Nota Bene Podcast Ep. 170
Threats and Opportunities in the Global Supply Chain
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Listen to the original podcast released July 10, 2024 here:
https://www.sheppard.com/notabene-577
In this episode, Lisa Mays, an international trade attorney with Sheppard Mullin and leader of the firm’s Supply Chain Industry Team, joins host Scott Maberry to discuss the state of the global supply chain, including the impact of the war in Russia, and the intensifying trade war with China.
Guests:
About Lisa Mays
An international trade lawyer based in Sheppard Mullin’s Orange County office, Lisa Mays leads the firm’s Supply Chain Industry Team and is a leading member of the Transportation Industry Team.
Lisa’s practice focuses on compliance counseling and investigations in the areas of export controls, economic sanctions, anti-corruption, and customs and import regulations. She regularly advises semiconductor manufacturers, automakers, airlines, aerospace and defense firms, importers, and exporters on sanctions; export controls, including the International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR); trade agreements; the Foreign Corrupt Practices Act (FCPA); Customs and imports; antidumping and countervailing duties (AD/CVD); the False Claims Act; Committee on Foreign Investment in the United States (CFIUS); anti-boycott controls; cybersecurity issues; and anti-money laundering (AML) matters.
Lisa also represents clients before the U.S. Department of Treasury Office of Foreign Assets Control (OFAC), the Office of the U.S. Trade Representative (USTR), the Department of Commerce Bureau of Industry & Security (BIS), the Department of State Directorate of Defense Trade Controls (DDTC), the Department of Justice (DOJ), the International Trade Commission (ITC), U.S. Customs and Border Protection (CBP), and CFIUS.
About Scott Maberry
An international trade partner in Governmental Practice, J. Scott Maberry counsels clients on global risk, international trade, and regulation.
Scott’s practice includes representing clients before the U.S. government agencies and international U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), the Department of Commerce’s Bureau of Industry & Security (BIS), the Department of Commerce Import Administration, the Department of Homeland Security (DHS), the Department of State Directorate of Defense Trade Controls (DDTC), the U.S. Department of Justice (DOJ), the International Trade Commission (ITC) and the Committee on Foreign Investment in the U.S. (CFIUS). He also represents clients in federal court and grand jury proceedings, as well as those pursuing negotiations and dispute resolution under the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA) and other multilateral and bilateral agreements.
A member of the World Economic Forum Expert Network, Scott also advises the WEF community in the areas of global risk, international trade, artificial intelligence and values.
Contact Information
Transcript:
Scott Maberry:
Welcome to Sheppard Mullin's Nota Bene, a twice-monthly podcast for the C-suite, where we tackle current, national and international headlines affecting multinationals doing business without borders. I'm your host, Scott Maberry. Let's get started.
Welcome to episode 170 of the Nota Bene podcast. I'm your host, Scott Maberry. My guest today is Lisa Mays. She's an attorney with the law firm of Sheppard Mullin Richter & Hampton. We're talking about the latest threats and opportunities in the global supply chain. Before I introduce our guest, I'd like to thank our listeners in over 100 countries worldwide. We're glad you're tuning in, and please keep the feedback coming. It definitely influences our programming. You can email me directly with your comments and suggestions. My email address is in the program description.
My guest today is Lisa Mays. She's an international trade lawyer with the law firm of Sheppard Mullin Richter & Hampton. She leads Sheppard Mullin's supply chain industry team, which is an interdisciplinary legal team helping clients solve legal problems like the ones we're talking about today. She's also a founding member of the law firm's transportation industry team. Her clients include semiconductor manufacturers, automakers, airlines, aerospace and defense companies, importers and exporters. She's also a longtime friend and colleague for just as many years as she would like to admit today. So there's no one better to help us think about what's going on with the world supply chains right now. Lisa, welcome to Nota Bene.
Lisa Mays:
Perfect. Thank you so much, Scott. It's great to be here.
Scott Maberry:
So before we dive into supply chain issues, I would note that virtually all of the international trade lawyers I've ever interviewed are based in Washington D.C., as I am and as I have been for the last 35 years. I know you work in Southern California. So what are the benefits of that? What are you bringing to your clients by virtue of being on the West Coast?
