Economic Security and Supply Chains

About

In recent years, many countries have been developing new legal systems and strengthening regulations to combat rising global economic security risks. It can be a daunting task for companies to respond appropriately to these various new laws and regulations. For example, exporting products and technologies not only requires compliance with the latest export control regulations of the exporting country; companies also have to be mindful of the risk that the export control regulations of a third country could apply outside the exporting country’s region. In addition, some countries have established “blocking rules” that deny the domestic validity of applicable law outside their regions, giving rise to a risk of conflict between applicable law outside the region and the laws of the destination country. Inbound and outbound direct investment introduces the complexities of navigating local investment restrictions, such as the revised Foreign Exchange and Foreign Trade Act of Japan, the newly enacted Act on the Review and Regulation of the Use of Real Estate, etc., and the US Foreign Investment Risk Review Modernization Act (FIRRMA). This is an area that frequently sees sweeping legal changes, including the Law for the Promotion of Security Assurance through Integrated Economic Measures (the Economic Security Promotion Act), which has recently become law in Japan. Companies also need to think about how their supply chains could be affected by export and import restrictions and economic sanctions such as those imposed during the US-China trade war. For example, the use of forced labor in the manufacturing processes of products may cause import clearance problems at US and Canadian customs. Companies need to be able to anticipate and deal with these risks. The picture is not all bad. Regional international agreements are expanding and enhancing international trade rules, creating opportunities for companies to enjoy the benefits of customs duties, among others. Regulatory risks and trade barriers Japanese companies face when expanding overseas can also be addressed through the use of WTO agreements and investment treaties. Baker & McKenzie has a global team of economic security and international commerce specialists working at our 76 offices in 46 jurisdictions around the world who can leverage our global network and their own extensive experience to give companies the advice they need on the various legal challenges they face. If you have any questions, pleasecontact us.

FDI Screenings

Countries are looking to improve their economic security by strengthening investment regulations. Our office’s diverse and experienced team is able to advise companies on the investment laws and regulations of every jurisdiction in which they operate, including:
  • legal advice related to the Foreign Exchange and Foreign Trade Act / relevant industry laws of Japan (e.g., prior filings related to inward direct investment and coordination with the government);
  • legal advice related to US investment screenings (e.g., legal analyses of the need for a response to the Committee on Foreign Investment in the US (CFIUS), assistance in notifying the US government, etc.);
  • legal advice related to China’s investment screenings (e.g., legal analyses of the need for a prior filing with the National Development and Reform Commission (NDRC) and the Ministry of Commerce, assistance with filings with the Chinese government, etc.); and
  • responding to investment-related regulations in other countries, such as EU member states.

Export Controls

We also advise on compliance with export control regulations in other jurisdictions and on countermeasures in the event of conflicts between blocking regulations in a country and applicable laws outside the region, including:
  • legal advice related to the Foreign Exchange and Foreign Trade Act of Japan (e.g., obtaining export permissions, creating parameter sheets and supporting the establishment of internal compliance programs);
  • legal advice related to the US Export Administration Regulations (EAR) (e.g., analyses of whether an EAR response is necessary, application for and obtaining of licenses from the US government and corrective action in the event of breach);
  • legal advice on China’s Export Control Law (e.g., analysis of whether permission is required and if so, application for and acquisition of permission from the Chinese government);
  • support on compliance with export regulations in every jurisdiction;
  • providing timely updates on changes in local export regulations;
  • assisting with export control compliance during and after M&As; and
  • ensuring a smooth export control compliance transition during business succession, etc.

Economic Sanctions

The scope of economic sanctions is expanding. We can analyze whether existing contracts and responses based on them are subject to sanctions and provide legal advice to minimize risks, including:
  • legal advice related to the Foreign Exchange and Foreign Trade Act of Japan (e.g., sanctions based on UN resolutions and responses to Japan’s own sanctions);
  • legal advice on economic sanctions in the US (e.g., analyzing whether primary sanctions will be imposed, examining the risk of the application of secondary sanctions and applying for and consulting with the Office of Foreign Asset Control (OFAC) of the US Treasury Department);
  • legal advice on economic sanctions in the EU (e.g., analysis of sanctions, license applications and prior consultations);
  • advice on other economic sanction compliance measures; and
  • advice on dealing with AML (Anti-Money Laundering) and CFT (Countering the Financing of Terrorism) measures.

