Global Supply Chain Horizons - July 2024

Cross-Border

EU/Australia sign partnership on sustainable critical and strategic minerals

On 28 May, the EU and Australia signed an agreement to cooperate on sustainable critical and strategic minerals. The partnership seeks to enable the EU to diversify its supplies of materials necessary for the green and digital transitions, whilst contributing to the development of Australia’s domestic critical minerals sector. The partnership covers the entire critical and strategic minerals value chain.

Impact: This partnership aims to diversify the sources of crucial materials. It reduces reliance on single-source suppliers, thereby strengthening the resilience of global supply chains. This partnership is in line with other jurisdictions who are investing more heavily in diversifying and securing national supply chains.

China/Japan/South Korea hold trilateral summit

On 26 and 27 May, China, Japan, and South Korea held their first trilateral summit since 2019. Talks mainly focused on areas including protecting supply chains, promoting trade, and cooperating on the challenges of aging populations and emerging infectious diseases.

Impact: As of now, no official agreements have been finalised in the key areas. The deliberations were largely redirected towards national security issues due to the launch of new missiles by North Korea during the summit. However, the protection of supply chains remains a significant concern for the countries involved. This indicates potential for future agreements aimed at further integrating and securing supply chains.

EU/New Zealand trade agreement enters into force

On 1 May, the EU-New Zealand trade agreement entered into force. The deal is expected to cut €140 million a year in duties for EU businesses, producers and farmers. In particular, EU businesses can benefit from:

• zero tariffs on EU exports to New Zealand
• a more open New Zealand services market in key sectors such as financial services, telecommunications, maritime transport, and delivery services
• non-discriminatory treatment of EU investors in New Zealand
• improved access for EU companies to New Zealand government procurement contracts for goods, services, and works concessions
• a dedicated chapter to help small business exports
• reduced compliance requirements and procedures

Impact: This agreement allows businesses to benefit from expanded market access and investment prospects. In terms of supply chain management, this agreement empowers businesses to diversify supply chains by considering new suppliers and markets within New Zealand. Furthermore, the diminished market entry costs could lead to more cost-efficient supply chains.

Asia

China: Action plan to improve financial services in industrial supply chains released

On 18 June, the Shanghai Financial Regulatory Bureau issued an action plan to boost financial services in industrial supply chains. The plan focuses on enhancing services for key industries, promoting transparency, and addressing the financing needs of small enterprises. It encourages financial institutions to invest in fintech for innovative solutions and prohibits false supply chain finance without real transactions.

Impact: The plan encourages financial institutions to leverage technologies like AI and enhance trust in financial environments. It also calls for Platform enterprises to take advantage of offering segmented services to clients. Lastly, the plan advises addressing supply chain financial service challenges by integrating information, capital, logistics, and business flow.

Hong Kong: Ban on single use plastics

On 22 April, new rules banning many single-use plastics came into force in Hong Kong. The rules aim to reduce non-biodegradable plastics in landfill sites and will commence in phases. Phase 1 (effective from 22 April, 2024) bans nine single-use plastics for the food and beverage industry. Single-use plastics for medical procedures, medicines and science will be exempt from the ban.

Impact: The use of banned products will result in a fine of HK$2,000, up to a maximum of HK$100,000. Businesses in the food and beverage industry may need to invest in more sustainable packaging products to comply with the new rules. It is also recommended to explore sustainable options for single-use plastic products beyond those identified in Phase 1 of the ban to prepare for Phase 2 which is expected to start early 2025.

Europe

Italy: European Commission approves Italian scheme to reduce emissions in ports

On 17 June, the European Commission approved a €570 million Italian scheme to incentivise ships to use shore-side electricity when they are at berth in maritime ports. The measures aim to reduce greenhouse gas emissions, air pollution and noise, in line with the European Green Deal objectives. The scheme will run until 31 December, 2033 and the aid provided aims to reduce ‘general system charges’ by 100%.