Lisa Mays:
Thanks, Scott, and exactly. So I chose to make this D.C. to California move to better serve our West Coast clients. And from a practical perspective, time zone helps. Our lawyers' hours are absolutely around the clock. It's always helpful to have an outside counsel in your time zone. There's zero guilt in sending me a 4:00 P.M. PT, Pacific Time, urgent request, whereas you might have a little bit of angst sending that to your counsel in D.C. at 7:00 P.M. on a Friday. So it's a bit practical. And to that end, it's also easier to work time zone wise with our Korean clients and others in the region.
But also, the number of businesses in Southern California alone justifies being a trade attorney in this area. So you have the massive port, Los Angeles, Long Beach. And speaking of Long Beach, you have a massive space community and space community in Long Beach. I was just watching the latest launch go across the sky from a park the other evening. You have a really novel defense contractor and others. You have tech companies in Irvine, of course, not to mention the obvious, Silicon Valley, and then some of the biggest importers in the area. So in addition to time zone being involved in the industry, there's somewhat better access to regulators and the field offices out here. So I'm able to get ingrained with those regulators and really serve on the front line for clients. And plus, the sunshine is not bad.
Scott Maberry:
That's great. Well, it's a real benefit to the clients to have you there. And it's a very good business model, I think, for the future, especially with the trends that we're going to talk about today. Let's get into the supply chain issues now.
So as we record this episode on June 24th, 2024, today's New York Times conveniently frames our topic. The headline is, 'It's All Happening Again.' The Supply Chain Is Under Strain. As we've discussed several times on this podcast, the idea of a long, complex global supply chain has been a side effect or a feature of the post-World War II globalization led by the United States and its allies. And it has been a very good thing for international trade, generally speaking. Those long supply chains are complex, but they are very efficient and they're very cheap. And they have led to a world economy based on the wide, ubiquitous availability of cheap goods.
However, there are several things that now in the current era undercut the efficiency of global supply chains. So that includes pandemic events that can overstress critical resources like containers or cargo space or ports. They could include climate events that disrupt global transportation. They can include acts of war and terrorism that threaten shipping lines. And that's what The New York Times story today focuses on. It's the renewed Houthi rebel attacks in the Red Sea en route to the Suez Canal. And as any student of geography knows or as anybody who's got an atlas in their office like I do, that's how sea cargo moves among Asia, the Middle East and the East Coast of the United States.
And according to The New York Times, and it's true, the threats like this one are decreasing supply, they're blowing up shipping costs, and they're raising the prices of goods worldwide. But even without terrorist events, there are other constraints on trade that affect global supply chains. And perhaps the fastest growing trend is government regulation. Now, one area of government regulation, and we'll talk about several of them today, Lisa, one is Russia and the war in Ukraine. So what specific supply chain issues are plaguing your clients with regard to Russia?
Lisa Mays:
Well, it's a whole sea of things, really. At this point, two years in, we are deep into the export controls and various sanctions on Russia. And it's almost more difficult for companies to comply with these export controls and sanctions versus if the country was comprehensively sanctioned, as Cuba and Iran. And that's because there's so many regulations for the companies to wade through and they keep changing.
And on top of that, we're seeing the Departments of Commerce and Treasury and DOJ work together in a somewhat novel way that they haven't before. So helpful, they provide extensive guidance on diversion efforts they're seeing to undercut the export control restrictions to stop the flow of goods to Russia and the various sanctions as well. And of course, the agencies are working together in ways not previously seen this level before, to pursue civil and criminal enforcement. So to that end, of course, sanctions, fines can be massive, though if it's a minor violation, we're still seeing OFAC, the Department of Treasury Office of Foreign Assets Control, working with companies. They're taking in these voluntary self-disclosures, or VSDs. And if it's a minor violation, we're still seeing cautionary letters come out.
