Category: Trade

Chip Shortage? Now it’s a Ship(ping Container) Shortage

The never-ending impacts on the auto supply chain continue. We have written extensively on the shortages of chips and other parts, as well as the varied causes for these shortages.  Automakers are currently feeling the disruptions of the crisis in Ukraine and sanctions against Russia on their supply chains.  This post deals with yet another challenge—a shortage of shipping containers and cargo vessels.

The global backlog on shipping transportation has been well documented.  An industry article last year, “Where are all of the containers?” concluded the domino effect of a shortage of container manufacturing before the pandemic was compounded with the pandemic related delays. Containers were stuck in inland ports, warehouse locations, or gobbled up by the highest bidder.

In November, the Washington Post reported that major retailers like Ikea were reprioritizing the products they were shipping via containers to focus on “lightweight” and “pliable” products to fit more in each container. This prioritization does not bode well for vehicles, which take up far more space than other consumer products. The Post report also noted approximately 3 million containers were stuck at various locations due to a lack of labor to transport them. Vox followed shortly after, claiming containers were “wrecking” the supply chain.

The situation has not improved. The New York Times analyzed the global shipping industry and concluded that the shipping constraints were unlikely to improve in 2022.  Just this week, a massive cargo vessel carrying up to 4,000 vehicles (and 1,500 rare cars) caught fire and sank, reportedly destroying up to $400 million of vehicles.  Fortunately, the crew was safely rescued, but manufacturers and car buyers alike who had long awaited the scarce space on a container ship saw their new vehicles – rare Bentleys, Porsches, and Lamborghinis – go up in flames.  VW was apparently hit particularly hard, with a large portion of the vehicles on board slated for new VW car owners.

What will happen next? At least one container company cited trends toward increased shipping container manufacturing and regionalization of manufacturing and sourcing as potential avenues for relief. As more and more supply chain partners look to decrease the distance parts and supplies have to travel, and as labor markets start to normalize, the industry is hoping the competition for shipping containers will begin to ease.

© 2022 Foley & Lardner LLP

Article By Lauren M. Loew of Foley & Lardner LLP

For more articles on the chip and ship shortage,  visit the NLR Utilities & Transport section

Federal Trade Commission Implements Annual Adjustments to Hart-Scott-Rodino Notification Thresholds

The Federal Trade Commission (“FTC”)’s adjusted notification thresholds for the Hart-Scott-Rodino Anti-Trust Improvement Act of 1976 (“HSR Act”) for 2022 have gone into effect beginning February 23, 2022. The “size of the transaction” thresholds have increased to $101 million (from $92 million) and $403.9 million (from $368 million), and the “size of the person” thresholds have increased to $20.2 million (from $18.4 million) and $202 million (from $184 million). The new thresholds apply to transactions that close on or after February 23, 2022, while the prior “size of the transaction” and “size of the person” thresholds will apply to transactions closing before February 23, 2022.

The HSR Act requires the parties to a merger or other M&A transaction to file a notification of the transaction with the FTC and the Department of Justice (“DOJ”) if the transaction meets the “size of the transaction” test and the parties meet the “size of the person” test. These dollar thresholds are adjusted annually based on changes to the United States gross domestic product.

Notification is required if (a) the transaction is valued at more than $403.9 million, regardless of the size of the parties; or (b) a transaction is valued at more than $101 million, but not more than $403.9 million, and, generally, one party has total assets or annual net sales of at least $20.2 million and the other party has total assets or annual net sales of at least $202 million.

If notification is required, the FTC and DOJ will have 30 days from the date on which both parties file their notices to review the competitive effects of the transaction. Prior to the expiration of this 30-day review period, the FTC or DOJ may make an additional request for documents or information from either or both parties. The parties will not be permitted to close the transaction until the 30-day review period expires, or if the FTC or the DOJ has made an additional document or information request, until 30 days after the agencies confirm that the additional request has been satisfied in full. In the past, parties filing HSR Act notifications ordinarily could request an “Early Termination” of the 30-day waiting period. However, the FTC and DOJ announced, on February 4, 2021, that they were temporarily suspending the Early Termination practice during the transition to the new Biden administration. The agencies have not yet announced when they will resume the Early Termination practice.

The FTC also announced that the maximum civil penalty amount for failure to comply with the premerger notification rules of the HSR Act has increased to $46,517 per day, from $43,792 per day.

© 2022 Giordano, Halleran & Ciesla, P.C. All Rights Reserved

Article By Craig Ismaili and John Sikora of Giordano, Halleran & Ciesla, P.C.

