Global Supply Chain Horizons - October 2024

In our latest update we highlight key areas of change that have happened over the last quarter. These include:

• Cross-Border  –  UK/US/Australia sign supply chain resilience pact, EU/Singapore trade agreement
• Asia – China: Rare earth regulation, China: New export restrictions coming into force, China: White paper on energy transition published
• Europe – Regulation on the Safety of Toys, Corporate Sustainability Due Diligence Directive, Ecodesign for Sustainable Products Regulation, Industrial Emissions Amendment Directive published, Revised Regulation on mercury published, Right to Repair Directive published
• UK – Study on single-use plastic product regulations, Product Regulation and Metrology Bill, Consultations on UK Emissions Trading System
• US – Strategy on Global Development published, Rule implementing controls on critical and emerging technologies, Policy shift on plastic production, Consultation on amendment to Toxic Substances Control Act

Cross-Border

UK/US/Australia sign supply chain resilience pact

On 9 September, the UK, the US, and Australia signed an agreement that aims to strengthen strategic cooperation and address risks to critical supply chains. The agreement will lead to the establishment of a Supply Chain Resilience Cooperation Group among the three countries, who will focus on:

• identifying vulnerabilities in supply chains
• sharing information on supply chain risks
• working together to address risks, threats and disruptions to critical supply chains

Impact: This partnership is in line with global efforts to increase supply chain resilience. By enhancing security and fostering international collaboration, the group aims to protect essential services and support supply chain stability. This approach may lead to reduced regulatory barriers and increased business opportunities among the countries.

EU/Singapore trade agreement

On 25 July, the EU and Singapore concluded negotiations for a Digital Trade Agreement. It promotes the EU's approach for building digital and data rules with people and their rights at its core. This deal will seek to boost EU-Singapore trade relations by:

• facilitating digitally-enabled trade in goods and services
• ensuring cross-border data flows free of unjustified barriers
• enhancing trust in digital trade, including through strong rules on spam

Impact: The EU and Singapore will now proceed with their respective procedures to finalise the agreement. By facilitating cross-border data flows, the agreement is intended to enhance companies’ ability to manage and share data, crucial for supply chain logistics. Increased regulatory certainty and reduced barriers will also help companies plan and execute business strategies with suppliers more effectively.

Asia

China: Regulations on rare earth coming into force

On 1 October, the regulations on the administration of rare earth will come into effect (see press release dated 29 June 2024 in English). The new rules stipulate that rare earth resources in China belong to the Chinese Government, and the protection, development and utilisation of those resources will now be subject to regulatory oversight. Among other requirements:

• businesses that plan to engage in the mining, smelting and separation of rare earth must first obtain the relevant licences or otherwise be authorised
• the import and export of rare earth products and related technologies, processes and equipment should comply with applicable trade regulation
• businesses engaged in the mining, smelting and separation, utilisation, and export of rare earth products will be under a duty to keep good records of the movements of the products, and input the data into a nation-wide traceability system to be set up by the Ministry of Industry and Information Technology and other competent departments of the State Council

Violations of the regulations, such as the failure to obtain the relevant licences, and the purchase, processing, sale or export of illegally mined, smelted or separated rare earth products, are punishable by fines, confiscation of illegal proceeds, revocation of business licences, negative social credit records and/or criminal prosecutions against the business and involved individuals.

Impact: The new regulations could impact global supply chains through the tightened production and export controls over these critical resources which are widely used in advanced technology products such as consumer electronics and hybrid vehicles. This could lead to supply disruptions and increased costs for high-tech industries reliant on these materials. Businesses should diversify their sources of supply, invest in alternative materials, and strengthen recycling efforts to mitigate associated risks.

