Biden administration officials promised to end the “abhorrent practice” of modern slavery across the world as a ban on goods from China’s Xinjiang Uyghur Autonomous Region goes into effect Tuesday, bringing with it an unprecedented level of scrutiny into the supply chains of everything from clothing to solar panels.
“Our department is committed to ending the abhorrent practice of forced labor around the globe, including in the Xinjiang Uyghur Autonomous Region, where the People’s Republic of China continues to systemically oppress and exploit Uyghurs and other Muslim-majority communities,” Secretary of Homeland Security Alejandro N. Mayorkas said at the launch of the Strategy to Prevent the Importation of Goods Mined, Produced or Manufactured With Forced Labor in the People’s Republic of China on Friday. “We must combat these inhumane and exploitative practices while ensuring that legitimate goods can enter our ports and reach American businesses and consumers as quickly as possible.”
Published by the Forced Labor Enforcement Task Force (FLETF), the strategy is the culmination of months of “robust” engagement with brands, suppliers, Congress and other key stakeholders over the Uyghur Forced Labor Prevention Act (UFLPA), which prohibits any product made in whole or in part in Xinjiang from entering the United States unless importers can provide clear and convincing evidence that forced labor wasn’t involved in its mining or manufacture. It comes amid an explosion of anger at United Nations human-rights chief Michelle Bachelet for having “whitewashed” the Chinese government’s human-rights abuses, which it has repeatedly denied, during a recent visit.
“The importation of goods made using forced labor is an affront to human rights and our national values,” said Robert Silvers, under-secretary for policy at the Department of Homeland Security. “Forced labor places legitimate manufacturers, domestically and abroad, at a competitive disadvantage. I am honored to serve as the chair of the FLETF, a body that leads our government’s response to this scourge. The strategy that we have delivered to Congress will produce meaningful progress in combating the use of forced labor while we continue to facilitate lawful trade.”
U.S. Customs and Border Protection (CBP) will apply the rebuttable presumption under the UFLPA to detain, exclude, or seize and forfeit shipments linked to Chinese forced labor beginning June 21. Operational guidance from the agency recommends that importers map their supply chains to the raw material level, particularly high-risk commodities such as cotton and tomatoes. It also advises companies importing goods from outside China to conduct their due diligence given that products may be shipped to third countries for further processing.
When requested, importers should be able to trace the complete supply chain of the product under CBP review, the guidance noted. This includes detailed descriptions of how it was made, by which entities and where, including all in-house manufacturing, sub-assembly operations and outsourced production. Where possible, unique identifiers should be used to track raw materials and other inputs as they move downstream. And when raw materials or inputs from different suppliers are commingled, there should be an auditable process for demonstrating the origin and control of each raw material or input.
While DNA traceability or isotopic testing may make it possible to identify the origin of particular goods or materials without tracing the supply chain, their reliability must be proven for such evidence to be considered. To obtain an exception to the UFLPA presumption, the importer must provide clear and convincing evidence showing that indicators of forced labor, including intimidation and threats, abuse of vulnerability, restriction of movement, isolation, excessive hours and abusive living and working conditions either do not exist or have been fully remediated.
“The UFLPA enforcement strategy demonstrates the Biden administration’s unwavering commitment to fully enforce our laws prohibiting the import of goods made by forced labor into the United States,” said U.S. Trade Representative Katherine Tai. “It highlights our resolve to fight against the economic exploitation and human-rights abuses committed against Uyghurs and other ethnic and religious minorities in the People’s Republic of China. This enforcement strategy will help us in our work to eliminate this practice from our global supply chains.”
A need for ‘robust measures’
In an open letter published Tuesday, the Coalition to End Forced Labour in the Uyghur Region urged all companies with global sourcing operations to comply fully with the UFLPA and apply a single global standard, consistent with the requirements of the law, across their entire supply chain for all retail markets. The civil-society organization, which includes Anti-Slavery International, the Clean Clothes Campaign, the Uyghur Human Rights Project and Worker Rights Consortium, also urged brands and suppliers to refrain from re-exporting any goods denied entry to the United States under the UFLPA to other markets.
“Operating in the Uyghur region in accordance with the UN Guiding Principles on Business and Human Rights has become a practical impossibility,” the coalition wrote. “There are no valid means for companies to verify that any workplace in the Uyghur region is free of forced labor or to prevent the use of forced labor in these workplaces in line with human-rights due diligence; therefore, business[es] must operate on the assumption that all products produced in part or in whole in the Uyghur region are at high risk of being tainted by forced labor.”
Though the coalition said it welcomed steps taken by lawmakers worldwide to prevent companies from profiting from forced labor, including the European Union’s draft corporate sustainability due diligence directive, only a universal stance will prevent other countries from becoming “dumping grounds” for goods tainted with modern slavery. All nations, but in particular Australia, Canada, Japan, the United Kingdom and EU member states, should embrace “robust measures” to ban the import of products made with forced labor, it added.
Meanwhile, brands and retailers aren’t off the hook. “There is significant, credible documentation that Uyghur forced labor is used in global supply chains across a number of sectors,” the coalition said. “All companies must fully extricate their supply chains from the Uyghur region to ensure they are not complicit in human-rights abuses. Further, companies must prevent the use of forced labor in facilities elsewhere that use workers forcibly transferred from the Uyghur region, including by ending relationships.”
