Understanding macroeconomic risks within the supply chain is imperative. The last two years have driven an unwavering shift towards a greater awareness of ethicality and sustainability within the supply chain. As a result, governments worldwide are taking action to ensure the business conducted within its borders is sourced and produced ethically and sustainably.
An area of recent focus has been the use of forced labor within the Xinjiang region of China. This area serves as a focal point of many businesses worldwide, and the impact of supply chain related legislation is sure to have major implications on international operations. In this blog, we will provide an overview of legislation and what supply chain leaders worldwide should be considering to remain competitive.
Uyghur Forced Labor Prevention Act
Recent legislation in the US focuses on preventing the use of forced labor through importation. Uyghur Forced Labor Prevention Act is a China-specific statute that stops the importation of goods made with forced labor from China, specifically from the Xinjiang region. Reports of human rights abuse and forced labor have been coming from the Xinjiang region of China for about a decade. On December 23, 2021, the U.S. President formally signed the Uyghur Forced Labor Prevention Act.
The act clearly states that any goods coming to the U.S. from Xinjiang, China would be inherently deemed to be mined/manufactured under forced labor. Businesses importing goods from Xinjiang will need to have compelling evidence in order to demonstrate that they are not made under forced labor. The Act tasks the Forced Labor Enforcement Task Force to support the enforcement of the prohibition of goods mined, produced, or manufactured in China, especially the Xinjiang region, under forced labor.
EU proposes a ban on goods made with forced labor
EU led the efforts last year, carrying the movement into international supply chains. On September 14, 2021, the EU Commission proposed a ban on goods made under forced labor. Though it is yet to realize, it has sent alarms across supply chain managers to brace for impact to their operations and lead their teams through the transition.
The EU took a more lenient approach as compared to the US, who put a direct ban on products from the Xinjiang region of China. While it is yet to unfold how the EU will define terms and conditions, the future of international supply chains is clear: material sourcing and importation will soon be bound by restrictive legislation, no matter the cost to operations or productivity.
Section 307 of the Tariff Act of 1930
Uyghur Labor Prevention Act is not the only law that prohibits the importation of goods manufactured under forced labor. Section 307 of the Tariff Act of 1930 embodies another historical effort of the American government to monitor and limit the importation of goods that are either mined or manufactured in whole or in part under forced labor.
The responsibility of enforcement continues to lie on Customs and Border Protection (“CBP”). Goods not cleared by the CBP officials risk being held, and result in: 1) costly legal fees to regain access to goods (if possible), or 2) complete loss of goods in extreme cases. In any case, having your supply chain involved in these defamatory allegations can result in permanent reputational damages, and regaining consumer and stakeholder trust in the ethicality of the business can be extremely difficult.
How these laws will disrupt the international supply chain
The Xinjiang region of China provides Polysilicon, a major component of solar cells and other critical electronics. With the growing prioritization of green energy, it continues to serve as a focal point for the energy transition and technology. Many nations do not currently have independent access to the raw materials necessary for production; however, with federal investment into raw material exploration and processing plants, there is the possibility of direct material independence. Businesses worldwide learned an unforgettable lesson during the last 3 years, and are considering any opportunity to domestically produce materials needed for various goods, especially green energy and technology.
Heightened awareness of unethical production within the Xinjiang region has caused many laborers to be forced to relocate. Managers of these schemes worry about the impact to their financials and are working to disperse the operations throughout the country. The risk for these issues to bleed into new regions of the country poses a perpetual risk for supply chain managers to develop a robust way to understand how goods are sourced.
It is irrefutable that COVID-19 revealed serious, pre-existing problems within global supply chains. The gumming of operations was compounded by the Russian invasion of Ukraine and the continued fragmentation of supply chains affected businesses worldwide. Business leaders learned the hard way about the risks of co dependence and reliance on international entities to fuel operations. While businesses grow increasingly strong as the world transitions out of the pandemic, there is still a lingering fear among supply chain leaders that another crisis will halt operations.
China is an indispensable world economic partner. The manufacturing capabilities of China, while great, pose significant risks to businesses worldwide. There is an unending list of product supply chains that originate from the Xinjiang region of China, and the sanctions proposed are certain to cause shocks along these supply chains. With supply disruptions so probable and imminent, business leaders worldwide must strategize accordingly in the coming months.
What Supply Chain Managers can do to ease the transition
No supply chain is single-tier. As a supply chain manager, it is important to evaluate each link within operations and identify, evaluate, and mitigate risk due to reliance on East Asia.
Understanding and tracing overall risk is costly and requires attention away from day-to-day operations, but it is worth it. Send your vendors questionnaires, extensively review procurement and ensure all vendors are vetted to pass ethical requirements. Map your supply chains. Do in-person visits for inspection. Gather information and keep record of the ever changing legislation – it will be worth it.
How Parq can help
It has been duly established that doing business with vendors that provide you with products made under forced labor can cause serious supply chain disruptions. Though as it currently stands legislation seems to be a little more focused on China, forced labor will be a consistent risk everywhere to keep up with growing populations.
Knowing your vendors and each supply tier is more important than ever. Monitoring each of the supply tiers of your vendors is an extremely arduous task. That’s exactly where Parq comes in. A centralized vendor ecosystem that provides rich insight into the ethicality and sustainability of your current vendors, and other alternative vendors that better match company goals.
Parq bridges the gap between technology and procurement by mitigating risks to ensure an uninterrupted supply chain for your business. To learn more, reach out to our team.