U.S. Customs: Fighting Forced Labor [PODCAST]

Written by Expeditors
21 minute read

forcedLabor-061522_Horizon

Brenda Smith, Global Director of Government Outreach, details how the United States fights forced labor and what to expect when the Uyghur Forced Labor Prevention Act goes into effect in mid-June. We'll also take a look at what other countries are doing, as well as developments in technology to ensure compliance.

 

Chris Parker: Hello, everyone, and welcome to the Expeditors Podcast, where we look at the logistics and freight forwarding industry through the lens of a global logistics provider. I'm your host, Chris Parker, and today's topic, we are talking about forced labor. We'll talk about legislation that's preventing goods made with forced labor to enter the U.S., what other countries are doing, and what importers must keep in mind to prevent detainment, fines, and ultimately damage to their reputation. So joining me today is our Global Director of Government Outreach, Brenda Smith. Brenda, welcome.

Brenda Smith: Thanks, Chris. It's great to be here.

Chris Parker: It is a pleasure to have you here. I was wondering before we get started with our topic if you could walk through your career before Expeditors and what you do now as Global Director of Government Outreach.

Brenda Smith: I am happy to. I was 35 years with the federal government here in the United States and the last 30 of which I spent at US Customs and Border Protection, where I did a variety of jobs, everything from budget analysts to international affairs, to automation, and retired from CBP in March of last year, and a couple of months later was asked to come and join Expeditors. I knew Expeditors as a company, always very professional, very expert in what they did, so when I had the offer to come in and join the company, it was a great opportunity. Really why I'm here is to focus on helping Expeditors grow their relationship with the various government agencies that regulate supply chains. That's how I got to know them in the first place because they had a really good partnership with Customs and Border Protection, and we're now looking to grow that relationship with other government agencies, with other parts of customs, and with customs administrations around the world.

Chris Parker: Why is it important for a freight forwarder to have a dedicated expert for government relationships?

Brenda Smith: There's so much change in the regulatory and the government policy environment, and for companies like Expeditors and our customers, being aware of what those changes are likely to be, being able to prepare for them in advance, and as important, to be able to provide input into what those changes, how they're structured and how they're they're rolled out, is really important to our business. We want a seat at the table. We believe that we have a voice and we have a position that ought to be heard. The government should be aware of the impact of what they're proposing on U.S. And multinational businesses. So that's my job, and I've got a lot of willing partners here at Expeditors, and we're working through what are the issues that we want to talk about, and who do we need to sit at the table with?

Chris Parker: Right. Absolutely. Given how many years you spent with CBP, what's it like to be on the other side?

Brenda Smith: Oh, first of all, Expeditors' people have been phenomenal. But I will tell you my learning curve and getting really comfortable with a different set of priorities. I was with one organization for 30 years, and just knowing the new people was a bit of a challenge to start with. But I'll tell you one of the things that's been great is even with the pandemic and the fact that we're not in the office a whole lot, my formal office is in the Baltimore, Washington International branch. I love talking to the people there. I love seeing what they do every day, and it really grounds what we're talking about to the government in the day-to-day operations of the branch.

Chris Parker: Yeah. Fantastic. Fantastic. And so for today, we're talking about a pretty big topic, and that's forced labor. So I want to go ahead and get into it. I wanted to know, first and foremost, what is going on right now that's got us talking about forced labor? Why is this a topic now?

Brenda Smith: People are laser-focused on their supply chains and the aspect of forced labor because, in December of 2021, Congress passed a new law, the Uyghur Forced Labor Prevention Act, which I generally refer to as the Uyghur Act, which essentially said that any goods that were made with forced labor or came from the Xinjiang Uyghur Autonomous Region, which is a portion of Northwest China, were assumed to have been made with forced labor and thereby needed to be excluded from the United States. In other words, any product or product made with something from that part of the world were not going to be allowed into the U.S.

Brenda Smith: The challenge with that is really hard to get visibility into the goods that come out of Xinjiang at a first level of supplier. You know who those suppliers are if you're the U.S. importer because you're often ordering directly from them. But the law requires you to know your supply chain all the way back down to that basic raw material, or something mined, pulled out of the ground, or grown on a farm. And very often, U.S. importers aren't able to get the visibility back through four or five tiers in their supply chain.