The chain-of-custody challenge
It was partly in response to the UFLPA that Sourcemap, a New York-based supply-chain transparency company, developed its Forced Labor Compliance Platform to help businesses meet “evolving” human-rights standards. Unveiled publicly Thursday, the platform attracted more than 3,000 companies in advance of the UFLPA’s enactment.
The system is an “expansion” of what Sourcemap has always done, Leonardo Bonanni, the firm’s founder and CEO, told Sourcing Journal. It helps companies grapple with the “chain-of-custody challenge” by focusing on the verification of data from entities within their supply chains down to raw material suppliers. This includes an automatic classification of suppliers through forced-labor risk “heat maps” for increased due diligence, the collection of all documentation required to validate the chain of custody, and real-time monitoring of suppliers and overall supply chain risk exposure to conditions such as sanctions, affiliations and negative news reports.
The Forced Labor Compliance Platform also automatically generates chain-of-custody and compliance reports of individual shipments in response to CBP inquiries and Withhold Release Orders.
“We basically are introducing something called Verified by Sourcemap, where every container that enters U.S. ports [via the platform] has been mapped and traced using Sourcemap,” Bonanni said. “That means we have all the documentation we need and that all of it has been checked for consistency and completion. And it’s not enough to just trace products that are coming from China. Our job here is to do a broad sweep of a company’s supply chain, map every raw material down to the origin and then gather enough information to look for patterns of waste or fraud or abuse at any stage.”
Sourcemap is able to do this by digitizing transactions from every supplier in every link of the supply chain and then applying “big data analytics” to give its customers a thumbs up or thumbs down so that they know which shipments have sufficient documentation and which need additional work. “And we give them that information long before the goods have actually left for the U.S. so that they can put in a corrective action plan and collect the missing data and work out the problems with their suppliers,” Bonanni said.
The process for collecting the evidence that a company needs to be compliant with the UFLPA can take as little as three months, he said, noting that the fashion industry has become Sourcemap’s biggest customer, helping it grow 10-fold since the Covid-19 pandemic began. The new law, Bonanni added, marks a “huge shift” in the responsibility the businesses have over their supply chains. And where supply-chain mapping and tracing was challenging a decade ago, it’s now “eminently possible.”
“The ULFPA is a turning point where no company can ignore its raw materials, its suppliers,” he said. “It’s really a leadership position that the U.S. government is taking worldwide in enforcing the ban of forced labor and because of that, it’s become so much easier to do this because now every company that exports to the U.S. has to respond. [Businesses are] all providing traceability and transparency in their supply chain. And they’re providing it much more quickly than ever before.”
“What this regulation has done is [create] a level playing field so anybody who wants to do business in the U.S. needs to map their supply chains,” Bonanni added. “And there’s simply no excuse not to.”
Modern slavery ‘laggards’
But some companies are more prepared for the regulatory onslaught than others, said Clare Bartram, ESG specialist, modern slavery, at Institutional Shareholder Services (ISS), a global investment advisory firm. While its research indicates that 84 percent of textiles, apparel and luxury goods companies have operations in China, nearly one-third (30 percent) are considered “laggard performers” in their modern-slavery risk mitigation, meaning they lack transparent and robust policies and procedures to identify and address modern slavery risks in their operations and supply chain.
ISS released last week a modern slavery scorecard to enable investors to “identify, evaluate and prioritize” modern slavery risks in their global portfolios while supporting any supply-chain reporting. Already, it covers roughly 7,4000 issuers globally. This number will grow on a regular basis to meet client demand, it said.
“Aside from the clear moral case, we saw that there was a strong business case to address modern slavery for both investors but also for their portfolio companies,” Bartram told Sourcing Journal. “But the challenge is that this is a hidden crime, and it’s typically concealed in the lower tiers of the supply chain.”
The trend toward single-issue legislation like forced labor and broader mandatory human-rights due diligence aside, ISS is seeing increasing reputational risks related to modern slavery, especially with the impact of the pandemic on global supply chains. The EU and U.S.‘s measures aside, New Zealand has just proposed modern slavery legislation which would apply to investment and lending activity. Australia, too, is looking at tightening up its modern slavery regime, including the possible appointment of an anti-slavery commissioner. All of this has accelerated investors’ drive to address modern slavery.
The ISS scorecard leverages data and insights from three of the firm’s ESG solutions—the ESG Corporate Rating, Norm-Based Research and the ESG Country Rating—to assess issuers on 25 quantitative and qualitative factors. Because of the limits of good data, what the scorecard does is situate modern slavery within the broader labor rights and human rights context by using red flags such as wage underpayment or hazardous working conditions as proxies for modern slavery risks.
“It’s a really valuable tool for supporting investors,” Bartram said. “They can use those data points to identify leading and laggard companies to monitor where they’re exposed to unsavory controversies, and then use some of those more granular data points to inform their engagement objectives and dialogue.”
Investors can play an important role in driving improvements in corporate practice in high-risk regions like Xinjiang, she said. Using the scorecard for engagement allows investors to have a more tailored dialogue with companies to encourage them to improve their policies and processes.
“One of the key challenges connected to the region is that the risks extend to other regions of China, where several sources, including the UN, suggest Uyghur and other ethnic minority workers may be transferred to factories and subject to exploitative working conditions,” Bartram said. “Investors, through engagement, can set expectations for companies operating in, or sourcing from, China, to carry out enhanced human-rights due diligence to ensure they are not linked to forced labor.”