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Equipping Supply Chains to Meet Escalating Due Diligence Demands

More than ever before, companies must know the intricacies of their supply chains. Chief among the pressures to better understand where exactly goods stem from is a growing spate of due diligence legislation, including the Uyghur Forced Labor Prevention Act (UFLPA) in the United States.

Signed in December and going into effect in June, this law expands the burden of proof for importers. Companies bringing goods into the United States already face Withhold Release Orders (WROs) on products with certain materials—including cotton—that were thought to be associated with forced labor in China’s Xinjiang Uyghur Autonomous Region. With UFLPA, the scope of banned imports extends to all merchandise with an origin in the XUAR—whether or not there is evidence of potential forced labor.

“[The rebuttable presumption provision] is when it becomes effective that any item connected to Xinjiang is considered forced labor and therefore can be refused entry under Section 307 by Customs and Border Protection,” said Andrew Samet, principal at trade consulting firm Sorini, Samet & Associates.

During a recent conversation with MeiLin Wan, vice president, textile sales at Applied DNA Sciences, and Edward Hertzman, founder and president of Sourcing Journal, Samet said the administration’s implementation strategy will be announced in June. He expects that the documentation requirements for importers to have their cargo released will be similar to the existing demands for WROs, which include affidavits for every step in the supply chain. But now companies will need to prove they followed the due diligence guidance to be released by CBP and that none of the inputs in any of the items being imported originated in the XUAR, and if they did, to conclusively prove there was no forced labor involved in any stage of the production process.

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Traceability technology can help brands meet the level of detail they need to combat a WRO or prove due diligence. “Traceability is having the ability to follow the movement of goods from the origin point, from the raw material, to the yarn, to the fabric, all the way to the finished goods,” said Wan. Applied DNA’s molecular tagging and tracking solutions enable companies to take a complex supply chain—such as cotton-based manufacturing—and authenticate materials from origin to retail.

Should companies fail to comply with UFLPA, they can face significant costs. For one, their reputation with consumers could be sullied by bad press. They are also at risk of losing goods in detention or having to ship merchandise back to origin, leading to missed sales and incurred expenses. They could also face legal repercussions. Samet noted that the Department of Homeland Security has publicly stated it has launched a criminal investigation of imports potentially tied to forced labor.

“The cost of remediation, legal costs—there’s quite a lot of issues that companies haven’t fully considered that could impact them as a result of not being in compliance,” Wan said. “And certainly, with all the different changes in laws around the world, it’s become much more challenging for the supply chain to really grapple with this issue.”

One of the challenges surrounding compliance is the impossibility of effectively doing due diligence in Xinjiang, and potentially China at large, which Samet says both the current and former White House stressed. Auditing companies have also pulled out of the region. Freeing supply chains from forced labor concerns may require a change in sourcing destinations.

“The underlying message has been don’t keep sourcing in China,” Samet said. “You can’t have the kind of transparency and accountability that is consistent with the way this legislation is driving the process.”

Click the image above to watch the video to learn what to expect as UFLPA goes into effect and how traceability can set companies up to more effectively comply with this new law.