GM and welcome to So What: your daily snippet of risky goodness that adds one extra headache to your to-do list. (But you’ll read it right away tomorrow anyway.)
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1685 words – 6 mins, 30 seconds read time
The UFLPA addresses US concerns about the use of the Uyghur as forced labor in China.Similar EU legislation is likely in the near future.UFLPA places a high burden on firms importing goods and materials from China to prove that the imports have not originated from facilities or regions using forced labor.The Act will impact firms importing goods and materials from China into the US and manufacturers who reply upon these items.Both importers and those who have Chinese goods in their supply chains should audit their supply chains and prepare for and adapt to any disruption.Over the mid-to-long term, companies should reduce their dependence upon goods and materials of Chinese origin and look for other parts of their supply chain that may be linked to forced labor.It places a high burden on firms importing goods and materials from China to prove that the imports have not originated from facilities or regions using forced labor.The Act will impact firms importing goods and materials from China into the US and manufacturers who reply upon these items.
The Uyghur Forced Labor Prevention Act
What it is
The US passed the Uyghur Forced Labor Prevention Act (UFLPA) in late 2021, which came into effect on June 21, 2022. Exceptional bipartisan support of the Act shows a growing concern in the US over the treatment of the Muslim minorities in China (primarily the Uyghurs but also ethnic Kazakhs and Kyrgyz). These abuses are concentrated in the Xinjiang Uyghur Autonomous Region (XAUR)
Notable, Europe is not far behind, and parliamentarians adopted a resolution in early June “calling for a ban on the import of products made by forced labor.” (Le Monde)
What it means
The UFLPA targets commercial activities, stating that “goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part” in the XAUR are prohibited from import into the US. (US CBP)
Enforcement of the Act falls to US Customs and Border Protection (CBP), who must determine “that the importer of record has complied with specified conditions and, by clear and convincing evidence, that the goods, wares, articles, or merchandise were not produced using forced labor.” (US CBP)
The US Burau of Labor identifies 18 items produced in China using forced labor, including finished goods such as artificial flowers, electronics, and Christmas decorations, as well as raw materials like cotton and the polysilicon used for solar panels.
Although the enforcement mechanism will differ, EU legislation will likely follow a similar format.
Two critical elements
Two elements of the UFLPA jump out as particularly noteworthy.
The Act applies to finished goods, components, and raw materials
This means that suppliers must go deep into the supply chain to determine the origin of the components of assembled goods and potentially the source of all materials in a blended or mixed batch of a product.
Importers have a significant burden of proof to meet
This evidence can include “reports on factory site visits,” “information on workers at each entity…such as wage payment and production output per worker,” and “credible audits to identify forced labor indicators.” The Forced Labor Enforcement Task Force (FLETF) guidelines operationalize a strategy to assist with compliance.
If you’re the importer
Immediate Action: Assess your supply chain to determine how to comply with the UFLPA with minimum disruption
You’ve probably thought about the UFLPA already, but the scale and scope of this might still be causing concern. The potential for you to fall foul of the Act is directly proportional to 1) the range of goods and materials you import and 2) the complexity of the item(s) in question. But, you can prioritize items for action rather than trying to boil the ocean and tackle everything at once.
Start by categorizing materials or components in your supply chain by importance and substitutability (I’m pretty sure that’s a word but if not, play along for now)
You’ll want to focus on the high-importance, hard-to-replace items your business depends on where you’re locked into your existing supply chain. Lower priority, more easily replaceable items can be dealt with later or may be sourced from elsewhere to save yourself a headache.
Next, categorize things as either raw materials or differentiate between low and high-complexity goods.
Raw materials. These should be easier to trace from the source to your supply chain. Blended batches will cause more headaches, but this is something you can start to stipulate with your suppliers.Low complexity goods. Fewer components mean fewer items to source and certify for you and the manufacturer. High complexity goods. These will be the most complicated and time-consuming to certify.
Now, you’ll have a way to prioritize the goods and materials in your supply chain for compliance, minimizing disruption and ensuring that your most critical items are delayed the least.
Short-term Action: Ensure your customers understand what’s happening
Communicate the potential impact on your consumers to allow them to plan accordingly. Supply chains remain tight, and goods and services are increasingly expensive, so your customers are particularly sensitive to delays and price increases. Communicating ahead of time might lose you some clients, but they would leave anyway. This way, you’re doing the right thing by your customers, increasing the loyalty of those who remain and improving your reputation, even with those who decide to go elsewhere.
Mid- to long-term action: Remove contentious regions from your supply chain
The UFLPA is not novel: we’ve had controls to remove blood diamonds from the international supply, and energy markets must regularly adapt to new sanctions against oil producers. However, the UFLPA does open the door to similar legislation targeting forced labor and child exploitation – the DRC’s rare earth mining operations spring to mind immediately. So you’d be prudent to identify potentially contentious sources of goods and materials you rely upon and proactively remove these from your supply chains. This will prepare you for future regulation and strengthen your ESG ratings significantly.
If you have Chinese goods or materials in your supply chain
Immediate Action: Assess your supply chain to determine your risk of suppliers being non-compliant
Even though you’re somewhat removed from your supplier’s operations, you’ll know where they source their materials and how likely they are to comply with the UFLPA thoroughly. You’ll still prioritize items by importance and substitutability (still a word), but you now need to assess your suppliers based on their transparency and quality.
Firms supplying high-value items and goods that are also highly transparent are much more likely to take UFLPA compliance seriously, minimizing disruptions in the mid-to-long term. (Accept that the Act could cause disruptions for everyone in the short-term as everyone adapts.) Conversely, any firm producing low-quality items or materials that’s also opaque about their operations is more likely to cut corners on their compliance.
So while the burden of compliance doesn’t rest on your shoulders, you can still assess how likely your suppliers are to comply with the UFLPA. If you’re confident they’ll comply, keep them in your supply chain but anticipate some delays while the regulations kick in. Otherwise, if you have concerns, start looking for other suppliers ASAP.
Mid-term Action: Anticipate the effects of any disruption and communicate with your customers.
Like you, your customers don’t want to wait until disruption hits to learn about a problem. So anticipate when and where there might be delays and start communicating that to your customers. Anticipate their reaction – panic buying? switching to a competitor? – and make contingencies where you can. But, again, be proactive in your communication.
Mid- to long-term action: Remove contentious regions from your supply chain
Finally, as I advised the suppliers, look at your supply chain and start to move to providers with less contentious origins. And look at how to use this as a differentiator: domestic production and high standards for workers are of increasing importance to consumers who are often willing to pay the associated premium for this kind of product.
Nevertheless, the consequences for US Businesses who depend upon materials or goods from China could be significant, and you should take steps to insulate yourself against this disruption. That means paying attention to compliance in the short term and probably supply chain adjustments in the mid to long-term. And don’t think that this stops with the XAUR: the Department of Labor lists dozens of countries accused of using child and forced labor. So, difficult though it will be to implement, the UFLPA should be a prompt for businesses to clean up their supply chains. (Scroll to the bottom of the DOL report on forced labor in Xinjiang for examples.)
This was the first So What? so I’d love to know what you thought. Hit reply and let me know how I did
🔮🔮🔮🔮🔮 This wasn’t on my radar at all but now I know what to do.
🔮🔮🔮 Gave me something fresh material on the issue
🔮 Meh! Tell me something I don’t know next time