Webinar Guests Advise Due Dilligence, Mapping of Supply Chain to Prevent Forced Labor Violations

On a March 27 webinar on Uyghur Forced Labor Prevention Act compliance within the automotive and aerospace sectors, Miller and Chevalier trade partner Dan Solomon discussed how his firm has advised clients to take a risk-based approach, which they call a “due diligence protocol,” in which all suppliers of goods destined for the U.S. are subject to screening at minimum. That protocol consists of three tiers: screening, risk ranking that’s based on certain risk factors that are unique to a company, and mapping to identify all entities involved in the production of a product down to the raw material level, according to Solomon.

While CBP data shows a recent dip in the value of goods detained under UFLPA, the decreased value appears to show a shift in focus toward lower-value goods or component parts, rather than finished goods, according to Solomon.

Although CBP doesn’t disaggregate statistics within the automotive and aerospace category and there haven’t been any issued statements, nor have there been any supply chain disruptions, related to automotive and aerospace, “we are aware of a significant uptick in Chinese-origin, drone-related UFLPA detentions this year,” Solomon said. He added that he and his firm are “also aware of ongoing auto parts detentions, and those seem to continue as a steady stream. We have not seen a dramatic increase, but they do remain steadily detained.”

Furthermore, aluminum and aluminum downstream auto parts could be at a relatively higher risk for detention or increased scrutiny since they are a priority sector, and roughly 60% of the world’s aluminum is produced in China, Solomon said.

“I think the bottom line is that while we’ve seen a steady stream of auto-related detentions. We think that the Trump administration may still be in the process of aligning on how best to address the automotive industry for UFLPA purposes. We expect the UFLPA to remain an enforcement priority, although, as everybody knows, tariffs and tariff evasion have been sort of front and center in the early days of the Trump administration,” Solomon said.

For foreign suppliers in Europe or Asia who are not named the importers of record, but rather, are the exporters, Solomon advised that companies look at the contractual obligations in the agreement and see whether a requirement can be included that says that there is no forced labor in the supply chain or that the company is conducting third-party audits or training employees on due diligence.

“Terms such as liability indemnification, termination are important to review and to revise, if needed, to make sure that the company is reasonably protected in the event of a detention,” Solomon said. It may also be “very important to contractually obligate your supplier to respond promptly to requests, to provide information, to demonstrate compliance in the event of a detention, and also, in the event of a mock detention, to gather the information that's necessary.”

During a March 26 webinar on identifying hidden forced labor risks in a company’s supply chain, Phil Kittock, lead analytical content manager at supply chain technology solutions firm Sayari, advised viewers to use publicly available corporate and trade records “to build a more comprehensive and proactive approach, taking an outside-in view to complement your inside-out methods.” These records, when used with internal data, can help companies develop an understanding of the Chinese corporate landscape, as well as help uncover non-obvious exposure to Xinjiang forced labor, he said.

Some of these records include regulations built upon Canada’s Bill S-211, in which affected entities must collect and provide information in their annual reports that detail the structure, activities and supply chains of the reporting company, as well as parts of the business and supply chain that carry a risk of exposure to forced labor.

There also are a number of forced labor due diligence laws at the national level in Europe, in countries such as Germany, France and the U.K., in addition to regulations passed by the European Union, such as the Corporate Sustainability Due Diligence Directive, according to Kittock.

“We’ve looked at corporate relationships of a hypothetical supplier to find companies that may be supplying it with raw inputs made with forced labor. But when we’re trying to identify that potential exposure to Xinjiang, doing that due diligence really needs to also factor in trade-based relationships, namely, what are we receiving from sub-tier suppliers via our direct suppliers,” Kittock said.