Navigating the Risky Terrain of Forced Labor and the UFLPA with Technology
What’s the New Twist?
The emergence of the Uyghur Forced Labor Prevention Act (UFLPA) by US Congress introduces a twist in global trade operations. Now environmental, social and governance (ESG) regulation and enforcement intersect with global trade compliance in a way that directly impacts importer operations. Adding forced labor prevention is putting stress on an already unmanageable, mostly manual trade compliance system; and global trade compliance teams are already overburdened.
Adding to this dilemma, until recently, there was no single tool that brought disparate trade compliance data sources onto a single platform to efficiently manage a global trade compliance program.
To fully comprehend the scope of the problem, an understanding of the requirements under the UFLPA is helpful.
What the UFLPA Requires of Importers
The Act presumes that any goods imported from that region are mined, produced or manufactured with forced labor. This rebuttable presumption is what is enforced by US Customs and Border Protection (CBP). Since the UFLPA is managed and enforced by CBP, compliance is usually the responsibility of importers’ global trade compliance teams with support from their licensed customs brokers.
This ‘rebuttable presumption’ keeps businesses on their toes. Gathering exhaustive supplier data and supply chain documentation within such a tight period can indeed be difficult. As Todd R. Smith, founder and CEO of KYG Trade, stated in the Simply Trade podcast, “…the traditional process of gathering supply chain data and supplier responses is slow and tedious and that puts businesses at a procedural disadvantage...”
The Purpose of the UFLPA
The Act aims to prevent goods manufactured using forced labor in the Xinjiang region of China from entering the United States. If detained, businesses who fail to prove that a shipment is free from forced labor, within a tight window of 30 days, face the risk of their goods being seized, leading to costly disruptions.
Forced labor, in its most raw form, violates the fundamental human rights of the individuals involved. However, it is not just a social issue but is deeply intertwined with the complex world of international trade. Each year we see the cross-border movement of $20 trillion in complex manufactured goods, now more complicated with an added layer of scrutiny on the prevention of forced labor. The mistreatment of workers and violation of their rights is not only a grave social issue but has suddenly become the purview of trade compliance.
For businesses with international operations, there is an immediate need to understand the implications of forced labor and crucial legislation like the UFLPA. Not only for mitigating the reputational risk of unethical practices in a supply chain but also to mitigate the considerable trade risks associated with turning a blind eye.
The Way Forward for Trade and ESG Compliance
It now becomes paramount to harness advanced technology for answers to these burdensome challenges. Automation, data integration, and proactive use of technology can combat pesky compliance issues driven by the new intersection of ESG and trade compliance.
The unwieldy challenge is being addressed by KYG Trade’s trade compliance professionals, AI experts and software developers. In addition to AI-assisted HTS/ECN classification and AI-assisted rapid-fire FTA qualifications, the KYG Trade platform addresses the data and case management pertaining to all trade compliance requirements including UFLPA. For instance, by mapping supply chains and vetting suppliers proactively, businesses will meet the UFLPA requirements. However, the corresponding mandate for automated data collection and management requires a different solution. Product attributes, ERP system data, mapping tool results, product attestations[i] , product lifecycle management data, supplier communications and classification spreadsheets do not easily integrate or talk to each other using legacy systems. Only an open and extensible AI-assisted SaaS platform, built to manage trade compliance and ESG data all in one place, will solve the problem. Then importers will be armed with the tool they need to respond quickly and accurately to CBP.
Said another way, by flagging suppliers from high-risk areas, vetting new suppliers before issuing purchase orders, verifying claims and managing product data, businesses may stay ahead of enforcement. Further, with new science-based technology like testing for origin verification and raw material source imagery, importers can provide evidence to regulators to counter forced labor allegations. However, without advanced technology to efficiently manage the disparate data sources, today’s mostly-manual compliance systems will certainly break under the additional burden or require the addition of staff to be sustainable.
Wrapping Up
As businesses grapple with complex trade laws regarding forced labor and country of origin, digital transformation in trade compliance is not just an option but a business imperative.
Regulatory frameworks like UFLPA are increasing in international trade and companies can no longer afford to rely on tedious, manual audits to refute forced labor allegations or comply with regulations. Technological solutions that simplify the compliance process, improve supply chain transparency, streamline data collection, and effectively communicate attestations to authorities are essential.
Finally, and most importantly, proactive prevention of forced labor in supply chains is not just a compliance requirement but a moral obligation.
_____________________________________________________________________________________
Are you ready to usher in a new era of trade compliance and corporate social responsibility? With KYG Trade, overcoming challenges of UFLPA compliance and forced labor can become the norm, not an exception. Prepare yourself and your organization to effectively 'Know Your Goods' and propel your business to the forefront of trade compliance.
[i] An attestation is an HTS classification, ECCN classification or FTA qualification for example.
Join Industry Experts Today!
Schedule a demo and get started for free.