What UFLPA’s First-Year Numbers Say About Compliance Challenges

Date: Monday, September 18th, 2023
Source: Sourcing Journal

Do something. That’s what Eric Choy, executive director of trade remedy and law enforcement at U.S. Customs and Border Protection’s Office of Trade, tells companies struggling to comply with the Uyghur Forced Labor Prevention Act, or UFLPA, to do first and foremost.

Choy is quoted in a new white paper by research and data analytics firm Kharon about the law’s “transformative” first year. Since enforcement began last June, CBP has detained more than $1.7 billion worth of goods suspected of containing inputs made with the coerced labor of persecuted Muslim minorities from China’s Xinjiang Uyghur Autonomous Region. This includes entities both within and outside China that use labor or incorporate materials from Xinjiang.

Apparel, footwear and textiles, together with industrial and manufacturing materials, have been CBP’s primary detention targets with a combined 1,806 detained shipments worth $98.8 million as of July. The numbers dovetail with the agency’s announcement last June that it would prioritize UFLPA enforcement for cotton, polysilicon and tomatoes, though this was later amended to include “red dates and other agricultural products, vinyl products and downstream products, aluminum and downstream products, steel and downstream products, lead-acid and lithium-ion batteries, copper and downstream products, electronics and tires and other automobile components.”

So far, just over 36 percent of shipments stopped by customs officials hailed directly from China, with Malaysia and Vietnam proving to be significant offenders as well. In terms of value, however, goods shipped directly from Malaysia and Vietnam have been worth more than six times those shipped directly from China—$1.4 billion versus $223 million—underscoring the challenge of third-country manufacturing when it comes to due diligence.

The risk is compounded by the lack of a de minimis threshold that allows the admission of seemingly insignificant amounts of materials with a nexus to Xinjiang, Kharon said.

“Since there is no de minimis threshold for the UFLPA, any product that contains even a trace amount of inputs made with forced labor is subject to a possible enforcement action,” it said. “The lack of a de minimis threshold combined with third-country detention statistics illustrate why due diligence into all suppliers, not just those located in China, is a core component for any forced labor risk management program.”

To avoid detentions, CBP recommends that importers establish robust due diligence procedures, including tracing the supply chain from raw material to the imported product, to verify the absence of forced labor risks such as labor transfers and ties to the Xinjiang Production and Construction Corps. It has worked to continually update its tools and guidance, including its Entity List of bad actors that engage in business practices that target Uyghurs and other ethnic groups. In March, the agency added a so-called UFLPA Region Alert function to the Automated Commercial Environment, which documents imports and exports, flagging any invalid or Xinjiang-based postal codes with warning messages, though it warned that this shouldn’t replace actual supply chain mapping.

But the “sheer volume and scope” of goods targeted under the UFLPA pose significant compliance hurdles for industry at large, especially as supply chains have increasingly become “globalized, complex and opaque,” Kharon said.

As the UFLPA enters its second year, these challenges necessitate doubling down on government guidance and cutting-edge data analytics to manage exposure to potential violations, the report said.

And Choy’s advice continues to ring true, particularly with the growing number of countries outside the United States, such as Canada, Germany and the broader European Union, that have enacted or are poised to introduce legislation to outlaw products made with forced labor. Others, like Australia, France and the United Kingdom brandish laws targeting human rights abuses.

“Adopting a proactive, risk-based approach to UFLPA compliance by adopting the necessary due diligence tools before a detention occurs will ensure [that] industry is prepared to manage evolving enforcement trends,” Kharon said.

[Read from the original source.]