The mounting tension on the Korean Peninsula poses the risk of another global supply chain interruption. Last week, General Motor’s CEO Cliff Akerson expressed concern regarding the growing lack of stability in the Peninsula and its influence on manufacturing there. Some have even opined that North Korea’s intention is not to inflict physical harm on its neighbor but rather to inflict financial injury upon it. Whatever North Korea’s goals may be, the situation brings into sharp focus the importance of managing and protecting supply chain integrity.
Building the right legal framework to support a supply chain is an essential element to ensuring its integrity in the face of global challenges. Taking an active interest in the terms and conditions of a supply agreement and winning points wherever possible in negotiations can make an enormous difference down the road when supply chain disruptions are threatened or occur.
Here are some ways to build integrity into supply chains, particularly when they are international in nature. A complete article on the issue is available here: http://wnj.com/Publications/Rising-Tensions-in-North-Korea-and-Supply-Chain-In.
- Choosing the law that applies to the interpretation of a supply agreement and disputes arising with the supplier is critical. Whatever law is ultimately settled upon, it is most important to understand the law that applies – to contemplate how the applicable law will influence and impact the resolution of supplier disputes that may be reasonably anticipated and prepare for expected outcomes.
- Settling upon a mechanism in a supply agreement that produces enforceable results is also imperative. There is no bilateral treaty or multilateral international convention in force between the U.S. and any other country regarding reciprocal recognition and enforcement of judgments from our courts. International supply agreements often call for disputes to be arbitrated. The arbitral forum as well as language and location of any arbitration should be carefully considered with assistance of counsel.
- A buyer may prefer to see a force majeure term entirely omitted, or, if not omitted, at least buyer friendly in nature and narrowly tailored to circumstances that are addressed by its supply chain structure. Buyers prefer that supply agreements ensure that risk of loss remains with the supplier as long as possible and provides for the types of damage that will be reimbursed in event of breach. A buyer friendly termination term may also prove vital to moving on when there is a threat to supply.