Impact: The scheme is open to shipping companies registered in Italy that provide maritime transport connections between Italian ports and European or Mediterranean ports or operate within Italian ports. By incentivizing ships to use shore-side electricity infrastructure while docked, the scheme aims to reduce resilience on fossil fuels, contributing to a greener supply chain. Shipping companies may, therefore, benefit from investing in sustainable alternatives to fossil fuels.

Germany: Potential Pause on the Supply Chain Act

On 7 June, the German Economic Ministry confirmed a consideration on pausing the country's supply chain due diligence law for two years to ease the bureaucratic burden on companies until a European directive takes effect. The German Supply Chain Act requires companies with more than 1,000 staff to implement due diligence procedures to monitor suppliers' human rights and environmental protection standards. This law came into effect in January 2023.

Impact: Regardless of whether a pause is implemented, the German Supply Chain Act will require significant revisions once the European Corporate Sustainability Due Diligence Directive (see below for an update). This is to ensure that the national law aligns with EU regulations. A final decision on this matter is anticipated shortly.

EU: Right to Repair Directive adopted

On 30 May, the European Council formally adopted the Right to Repair Directive (R2RD). R2RD aims  to make it easier for consumers to seek repair instead of replacement. New incentives to repair will be implemented by mandating manufacturers to fix technically repairable products under EU law, providing a voluntary repair form with detailed repairability information. An online platform will also be launched to support finding repair services.

Impact: Upon becoming law, manufacturers will be required to provide repair services for their products. It is crucial for businesses to engage with their supply chain partners about these impending changes and the necessity to maintain an inventory of spare parts.

EU: Net-Zero Industry Act

On 27 May, the European Council formally adopted the Net-Zero Industry Act (NZIA). NZIA aims to scale up the EU's manufacturing capacity of technologies that support the clean energy transition. Relevant net-zero technologies addressed by NZIA include all kinds of renewable energies, grid, battery energy storage, and hydrogen technologies as well as carbon capture and storage and nuclear.

Impact: NZIA aims to simplify the regulatory framework to help increase the competitiveness of the net-zero technology industry. Through financial incentives, these opportunities could result in a more diversified set of suppliers, potentially leading to more resilient supply chains.

For more information, please view our Flash update and Briefing.

EU: Corporate Sustainability Due Diligence Directive adopted

On 24 May, the European Council formally adopted the Corporate Sustainability Due Diligence Directive (CSDDD). The CSDDD will require companies to prevent, end or mitigate the negative impact of adverse human rights and environmental practices across supply chains. These obligations will apply to EU companies with over 1000 employees and an annual net turnover exceeding €450 million and non-EU companies with a net turnover of more than €450 million in the EU.

Impact: In preparation, companies should establish compliance schedules in anticipation of the Directive's provisions coming into effect. Naturally, this may require engagement from the board level down with operations teams being appointed to ensure companywide compliance.

For more information, please view our briefing.

EU: Critical Raw Materials Act enters into force

On 23 May, the Critical Raw Materials Act (CRW) entered into force. CRW  sets benchmarks for enhancing extraction, processing, and recycling of critical raw materials in the EU. It also aims to streamline permitting processes and improving access to finance.

Impact: CRW sets out to strengthen domestic capacities and consolidate the sustainability and circularity of critical raw material supply chains in the EU. Through strengthening domestic supply, CRW aims to reduce reliance on single suppliers. CRW will particularly impact businesses operating in strategic sectors including clean technologies, digital, defence, and aerospace industries.

EU: Council adopt Directive on sustainability reporting standards time limits

On 29 April, the European Council adopted a Directive on time limits for the adoption of sustainability reporting standards for certain sectors and third country undertakings.

The Directive, which amends the Corporate Sustainability Reporting Directive, will postpone the adoption of sector-specific sustainability reporting standards for EU companies and general sustainability reporting standards for non-EU companies to 30 June, 2026. The decision intends to allow companies to focus on the implementation of the first set of European Sustainability Reporting Standards (ESRS) and allow more time to develop sustainability standards for non-EU companies.

