabilities.
"Critical goods and materials" are goods and raw materials currently defined under statute or regulation as "critical" materials, technologies or infrastructure. "Other essential goods and materials" are goods and materials that are essential to national and economic security or emergency preparedness or to advance the resiliency policy but that are not included within the definition of "critical goods and materials."
Reports must address the resilience and capacity of American manufacturing supply chains and the US industrial and agricultural base—civilian or defense—to support national and economic security, emergency preparedness and supply chain resiliency. The reports will include assessments of (i) the manufacturing or other needed capacities of the United States; (ii) gaps in domestic manufacturing capabilities; and (iii) supply chains with a single point of failure, single or dual suppliers, or limited resilience, especially for subcontractors, among other considerations.
Reports also must address a prioritization of the critical goods and materials, and other essential goods and materials (including digital products), for policy recommendations. The prioritization shall be based on statutory or regulatory requirements, importance to national security, emergency preparedness and the resiliency policy. The reports must include policy recommendations for ensuring a resilient supply chain for the sector, such as sustainably reshoring supply chains, developing domestic supplies, cooperating with allies and partners to identify alternative supply chains and building redundancy into domestic supply chains.
The EO contemplates changes in law in requiring that reports address executive, legislative, regulatory and policy changes and any other actions to strengthen manufacturing capabilities and to prevent, avoid or prepare for any defense, health or other contingencies that may disrupt, strain, compromise or eliminate the supply chain.
Section 5 requires that the one-year reports make recommendations regarding a variety of matters, including (i) steps to strengthen the resilience of America's supply chains; (ii) reforms needed to make supply chain analyses and actions more effective, including statutory and regulatory changes; (iii) ways to insulate supply chain analyses and actions from conflicts of interest, corruption or the appearance of impropriety to ensure integrity and public confidence in supply chain analyses; and (iv) reforms to domestic and international trade rules and agreements needed to support supply chain resilience, security, diversity and strength.
Section 5 emphasizes that the government's supply chain policy should support small businesses, prevent monopolization, consider climate and other environmental impacts, encourage economic growth in communities of color and economically distressed areas and ensure geographic dispersal of economic activity across all regions of the United States.
Section 5 also contemplates that federal incentives and amendments to federal procurement regulations may be necessary to attract and retain investments in critical (and other essential) goods and materials. The EO thus contemplates that government contracts or grants may play a key role in enhancing supply chain resiliency.
What to Expect
Although specific steps will depend on the findings from the analyses required by the EO, the government has a variety of existing tools that it can use to enhance the resiliency of America's supply chains. Key among the government's authorities is the Defense Production Act of 1950 ("DPA"), which confers on the president "an array of authorities to shape national defense preparedness programs and to take steps to maintain and enhance the domestic industrial base." 50 U.S.C. § 4502(a)(4).
Title I of the DPA enables the president to control and prioritize the distribution of materials in the civilian market upon certain findings. Priorities and allocations can have a rather immediate effect on existing supply chains, but use of additional authorities under the act is necessary to address longer-term issues.
Title III of the DPA provides authority to ensure the timely availability of essential domestic industrial resources to support national defense and homeland security requirements through the use of tailored economic incentives such as loan guarantees, direct purchases and purchase commitments and the authority to procure and install equipment in private industrial facilities. Those incentives have been used increasingly over the past year, including by the DoD Office of Industrial Policy, to facilitate access to new technology or manufacturing processes.
Title VII of the DPA provides authorities to facilitate planning and potentially enhance the effectiveness of other powers under Title I and Title III. Among other things, the president may collect information from private industry that will enable analysis and understanding of domestic industrial capabilities. These authorities support longer-term analysis and planning. For example, section 705 gives the president broad powers to collect information by regulation, subpoena or even testimony as "necessary or appropriate." Currently, the secretary of commerce is directed to perform analyses to assess the capabilities of the industrial base and make recommendations. Section 708 provides protection from the antitrust laws in certain circumstances. It provides authority for the president to consult with representatives of industry, finance, labor and other interests to help develop plans of action, and, potentially, voluntary agreements, to provide for the national defense under specific circumstances.
The EO further suggests that there may be various uses of the procurement process and potential changes in procurement regulations, i.e., the Federal Acquisition Regulation.
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