China: New export restrictions on antimony and drones in force since September

• The Ministry of Commerce announced new export restrictions on drones and the critical element of antimony on 31 July and 15 August, effective from 1 September and 15 September respectively. According to the announcements:

• the export of certain high-performance drones, related equipment and key components such as infrared thermal-imaging devices and target-indicating lasers, as well as antimony and its related compounds and technologies, out of the PRC without a valid licence is prohibited;
• an exporter intending to export any quantity of the above controlled items out of the PRC is required to submit to the Ministry of Commerce a licence application, using the same form used for the export of dual-use items and technologies; and
• there is an express prohibition on the export of any otherwise uncontrolled drone if the exporter becomes aware or has any reason to know that the drone will be used for the proliferation of weapons of mass destruction, terrorist activities or military purposes.

Impact: This move could disrupt global supply chains, especially for industries reliant on antimony, which is widely used in electronics and batteries, and drones. Businesses engaged in the relevant trade should ensure that any shipment containing the above items out of the PRC must be covered by a valid licence, and, going forward, should diversify their supply sources and explore alternative materials to mitigate risks and seize potential opportunities with alternative materials.

China: White paper on energy transition published

On 29 August, China published a white paper on its energy transition. The document outlines goals to build a clean, low-carbon, safe, and efficient energy system to support economic and social development. The paper confirms the following goals:

• by 2035, to transition to non-fossil fuels as the country’s main energy source; and
• by 2060, to achieve carbon neutrality.

Impact: A gradual shift to a low-carbon, green economy in China would mean increased regulation and costs relating to the use of fossil fuels, potentially driving businesses to invest more in renewable energy technologies and adapt their operations to align with sustainable practices.

Europe

EU: Regulation on the Safety of Toys

On 16 September, interinstitutional negotiations were announced for the Regulation on the Safety of Toys. The proposed Regulation would update the safety requirements for toys marketed in the EU, whether they are manufactured in the EU or elsewhere. All toys will need a digital product passport, which will include product design information. Importers would have to submit digital product passports for all toys at the EU borders, including those sold online.

Impact: The new Regulation aims to enhance transparency and compliance across global supply chains. Businesses will benefit from streamlined import processes and increased consumer trust due to the digital product passports. However, they may face initial compliance costs and administrative burdens. To seize opportunities, businesses should invest in digital infrastructure and ensure thorough documentation to meet the new requirements efficiently.

EU: Corporate Sustainability Due Diligence Directive

On 25 July, the Corporate Sustainability Due Diligence Directive entered into force. The CSDDD will require businesses to prevent, end or mitigate the negative impact of adverse human rights and environmental practices across supply chains. These obligations will apply to EU businesses with over 1000 employees and an annual net turnover exceeding €450 million and non-EU businesses with a net turnover of more than €450 million in the EU.

• Impact: In preparation, businesses 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 firmwide complianc

For more information, please view our briefing.

EU: Ecodesign for Sustainable Products Regulation

• On 18 July 2024, the EU’s Ecodesign for Sustainable Products Regulation (ESPR) entered into force. ESPR mandates ecodesign requirements from design to disposal, fostering a greener economy. It includes a digital product passport, green public procurement policies, and bans on destroying unsold goods. Starting in 2027, ESPR will enforce changes prioritising circularity, impacting industrial and consumer sectors, especially fast fashion. This affects manufacturers, importers, distributors, retailers, fulfilment service providers, and online operators, including those outside the EU.

Impact: Despite the requirements not coming into effect until at least 2027, companies should begin internal discussions with stakeholders and suppliers to align on next steps. Early preparation will ensure that companies maintain access to the EU market and remain competitive. Successful preparation involves monitoring the implementation of subsequent legislation and maintaining flexible business practices.

For more information, please view our briefing.

EU: Industrial Emissions Amendment Directive published

• On July 15, the Industrial Emissions Amendment Directive(IEAD) was published. IEAD will amend the existing Industrial Emissions Directive (IED 2010) by:

• extending the scope of the IED 2010 to add ore mining activities, large-scale manufacturing of batteries and smaller pigs and poultry rearing
• requiring member states to establish an electric permit system by 2035
• requiring member states’ enforcement regimes to impose penalties of up to at least 3% of operators’ annual turnover in the EU for serious infringements
• introducing a right to compensation for individuals whose health has been badly affected by a breach in rules.

