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Tariffs, Technology Top of Mind for Supply Chain Leaders

The federal government is getting serious about modern slavery and forced labor, and American companies need to be prepared for the resulting expansion of a broad range of enforcement efforts.

The U.S. Department of Homeland Security (DHS) has announced an unprecedented partnership with Liberty Shared, a nonprofit organization with global coverage founded in Hong Kong, to combat forced labor in global commerce. The intention is for the organization to work closely with the DHS Homeland Security Investigations’ (HSI) Global Trade Investigations Division.

This new alliance between DHS and the nonprofit world is expected to both broaden and strengthen the U.S. government’s criminal enforcement efforts in investigating and prosecuting corporations that benefit financially from forced labor in the supply chain. DHS is operating under the Trafficking Victims Protection Act (TVPA) and the Tariff Act of 1930 on goods made in whole or in part by forced labor, note attorneys for the law firm of Pillsbury Winthrop Shaw Pittman.

Liberty Shared is an organization which aims to prevent human trafficking through legal advocacy, technological interventions and strategic collaborations with nongovernmental organizations (NGOs), corporations and financial institutions globally.

Under the TVPA, corporations face criminal liability when they benefit financially from human trafficking in “reckless disregard” that their business ventures engaged in such exploitation. A U.S. corporation can be held criminally liable for corporate human trafficking even where the exploitation occurs abroad. Companies can face up to $500,000 in fines, or twice the economic benefit derived from the violation.

HSI’s investigations also can lead DHS’s Customs and Border Protection (CBP) to block imports of products produced by slave labor from entry into the United States. This happened recently when CBP banned from import products the agency says were produced in China by forced labor arising from the Chinese communist government’s persecution of the country’s Moslem Uyghur minority population. CBP also has banned products from other countries.

The United Nations estimates that China has confined more than a million Uyghurs to detention camps. Intrusive monitoring of the remaining population using high-tech surveillance, compulsory reeducation efforts and other forms of governmental abuse have caused Amnesty International to term the oppression as “horrific.”

These human rights abuses present significant risks for companies whose supply chains include products from the province of Xinjiang where the Uyghur population is concentrated, according to attorneys Sarah Rathke, Ludmilla Kasulke and Jordan O’Connell of the law firm of Squire Patton Boggs.

Targeting Cotton Products

Xinjiang produces the majority of China’s cotton, which can be mixed with cotton from other regions and thus is not labeled as being from Xinjiang. As a result, Target Australia and other companies announced they will no longer source cotton from China. Other products that may be integrated into global supply chains from Xinjiang include tomato paste and sugar.

On Oct. 1., the CBP announced that it issued a Withhold Release Order (WRO) for garments produced by Hetian Taida Apparel Co. Ltd. in Xinjiang using prison or forced labor. Under a WRO, CBP can seize shipments and hold them unless the importer can prove they were not made by forced labor.

In the same announcement as the Chinese ban, CBP also banned disposable rubber gloves from Malaysia, gold mined in artisanal small mines from the Democratic Republic of the Congo, rough diamonds from Zimbabwe, and bone black (an impure black carbon pigment prepared from charring animal bones) manufactured in Brazil—all of which CBP said were produced with forced labor.

However, the potential impact of banning of those other products is dwarfed by the Chinese ban, which in the future could easily be expanded to include other products produced in the Xinjiang region.

Acting CBP Commissioner Mark A. Morgan commented, “CBP’s issuing of these five withhold release orders shows that if we suspect a product is made using forced labor, we’ll take that product off U.S. shelves.”

Brenda Smith, executive assistant commissioner of the CBP Office of Trade, added that, “CBP is firmly committed to identifying and preventing products made with the use of forced labor from entering the stream of U.S. Commerce. The effort put into investigating these producers highlights CBP’s priority attention on this issue. Our agency works tirelessly behind the scenes to investigate and gather information on forced labor in global supply chains.”

At an Oct. 17 hearing of the Congressional Executive Commission on China (CECC), Rep. Thomas Suozzi (D-NY) named several companies whose products include materials originating from Xinjiang which he alleged may be produced by forced labor, including Adidas, Campbell Soup, Kraft Heinz, Coca-Cola, Gap, H&M, Espirit, Calvin Klein, Tommy Hilfiger, Nike and Patagonia.

The CECC was created in 2001 to track human rights abuses in China. It is an independent commission led by federal lawmakers selected from the ranks of both the House of Representatives and the Senate.

Lighting a Fire Under CBP

On Oct. 31, CECC co-chairs Rep. James McGovern (D-MA.) and Sen. Marco Rubio (R-FL) sent a letter to Acting CBP Commissioner Morgan urging him to direct his agency to investigate and block other imports made with forced labor in the Xinjiang region from entering the U.S. market and, where appropriate, pursue criminal investigations related to the use of forced labor to produce these goods.

They pointed out that there are “a substantial number of prominent Chinese and Hong Kong-based companies with major garment, yarn spinning and other agricultural operations” in Xinjiang, or that manufacture other products there. McGovern and Rubio also asked the CBP to submit to the CECC an investigative report about all products that are being produced in Xinjiang using forced labor.

In a separate action, Sens. Sherrod Brown (D-OH), Ron Wyden (D-OR) and Richard Blumenthal (D-CT) on Nov. 17 wrote to the U.S. Attorney General, Secretary of State, Labor Secretary and Acting Secretary of the Department of Homeland Security. They requested information about specific actions the U.S. government is taking “to ensure the federal procurement process is not complicit in human trafficking or forced labor”—although Xinjiang was not specifically mentioned in their letter.

“Businesses in affected industries should closely scrutinize their supply chains and compliance programs to avoid any supply chain disruptions and establish programs to identify and mitigate forced labor that may exist,” advise Rathke, Kasulke and O’Connell of Squire Patton Boggs.

The attorneys for Pillsbury Winthrop Shaw Pittman also urge companies to proactively conduct TVPA-specific employee training on how to identify signs of forced labor, perform an internal review of existing policies and procedures to identify areas that may be subject to exploitation, make needed corrections, and assess their existing and prospective suppliers’ and contractors’ labor practices.

“Doing so is particularly critical for companies sourcing goods from high-risk countries that might benefit from forced labor,” they explain. “Companies that have a robust compliance framework for the intended purposes are more likely to detect forced labor in supply chains and better positioned to show that products in question may not be made by forced labor.”

In addition, a new toolkit designed to advance reporting on modern slavery was launched recently by the Responsible Labor Initiative, a program created by the Responsible Business Alliance, and the Global Reporting Initiative (GRI). The toolkit is intended to help companies prepare their reporting activities in a such a way that meets the expectations of their stakeholders.

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