National Security and Supply Chains

As a result, a number of existing trade tools are now used in new ways, including tariffs, import bans, export controls, sanctions and cross-border investment rules. Massive U.S. government spending and government contracting rules create additional incentives. Efforts of allied governments using similar tools in differing ways offer further business and compliance challenges.

Pillsbury’s global International Trade team assists clients in managing these trends in today’s geopolitical climate, engaging in strategic planning and in implementing comprehensive solutions across multiple jurisdictions.

Tariffs
The U.S. government uses tariffs to protect the industries it deems critical and increasingly as a political bargaining tool. Companies seeking to import goods into the United States must understand the complex web of tariffs on goods destined for the United States.

Trump’s Trade Agenda
The second Trump administration has made tariffs a central trade policy tool, leveraging existing legal authorities in new ways, including broad tariffs under the International Emergency Economic Powers Act, and introducing relatively novel concepts such as reciprocal tariffs. In response, governments across the world have threatened or imposed their own retaliatory measures. As tariffs continue to reshape global trade, companies must navigate evolving regulations, supply chain disruptions, and enforcement risks to ensure compliance and control costs.

U.S. Government Section 301 Tariffs
A wide number of goods imported from China into the United States are now subject to significant tariffs under Section 301 of the U.S. Trade Act of 1974. As a result, Customs and Border Protection has greatly increased its enforcement efforts related to tariff-shifting and identifying the country of origin of imported products. Companies must be prepared to analyze and understand the origin of their goods.

U.S. Government Section 232 National Security Investigations and Supply Chain Reviews
Successive administrations have conducted Section 232 national security investigations on imports and other supply chain reviews that have impacted or may impact companies globally. We handle appeals to the Court of International Trade, the Court of Appeals for the Federal Circuit, and the U.S. Supreme Court

Export and Technology Transfer Controls
Export controls are increasingly being used by the U.S. government to protect national security and supply chain interests. This includes controlling access to technology, design software and equipment for manufacturing in key sectors, and targeting companies of concern. Suppliers, sourcing manufacturers and companies involved in developing manufacturing capacity must understand the risks associated with U.S. origin products.

Export Controls to Protect U.S. National Security Interests
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has expanded its assertions of jurisdiction and used its Entity List as a tool to designate parties implicated in human rights abuses, parties allegedly contributing to China’s civil-military fusion program, and networks facilitating the conflict in Ukraine.

As a result, many companies doing business with multinationals or in the United States have been required to conduct more extensive reviews of their supply chains as well as design software, and manufacturing and testing equipment that can subject their products to assertions of U.S. jurisdiction.

End-Use Restrictions
In additional to traditional export controls, the U.S. increasingly imposes restrictions based on the end-user. BIS now requires a license for certain exports to military end-users in China, Burma, Cambodia and Venezuela. Additional rules apply for Russia and Belarus. At the same time, the U.S. government has published extensive advice to prevent circumvention of U.S. origin products into prohibited countries, including Russia. Countries must be vigilant to prevent such measures.

Global Economic Sanctions
Pillsbury helps clients navigate many novel sanctions issues across the United States, United Kingdom and European Union, including restrictions arising from recent dramatic changes in sanctions policies relating to Russia, China, Iran, Cuba, Venezuela, North Korea, Syria and Burma.

Application of Sanctions
Pillsbury has deep experience advising clients on compliance with economic sanctions imposed by the U.S. government under the International Economic Emergency Powers Act and the Trading with the Enemy Act, including sanctions regulations administered by the Treasury Department’s Office of Foreign Assets Control (OFAC) with respect to countries such as Iran, Cuba, Venezuela, Russia, Syria, North Korea, China and Myanmar/Burma, as well as Specially Designated Nationals (SDNs). We also advise on the EU restrictive measures against individuals, entities and third countries issued with the EU Common Foreign and Security Policy, and on UK sanctions regimes under the UK Sanctions and Anti-Money Laundering Act. We continue to help our clients navigate increasingly complex concerns.

Understanding Circumvention Risks
The proliferation of sanctions in response to the conflict in Ukraine has led to a global effort to prevent circumvention of sanctions imposed by the G7 nations. Sanctioned companies are increasingly sophisticated in hiding their ownership and involvement in global transactions. Companies must learn to navigate high-risk industries and jurisdictions in order to comply.

Scrutiny of Information Technology and Communications Supply Chains
In recent years, the U.S. government has implemented a number of tools allowing the review of certain technology transactions and inputs to U.S. telecommunications systems.

Commerce Department Review of ICTS Transactions
The Commerce Department is empowered to conduct CFIUS-like reviews of transactions involving the acquisition of “information and communications technology or services” (ICTS transactions) between U.S. persons and certain “foreign adversaries,” across six defined categories of products. Pursuant to this new authority, the Commerce Department has the authority to prohibit the transaction or impose mitigation measures.

