Detainees listening to speeches in a camp in Lop County, Xinjiang, April 2017
All countries claim that they have outlawed slavery. But slavery still exists. Today we refer to slavery as “forced labor.” Forced labor can be imposed by State authorities, by private enterprises, or by individuals. It is observed in all types of economic activity and exists in every country. But a particularly pernicious form of slavery occurs in China.
The People’s Republic of China has arbitrarily detained more than one million Uyghurs and other mostly Muslim minorities in China’s far western Xinjiang Uyghur Autonomous Region. The US Department of Labor reports that 100,000 Uyghurs and other ethnic minority ex-detainees in China may be working in conditions of forced labor following detention in re-education camps.
It is commonly believed that Europe leads the US in environmental, social, and governance legislation and enforcement. However, no nation’s enforcement of any ESG issue comes close to the US Customs and Border Protection Agency’s enforcement of the Uyghur Forced Labor Protection Act. Brian Carelli, vice president of sustainability and partnerships at Infor Nexus commented that “the US surprisingly leapfrogged Europe very quickly with UFLPA.” Infor Nexus provides a solution that connects physical and financial supply chains and provides end-to-end visibility and supply chain agility.
CBP statistics show that more than half a billion dollars of goods presumed to have been made by Uyghur slave labor have been detained and prohibited from entering the country since active enforcement of the UFLPA law began on June 21st of last year.
5,562 shipments were detained at the US border since enforcement began. Of these, 2,583 were denied entry into the US. The value of the shipments detained was over half a billion dollars.
The detentions have occurred across a variety of industries. But electronics; industrial and manufactured; and apparel, footwear, and textiles make up the bulk of products detained. But forced labor is even being used in the Chinese sea fleet and seafood detentions are occurring as well.
Surprisingly, most of the goods seized did not originate in China but rather in Malaysia and Vietnam. In the case of goods detained from Malaysia, manufacturers in those countries were producing goods often made with extractive materials that were mined and processed in Xinjiang. In the case of Vietnam, it was more likely they were making apparel with cotton grown or processed into fabric in Xinjiang.
Outside of the U.S., several countries have enacted legislation to ban products made with forced labor. However, these regulations don’t have the same bite as the US law. What gives the US act teeth, according to Ethan Wooley an executive at Kharon, is that “the ‘rebuttable presumption’ part of UFLPA is truly unique.” Anything coming out of Xinjiang is presumed to have used forced labor unless you can prove the negative.” There is also a lack of a de minimis exception; this means that even an insignificant input of product produced in whole or in part with forced labor could result in enforcement action.
According to Kharon, the attorneys who have worked on UFLPA, and were willing to speak publicly on it, are not aware of any company that has overcome the rebuttable presumption. Kharon sells a global risk analytics platform being used by the CBP to aid in UFLPA enforcement and by importers who want to make sure they are not unwittingly buying goods mined, produced, or manufactured with slave labor from Xinjiang.
The Uyghur Forced Labor Protection Act is Complex
The UFLPA sounds straightforward. The law directs the Forced Labor Enforcement Task Force to develop a strategy for supporting the enforcement of the prohibition of the importation of goods into the United States manufactured wholly or in part with forced labor in the People’s Republic of China, especially in Xinjiang. However, experts on the law explain that there are myriad complexities associated with UFLPA.
First, according to Jackson Wood the director of global trade intelligence at Descartes Systems Group, “the CBP is getting more sophisticated in their pre-entry due diligence” and their ability to flag shipments that may be higher risk.” In addition to the Kharon technology, they are using an AI-based solution from Altana to identify bad actors. Descartes is a leading provider of global trade intelligence.
However, CBP does not just depend on technology. The Forced Labor Enforcement Task Force, established by the UFLPA Act, proactively targets commodities and subregions in Jinjiang where they believe more intelligence is needed to learn more about the forced labor issue. This advisory board, in turn, works with NGOs.
“The CBP has relied on nongovernment organizations like human rights institutions, labor, and sustainability organizations who have a presence in these high-risk areas” according to Mr. Wood. It can be dangerous to make these reports to NGOs. But some NGOs have “volunteers and former diplomats who know how to navigate through unique circumstances in sensitive jurisdictions.”
Secondly, companies find it very difficult to gain visibility to their end-to-end supply chain. A buyer knows who they are buying from. But they usually don’t know their supplier’s supplier or their supplier’s supplier’s supplier. In the apparel supply chain, for example, it is said that only 34% of brands can trace their value chains and over half can’t even track their supplier’s supplier.
The third complication is that even if the importer of record can trace their extended supply chain, they then must prove they are not working with bad actors. “The importer of record for the shipment will get a detention notice from CBP,” Mr. Jackson from Descartes explained. “The burden is then on the importer to provide their paper trail on their due diligence and reasonable care. This allows the importer to say, ‘Here’s why we are confident that there is not a forced labor component to that shipment.’”
That proof may come in the form of certificates from trusted industry groups, it can be a chemical analysis that shows the agricultural product did not originate in Jinjiang, or attestations from all upstream suppliers that they’ve done due diligence and that to the best of their knowledge, there’s no forced labor in the involved in the production of their goods. In effect, Mr. Woods explains, the importer is “using diverse data points to build a multifaceted argument” for the CBP not to detain their shipment.
The fourth complication is that in addition to the rebuttable presumption hurdle, shippers now only have 30 days once their goods are detained to prove they have a valid supply chain. One of Infor Nexus’s customers did a practice drill. It took them well over a month to collect the documentation they would have needed to get a shipment out of detention. If a company can’t prove the validity of the supply chain in 30 days, they may be allowed to reexport the goods to another nation. Or the CBP may choose to destroy the goods.
Another complication is that while there is a naughty and nice list – a denied parties list – telling buyers which companies should not be part of their supply chain, that list is far from fully inclusive. Currently, 33 companies are on the list because of a known connection to Uyghur forced labor. That list is continuing to grow. But just because a company somewhere up in a company’s supply chain is not on the list does not prevent the CBP from detaining imported goods.
“The CPB is doing a really good job of being transparent about the (detention) statistics,” Mr. Jackson explained, “but they’re not going to tell you everything that they’re looking for” because that’s going to allow bad actors to flout the regulations.
Fourth, enforcement is not likely to ease over time. This act has very strong bipartisan support. “Congress has made it clear that enforcement of UFLPA is a priority for CDP,” Mr. Wooley of Kharon stated. “Congress has granted them funding to add more agents and invest in technology.”
Republicans and Democrats don’t agree on much. About the only things they do agree on are that China is our nation’s primary threat, that they have engaged in unfair trade, and that reliance on slave labor puts goods produced in America at a competitive disadvantage.
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