For more articles on trade, visit the NLR Antitrust & Trade Regulation section.

Russian Invasion of Ukraine Triggers Global Sanctions: What Businesses Need to Know

The Russian invasion of Ukraine has triggered swift international retribution. Global powers—including the European Union (EU), the United Kingdom (UK) and the United States (US)—have announced sanctions as the crisis in Europe escalates. As governments expand these sanctions, businesses dealing in Russia or with the Russian government are urged to take immediate steps to ensure compliance. This On the Subject outlines the scope and applicability of these sanctions in each major jurisdiction.

IN DEPTH

EUROPEAN UNION

Targeted Sanctions on Entities and Individuals

In addition to the sanctions against Russia already in place following its annexation of the Crimean Peninsula, cyberattacks and human rights abuses (which were extended until 31 July 2022, and will likely be extended again), the Council of the European Union imposed restrictive measures on 21 February 2022, on five additional individuals (Aleksei Yurievich Cherniak, Leonid Ivanovich Babashov, Tatiana Georgievna Lobach, Nina Sergeevna Faustova and Aleksandr Evgenevich Chmyhalov) for actively supporting actions and implementing policies that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine. The designated persons are members of the State Duma of the Russian Federation, and they were elected to represent the illegally annexed Crimean Peninsula and the City of Sevastopol on 19 September 2021, as well as the head and deputy head of the Sevastopol electoral commission.

On 23 February 2022, following a joint press statement of the Presidents of the European Commission and Council, the European Union extended the existing sanctions framework to cover all of the 351 members of the Russian State Duma who voted for the recognition of Donetsk and Luhansk as independent entities. The European Union also extended sanctions on an additional 27 high-profile individuals and entities who have played a role in undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

The restrictive measures include asset freezes, a European Union-wide travel ban and a prohibition from making funds available to the listed individuals and entities. Pursuant to European Union asset freezes, all funds and economic resources that belong to, are owned, held or controlled by a designated person are frozen. “Ownership” is triggered by a party holding more than 50% of proprietary rights in an entity or a majority interest in that entity. Therefore, entities owned by designated individuals will also be affected by the targeted sanctions.

Economic Restrictions

The European Union also imposed various economic restrictions on the Donetsk and Luhansk regions, specifically:

  • An import ban on goods from those regions;
  • An export ban on certain goods and technologies;
  • A prohibition on tourism services; and
  • A restriction on trade investments related to certain economic sectors.

Financial Restrictions

Notably, the European Union also imposed a sectoral prohibition to finance the Russian Federation, its government and its Central Bank in the hope of limiting the financing of escalatory and aggressive policies.

Germany also put on halt the certification process for the North Stream 2 pipeline, which is meant to deliver natural gas directly from Russia to Germany. The pipeline is owned by a subsidiary of Gazprom.

Applicability of EU Sanctions

The sanctions announced on 21 February and 23 February have been published in the Official Journal of the European Union and take effect immediately. New sanctions are directly applicable in all EU Member States, with existing penalties in place at a Member State level in relation to any breaches.

EU sanctions are broad in scope and apply to any person inside or outside the territory of the European Union who is a national or is incorporated under the laws of a Member State, as well as any legal person in respect of any business done in whole or in part within the European Union. Likewise, any events taking place within the territory of the European Union, including its airspace and on board any aircraft or vessel under the jurisdiction of a Member State, would be subject to the EU sanctions.

Further Developments

In a statement on 24 February, EU President Ursula von der Leyen announced that the European Union will present a further “package of massive, targeted sanctions” aimed at strategic sectors of the Russian economy in response to Russia’s continued escalation of the conflict. The new measures will block Russia’s access to technologies and markets that are key for Russia, freeze Russian assets in the European Union and stop the access of Russian banks to European financial markets. The further measures could include Russia being removed from SWIFT (the Society for Worldwide Interbank Financial Telecommunication), which is the worldwide communication system used by banks.

The European Union may also expand the sanctions to target those who “provide support or benefit from the Russian government” as a response to Belarus support for Russia.

UNITED KINGDOM

UK Prime Minister Boris Johnson announced a “first barrage” of sanctions against Russia with the designation of five Russian banks and three high-net-worth Russian individuals. The sanctions have been imposed pursuant to the recently amended Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855).