Chris Parker: It kind of gets muddied after that, or it's harder to get the details there, right?

Brenda Smith: It does, and a lot of times, one of the focus areas has been cotton. Cotton grown in Xinjiang, there's a lot of it, but there's a lot of cotton grown in other parts of the world. But when you make thread, or you make fabric, a lot of times, that cotton is all thrown into one big vat and mixed up together. If it's mixed with cotton grown in Xinjiang, those t-shirts or pair of blue jeans are not able to come into the U.S.

Chris Parker: The term forced labor, is there a single definition that's recognized globally, or does the U.S. have a different understanding or different interpretation of that?

Brenda Smith: The U.S. really goes back to the International Labor Organization, or the ILO, which has some longstanding indicators around forced labor. In fact, when CBP does its assessment of shipments, it looks at whether the shipments were produced by individuals who may have been in egregious working conditions or had to work huge amounts of overtime and were not paid for it, or whose passports were held so that they could not freely travel, or who were in debt bondage. In other words, they owed their employer so much money that they could never leave their job. And because of that use of the international standards, we found that our understanding of what forced labor looks like is very consistent with the standards used by other countries in Europe or Australia, or the UK.

Chris Parker: So then what has the trade community done to fight forced labor, much like the implementation of the Uyghur Act?

Brenda Smith: Many companies have invested heavily in building and infrastructure around ensuring good practices in this area, a code of ethics, third-party validations of manufacturing facilities, working with vetted suppliers, putting provisions into their contracts about the expectations and requirements for compliance. With the advent of the Uyghur Act, companies really have had to even take that even further because the expectation from the government is that they will know their supply chains and be able to demonstrate a due diligence level that is higher than what it previously was. Companies have invested in technology to test the origin of cotton and other raw materials. They have invested in data analysis and data mapping so that all of their supply chain is represented in a picture, and the amount of data collected about those suppliers and those different in their supply chain is available to them.

Brenda Smith: They've asked hard questions. With the Uyghur Act, one of the challenges for many companies is the fact that they can't get into China to ask those questions or to support on-the-ground validations. They've got to do it all through documents really at arm's length. It's a bit of a challenge.

Chris Parker: That's what the trade community is doing in order to fight forced labor. What are countries and governments doing?

Brenda Smith: For a number of years, actually here in the U.S. since the early 1930s, we've had an exclusion on imports of goods that were made with forced labor. In more recent times, you've seen countries like the UK or Australia with a Modern Slavery Act, which instead of stopping goods at the border, actually puts the onus on businesses and corporations to develop that structure that we just talked about, the code of ethics and the validations and the supplier relationships. Here in the U.S., during the run-up to the implementation of the Uyghur Act, the government has done a lot of training and outreach to the trade community to make sure that they understand their compliance responsibilities. They've been pretty clear that what their authorities allow them to do, which is to detain goods and then ask for evidence that the goods were not produced with forced labor. But I will tell you, the trade community overall is still looking for good guidance and good direction on exactly what the requirements are to comply with the new act.

Chris Parker: So then, who would you say is driving all of this and being a real force for change and understanding and more attention towards stopping forced labor?

Brenda Smith: I think on the surface, it's a coalition of U.S. government policy officials, the U.S. Congress that has taken a real interest in this area, and non-governmental organizations. But I think at the root of it all is the consumer that is demanding more visibility and a higher standard around labor practices.

Chris Parker: Would you say that the U.S. is leading this movement to fight forced labor, or are there other countries doing their part and leading the charge?

Brenda Smith: The U.S. model for fighting forced labor with stopping goods at the border is unique at this point. No other country, up until the U.S.-Mexico-Canada agreement was put into place, took this approach. What we see now, though, is a lot of interest from other countries, particularly in Europe, and it is likely that we will see similar legislation come out of Europe in the next few years.

Chris Parker: So the stopping of goods at the border, that's a uniquely U.S. thing?

