Last week I participated in a call on the topic of forced labor and I thought I’d share three key takeaways.
First, the issue is not going to go away, certainly in the context of China, and more specifically Xinjiang. In fact, enforcement is ramping up.
Forced labor WROs and findings are non-tariff trade weapons. As the Biden administration looks for ways to offer some tariff relief (such as the measures being considered as part of the Trade Act of 2021), forced labor enforcement offers a less controversial pathway to put pressure on importers of Chinese products to decouple, while placating the China hawks. Human rights efforts might also resonate more with core Biden constituencies than dry trade policy.
The intrinsic connection between China trade policy and forced labor issues also suggests that enforcement will be lighter when it comes to manufacturing destinations in Southeast Asia (which have their own issues with forced labor). This is yet another factor to keep in mind when considering supply-chain diversification or relocation.
Second, expect U.S. Customs and Border Protection (“CBP”) to look for tech solutions as it tries to manage the frustrations of importers. Do not be surprised if digital ledgers that document the entire chain of custody soon become an unofficial requirement to get around forced labor questions. This could be an unfortunate development, with too much attention placed on the importer’s technical savvy and too little on what is actually happening within their supply chain. This is not to say CBP will just rubber-stamp digital records (and in fact the agency is already expressing concerns with the veracity of underlying information in some cases). However, as more importers start providing neat, easy-to-read information, those that do not will stand out, in a bad way. Forewarned is forearmed.