So here, there's a sea, a web of restrictions to wade through, but we're seeing good faith efforts from the agencies to work with companies. So specifically, just depends on the company, depends on the day. But some of the issues lately are the latest restrictions on the export of certain IT services to Russia. And that just came out this month. And it's defined as a prohibition on the export or re-export of IT consultancy and design services, as well as IT support services and cloud-based services for certain enterprise management software and design and manufacturing software. But as you can imagine, when these came out, headlines are things like the software restrictions or IT restrictions. They're phrased really broadly. And it's important to delve down and get into the nitty-gritty to see how exactly these apply because they're not necessarily as broad as they appear, despite affecting a lot of companies in those specific industries. But a lot of tech companies otherwise are not affected.
Scott Maberry:
Right. So we didn't see a lot of bans on services necessarily until recently. And so this is kind of new. And it also says something important about how my intro might've overstated the simplicity of the issue, like it's not just physical supply chains, but it's also virtual supply chains. So if you were a service provider that might be subject to one of these prohibitions, or if you were a software programmer or a seller of software, you would have to look at these regulations not just to make sure that your physical supply lines were clean, but it's basically who you can provide services to.
Lisa Mays:
Exactly, yeah. I think there are all different levels of the supply chain. And typically people think of shipping, which is such a major part, but in today's world, we're starting to get more and more virtual. So the online factor is a huge component. And we're also seeing specific industries targeted. So in addition, we have some services prohibitions. And there's a growing list of industries, if you're found to have operated in in Russia, you can be sanctioned yourself. So that's significant, because at first they were pretty obvious industries like technology and defense materials, and then expanded to electronics and then more recently to manufacturing and transportation. So we're seeing a really broad outreach as the sanctions are expanded.
Scott Maberry:
And say a little bit more about the significance of Treasury and Commerce working together. Because I know that in the old days of international trade law, you had export controls in one box that was managed by the Commerce department, and that was about the trade in goods. There were some exceptions. But then the Treasury sanctions, administered by OFAC, that's about transactions and who you can and can't do business with, and covered, in addition to goods, exports, really the provision of services and other types of transactions. But now you're seeing the two agencies aligning their policies and aligning their regulations and their enforcement activities. So why is that significant for your clients?
Lisa Mays:
That's significant because, of course, the agencies have always been working together, but now they are specifically on their efforts with regards to preventing diversion to Russia. So the agencies are learning from each other, they're sharing information, they're sharing common specific products or issues, suppliers that are issues, supply chains. So it's a more knowledgeable enforcer that is overseeing the increasingly broad regulations. So it's important to be aware of the scope and make full effort to keep up to speed.
Scott Maberry:
That's really important. So I can see how if in the past there have been marginal cases within a company where maybe the government might not be something that you'd pay really close attention to as a compliance officer in a company, let's say, now that the enforcement agencies are much better informed and much better at informing each other of what the trends are, you've got to watch out. And this point about diversion I think may merit just a little bit more discussion. What is diversion, and how does it play out in the real world, and what are the regulations trying to do about it?
Lisa Mays:
Absolutely. Yeah, definitely. I think, I mean, to Russia diversion is the focus, because here, companies are clear, many things are prohibited from export to Russia. But the risk is say your business sells to a distributor or reseller; there's inherent risk in that business because sales to the distributor, the reseller can be diverted from the location you thought their market was within to Russia, in violation of the sanctions or export controls.
So diversion is the focus because there's less of a risk directly to sending these products to Russia. It's more about sneaking around the export controls and the sanctions. And of course, the regulators are aware of that. And these are U.S.-based laws. Of course, sanctions apply very broadly; export controls, less so, with more of a U.S. nexus. But the reach there and the significance there is that you may have a distributor in, of course, a non-U.S. country, and they're not going to be subject to the same potential penalties that you would be. So they're going to have different compliance programs, so they're going to operate in a way that increases your risk. So it's really important for companies to understand that and to get ahead of that. And that's why we're seeing the agencies work together to highlight that and provide these lists of items that are high risk and practices that flag high risk distributors and things like that.
Scott Maberry:
So if I've got one of those products that's on the list that is just the generalized lists that the government is putting together about high risk sectors, or if I've got risky geographies in my sales distribution territories, stuff like that, what's my obligation as a U.S. company exporting goods and services abroad if a third party could put me at risk like that?