Impact: Companies will now have two years to comply with these sustainability reporting standards. Companies will, therefore, be able to focus more time on implementing the first set of ESRS and better prepare for future reporting requirements.

EU: EMA guidance to strengthen supply chains of critical medicinal products

On 19 April, the European Medicine Agency (EMA) published recommendations to strengthen supply chains of critical medicinal products. Such recommendations include:

• marketing authorisation holders (MAH) to increase manufacturing capacity and diversify their supply chains
• MAH to monitor supply and demand of medicines in the entire supply chain
• MAH to stockpile medicines to protect against fluctuations in demand and supply
• MAH to establish a shortage prevention plan for medicines of critical medicines
• scientific and regulatory support to address vulnerabilities in the supply chain

Impact: The recommendations will directly impact MAHs, however, they may also extend to others in the supply chain, including wholesalers and distributors. Should the recommended measures come into effect, wholesalers and distributors of critical medicinal products will benefit from stronger and more reliable processes in their supply chains. In particular, SMEs could benefit from greater support in addressing supply chain vulnerabilities to bolster their supply chains.

EU: new law to reduce emissions from energy sector adopted

On 10 April, the European Parliament adopted an agreement with EU countries on a new law to reduce methane emissions from the energy sector. The  law is the first piece of EU legislation aimed at cutting methane emissions. It covers direct methane emissions from the oil, fossil and coal sectors, and from biomethane once it is injected into the gas network. Provisions under the new law include:

• a ban on flaring and venting methane from drainage stations by 2025, and from ventilation shafts from 2027, for oil and gas
• a ban on flaring methane for coal, operating in phases from 1 January, 2025
• obligations for operators to detect and repair methane leaks
• obligations for EU countries to continuously measure and report methane emissions from operating underground mines and surface mines
• oil and gas importers must demonstrate equivalent monitoring, reporting and verification requirements by 1 January, 2027

Impact: Companies operating in the energy sector should monitor and report methane emissions. They should assess their operations for risk of methane leakage, invest in prevention measures, and implement effective risk management strategies. Supply chain transparency may aid in tracking emissions from imported fossil fuels.

UK

UK: Consultation on the UK fresh produce sector

On 14 May, the Government published their response to a consultation exploring contractual relationships in the fresh produce sector. The aim was to assess if contract reform could provide greater certainty by establishing clear terms and conditions and improving data access. In response, the Government confirmed plans to develop draft regulations for fresh produce contracts using the Agriculture Act 2020.

Impact: Through assessing and reforming contractual relationships, the Government hopes to provide greater certainty and transparency in the fresh produce supply chain. Greater data transparency may also lead to enhanced supply chain visibility, enabling businesses to better mitigate and manage risks. With Labour’s victory in the UK General Election, policy shifts are likely and consultations initiated by the previous Conservative Government may be paused or discontinued.

UK: Consultation response on the ban of plastics in wet wipes

On 22 April, the Department for Environment, Food and Rural Affairs (DEFRA) published their consultation response on proposals to ban the manufacture, supply and sale of wet wipes containing plastic in the UK. DEFRA have decided that the ban will only cover supply and sale wet wipes containing plastic, not the manufacture. There will be an exemption for the supply and sale of wet wipes containing plastic for industrial and medical purposes. The introduction of the ban has been planned for the end of 2024, through separate legislation by individual countries in the UK. With Labour’s victory in the UK General Election, policy shifts are likely and consultations initiated by the previous Conservative Government may be paused or discontinued.

Impact: If the ban is implemented, companies producing wet wipes must reformulate products to eliminate plastics and invest in sustainable materials. Supply chains may experience changes in product availability, and consumer behaviour toward plastic-free products may shift. Non-compliance will result in penalties. In England, civil sanctions will enforce the ban, while in Wales, both criminal and civil sanctions may apply.

