by Vigorous customs enforcement of law threatens to disrupt relationships with key suppliers that can’t adequately document that imports are free of tainted materials
COLFAX, N.C. — Attendees of last week’s American Home Furnishings Alliance Compliance Summit held here received a daunting reminder of the major supply chain challenges associated with one of the most vigorous and stringent supply chain regulations impacting businesses today.
Pratik Ichhaporia, a vice president with Eurofins Modern Testing Services, and Travis Snapp, president and founder of Benchmark International, discussed the Uyghur Forced Labor Prevention Act that seeks to prohibit the importation of goods into the U.S. that are made with materials using forced labor in the Xinjiang Uyghur Autonomous Region of China.
Together, they outlined key aspects of the act, which requires a microscopic analysis of the materials in products ranging from cotton in fabrics to the metal in various components ranging from springs to hinges. The term microscopic is perhaps no exaggeration as the verification often involves, isotope testing of cotton fibers to determine the origin of materials used in the manufacturing process of fabrics, for example.
Describing this as one of the most catastrophic rules he has seen in his 20 years operating in the compliance realm, Snapp put it bluntly for those who may not be aware of the implications for the furniture industry.
“I have never seen anything like it,” he told the audience of the scrutiny the government places on imported goods and the voluminous compliance packages required to be submitted to U.S. Customs and Border Protection as part of the compliance process. “The reason that this is important for all of you is if you have a vendor that winds up with detainage for UFLPA violations and your submission package is denied by CBP, consider that vendor dead. We have seen it. That vendor’s doors get shut because every single container of everything coming out of that factory anywhere in the world is grabbed by CBP. This is a vendor-killer. No questions asked. This one’s serious.”
Thus far, he noted, there have been some 9,000 detentions of goods into the U.S. valued at $3.6 billion in the past 14 months because of alleged violations of the act. Many of these violations are based on what customs deems as incomplete submissions packages that don’t meet its vigorous standards requiring importers to completely vet their supply chains.
“I have never seen anything like this,” he said, describing the importer and their vendor as guilty until proven innocent. “And it gets down to the component parts.”
He went on to describe the level of documentation required to show that products are not tainted with parts made with forced labor. Of all the packages he said that Benchmark has been working on and submitted to CBP, none of the finished products actually originated in China. Instead, they had parts traced back to China that became components of goods finished outside of China.
“The submission packages that we have submitted to CBP run into the thousands of pages,” he said. “Thousands of pages that have to be translated from whatever foreign language they are in into English. In 30 days. It is beyond all hands on deck if you have a detainage and you want to challenge it and try to prove that your supply chain is clean and that you are innocent.”
He presented several slides detailing the documentation process, using a suggested roadmap, or table of contents from CBP detailing how to organize a submission package for solar panels.
“This is what we have to chase down on the ground, what we have to actually translate, what we have to organize with legal counsel and then present to CBP as an evidence package that your products are not tainted with forced enslaved labor,” he said. “And it does not matter where it comes from in the world.”
“When we go into these facilities, we actually have to map out the production steps at your manufacturer, your vendor,” he added. “We have to go through the entire production process to ensure that they essentially have chain of custody from their inventory through the conversion, to packaging, into the can and out the door. And we have to have verification that they have that traceability at each step throughout the manufacturing process.”
From there, he noted, the team has to map out the sources of various raw materials ranging from things like cotton, calcium carbonate and even finishing materials.
Ichhaporia, of Eurofins, discussed some history of the act, which went into effect June 21, 2022. Today, he noted, CBP has an additional $20 million for enforcement, meaning the agency will be stepping up its scrutiny of imported goods now and in the future. Thus, he noted, the target is on products and materials that originate out of the Xingjian province in western China, “including any product that is manufactured in the region, or has been manufactured by any entity that is on the entity list the CBP develops.”
“Because once an entity is added to the list, it is automatically flagged and anything coming from this entity is automatically under the scope of the UFLPA,” he said. “And so the shipment would be detained.”
Attached is a document from the Federal Register that describes the act in detail and also lists the entities CBP has prohibited from importing goods in whole or in part into the U.S. based on alleged ties to forced labor in China’s Xinjiang Uyghur Autonomous Region.
For companies importing goods bearing materials from any of these entities, the government will assume that various parts were made with forced labor, Ichhaporia noted, “whether it’s a full product that’s manufactured there, or sourced from there or it could just a very, very small product. And with this there is no de minimis exception. It could be a fraction of a percentage of the whole. … It doesn’t matter the value of that component.”
Again, he emphasized that the burden of proof is on the importer.
“It shifts the burden of proof on you now,” he said of the process with customs. “They will say … ‘It has an element of forced labor to it’ and they don’t get into the why and all those things. “You have to prove that it does not and ‘why we should release it.’”
Snapp noted, however, that customs does not make it easy on importers when deciding to detain certain goods shipped to the U.S. Instead of pointing to an actual error with the multitude of documents submitted, he said the agency simply refers the importer back to its guidance document for submissions.
“They will not tell us how it is incomplete,” he said of clients that have experienced challenges with this issue. “Now I’m talking about very good clients of ours, clients that I know and that I have enormous trust in and who are dedicated to doing the job correctly. They just want to know, ‘How do I go through and vet my supply chain so that I can prove to you that my vendors are good.’ No answers.”
Snapp said he fully supports the intents of the law, which aims to stop forced, or slave labor, in its tracks.
“I have seen firsthand what it’s like over there and it’s catastrophic,” he said of the Xinjiang region. “So I am supportive of the efforts for what they are trying to change without question.”
But he said that there are plenty of challenges and pitfalls for importers of all kinds and not just those importing things like solar panels or components for automobiles, such as EV batteries, for example. It stands to impact the furniture industry in a big way, too.
“This one scares me, guys,” he said, reiterating the importance of transparency in the supply chain. “And even though you may say it doesn’t impact me because I am in the furniture industry, it does, because of all the little widgets and gadgets that go into the products that you guys produce. … Think about the different parts that are contained in a sofa, from the springs to the cotton to the wood, all of it. You’ve got to come up with a supply chain map for every single piece that incorporated into one of your products and map it to the source.”
“So the emphasis behind what I’m telling you is traceability,” he said, noting the importance of maintaining close relationships and keeping a flow of information between vendors throughout the supply chain. “Traceability is absolutely the name of the game, and the UFLPA is the living, breathing embodiment of how serious it can be.”
In the end, it may come down to a financial decision that involves paying to support the documentation needed to prove the supply chain is not tainted and thus continue doing business with a particular supplier.
He cited one example of a submission package for one client that involved the work of three partners from a law firm, along with four associates and two IT staff members, two partners from an auditing firm, several other associates from Benchmark and the preparation of some 7,000 documents. Add on to that eight international flights, 10 continental flights and 200 hotel room nights.
The bill? $750,000.
“And that was all to either save their vendor or not,” Snapp said. “And by the way, once it’s (the product’s) detained, you can turn around and re-export it. But those are products that are not on your shelves any more. And your vendor’s dead.”