Impact: The IEAD’s extension of scope will likely increase compliance costs, affecting supply chains as more sectors, including ore mining and battery manufacturing, must adhere to stricter regulations. This directive aims to create more resilient supply chains through promoting sustainable practices. As such, businesses should proactively invest in cleaner technologies and robust compliance systems to seize opportunities and mitigate risks.

EU: Revised Regulation on mercury published

• On July 10, the revised Regulation on mercury, dental-amalgam and other mercury-added products was published. The Regulation sets out rules for the use of mercury in the EU. Specifically, from January 1, 2025, the export of dental amalgam will be prohibited. From July 1, 2026, the import and manufacturing of dental amalgam will be prohibited.

Impact: The revised Regulation on mercury will disrupt supply chains by banning dental amalgam exports, imports, and manufacturing, increasing compliance costs. Businesses should pivot to alternative materials and technologies, ensuring compliance and seizing new market opportunities. 

EU: Right to Repair Directive published

• On July 10, the Right to Repair Directive (R2RD) was published. The R2RD amends the Goods Directive to promote sustainable consumption by encouraging the repair of certain products and extensions of product lifecycles. R2RD will apply to tablets, smartphones, washing machines, dishwashers and other household appliances. Manufacturers must make spare parts available to consumers and provide access to repair information. Obligations will also require manufacturers to repair and replace products.
• Impact: The R2RD provisions aim to enhance supply chain sustainability by extending product lifecycles and reducing waste. However, businesses should be aware of potential increased business costs due to the need for spare parts and repair services. Businesses should invest in repair infrastructure and training to capitalize on these opportunities and ensure compliance, gaining a competitive edge in the market.

UK

UK: Study on single-use plastic product regulations

On 16 September, a consultation on the impact of current and future regulatory restrictions on single-use plastic products closed. The consultation was seeking views on how businesses have responded to the changes. The consultation process is set to conclude between December 2024 and January 2025.

Impact: Once concluded, businesses may be subject to new requirements for single-use plastic products. By adopting eco-friendly practices, companies and their suppliers can stay ahead of potential regulatory changes and cater to the growing consumer demand for greener products. However, they should be prepared for potential compliance and cost challenges, which may affect supply chain dynamics and necessitate close collaboration with suppliers to ensure a smooth transition.

UK: Product Regulation and Metrology Bill

On 4 September, the Product Regulation and Metrology Bill undertook its first reading in the House of Lords. This UK-wide Bill aims to reform product safety by addressing modern issues like AI, e-bike fire risks, and lithium-ion batteries. It also seeks to update laws to recognize new or updated EU regulations, including CE marking.

Impact: Once adopted, businesses will be subject to more stringent product safety requirements. To ensure compliance, regular product audits should be conducted, and suppliers must be informed of the new standards. These requirements aim to create a more transparent and safer product supply chain. Affected businesses should proactively adapt to these changes, leveraging opportunities for innovation and market expansion while ensuring compliance to avoid potential disruptions.

UK: Consultations on UK Emissions Trading System

In August, two consultations relating to the UK Emissions Trading System (ETS) closed. These consultations include:

• UK Emissions Trading Scheme scope expansion: waste: The waste consultation seeks views on expanding the UK ETS to include waste incineration and energy recovery, adjusting the cap to add 21.9 million allowances from 2028, and expanding participation to waste incineration facilities with a transitional period from 2026.
• Integrating greenhouse gas removals (GGR) in the UK Emissions Trading Scheme: The GGR consultation seeks views on developing a framework for policy design, applying the existing cap to GGRs, awarding allowances post-verification, ensuring permanence of carbon storage, and integrating GGRs into the ETS from 2028.