Federal Communications Commission (FCC) Import Restrictions on Certain Chinese-Origin Telecommunications Equipment
On June 17, 2021, the FCC released its proposed rules to restrict the importation and marketing of telecommunications equipment that has been deemed to be a risk to national security. In 2019, the Secure and Trusted Communications Networks Act of 2019 directed the FCC to prepare a list of telecommunications equipment and services (the “Covered List”) which would identify certain Chinese- origin equipment that U.S.-based telecommunications service providers would be prohibited to use federal subsidy funds to purchase. The pending proceeding is considering which new rules are necessary to prohibit the importation and marketing of equipment and services on the Covered List through the refusal to grant equipment certification authorizations. The FCC also implemented a “rip-and-replace” program that reimburses telecommunications service providers for the removal and disposal of equipment on the Covered List.

Forced Labor—Import Prohibitions and Due Diligence
Global companies must deal with a multitude of complex regulations related to the prevention of forced labor. These typically take three forms: restrictions on imports of products created with forced labor; due diligence requirements; and reporting.

Restrictions on Imports of Products Tainted by Forced Labor
The Uyghur Forced Labor Prevention Act created a rebuttable presumption that all goods including components even partially sourced from the XUAR are the product of forced labor and are to be denied entry at U.S. ports. Similarly, the U.S. Tariff Act of 1930 imposes the authority for Customs and Border Protection to prevent the import of any goods produced by forced labor. Similar laws are being promulgated worldwide, including in the European Union. Companies must remain aware of their supply chains in order to ensure their products are not detained.

Global Due Diligence Requirements
The EU and UK have implemented stringent supply chain due diligence regulations requiring companies to identify, assess and mitigate risks related to environmental harm and human rights abuses across their entire supply chains, and related bans on products made with forced labor and/or deforestation. These regimes, including the EU Deforestation Regulation, the UK Modern Slavery Act and the forthcoming EU Corporate Sustainability Due Diligence Directive, amongst others, impose rigorous obligations on businesses, including those outside the EU and UK, with extra-territorial applications. Companies must ensure compliance through enhanced traceability, reporting and policy implementation, facing significant penalties for non-compliance. Similar laws are propagating worldwide.

Investment Reviews
The U.S. and a rising number of additional countries have created national security review mechanisms regulating both incoming and outgoing investments. As part of these reviews, investments are subject to increased scrutiny for potential impacts on critical supply chains.

CFIUS & Foreign Investment
Pillsbury’s International Trade lawyers regularly assist U.S. and non-U.S. companies in making submissions to the Committee on Foreign Investment in the United States (CFIUS), responding to government inquiries, and negotiating “mitigation agreement” terms when CFIUS seeks to impose conditions on foreign acquisitions of U.S. entities. Drawing on extensive experience across a broad range of regulatory systems, we provide comprehensive guidance, navigating clients through the complex interaction of multiple areas of regulation and compliance often involved in CFIUS reviews. Similar restrictions now exist in the United Kingdom and the European Union.

Importantly, CFIUS reviews include assessments on U.S. supply chain impacts, including the target’s supply relationships with the U.S. government, as well as the target’s own vendors. Careful analysis is needed to proactively address potential concerns before CFIUS and other FDI authorities.

Outbound Investment
In late October 2024, the Treasury Department issued a rule prohibiting certain investments by U.S. persons in Chinese semiconductor, supercomputing, quantum technology, and AI companies, and requiring notifications for certain types of investments in these sectors. Pillsbury has assisted a number of companies in understanding these rules and implementing appropriate compliance programs.

Funding Opportunities and Government Contracting Rules
In the last few years, a number of new laws have been passed which offer significant funding opportunities for entities seeking to do business in the United States. However, doing so requires complying with U.S. regulations on supply chains.

Ban on the Use of Certain Chinese-Origin Equipment by U.S. Government Contractors
A U.S. government-wide ban on contracts with any entity using equipment, systems or services that use products from Huawei, ZTE and other Chinese companies became effective on August 13, 2020. It is part of a series of U.S. rules aimed at excluding, and in some cases removing, Chinese-origin equipment from domestic telecommunications networks. Most of these rules apply to U.S. government networks, but some extend to private sector companies that use covered telecom infrastructure and services with no nexus to the U.S. government.

Emphasis on U.S. origin products and funding
“Made in America” requirements under the Infrastructure Investment and Jobs Act and the new Trump administration’s focus on increasing investment into domestic U.S. manufacturing activities by global companies means that contracting with the U.S. government is becoming increasingly complex. Pillsbury has assisted a number of clients in this area, including by approaching key U.S. policymakers to help secure government contracting opportunities.