The U.S. Customs and Border Protection (CBP) has announced new minimum security criteria related to forced labor that over 11,000 companies will be required to comply with. This move comes as supply chain transparency becomes an increasingly important issue for businesses even those who are not currently in the ESG space!
The standards were created with everyone's wellbeing at heart and intended ensure products sourced from overseas sources do not employ any slave-like practices such as being produced through crammed factory warehouses or farms where workers don't get paid enough living wages. To meet the criteria, companies will need to demonstrate that they have implemented supply chain management practices that address forced labor risks.
Forced labor in supply chains is a major ESG issue that has come under increasing scrutiny in recent years. A number of high-profile companies have been accused of sourcing products from factories that use forced labor, and there is growing pressure on companies to take steps to ensure their supply chains are free from this type of exploitation. The CBP criteria are intended to address this problem by requiring companies to take steps to map their supply chains and identify potential risks.
What makes this requirement different
This is a watershed moment for transparent supply chains due to the fact that CBP may at anytime request unredacted proof of supply chain mapping regarding a particular supply chain. For companies, this means that supply chain transparency is no longer an option but a necessity. Failure to comply with the new CBP requirements could result in delays at the border at a time when supply chains are already under immense pressure.
The new CBP criteria are also likely to have a ripple effect beyond the companies that are directly affected. As more and more companies are forced to take steps to address forced labor in their supply chains, the entire market will begin to change. This could lead to increased demand for products that are sourced from factories that do not use forced labor, and put pressure on companies that continue to source from factories that do use this type of labor.
What you don't know may hurt you
The new criteria come as ESG investing becomes more popular, with investors increasingly interested in companies that are taking steps to address forced labor risks in their supply chains. For companies, this means that supply chain transparency is no longer an option but a necessity. Most companies are unaware of how forced labor occurs in their supply chain. It may enter through the palm oil used in their products, the cotton in their clothing, or the minerals used in their electronic devices. The first step in addressing forced labor risks is to gain visibility into your supply chain. This can be done through a process of mapping and tracing suppliers, which will help identify where forced labor risks may exist.
Many investors are now looking at companies' ESG practices when making investment decisions, and supply chain management is a key area of focus. A recent study found that nearly two-thirds of institutional investors believe that ESG factors can have a positive impact on financial performance. In addition, a growing number of companies are beginning to adopt ESG-related policies and procedures in their procurement processes. The new CBP requirements are likely to accelerate this trend, as companies seek to ensure compliance with the new rules.
In order to meet the growing demand for transparency, companies need to have robust procurement processes in place that ensure their suppliers are adhering to codes of conduct and are not using forced labor. The CBP's announcement is in step with wider regulations ensuring that companies are taking responsibility for their supply chains and are taking action to address forced labor risks.
We've put together a quick summary of what your company needs to know about the CBP's new requirements:
Who do these new requirements apply to?
These new requirements will affect over 11,000 importers who participate in the CBP's Trade Partnership Against Terrorism (TPAT) program. Companies will need to demonstrate that they have implemented supply chain management practices that address forced labor risks. A commitment to business mapping should be included in the code of conduct. The CBP has said that it will consider a company's history of compliance with U.S. laws when determining whether to grant preferential treatment to its products.
What is the goal of these requirements?
The goal is to increase transparency in the supply chain and to ensure that products are not sourced from forced labor. Last year the UFLPA (Uyghur Forced Labor Prevention Act) was passed, making it illegal to import goods that were produced with forced labor. The CBP's new requirements are part of the implementation of this law. Forced labor has been identified in Xinjiang, China, where the Uyghur population is concentrated.
What are the implications for companies?
The new requirements will have a significant impact on companies, requiring them to take steps to ensure that their supply chains are free from forced labor. In particular, companies will need to put in place processes and procedures to map and trace their suppliers. This will help them to identify where forced
How will this affect companies?
The new CBP requirements will affect companies in two ways: first, they will need to ensure that their suppliers are not using forced labor; and second, they will need to be able to demonstrate compliance with the new requirements. The penalties for non-compliance are significant, and companies that are found to be using forced labor in their supply chains will be subject to exclusion from the TPAT program. This could lead to higher costs for compliance, but also create reputational risks if a company is found to be sourcing from forced labor.
There may also be legal risks if a company is found to be in violation of U.S. laws prohibiting the import of goods sourced from forced labor.
What are the potential benefits of meeting these requirements?
Meeting the new requirements include increased transparency in the supply chain and a reduction in the risks of sourcing from forced labor. This could lead to improved relationships with suppliers and customers, as well as a competitive edge for companies that can demonstrate their commitment to responsible sourcing.
How will they impact business operations
The new requirements could potentially impact business operations by increasing the level of transparency and accountability in the supply chain. This could lead to higher costs for compliance, but also create reputational risks if a company is found to be sourcing from forced labor. There may also be legal risks if a company is found to be in violation of U.S. laws prohibiting the import of goods sourced from forced labor.
What steps should companies take to ensure compliance
Companies need to put in place supply chain management practices that address forced labor risks. This includes conducting supplier audits, requiring suppliers to adhere to codes of conduct, and providing training on human rights issues. The CBP has also said that it will consider a company's history of compliance with U.S. laws when determining whether to grant preferential treatment to its products.
ESG supply chain management practices are important to not only adhere to the new CBP requirements, but also for maintaining a good reputation and ensuring that products are sourced responsibly. ESG practices can help companies to avoid risks associated with forced labor, such as reputational damage and legal penalties. ESG considerations should be included in all aspects of supply chain management, from supplier selection and due diligence to ongoing monitoring and and reporting.
The CBP’s new minimum security criteria related to forced labor is a move in the right direction for increasing transparency and reducing the prevalence of human trafficking and slavery in global supply chains. However, companies who are not currently working within the ESG space may find themselves struggling to comply with these new regulations. That’s where FRDM comes in – our supply chain transparency and risk mitigation software solution can help you understand and comply with the CBP’s new minimum security criteria, so that you can rest assured that your company is doing its part to reduce human trafficking and slavery worldwide.
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