ADG Insights | No, It's Not Only About China: Why EU Businesses Need To Know About US Department Of Defense And Other US Government Supply Chain Requirements

Author:Mr Robert Taylor
Profession:Hogan Lovells

The export of military equipment from the European Union (EU) to the United States (US) is substantial. From 2014 to 2016, arms exports from the EU to the US totaled $7.6 billion, a figure that does not include the sale of other supplies, including communications equipment, to the US Department of Defense (DoD) and other government agencies.

In order to maintain competitiveness to sustain or even to grow these exports, EU manufacturers of equipment and supplies for sale to US government entities must track the emerging supply chain requirements, develop programs to ensure supply chain integrity, and be ready and able to engage with the US DoD and other US agencies to explain how their supply chain integrity programs protect US national security and meet emerging regulatory requirements.

Supply chain integrity has become a hot topic in US defense circles and in US trade policy. Supply chain integrity is ensuring that supply chain risks are minimized. The definition of supply chain risk according to DoD Instruction 5200.44 is "the risk that an adversary may sabotage, maliciously introduce an unwanted function, or otherwise subvert the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of a system so as to surveil, deny, disrupt, or otherwise degrade the function, use, or operation of such system."1 Harm can come from parts that do not meet specifications and, therefore, provide diminished performance. In addition, harm can come from components that include an "unwanted function" that allows an adversary to sabotage functionality or that beacons back to an adversary, providing invaluable insights on the activities and whereabouts of the equipment into which the component is incorporated.

Understanding US policy concerns about China and why they matter to your company

The publicly-reported focus has been largely on China, and on the transformative role that 5G technology is expected to play, along with the potential for Chinese equipment manufacturers to imbed espionage capabilities into that equipment.

But Chinese parts are widely-used in manufacturing processes around the world, including in EU countries. For this reason alone, it is essential that forward-looking businesses in Europe and their legal advisors become familiar with emerging US supply chain integrity programs. In addition, the emergence of security as a possible "fourth pillar" in the DoD acquisition process - along with the...

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