Supply chains have become increasingly complex and global, and the importance of transparency and compliance cannot be overstated. The event hosted by Sourcemap and BDO saw speakers shed light on the critical issues surrounding Environmental, Social and Governance (ESG) factors, enforcement updates, and how businesses can enhance their supply chain transparency and resilience.
Strategies for mitigating supply chain risks
Andrea Greco, who serves as the managing director of supply chain at BDO USA, highlights the importance of businesses prioritising supply chain transparency and resilience. To achieve transparency, it is necessary to map out the entire supply chain and comprehend how goods and information flow through different tiers of suppliers.
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According to Greco, companies should tackle regulatory and disruption challenges by adopting a comprehensive solution that involves supply chain consulting, customs and international trade services, project management, and technology partnerships.
Greco said improving supply chain transparency and resilience unlocks a number of improvement opportunities for businesses such as risk mitigation, cost efficiencies, business continuity during disruptive events and proactive and effective response to regulations.
He went on to explain that businesses need to be well-informed about the critical factors that drive investments in supply chain transparency.
- Labour regulations: Avoid product flow interruptions from new forced and child labour regulations by identifying and ranking supply chain risks and discovering tier 2 + suppliers. Establish onboarding and vendor management processes and systems.
- Environmental regulations: Meet your scope three emissions requirements across the entire supply chain by generating measurements and reports. Work with third-party suppliers to establish and implement mitigation strategies.
- Supply chain resilience: Develop an intimate knowledge of supply chain nodes from raw materials to finished products and redesign the network for any risk minimisation.
Uyghur Forced Labour Prevention Act (UFPLA)
Greco also advises companies to use software for supplier mapping and to automate data collection and reporting, which is especially important now due to the implementation of laws like the Uyghur Forced Labour Prevention Act (UFPLA) back in 2022.
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By GlobalDataThe UFLPA has implemented a rebuttable presumption that any products manufactured entirely or partially in China’s Xinjiang Uyghur Autonomous Region (XUAR) are produced using forced labour. This presumption also applies to products created in China that use XUAR inputs, which means maintaining comprehensive financial records is necessary for businesses to confirm compliance efforts.
BDO reported that almost up to $2bn worth of goods have been withheld so far with 877 apparel, footwear and textiles items out of 5,059 being kept hold of by customs. Polysilicon, cotton, and earth minerals used in various products are subject to strict enforcement now and in the future.
Damon Pike, a principal for international trade services at BDO USA highlights that there is increasing importance of ESG in corporate boardrooms: “Forced labour is probably the most prominent example of ESG, it is a global issue, that touches on not only the social part of ESG but also the governance part.”
Pike explains that if the US Customs & Border Protection (CBP) become aware that you have used forced labour, they will assume that the goods you’re trying to bring into the US are made using forced labour. As a result, you’ll need to prove otherwise.
He says some companies seem hesitant to comply with the new law, likely due to uncertainty about where to begin and how daunting it is to consider that importers in the US must now trace the entirety of their supply chain.
Pike adds: “This law applies not only to tier-one suppliers, but also to their own suppliers, their suppliers’ suppliers, and so on, all the way back to the raw materials source. This presents a challenge as it doesn’t just apply to the finished goods.”
What to do when your goods are withheld
Importers whose goods are contained can request an exception to rebut presumption but showing that:
- They fully comply with CBP policies/regulations on forced labour.
- They completely and substantively responded to all inquiries for information submitted by CBP to ascertain whether the goods were mined, produced, or manufactured wholly or in part by forced labour; and
- By clearing and convincing evidence, the imported goods were not produced wholly or in part with forced labour or the goods have no connection with the restricted entities.
By demonstrating an exercise of due diligence, effective supply chain tracing and management measures by meeting the above requirements, the exception will be warranted, and the goods will be released.
The Fighting Against Forced Labour and Child Labour and Supply Chains Act
Bill S-211 also known as the Fighting Against Forced Labour and Child Labour and Supply Chains Act is a high-level report of how a company addresses and mitigates forced labour, or child labour in its supply chain.
Customs and international trade services director at BDO Canada, Charmaine Goddeeris notes that it will become a contravention to sell or dispose of goods in Canada that have been deemed to have been manufactured with forced or child labour.
“This is a pretty wide net that could capture Canadian distributors and retailers who were not the original importers of the goods into Canada,” said Goddeeris.
Guillermo Massieu Urquiza, a foreign trade partner specialising in customs and international trade services at BDO Mexico, also shared information about the Mexican government’s decision to ban the importation of goods that are produced using forced, compulsory, or child labour, which will take effect on 18 May 2023.
3 things businesses need to do to prepare for Bill S-211 in Canada and Mexico:
- What do you need? Businesses need to fully understand obligations under S-211 and what it means for your company by creating a clear, documented end-to-end vision of their supply chain, along with a good overview of all supplier contracts.
- How do you prepare for the Bill? Stay informed on your country’s laws as they are constantly evolving. Use available software for supplier mapping and make this a priority across your organisation
- What are your outputs going to be?: Companies are recommended to create a contingency plan in case of any changes to the international landscape. Businesses must enrol on Partner in Protection (PiP), a programme for businesses to join to enhance border and trade chain security for reports to the Canadian government, just as the Customs-Trade Partnership Against Terrorism (CTPAT) is recommended for US companies.
According to Urquiza, importers are not required to undertake due diligence according to the Mexican approach, unlike the approach taken by the US. The Mexican Ministry of Labour and Social Welfare will be responsible for conducting investigations and making determinations.
Additionally, the Canadian Customs Act will be amended to incorporate these regulations, affecting a broader range of entities, including those controlling foreign production. According to Goddeeris, it’s imperative for companies to understand their reporting obligations and undertake due diligence to ensure compliance.
As supply chains continue to evolve and face increasing regulatory scrutiny, companies must stay informed about evolving laws, and invest in technology to trace their entire supply chains, understand ESG compliance, and ethical practices to navigate the challenges and create a competitive advantage in an increasingly conscious and regulated marketplace.