Lisa Mays:
Well, the Department of Commerce has a reasonable knowledge standard. So it's whether you knew the item would be diverted, end up with a prohibited end user, or had reason to know. So it's a reasonableness standard where you need make sure that your head is not in the sand, you're thinking ahead, you have diligence procedures, you have contracts with compliance clauses, you audit your various distributors or have some kind of mechanism. You track your products specifically by GPS to see if they're being sent to where you contracted to send them, all sorts of measures that can be put into place, but it comes down to heightened compliance actions.
Scott Maberry:
And I guess that's where the lawyers come in. So that's how you're helping your clients, I presume, by helping them understand what the obligations are and how to meet them, because it's not any one measure that works for everyone. And it's not the lack of any one measure that might put you at risk, necessarily.
Lisa Mays:
Exactly, yeah. It's a very dependent type of business, geographies you're operating in. The risk varies. It's all about a risk-based approach.
Scott Maberry:
And I guess then that comes back to the supply chain, because what we're talking about really is, where are my components coming from and where are my goods getting to? And the analog for services would be, who are my suppliers and who are my customers and who's getting the benefit of my services? And at a certain point, I'm going to be liable for bad guys getting ahold of either my services or my goods, unless I've taken adequate steps to prevent it.
Lisa Mays:
Exactly. Yeah, it all comes down to it and that focus on the supply chain.
Scott Maberry:
And so that's about what's going on with Russia. What about China? We've talked a lot on this podcast about the U.S.-China trade war. It continues to intensify. We're seeing even more escalation of it all across U.S. government regulatory activity. What are some of the latest actions the United States is taking with regard to China and the supply chain?
Lisa Mays:
Sure. We continue to see so many trade actions focused on China. We're really seeing this more of a protectionist approach. And of course, there are ways to continue as a U.S. company or non-U.S. company doing business in the U.S. and China. But the takeaway is that it's becoming increasingly costly, and more so restricted. And then we have, speaking of restrictions, the latest things like just on Friday, the outbound investment restriction proposed regulations were released. So that's on investments in certain AI, quantum computing and semiconductors in China that will be prohibited or subject to a notification requirement.
But focusing on supply chain, so China and supply chain, they absolutely go back to 2018 with the imposition of section 301 tariffs. And that's one of the trade actions that's continuing to impact companies today and continues to change. So the tariffs back in 2018 kept increasing in terms of scope. And then most recently, there was a four-year review by the United States trade representative who influence and oversees these tariffs. And the result was not at all a reduction, but an extension of these tariffs and massive increases in a specific tariff percentage, or really the import tax applied to certain goods. So he are doubling from 25% to 50% on imports of Chinese semiconductors, solar cells. We're seeing an increase in the tariffs applicable to certain battery types as well as certain battery parts. And even EVs, the tariff under section 301 is increasing from 25% to 100%. And that's going to take effect this year, whereas some of the other increases are going to take effect from the summer through 2026 at different set dates.
But there, the impact is massive. We're going to have to completely shift supply chains or take on a 75%, in some cases, increase in costs, which often make a supply chain untenable. So those are huge changes that everyone's aware U.S.T.R. was reviewing. There's some awareness that the focus would be on these types of items, batteries, EVs, solar. But it just comes out in a day, and then companies have a certain set number of months, if not a year or so, to adapt their supply chains or be faced with these new costs.
So these are really significant and difficult to contend with, and are all about pushing back on China for certain actions determined back in 2018 regarding IP theft and other predatory type actions. So there's a lot of debate on whether or not the 301 tariffs themselves are effective. There's been ongoing lawsuit that's still in play, but the near term and the short of it is that companies are facing these 301 tariffs right now and they're increasing right now.