Brenda Smith: It is, and it was really very creative, I think back in the 1930s, when the issue, frankly, at that point was a little less about human rights and more about U.S. competitiveness. So think about it, U.S. businesses trying to produce a product and trying to sell it at a reasonable price, but they're in competition with goods that were made elsewhere by people that didn't have to be paid or were paid much less than what they might be paid here in the United States. They couldn't compete, and so Congress passed a law to support U.S. competition at that point. While over time, that competitiveness approach has been joined by the human rights aspect of it, and that's a lot of times what gets the ink these days. It is still a competitiveness issue.

Chris Parker: Where does an importer get this kind of proof, and how do they know that they're showing the right stuff when asked to provide proof?

Brenda Smith: Great questions. So companies have, for the last couple of years, really been investing heavily in this area, particularly in sectors that government has already indicated are at high risk of forced labor, like cotton and apparel goods, tomato products, and poly silicone products. They have done and are really leading the way, I think, in their due diligence efforts. But they even, they have indicated that they're having to find new tools, whether it is the technology to test origin, whether it's sophisticated data mapping, whether it's satellite photography. But at the end of the day, what importers really need to be able to do is to explain to Customs and Border Protection how their supply chains work. They need a story that lays it out clearly. They don't need to dump 15 boxes of documents on them. They need to be able to show that they've got a system in place that stops goods and stops forced labor.

Chris Parker: Otherwise, what happens? What happens while that's being done because that has to be held, right?

Brenda Smith: Right. So typically, what happens is, as CBP is reviewing the advanced electronic information about the shipments coming to the U.S., they're going to target specific shipments that they believe are likely to have used forced labor or to come from Xinjiang under the new law. They will stop the shipment. They will detain it and then send a note to the U.S. importer and the broker and say you have 30 days to come and show us evidence that, in fact, this particular shipment is clean of forced labor. 30 days sounds like a really long time, but it's not.

Chris Parker: I was just about to say it does not.

Brenda Smith: No, it's not.

Chris Parker: It is not a long time. Yeah.

Brenda Smith: Think about what goes into that. If you don't have the documents at hand, you've got to get them. Even in the days of email, documents still don't flow that quickly. A lot of times, you've got to get them translated. A lot of times, you're in a couple rounds of document exchange because you don't know exactly what CBP's going to be looking for. I think it's going to take us a little bit of practice. The first couple of months after the June 21st implementation date, I think, are going to be a bit of a shakedown cruise, and the trade community will begin to understand what CBP is really looking for, and CBP will be a lot better about articulating what the key documents are. We might never get that checklist, but I think we'll get a better understanding of what is needed to convince CBP.

Chris Parker: When you're saying the shakedown period, there's no transition like phasing in of anything.

Brenda Smith: No.

Chris Parker: It's just, it's on.

Brenda Smith: That's unusual, right? Usually, when we have these big policy initiatives or big data initiatives, there's a period called informed compliance, and what it really means is the government is continuing to educate, and the trade community's getting used to those expectations. There is no informed compliance period. Congress didn't build it into the law and specifically said, nope, you got six months, which they felt was sufficient period of time. Then it's go live, and we'll see, they're ready. But I don't think what we're going to see are a thousand shipments detained on day one. But I think they're going to ramp up, and we should be prepared for that.

Chris Parker: What are the penalties then that importers are facing here? Is there a strike system? Is it a, you learned your lesson once, don't do it again? What happens if importers have been found to be not compliant?

Brenda Smith: So big red flag for CBP.

Chris Parker: Of course. Yeah.

Brenda Smith: They keep good records. That's what all those electronic systems and the collection of the data is really all about. The initial impact is really, you don't get to bring your goods into the United States. You either choose to or are required to re-export those goods to somewhere else if there's any question that you don't meet clear and convincing evidence that your supply chains are clean. If you do it a couple of times, your shipments are likely to be stopped time and time again, so you're never going to be able to bring them in. If you do it a couple of times and you're clearly still not compliant, CBP can issue penalties, which was going to hit importers in the pocketbook.

