Crowell & Moring Advises Firms Should Use Supply Chain Risk Mapping Services
Crowell & Moring international trade lawyer David Stepp advised businesses, on a podcast hosted by his firm, that the Uyghur Forced Labor Prevention Act is requiring importers "to map their supply chains to a level never seen before," and that since CBP is subscribing to services that use AI to uncover connections, "we really think it's important for clients to take this extra step."
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Stepp mentioned how companies that were sourcing from a firm that ended up being added to the UFLPA Entity List didn't discover it through their own mapping, but were notified by their Tier 1 supplier, which was notified by its customer. He said the automakers "definitely should have identified the potential risk."
The company had been named in a Sheffield Hallam report on forced labor in the automotive sector in China, and Stepp said that non-governmental organizations like Sheffield Hallam scour company statements and online evidence to form their reports.
In a follow-up response to International Trade Today, Stepp acknowledged that the Tier 1 supplier in the automotive case, Lear Corp., was using Sayari, one of those due diligence services, but because the Sayari check was two months before the Chinese supplier was added to the UFLPA Entity List, Lear didn't take action. He said that case highlights a pitfall in using these tools.
"My general advice is that an importer should rerun its important/major suppliers and sub-tier suppliers through the screening tool(s) on a regular basis (usually monthly). In addition, if a supplier is flagged by an NGO, the importer must immediately perform its own due diligence to determine whether the flag is an actual risk. In such an instance, the importer must assume CBP has the same information and the importer therefore must be ready to counter the allegation if it continues to source from the supplier," he wrote.
He said he also has seen cases like Lear's, where the screening was done several weeks before a supplier is named to the Entity List (but an NGO had previously flagged the supplier).
However, Stepp said, just because a firm is named by a non-governmental source as likely to be using Uyghur forced labor, it doesn't mean the relationship should be terminated. "I have seen several instances where suppliers were flagged in Kharon and the Sheffield Hallam databases based on old information. For example, in one example, the supplier had been spun off from a problematic affiliate several years before the data run," he wrote. "I have a couple of large clients that regularly reach out to the data intelligence services to question the flags and push back when the circumstances warrant."
During the podcast, Stepp noted that, in addition to well-known targets of cotton-containing apparel and solar panels, there have been detentions of steel or aluminum medical instruments, personal protective equipment, both cotton and synthetic, and batteries that contain precious metals.
"The main lesson is that all importers, regardless of their industry or sourcing patterns, cannot close their eyes to their supply chains," he said.
Stepp also said that although so far the only consequence of UFLPA has been goods turned away at the border, or the cost of proving to CBP that the goods don't have a nexus to Xinjiang, it may not end there. He said, "We do not rule out the fact that the government could also penalize companies that don't do an appropriate level of due diligence."