And then otherwise in China, there are all sorts of other actions that continue to incentivize onshoring if not nearshoring. So for example, the U.S.M.C.A., the new NAFTA, the United States-Mexico-Canada agreement, really incentivizes near-shoring, because previously if you're sourcing from China, importing from China into the U.S., you have the 301 tariffs that are likely to reach your imports, as they cover so many goods. But if you're moving the sourcing and production to Mexico, there's a very good possibility that you can have a duty-free import into the U.S., which is significant. So some different factors at play. And I guess of course, we can't talk about supply chain without mentioning ADCVD.
Scott Maberry:
Which is anti-dumping and countervailing duties. So what's new in that field with regard to the supply chain?
Lisa Mays:
I'd have to say the latest would be solar. It's hard to talk about ADCVD in 2024 at all without solar. So we saw a couple years ago, the solar industry was entirely brought to a screeching halt by ADCVD, and that's because ADCVD duties themselves can be massive. They can be something up to even 500%, often in the 200% range. So it's very protectionist. It's designed to protect the U.S. domestic industry from subsidized or dumped cheap imports. Solar cells were the start, and then it was expanded to panels and modules. Then we moved on from China, added in Taiwan, and then had this circumvention case where companies moved their supply chain; they didn't necessarily source and produce the solar products in China, but they sourced the cells from China and then produced the panels and modules in what were deemed the Southeast Asian countries: Cambodia, Malaysia, Thailand and Vietnam.
And then this year, the biggest change is ... well, I don't know if I can say biggest because there's so many, but one of the big changes is a new ADCVD case being investigated. And that's on solar cells, whether or not assembled into modules from Cambodia, Malaysia, Thailand and Vietnam without any Chinese inputs. So there, you can see over the last two decades of those ADCVD cases, we're seeing if you moved your supply chain from China, then you moved it entirely outside of China, the duties are following. And the regulators are on the side of U.S. industry, and U.S. industry is pushing for these protections. So there's a lot of risk in certain goods specifically, but also in all sorts of supply chains, because even if you make a massive adjustment and redesign your supply chain, the tariffs are difficult because they continue to change. So what may be a safe and secure and reasonably cost supply chain might in two years be completely untenable.
Scott Maberry:
Yeah, that goes back to a point that we've made several times both to clients on this podcast about supply chains generally, how when the dominant force in global trade regulation was in favor of globalization, the whole idea was to make imports cheaper and increase the comparative advantage of each country and each particular good or component that they were good at making, decrease costs. And that benefited the consumer, no doubt, because that's how cheap goods were made during the globalization era.
And now, the emphasis seems to be moving very heavily toward protectionism and back toward almost a mercantilist ideal of international trade where, by government regulation, countries such as the United States and others are trying to encourage local, homegrown, domestic industries in these areas. One of the ways they're doing it is raising these incredibly burdensome import tariffs. And what you've just described, it's always been around, but it's been on the fringes in some industries, but now it's moving into really important industries, and more and more of them.
And so, the takeaway I think for our listeners, even if you're not in the solar module or solar panel or solar cell industry as either producers or consumers, whatever sector you're in, you've got to organize your supply chain, keeping in mind that a strong U.S domestic industry push from the sector that makes components in the United States that you might be sourcing abroad could lead to a new case any day. And that new case could lead to brand new, very high, very burdensome import taxes on your components. So we've got to be really careful and keep an ear to the ground on these regulations. And sometimes they hit without a lot of warning. But that's another way I know you're helping your clients understanding what the new cases are that are being filed, figuring out what they're going to cover, figuring out if there's a way to participate in those cases or to respond to them, and figuring out how that's going to affect your supply chain.
Lisa Mays:
Absolutely. Yeah, I mean, solar in particular, with the changes, it's wild because it's such a buzzword, solar. And you hear it, but really, there are so many different orders, let alone trade actions, that they don't sweep the whole industry under. So it's key to have a good trusted advisor either inside or outside of your company to help you keep up on these and to be involved or consulted in the decision-making processes where the supply chains will be and go through, because these trade actions have such a significant impact.
Scott Maberry:
Yep. And the companies that'll be rewarded in this whole situation are not necessarily any given sector or any given country's industry. It's going to be those companies that are able to anticipate and remain nimble when the changes occur, because really, change is inevitable in this area, and it's coming faster and faster.
