Forced labor is a significant and alarming issue that has existed in various forms throughout human history. Two of the most famous examples are slavery in the United States and concentration camps in Nazi Germany, yet even as we sit here in 2023, the issue continues to make headlines, raise concerns and attract the attention of lawmakers across the United States and throughout the world.
The concept of forced labor encompasses any instance in which people are compelled or required to provide work or services against their will. Modern day estimates are that more than 27 million people in the world are currently being exploited by forced labor, including more than 17 million who are being forced into work by the private sector.
The issue certainly isn’t going away. In fact, in some parts of the world, it is getting worse. As a result, the U.S. government continues to keep a close eye on forced labor – not just on working to prevent the practice, but also on preventing the importation of goods that have passed through forced labor at any point during their manufacturing or distribution.
One of the notable ways that the U.S. has cracked down on this abhorrent practice is through the Uyghur Forced Labor Prevention Act (UFLPA), which targets the Xinjiang region of China. The UFLPA prohibits the importation into the U.S. of any goods that were produced, manufactured or mined in the Xinjiang region, which has a history of human rights abuses against Uyghur Muslims.
U.S. Customs and Border Protection (CBP) maintains a list of entities that are known users of forced labor. In turn, any product that is found to be associated with any of these entities – or, the region, in the case of Xinjiang – is banned from importation into the U.S. The only exception is if the importer can prove through supply chain tracing, or an alternative method of comprehensive due diligence, that the product indeed did not pass through forced labor at any point in its lifecycle.
CBP recently published a dashboard that provides real-time statistics related to UFLPA reviews and enforcement actions. This statistical snapshot includes what goods have been detained and what the corresponding dollar amounts are.
Of course, that’s mentioned not to scare you. Rather, it’s important to understand that products are getting stopped by customs, goods are getting denied at the border, and importers are getting flagged for audits, which means their overall import program is getting examined. The ramifications are quite serious and not to be taken lightly.
However, it’s important to note that this issue does not simply affect goods that were manufactured using forced labor. Even beyond that, it’s about goods that have passed through or even touched forced labor at any point in the supply chain.
So, anyone who does business in China – and particularly the Xinjiang region – needs to fully grasp the importance of supply chain mapping.
Essentially, there are more eyes on a company’s supply chain than ever. Cybersecurity concerns and lingering pandemic ramifications are two of the reasons why supply chains are under particular scrutiny these days. But the increased emphasis on forced labor has truly placed a premium on supply chain mapping, particularly as far as U.S. imports are concerned.
There is a notable environmental, social and governance (ESG) element to this as well. ESG, an organizational framework and strategy regarding environmental, social and corporate governance issues, has seen a rapid rise in popularity over the last several years. Estimates are that up to 85% of investors consider ESG factors when researching potential targets. Companies are learning that their customers (and private equity firms) care about social issues more than ever – and the fair and ethical treatment of workers is a prominent matter under that umbrella.
Importers, in particular, are quickly realizing that they need to care about this issue just as much as their customers do. And on a larger scale, they need to care about it just as much as the United States government does. If they don’t, they’re going to face their own issues, including but not limited to potential financial penalties and the long list of hassles that comes with having products turned away at the U.S. border.
Given the priority of preventing forced labor, Baker Tilly spends a significant amount of time helping clients in the ESG space as it pertains to forced labor prevention. Among other areas, our customs and global trade services practice can help determine products’ country of origin through supply chain mapping by way of GPS data visualization, or we can assist with understanding the complex elements of the UFLPA. Additionally, we can assist with the requirements imposed by CBP (including best practices and other due diligence strategies). And of course we also help clients take full advantage of government procurement programs such as the Buy American Act or the Inflation Reduction Act.
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