• Impact: The proposed changes may require businesses to purchase emissions allowances and invest in emission-reducing technologies. These changes may lead to increased operational costs that may be passed down the supply chain. Businesses may need to consider renegotiating contracts, adjusting supply chain strategies, and investing in new technologies to reduce emissions. Suppliers who can offer eco-friendly alternatives or more efficient processes will become valuable partners, potentially strengthening business relationships.

US

US: Strategy on Global Development published

On 18 September, the US Strategy on Global Development was published. The document lays out five strategic objectives to accelerate development across the country:

• reduce poverty through inclusive and sustainable economic growth and quality infrastructure development
• invest in health, food security, and human capital
• decarbonize the economy and increase climate resilience
• promote democracy, human rights, and governance and address fragility and conflict
• respond to humanitarian needs

Impact: This strategy aims to create more resilient national and global supply chains through sustainable investment and development. Businesses should integrate these objectives into their long-term business plans to stay ahead of potential regulatory changes and capitalize on emerging opportunities.

US: Rule implementing controls on critical and emerging technologies

• On 6 September, a new rule implementing controls on critical and emerging technologies entered into force. Included under the new controls are:
• quantum computing items
• additive manufacturing items to produce metal components
• advanced semiconductor manufacturing equipment
• gate all-around field-effect transistor technology

Impact: The new export controls aim to increase resilience, security, and competitiveness of the US supply chain. Businesses currently exporting the controlled items must ensure compliance and restrict exports where necessary. These businesses should consider investing in alternative technologies and diversifying trade partners to continue shipping.

US: Policy shift on plastic production

On 14 August, it was reported that the US government plans to back a United Nations (UN) global treaty aimed at reducing plastic production. If adopted, this decision will align the US with countries planning to eliminate harmful chemicals in packaging. The final UN negotiations will take place 25 November to 1 December 2024.

Impact: If the UN treaty is adopted, suppliers worldwide will need to transition to alternative materials, potentially leading to increased operational costs in the short term. To mitigate these costs, businesses should proactively collaborate with suppliers to identify and implement cost-effective alternatives. This preparation will help ensure a smoother transition and maintain supply chain stability.

US: Consultation on amendment to Toxic Substances Control Act

• On 25 July, a consultation which proposes to add five chemicals to the Toxic Substances Control Act (TSCA) was published. The chemicals include; vinyl chloride, acetaldehyde, acrylonitrile, benzenamine, and 4,4’-methylene bis. These chemicals are widely utilised in the production of plastics and resins. They are also essential in creating paints, pharmaceuticals, fragrances, disinfectants, lacquers, varnishes, herbicides, rubber, and various other chemical products. If added to the TSCA, affected companies may be subject to additional reporting, monitoring, and safety measures.

The consultation is set to close 23 October 2024.

Impact: If the consultation leads to restrictions, businesses may need to reformulate their products to replace these chemicals with safer alternatives, which could result in increased operational costs. Additionally, there could be a shift in market dynamics as companies adapt to these new regulations, potentially affecting supply chains and product availability.

Further reading

How resilient are your contracts to changing prices? - Part 1 | Eversheds Sutherland (eversheds-sutherland.com)

Varying prices once a contract is underway - Part 2 | Eversheds Sutherland (eversheds-sutherland.com)

Global ESG insights - September 2024 | Energy | Eversheds Sutherland (eversheds-sutherland.com)

Varying prices once a contract is underway - Part 2 | Eversheds Sutherland (eversheds-sutherland.com)

How resilient are your contracts to changing prices? - Part 1 | Eversheds Sutherland (eversheds-sutherland.com)

Commercially Connected Shorts - 18 September 2024 | Eversheds Sutherland (eversheds-sutherland.com)

Dealing with pricing disputes - Part 3 | Eversheds Sutherland (eversheds-sutherland.com)

Co-authored by Clare Johnston and Nathan Handoll (Knowledge)