Lisa Mays:
Definitely. I think we're seeing that it's not so possible anymore to design the perfect supply chain, because perfect today will not be perfect tomorrow.
Scott Maberry:
Exactly. And it's always been the case, but I'd say overall the trend from 1950 to 1990 or 2000 was trend toward less restraint on global trade. And now, the trend certainly from 2016 to the present is a trend toward more constraints on global trade. And I guess we should note here something that you've observed to me several times, that there's no political left or right on this issue, right?
Lisa Mays:
Yeah, it's interesting. I think it was common to expect a change from the Trump to the Biden administration in terms of protectionist trade policy. But I think seeing the Biden administration direct the DOJ to defend the section 301 tariffs put into place by the Trump administration in USTR is a great example of how these are actions, they are continuous regardless of political party.
Scott Maberry:
That's a really good point. And I want to talk to you about the Biden administration specifically in a couple minutes. But thinking about that case specifically, I know you're involved in that lawsuit, where thousands, literally thousands of companies challenged the Trump administration imposition of section 301 duties on goods from China, the ones that you just described that the Biden administration has increased. And the challenge was that USTR exceeded its authority in imposing a couple of rounds of those section 301 increases. And that case is being heard by the U.S. Court of International Trade in New York and appealed to ... I guess that would be appealed to the federal circuit, which ultimately could be appealed to the Supreme Court. I'm interested in your take on what's the likelihood of that case resulting in overturning of the 301 duties?
Lisa Mays:
It's impossible, of course, to predict litigation, but we've already seen the lower court find that there was presidential authority to order the expansion, so that the agency did not act outside of that authority. So it's an uphill battle on appeal, and I think it's pretty unlikely that we're going to see a change. We're seeing the offset now in practice, of course. The parties have stipulated that should plaintiffs prevail, there could be a refund of duties paid over the years, but it seems quite unlikely to happen.
Scott Maberry:
I guess if successful, that would be the largest mass refund of duties in history, or at least since some of those cases of the early 2000s that dealt with specific fees at the ports. So yeah, I kind of share your view. It was always a bit of a long shot that those cases would win. Now that the Court of International Trade has found in favor of the government, now if you're plaintiffs, you're hoping for a reversal at the federal circuit; not highly likely in my view either. So that's super interesting.
Okay. We've talked about China and solar, and we talked about Russia a little bit. Also, would say we can't really discuss supply chains without confronting the issue of tracing forced labor in the supply chain. What can you tell us about the issues there? Why do companies have to find themselves having to trace their supply chains?
Lisa Mays:
Sure. So here, it's all about forced labor. And of course since the Tariff Act of 1930, the import of products and materials mined, produced or manufactured wholly or in part from any foreign country using forced labor has been prohibited when importing into the U.S. But for the longest time, there was a consumptive demand exception to that prohibition, where if the demand basically exceeded the supply in the U.S., there were some cases where you were still able to import such goods. But in 2015, we saw that exception be thrown away. And then in 2021, we saw the UFLPA or the Uyghur Forced Labor Prevention Act, issued. And that's particularly significant also in the solar industry, and I can get to that in a bit, but for several different industries, including textiles and clothing and a few others.
And the significance there is that act created a rebuttable presumption that if you have any product, material mined, produced, manufactured wholly or in part in Xinjiang in China, that it's presumed to be made with forced labor. So any material from Xinjiang is significant, because a large ... I believe that's 45% if not 50% of the world's polysilicon, which is used not only in solar but also in semiconductors, comes from that region. So that means that all sorts of manufacturers all over the world who are sourcing the polysilicon, who then use it in their products and then import it to the U.S., need to make sure that they've traced or conducted diligence on their supply chain to understand the origin of every single little material going into the parts and components going into the end product.
So it can be difficult. Information is not always really shared; there, and also for business reasons, suppliers wanting to protect their own sources and not share. So they get cut out; all sorts of reasons. But the short of it is that when you're importing into the U.S., U.S. Customs and Border Protection, or CBP, can stop any import that it suspects was made with forced labor and require that you provide evidence to prove otherwise. And if it's a good under the UFLPA, you only have 30 days to provide that paperwork, and that paperwork has to trace down to the material levels.
