Don’t Import Compliance Troubles—New Supply Chain Law Goes into Effect

BY ANDREW E. BIGART AND DOREEN MANCHESTER 

ON APRIL 20, 2016

In March, a new federal law quietly went into effect that places additional pressure on importers to develop compliance systems for their supply chains, including identification of items potentially made with forced labor. The Trade Facilitation and Trade Enforcement Act of 2015 (Trade Act) prohibits the import into the United States of goods, wares, articles, and merchandise mined, produced, or manufactured in a foreign country by convict, forced, or indentured labor.

The new law comes at a time when federal and state regulators are turning their focus to supply chain management as a way to combat forced labor overseas.

At the National Association of Attorneys General (NAAG) 2016 Winter Meeting, for example, Attorney General Loretta Lynch gave a speech noting that the Department of Justice would prioritize human trafficking for law enforcement at all levels. Susan Coppedge, Ambassador-at-Large to Monitor and Combat Trafficking in Persons and Senior Advisor to the Secretary of State, also presented to the AGs at NAAG. Given this scrutiny, any company—regardless of industry—that imports goods from overseas should review its supply chain management policies to ensure that they are appropriately tailored to address this issue.

What Does the New Law Do?

The Trade Act closes a loophole in the U.S. Tariff Act of 1930 (19 U.S.C. § 1307), which had previously allowed the import of products made with forced labor if the “consumptive demand” for those goods in the United States exceeded domestic production. This loophole essentially swallowed the prohibition, as demand in most industries exceeds the capacity of domestic production. The new prohibition does not target specific countries or products, but rather permits U.S. Customs and Border Protection (CBP) to investigate allegations that a specific product was made using forced labor.

Why Should a Company Care?

The Trade Act places additional pressure on importers to develop compliance systems for their supply chains. Under the new law, any interested party, including competitors and public interest groups, may request that CBP investigate whether an import was produced using forced labor in another country. Following an investigation, any products found to be made in whole or in part using forced labor will be subject to exclusion and/or seizure, and may lead to investigation of the importer(s).

CBP and public interest groups are likely to look for “leads” in the U.S. Department of Labor’s List of Goods Produced by Child Labor or Forced Labor and List of Products Identified by Executive Order 13126. Although these lists do not ban the import of any of the listed products into the United States, they do identify categories of products by country that the United States has reason to believe are at risk of having been produced by child or forced labor.

Separate from the new federal law, a number of state attorneys general have created task forces focused on human trafficking. In addition, California enacted its own law in 2010, the Transparency in Supply Chains Act (CTSCA), which requires large retailers and manufacturers doing business in California to disclose on their websites their “efforts to eradicate slavery and human trafficking from [their] direct supply chain for tangible goods offered for sale.” 

These efforts demonstrate that states, like the federal government, are dedicating enforcement and other resources to this issue. While the federal law goes much further than the disclosure requirements of CTSCA, the bottom line is that federal and state regulators are focused more than ever on pressuring companies to police their supply chains for potential human trafficking or forced labor.

What Should a Company Do To Limit Risk?

To minimize potential risk under federal and state law, importers should confirm that they have implemented policies and procedures that are appropriately tailored for their import activities. Examples include:

·         Develop a comprehensive import compliance policy that addresses supply chain management, including the company’s policies for limiting the potential for human trafficking and forced labor. This policy should also address compliance with the CTSCA, which requires covered companies to post disclosures on their websites related to five specific areas: verification, audits, certification, internal accountability, and training.

·         All supplier agreements should require an affirmative certification by the supplier that it is aware of and in compliance with the company’s policy.

·         Audits should be conducted by independent third-party auditors on an annual basis.

·         Training programs should be provided for employees who work directly with the supply chain.

·         Coordinate compliance measures with existing policies and procedures that cover export controls, anti-corruption, and import measures.

·         Consider joining the Customs-Trade Partnership Against Terrorism (C-TPAT) program. C-TPAT is a voluntary supply chain security program led by CBP and focused on improving the security of private companies’ supply chains with respect to terrorism.

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