US

US: Promoting Resilient Supply Chains Act introduced

On 21 May, the Senate Committee on Commerce, Science and, Transportation, introduced the bipartisan Promoting Resilient Supply Chains Act (Act). The Act aims to create a government-wide approach to monitoring, tracking and strengthening American supply chains. The key provisions include:

• a Department of Commerce directed program to map, monitor, and model US supply chains in key sectors
• an early warning supply chain disruption system that identifies potential supply chain shocks before they occur
• an assessment of domestic manufacturers' capacity for critical goods, technology, and workforce needs
• updated best practices to promote secure and resilient supply chains for American producers

Impact: If the Act completes the legislative process, the Act will provide a framework for enhancing the resilience, security, and competitiveness of the US supply chain.

US: Government announces tariff raises

On May 14, the Biden Administration announced a rise in tariffs on $18 billion of imports of goods from China. Through the rise, the Administration aims to protect American companies and supply chains. Some increases will take place this year. They include tariffs on semiconductors, electric vehicles, batteries, critical minerals, solar cells and more.

Impact: The Administration is particularly increasing tariffs in sectors receiving substantial domestic investment. This action is part of a broader strategy to foster robust and resilient domestic supply chains. This approach aims to protect American industries and to ensure a secure and sustainable US economy.

US: Prohibiting Russian Uranium Imports Act published

On 13 May, the Prohibiting Russian Uranium Imports Act (Act) was signed into law. The Act aims to reduce reliance on Russian uranium imports and develop the domestic market to support the US nuclear power generation industry. The key provisions include:

• bans US imports from Russia of unirradiated low-enriched uranium (LEU) beginning 13 August. 2024, subject to potential waivers the Department of Energy may issue through 1 January, 2028.
• unlocks $2.72 billion to stimulate US LEU production, including $700 million targeted to high-assay LEU

Impact: The Act supports a secure nuclear fuel supply chain, independent of international influence. However, it could lead to increased uranium prices and strain supply chains due to a lack of alternative sources, and potentially disrupt the global nuclear fuel market.

US: EPA Final Rule on two PFAS as hazardous substances

On 19 April, the Environmental Protection Agency (EPA) designated two per- and polyfluoroalkyl substances (PFAS) as hazardous substances. These are perfluorooctanoic acid (PFOA) and perfluorooctanesultonic acid (PFOS), which have historically been used in a wide range of industrial processes and consumer products. Under this rule, PFOS and PFOA contamination is subject to reporting, investigation, remediation, and monitoring requirements.

Impact: Impacted companies should consider assessing their use of these substances in products and any potential liabilities to avoid contamination. Businesses downstream in the supply chain that use PFOA and PFOS products should also be aware of this rule and may need to adapt their practices to ensure compliance. The rule may also impact due diligence efforts in corporate and real estate transactions involving properties contaminated with the substances, potentially affecting property value and cleanup responsibilities.

US: EPA issues Final Rule to reduce toxic air pollution from chemical plants

On April 9, the Environmental Protection Agency (EPA) issued a Final Rule to significantly reduce toxic air pollution from chemical plants, including ethylene oxide (EtO) and chloroprene. The rule aims to reduce EtO and chloroprene emissions from covered processes and equipment by nearly 80%. Facilities producing these chemicals will be required to conduct fenceline monitoring for key toxic chemicals. The EPA will make this data publicly available to better inform and safeguard nearby communities.

Impact: The Final Rule will impact chemical manufacturing plants throughout the US, which will face new requirements to reduce emissions of hazardous air pollutants. Chemical plants should assess processes in their supply chains to ensure operations contribute to a reduction of EtO and chlorophene emissions. Companies that produce a significant volume of these emissions should consider implementing reduction methods and investing in sustainable alternatives in preparation for potential future efforts by the EPA to reduce EtO pollution.

Further reading

• Commercially Connected - June 2024
• EU: Critical Raw Materials Act enters into force
• Global AI Regulatory Update – June 2024
• Global ESG Insights - May 2024
• Global Supply Chain Management – Trade and Sanctions
• EU: A harmonised approach to corporate sustainability
• Podcast: The Energy Transition Series – Carbon Capture, Utilization and Storage

Co-authored by Millie Wilkinson, Nathan Handoll and Clare Johnston (Eversheds Sutherland Knowledge Team)