Brenda Smith: The other thing that we have just recently heard from CBP is that if you are suspected of evasion, in other words, you're bringing goods in that were manufactured in Xinjiang or clearly had a connection to Xinjiang, and you relabeled them with the country of origin somewhere else, and CBP finds out, those goods can be seized. So you're not allowed to re-export them, and you lose the goods, and you pay the price for those goods.

Chris Parker: Yeah. They just take it right out of circulation.

Brenda Smith: That's exactly right.

Chris Parker: They can't get moved anywhere else. Wow. Wow. Geez. I heard mention of an entity list. This is like the naughty list of the Uyghur Act. Could you talk a little bit more about that?

Brenda Smith: Yeah, so the legislation itself set up an interagency community around the implementation of this new law. I think actually it's a great thing because it pulls the authorities and the resources of many government agencies that are involved in fighting human trafficking and forced labor into the same room. It really puts them on notice to collaborate and to work together to bring really the best efforts of the US government to bear on this issue.

Brenda Smith: One of the requirements of this interagency group is the production of an entity list. Those that are involved in the export world are very familiar with entity lists and sanctions lists. This is kind of a similar approach. It's trying to communicate the knowledge of the federal government to the private sector around who are the bad guys and who needs to be identified as a risky entity to do business with. These primarily will be suppliers. So manufacturers, farms, labor units, because that's the other aspect of this Uyghur act. It is about the goods, but it's also about the labor used to produce those goods. If that labor was operating in a forced labor environment, even if it's in another part of China or another part of the world, those goods are still subject to these restrictions.

Chris Parker: Gotcha. Gotcha. So the CBP is trying to communicate, "do not work with these folks when you're trying to produce your goods".

Brenda Smith: That's right.

Chris Parker: Okay. Okay. That's a far more productive approach.

Brenda Smith: It is, but I'll tell you, Chris, the other thing to be careful of is that often companies that are on a list like this will morph. They'll take on a new name or a new physical location. The other thing that CBP and the interagency group has indicated is that the entity list is not the be-all and end-all of the companies that they're worried about. They can take enforcement action on organizations that are not on the entity list.

Chris Parker: That just goes to show how important your own due diligence is. The organizations on the entity list have been verified by the CBP, but you still got to do your own homework with whomever you're working with. It sounds like collecting data is absolutely critical when showing due diligence, and the results that forced labor was not used to make your goods. What role has technology played in this? What is it doing right now? How is it helping importers through this whole process?

Brenda Smith: From a couple aspects. I think we've already talked about the origin testing and the DNA testing technology, which is, I think, getting a much broader use because now there's a good use case for it. I think the other thing, the other type of technology that's been really useful is data analytics. In this instance, with the restrictions on the access to facilities and production in Xinjiang itself, people are relying on the data, so using analytics to map where the risk is based on a variety of factors; known relationships to certain umbrella organizations, the production of certain products, physical location close to a labor facility, is all things that can be fed into an analytics machine or formula and dash boarded out. I think that there are a lot of companies that are providing that information to U.S. importers to help them sort through, well, "where's my greatest risk" and, "what do I need to focus on"?

Chris Parker: So then, as Global Director of Government Outreach, are you working with customers at all?

Brenda Smith: I am, and some of it is because of my new role, but some of it's also because when I was at Customs and Border Protection, I was very involved in the building of the forced labor program and a lot of the interpretation of the legal provisions and how we operationally executed. But we also did a lot of outreach when I was at CBP. So just trying to continue that so that customers really understand what the responsibilities are and to help them, again, focus on where their risk is.

Chris Parker: So then, what would you say are some surprises that you've identified in your conversations with customers regarding this topic?

Brenda Smith: I'm a big believer that the private sector and the government needs to be talking to each other. When we don't talk to each other, there's so much opportunity for either misunderstanding or lack of understanding. I am amazed at the hesitation that I sense from a lot of customers that are either unwilling or just have never thought about the opportunity to sit down with the government and have a conversation, both to raise an issue that is of concern, something's not working the way it's supposed to, or the customer doesn't understand why the government has taken a particular path.