So as you can imagine, the body of evidence is huge that would have to support that a specific material like cotton used in your clothing imported was not made with forced labor. And that might go down to the level of providing time sheets and pay stubs for the workers who sourced the cotton, made it into clothing. And it's a very high burden. I would say basically no one is able to gather this information in 30 days. So the point is to know your supply chain before you're importing and gather that evidence and have it handy to the extent possible, at least in some level, before you even start to import.
Scott Maberry:
Yeah, I want to highlight this for our listeners, and most of them who import from China probably know this, but you're talking about a rebuttable presumption that if the goods are coming from this region of the Uyghur region of China, I think it's the Xinjiang province, as you said ... I'm sorry, I'm not really pronouncing that right. I don't know how to pronounce it exactly right, but that's the province that's focused on in the UFLPA. If the goods have that province of China in the supply chain, U.S. customs can presume that those goods are made with forced labor, and you, the importer, have to prove that they were not.
And the idea that you'd have to prove that in 30 days, I think as anybody who's tried to do that, tracing your goods right down to where they were planted, where they were harvested before they were even made into clothing, or where the polysilicon was mined before it was ever turned into silicon ingots, or whatever the supply chain looks like for your particular good, that can't be done in the time allotted, really. And so the goods can then just be rejected from the United States. And so, how are you helping clients deal with that threat, given the fact that you can't really gather the information in time once the goods are received?
Lisa Mays:
So there, it's all about conducting the diligence ahead of time. You want to be screening and auditing, and even in-person audits of your suppliers. It's really important to invest resources to perform that diligence. And there are services that help conduct diligence. And you want to of course trace back to your materials level, your manufacturers, and have appropriate contract clauses in place, certifications as well. It's just key to get ahead of it because, as we've discussed, once the good is at the border, it's absolutely too late.
And then on the flip side, when you're conducting that diligence, it's important to recognize that CBP is actually, and the Department of Homeland Security, is using AI to identify problematic supply chains. So they are aware of specific suppliers that use forced labor. And we have the whole UFLPA entity list, but also certain goods, certain regions, the agency is using AI to connect the dots in a way that our feeble minds aren't able to really get ahead. So the diligence-
Scott Maberry:
It's all about being ready.
Lisa Mays:
Exactly.
Scott Maberry:
Yep. All right, well, we don't have a lot of time left, but I know that you mentioned the Biden administration just a few minutes ago. And so we're now in June of 2024. We'll either have a second Trump administration in seven months or a second Biden administration in seven months. But in the meantime, in the short term, does supply chain regulation remain a priority for the remainder of Joe Biden's first term?
Lisa Mays:
Absolutely. So we actually just saw an executive order come out on June 14th, and it's completely focused on bolstering supply chain resilience. So it's signaling that that's a focus, but importantly, creates a White House council on supply chain resilience that brings together the Secretaries of State, Defense and Homeland Security. And that council is going to meet regularly, they're going to conduct reviews regularly. And these reviews are going to focus on industries that are deemed critical to national and economic security. And the purpose will be to issue a report that we should expect to see the first of which before the end of this calendar year. So I think that's key as another step following the Inflation Reduction Act and all sorts of incentives for onshoring, if not nearshoring. We're also seeing efforts to secure supply chains at all different levels.
Scott Maberry:
And you would not expect those to change based on which party wins the White House?
Lisa Mays:
I wouldn't. I think that supply chains are going to continue to be under threat and it's going to continue to be important to U.S. industry to have safe and secure supply chains. And as you mentioned with The New York Times article kicking off this blog, that security, it's not just a U.S. concern, so working with our allies as well. And I think we'll continue to see this.
Scott Maberry:
Well, that's a great place to end. And I'm sure there'll be a lot more to talk about on this topic. And when we do, we'll get back with you. And I really appreciate you taking the time with us today.
Lisa Mays:
Fantastic. Thanks, Scott, and I'm looking forward to it.
Scott Maberry:
Thanks, Lisa.
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