Actual ESG enforcement mechanisms: Restrictions on imports of products made with compelled or kid hard work | JD Supra

Many have seen companies’ commitments to ESG as largely performance measures amid toothless regulations.¹ But this has changed and we expect that change to continue. One example stems from the “S” in ESG, specifically expectations for companies to monitor their supply chains to ensure that forced or child labor is not used in the production of their products. The recent and much debated Uyghur Law on Forced Labor is discussed in more detail here and hereis an obvious example of an attempt to uphold these human rights.

But there is more: the US and the EU have or are proposing real enforcement mechanisms to protect against the sale of goods made with forced labour. In light of this heightened focus on compliance with these regulations, companies should expect increased scrutiny of their supply chains and prepare for the possibility of government-initiated investigations.

United States law

US law has long allowed US Customs and Border Protection (CBP) to prevent goods from entering the US market that are mined, manufactured, or produced “in whole or in part” in any foreign country through convict, forced, or indentured labor, including forced child labor.² But the Trade Facilitation and Trade Enforcement Act of 2015³ closed existing regulatory loopholes and strengthened CBP’s ability to prevent forced labor products from entering the country;⁴ leading to CBP’s first seizure of goods linked to forced labor in 15 years.⁵ These longstanding prohibitions were given further life in the United States-Mexico-Canada (USMCA) Agreement Implementation Act, which ordered the establishment of the Forced Labor Enforcement Task Force to monitor compliance with Section 1307, which was established by Executive Order 13923 on May 15, 2020.

This increased focus on enforcement was not just a blip on the radar. CBP has become very active in issuing release revocation orders, which are used to block imports when Customs “has reasonable evidence of the use of forced labor in the manufacture or production of an item or items entering the U.S. supply chain.”⁶ And it actively encourages reporting of potential imports that used forced labor in their production.⁷ In October 2022 alone, CBP targeted nearly $130 million worth of goods “for suspected use of forced labor in the production of imported goods, including goods subject to the Uyghur Forced Labor Prevention and Withholding Act.”⁸ For example, Reuters recently reported that CBP has seized more than 1,000 shipments of solar energy equipment, worth hundreds of millions of dollars, since just June of this year.⁹ And a December 2022 report from Sheffield University, in the UK, warned that major car manufacturers are at high risk of incorporating car parts made by Uighurs with forced labor.¹⁰ Suffice to say, CBP’s scrutiny of goods produced by forced labor is here to stay.

One CBP-powered tool that makes the agency’s efforts particularly potent is the e-Allegations Portal, which allows someone to file trade crime charges.¹¹ According to all indications, this e‑Accusation portal is working. In 2021, CBP received more than 1,760 trade violation allegations.¹² A recent example of an investigation spurred by a third-party complaint concerns embattled fast-fashion retailer Boohoo. A third-party activist organization sent a petition to CBP detailing the problems with the company’s Leicester plant. And within a month, CBP opened an investigation into the allegations.¹³

In summary, CBP has become more efficient and streamlined in recent years. Additionally, Customs’ full migration to electronic filings means CBP now has unprecedented capabilities to search through the electronic paperwork behind each entry, allowing it to unearth information that potentially shows links to companies or regions associated with forced labor. The Department of Homeland Security also recently issued an Anti-Forced Labor Strategy, which emphasizes the use of enforcement measures to combat forced labor in the Xinjiang region, as well as more broadly.¹⁴ In light of these heightened enforcement mechanisms used by US authorities, combined with increased funding to CBP for its enforcement work, companies must do more than pay lip service to cleaning up supply chains.

European Union

In September 2022, the European Union proposed regulations banning the import and export of products made with forced labor.¹⁵ The proposals aim to add meat to the bones of “corporate sustainability due diligence and reporting obligations” through the implementation of “a robust, risk-based enforcement framework.”¹⁶ They would give governments broad powers to carry out multi-phase investigations, to carry out controls and inspections of facilities (including in countries outside the European Union) and to bar non-compliant products from the market.¹⁷ And much like in the US, these proposed rules would allow third parties to file reports of alleged violations.¹⁸

Although these proposed regulations still need to be approved by the European Parliament and the Council of the European Union, it can be expected that companies will see an increase in EU origin supply chain investigations once they are applicable.¹⁹

How to protect your business

While that has always been true, these new enforcement paradigms highlight an important fact: Simply checking compliance boxes is not enough to demonstrate to stakeholders that your company is socially responsible. Governments around the world are now joining activists criticizing (and investigating and enforcing) corporate compliance with bans on the sale of goods made with forced labor. These days, companies face more than one blow to their reputation for violating forced labor laws; they face increased risks of real enforcement, including seizure of goods and large penalties.

So how can businesses ensure they are following these trading rules? Tools like our company’s International Compliance and Mitigation Heat Map offer a good place to start. The heat map, like the EU’s proposed regulations, is based on various risk factors. And a basic forced labor/supply chain risk assessment, as we have described hereis a best practice for all manufacturing companies.