Brenda Smith: But I think the other thing that is almost more valuable is by helping the government understand private sector reality. I'll use myself as an example. I worked for the government my whole career. My most impactful days were those that I spent in a factory or watching a line of trucks try to get across the border, or in a terminal, shipping terminal, where they were trying to move just stacks of containers, because that gave me real understanding into how trade really moved, what some of the challenges were, and what some of the opportunities were.

Brenda Smith: If the government doesn't understand the working environment, they're not going to see the challenges and the opportunities, and they're not going to see why what they're asking for is so difficult or expensive. At the end of the day, the people at CBP that do trade, they want U.S. businesses to succeed, but if they don't understand what it takes to succeed and add regulatory requirements or data that is just not available or that is really expensive to provide, it doesn't work for anybody. I think it's really important for customers to have those conversations.

Chris Parker: An importer reaching out to the government to have these conversations isn't necessarily painting a target on their back. They're providing also good feedback to CBP so that they can probably define and really nail down the details that they are looking for in order to combat forced labor.

Brenda Smith: I don't want to totally oversell because there can be a little bit of risk there.

Chris Parker: Sure, sure.

Brenda Smith: I live in my happy land and always think that the government is going to welcome this input with open arms. But I think it's worth trying, particularly if you have a relationship already or you are interested in forming a relationship. A lot of times, you have questions that, with a simple phone call or an email to a trusted partner within the government, you can get the answer to that question. I think it's really worth the investment of trying to form that relationship. My Gen Z doesn't always want to give me full visibility into what he's up to, but a lot of times, I can provide useful information or support on things that he's dealing with. It's kind of the same thing with business community and the government. You may not always want to give them full visibility, but develop that relationship so that you can partner on resolving these really complex issues we've got to deal with.

Chris Parker: So it sounds ultimately like it's okay and beneficial for both the government and for imports to have a relationship with each other, and also a really good reminder to just call your parents, it sounds like.

Brenda Smith:  That's great. Yes.

Chris Parker: All right. So when it comes to an importer looking at themselves, what would you say are the kind of conversations that they need to be having, or even with their logistics partners?

Brenda Smith: What we've seen is that addressing this sort of an issue is really an organization-wide effort because you've got legal issues, you've got procurement issues, you've got logistics issues, you've got security issues, you've got customs issues. You really need to draw on all those sources of expertise and sources of information to understand what is required and make sure that you are addressing that requirement.

Brenda Smith: Often, you'll even want to pull in your communications team or your investor relations team because, very often, they can help you put that information that you've gathered and the investment that you've made in meeting the standards into explaining exactly who you are as a company and what efforts you've made to address this issue. A lot of folks have a good story to tell if they've made the investments in things like supply chain mapping, understanding where their risks are. Sometimes they've even had to shift sources of supply if they can't get the right information or the right compliance from their vendors. So it does take a really collaborative effort around this, but these are human beings we're talking about, and making that investment, it makes a big difference in a lot of people's lives.

Chris Parker: So then before we close today, you mentioned June, but I wanted to get the definitive date that this all, like the switch gets flipped. What are the details?

Brenda Smith: On June 21st, a couple things are going to happen. We're going to, I believe, see the strategy, the entity list, and the additional guidance from the Forced Labor Enforcement Task Force, that interagency group. We are going to have the technical operational guidance from CBP in hand, so we know how they're going to deal with these shipments. And we're probably going to see at various ports around the country, CBP start to detain shipments and issue those detention notices. So be ready, have your story together, make sure it's clear, make sure it's focused, and I wish all of us the ability to make a real difference.

Chris Parker: Well, Brenda, thank you so much for your time and for talking about this with me. I really appreciate it.

Brenda Smith: Chris, it was an absolute pleasure. Thanks so much.

Chris Parker: Thanks for listening to today's episode. If you've got any questions or want to learn more about today's topic, check out the show notes for more information. And before you go, make sure you're subscribed on whatever podcast app you're using so you won't miss the next episode. To learn more about Expeditors, you can find us on LinkedIn, Facebook, Instagram, and Twitter, or simply visit us at expeditors.com. Take care, and I'll see you next time.

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Blog was originally posted on June 22, 2022 10 AM

Topics: Customs, U.S., Forced Labor

Expeditors

Written by Expeditors

21 minute read