Confidential Patent System / Intellectual Property and Intangible Asset Governance

The Confidential Patent System is an important part of the Economic Security Promotion Act and may affect corporate intellectual property strategies. With the revision of the Corporate Governance Code, companies are now being asked to go public in drafting intellectual property strategies that are integrated with their management strategies — a step beyond conventional intellectual property management methods. Our office is responding by helping companies formulate global intellectual property management and intellectual property strategies with a focus on secular patent systems. This includes advice on:
  • global IP management, management strategies by IP management companies and licensing strategy proposals;
  • intellectual property management, licensing and tax issues; and
  • data governance, data management and monetization.

Cyber Security, Data Protection and Government Access

Amid current international tensions, companies need to pay attention to laws and regulations concerning global data and systems management. We can give advice on system construction and data management that takes into account the requirements of national cybersecurity legislation, the possibility of government access to and blocking of data and regulations on data transfer, including:
  • compliance with the Chinese Cyber Security Law, the Cryptographic Law and the Personal Information Protection Law;
  • government risk assessment and systems construction advice for the US and elsewhere; and
  • opening branch offices in response to requirements under Japan’s Basic Law on Cyber Security.

Semiconductor Supply Chain Restructuring Strategy

Major countries around the world, including Japan, have recognized semiconductors as a key strategic material and are assessing the vulnerability of the semiconductor supply chain. These countries have announced that they will provide substantial support and implement countermeasures to improve the resilience of the semiconductor supply chain. Many national governments have announced that they will establish programs to support domestic investment in semiconductor manufacturing and R&D, work to attract advanced overseas semiconductor suppliers to their local jurisdictions and strengthen export controls related to semiconductor manufacturing technology. In cooperation with our overseas offices, we can provide a wide range of support based on the latest information, including:
  • advice on cross-border investment restrictions in semiconductor-related industries (e.g., in the US and Japan) and related legal advice and support in negotiations with government agencies;
  • advice on export control regulations in every jurisdiction (e.g., analyses of whether responses to export control regulations are required and support in the submission of export licensing applications);
  • support in determining the customs classifications of semiconductor-related products, etc. (i.e., support during discussions at the WCO);
  • support during ex-post import investigations; and
  • support in analyzing and formulating semiconductor supply chain strategies.

Natural Resources and Energy

Ensuring the availability of resources and energy, including raw materials and parts, is an important factor in economic security. The supply chain is being seriously affected by shortages of rare metals and semiconductors and automotive part procurement delays. When combined with the effects of COVID-19, delays in the delivery of automobiles, machinery and other products have become conspicuous. We are deeply involved not only in the problems of individual companies in this area, but also in the relevant policy issues. Our office analyzes the issues and provides accurate legal support, including
  • legal support for resource and energy projects, including economic sanctions and compliance;
  • advice on government procurement regulations;
  • advice on resource and energy legislation; and
  • advice on conflicts related to resources and energy.

Human Rights Issues in Supply Chains

Economic sanctions and import bans are increasingly being imposed on the basis of human rights issues in supply chains. Companies therefore have to respond to the risk that their supply chains contain human rights violations, including modern slavery, trafficking in persons and child labor. Our office collaborates with our global network to provide appropriate legal advice, including:
  • coordination with customs and support for the lifting of import bans on the basis of suspected human rights issues in supply chains; and
  • legal advice on reviewing human rights risks in supply chains (e.g., preparation and negotiation of CSR clauses in agreements with suppliers, methods for conducting efficient audits and the review of surveys).

WTO Agreements, Economic Partnership Agreements (EPAs), Free Trade Agreements (FTAs), Investment Treaties (BITs), Anti-dumping and Other Trade Remedies

We work with our partners across borders and provide legal advice under the various trade rules (eg, WTO agreements, EPAs/FTAs and investment treaties), support discussions with international organizations and negotiate with the governments of other countries. We also resolve disputes involving the various international trade issues companies encounter when expanding overseas and help them navigate export and import restrictions and analyze their business models, including supply chains. Our support includes:
  • legal advice on WTO agreements (e.g., analyses of WTO consistency and negotiations with governments);
  • legal advice on customs duties and rules of origin (e.g., use of EPAs/FTAs);
  • responding in WTO Dispute Settlement procedures (DSs);
  • responding in investor-to-state dispute settlement procedures (ISDSs), including legal advice and investment arbitration in relation to investment treaties (BITs);
  • responding to anti-dumping measures, countervailing duties and safeguarding measures by foreign governments; and
  • support in discussions regarding tariff classification.

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