  • Designated entities: IS Bank, Rossiya Bank, PJSC Promsvyazbank, JSC Genbank and JSC Black Sea Bank Development and Reconstruction.
  • Designated individuals: Gennady Timchenko, Boris Rotenberg and Igor Rotenberg.

Similar to the EU sanctions, any assets held in the United Kingdom by the individuals concerned will be frozen, and the individuals will also be banned from travelling to the United Kingdom. There will also be a prohibition on all UK individuals and entities from having any dealings with the designated entities and individuals.

Further Developments

The UK government stated it will further extend targeted sanctions to the Russian politicians who voted to recognise the independence of Donetsk and Luhansk and economic restrictions currently applicable to the Crimean Peninsula to the Donetsk and Luhansk regions. On 23 February, Prime Minister Boris Johnson warned London bank chiefs to expect tougher sanctions on Russia if the crisis in Ukraine escalates.

The UK government is likely to follow the European Union lead with respect to additional and broader sanctions (i) seeking to curtail Russia’s ability to raise funds in UK markets, prohibiting a range of high-tech exports and further isolating Russian banks from the global economy; (ii) targeting the Russian financial sector and trade; and (iii) prohibiting Russia from issuing foreign debt on UK markets.

In line with previous statements from the UK government, on 24 February Prime Minister Boris Johnson announced it will take measures to exclude Russian Banks from London’s financial system “stopping them from accessing sterling and clearing payments through the UK” and limiting the amount of money the Russian nationals will be able to deposit in their UK bank accounts.

UNITED STATES

The US sanctions announced immediately after the beginning of the current crisis effectively prohibit US persons from engaging in any economic activity with the breakaway Donetsk and Luhansk “republics.” This includes investment, exports to and imports from these regions. US President Joe Biden subsequently announced a new set of sanctions aimed at cutting off Russia from western financing and targeting high-net-worth Russian individuals.

Targeted Sanctions

The United States imposed new sanctions against two banks and three individuals who are the sons of three previously sanctioned President Putin inner circle members.

  • Sanctioned entities: Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries.
  • Sanctioned individuals: Denis Aleksandrovich Bortnikov, Petr Mikhailovich Fradkov and Vladimir Sergeevich Kiriyenko.

As mentioned above, the fathers of the newly sanctioned individuals are already subject to US sanctions. These new sanctions aim to prevent the previously sanctioned individuals from transferring their assets to family members to evade sanctions. Any entities owned 50% or more by sanctioned individuals will also be sanctioned entities.

The United States has also subjected Nord Stream 2 AG, the Swiss company building the Nord Stream 2 natural gas pipeline from Russia to Germany, to sanctions.

Financial Restrictions

In addition to targeted sanctions, the United States adopted Directive 1A under Executive Order 14024. This directive expands existing sovereign debt prohibitions applying to “US financial institutions” to cover participation in the secondary market for bonds issued after 1 March 2022, by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation. These restrictions previously applied only to participation in the primary market for this debt.

“US financial institutions” is defined broadly and includes all US entities and their foreign branches which engage in activities as “depository institutions, banks, savings banks, money services businesses, operators of credit card systems, trust companies, insurance companies, securities brokers and dealers, futures and options brokers and dealers, forward contract and foreign exchange merchants, securities and commodities exchanges, clearing corporations, investment companies, employee benefit plans, dealers in precious metals, stones, or jewels, and US holding companies, US affiliates, or US subsidiaries of any of the foregoing.”

Further Developments

During his speech on 22 February, President Biden announced that more measures would be imposed in the event of Russia’s invasion of Ukraine, including additional sanctions targeting Russia’s biggest banks and export control measures. Considering President Putin’s launch of military operations in Ukraine, it is expected that the United States and its allies will announce “further consequences” for Russia on 24 February.

GLOBAL

Canada, Japan and Australia have also announced sanctions against Russia in response to the Ukraine crisis, including targeted sanctions against Russian individuals and financial institutions, and an import/export ban of goods on the Donetsk and Luhansk regions. Canada and Japan also implemented new prohibitions on dealings in Russian sovereign debt.

IMPACT ON BUSINESS 

If you or your company have dealings with Russian entities or individuals:

  • Immediately conduct a thorough review of your business agreements to ensure you have no dealings directly or indirectly with designated individuals or entities, and if there is any connection to designated people, promptly seek out legal advice;
  • Ensure you have robust sanction compliance measures to screen third parties which may be subject to sanctions; and
  • Monitor the developing situation and seek out legal advice if concerned about potential breaches.
© 2022 McDermott Will & Emery