Date: Thursday, March 16, 2023
Source: Sourcing Journal
On Monday, the Uyghur Forced Labor Prevention Act (UFLPA) postal code enhancement will take effect, compelling importers to provide another layer of geographically identifying information about their suppliers in China.
Companies bringing in goods from the country must update their Manufacturer Identification Codes (MID) to include not just a supplier’s street address and province, but their postal code, which will allow Customs to more readily flag shipments originating from within the Uyghur Autonomous Region (UAR). Importers that input a postal code located within the territory covered by UFLPA restrictions will receive a warning message, and those that don’t provide postal codes for their manufacturers will see their shipments “remain in reject status and will not be accepted in the Cargo Release system,” CBP wrote in a memo this week.
“This new regulation is basically ministerial”—an added data element to the filings importers are already making with CBP, according to Laura Rabinowitz and Donald Stein, shareholders in Greenberg Traurig’s International Trade practice. The law firm’s clients all have supplier addresses in their vendor databases, “although we have seen, as clients are preparing for implementation of the new regulation, that factory addresses sometimes do not include postal codes and sometimes there are clerical errors in the database,” they added.
Obtaining this information “should not be an onerous task for anyone,” Rabinowitz and Stein said. Apparel importers doing business in China have been working to clean up their vendor directories to ensure that all addresses include accurate postal codes. “For companies that have robust trade compliance departments, this is not being considered a ‘challenge,’” they added. Trade compliance is typically an easier lift for larger companies that have open communication with their vendors through local sourcing offices or buying agents that help manage overseas relationships. “This may be more of an issue for smaller importers, who often have fewer trade compliance resources,” they said.
The regulation actually could benefit CBP and importers. “The goal of the UFLPA legislation is to make sure importers have visibility into their supply chains and eradicate any indications of forced labor,” Rabinowitz and Stein said. “The new postal code requirement is an exercise in expanding that visibility, which is consistent with the goal of the legislation.”
CBP hasn’t published a list of prohibited postal codes, noting that “Importers have an obligation to conduct due diligence on their supply chain” using their own resources. “One cannot totally discount what must have been a CBP concern that if it published a list of postal codes which were ‘off limits,’ unscrupulous importers would make sure never to use such codes, regardless of where their suppliers may be located,” Stein and Rabinowitz told Sourcing Journal.
However, falsifying postal code information would amount to customs fraud, “and could subject an importer to both civil and criminal penalties,” they warned. “There are always some companies that are willing to take this risk, but most companies will comply with the new requirement and provide the correct postal code.” What’s more, CBP will be reconciling postal codes with addresses using its Automated Commercial Environment (ACE) validation process, which has been programmed to flag discrepancies. The law firm expects the rollout of the postal code provision to go smoothly for its clients, though shipments could face delays “if there are inaccuracies or clerical errors in the data reported.”
Salvatore Stile, founder and president of Alba Wheels Up, said it could be a mad dash to get postal code information integrated into MIDs before Mar. 18, but the freight forwarder and customs broker has communicated with its clients about their responsibilities to head off any issues. The CBP directive is “not a surprise by any extent,” given that the UFLPA took effect in June 2022 and most importers have been taking a hard look at their sourcing partnerships in the wake of other challenges to doing business in China, Stile said.
However, “Not all importers are of a size to be able to monitor all these compliance issues,” he added. “Some of them are mom-and-pop, some of them are multinationals, but for all of them this is a re-emphasis of why a good, strong, knowledgeable, proactive customs broker should always be utilized to protect an importer from their blind spots.” Alba executive vice president Vince Iacopella serves on CBP’s Advisory Committee on Commercial Operations, giving the firm a greater degree of perspective—and some advance notice—about potential regulatory actions and legislation that could impact their shipments.
Stile believes companies should be thinking well beyond digging up postal codes when it comes to ensuring compliance. Alba is “on the cusp” of signing a contract with a supply chain traceability solutions provider in the coming months, which will help the customs broker and its clients across all import categories identify the origin of shipments and the location of factories before interactions with CBP. “If a shipment is flagged for inaccuracy, you’ll have a Customs examination, and with that, [an importer] will be asked to provide detailed documentation which could take weeks to get if they’re not tight with their factories,” he said.
New CBP regulations and importer responsibilities “should not be taken lightly, especially with the trade issues happening with China for the last couple of years,” he added. “Compliance, compliance, compliance is my theme for this year and next year. I think importers now more than ever need to be very aware.”
Matt Haffner, vice president of customs brokerage at OEC, believes that requiring importers to add postal codes to MIDs could ultimately end up saving them time and money, as they will now be alerted to a shipment’s ineligibility for entry before it departs for a U.S. port. “The broker would get a rejection of the entry indicating that this is a possible UFLPA violation, so they’re not going down a path where the entry has been tentatively accepted and then subsequently rejected,” he said. Importers must go through a “laborious rebuttal process” if they believe rejected goods should be cleared for entry, and that can be both “time consuming and costly.”
“It could take weeks or months” to fight that fight, and the shipment may not make it into the country at all. “And in the meantime, your goods are in limbo and accumulating huge amounts of storage fees.” Inputting a zip code is a simple step that could help importers catch at-risk shipments before they leave the manufacturer in China, he said.
About 80 percent of the firm’s clients’ MIDs already contain postal codes, Haffner added. “The other 20 percent is where we may run into some difficulties if we don’t get that information either directly from the importer or off of the commercial documents that we receive to make an entry declaration.”
With this new UFLPA requirement, and others coming down the pipeline, “It behooves an importer to know their supply chain—and their suppliers’ supply chain—from beginning to end, from raw materials to labor to the finished product,” Haffner said. Even if goods are being manufactured outside of the UAR, Customs is adding to its Entity List of banned suppliers “that source material from Xinjiang or from persons working with the government,” according to the Department of Homeland Security’s website. The list contains businesses known to have employed forced labor to make or mine goods, as well as entities known to have recruited, transported, harbored or received forced labor or persecuted groups like the Uyghurs.
Importers should be focused on mapping their supply chains and identifying bad actors before CBP does, Haffner said. “If you come across what you believe to be a violation, you can address it and seek alternative suppliers.”
“Rather than waiting for customs to find out for you, it’s in your best interest to do some homework now up front,” he added.