On December 23, 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act (UFLPA). It reaffirmed the United States’ longstanding prohibition on goods imported from regions of the world that rely on forced labor — in this case, China’s Xinjiang Uyghur Autonomous Region (XUAR).

In March of this year, U.S. Customs and Border Protection (CBP) enhanced UFLPA’s effectiveness by adding a postal code for all imports from China to the Automated Commercial Environment (ACE), the system that companies use to report imports and exports. 

There have been multiple reports of the “detention of large numbers of ethnic Uyghurs and other Muslim minorities, under the pretext of countering religious extremism in XUAR” since 2016, if not earlier, according to a 2022 United Nations Report. It revealed claims of “torture and other ill-treatment, including sexual violence, and forced labor.” 

While it represents an important step toward combating forced labor and protecting human rights, UFLPA has the side effect of increasing day-to-day complexity for importers with responsibility for demonstrating due diligence, effective supply chain tracing, and supply chain management measures.

The big change is the requirement that the postal code field be properly filled in when importers use ACE. This provides notice earlier in the process that the goods they’re trying to purchase may have been produced in the XUAR. It doesn’t just affect shipments directly from China; anything made partially in, or with materials sourced from, the XUAR is barred from importation. In the past, similar regulations against forced labor imports have generally focused on a single category of product (such as cotton), but this time around the type of product is irrelevant. Anything that can be traced back to the XUAR is subject to the ban.

Imports found to be in violation of the Act are subject to seizure and forfeiture, resulting in a giant headache and lost revenue for companies.

If the postal code inputted into the ACE system is a XUAR code, a warning message will flash. If the user tries to input anything other than a valid Chinese postal code, an error message will appear.

The change is being implemented on two applications. First, it affects cargo-release applications for the manufacturer party when the country is reported as the People’s Republic of China in the SE36 or SE56 record. Second, the change will be implemented on manufacturer identification code applications when a user creates or updates one with a city located in China.

The change adds one more thing to watch out for, and a complex one at that. In this case, the burden of proof is shifted to the importer, which will need to provide strong third-party documentation to prove its position should anything get flagged.

Following are some steps that procurement teams can take to stay compliant with the UFLPA’s:

Don’t treat it like any other risk. Amid all the risks that come with modern-day supply chain management, that arising from violations of the UFLPA is unique, it that it requires a significantly higher degree of proof of a product’s origin. According to Sayari, provider of a commercial intelligence platform, anyone involved in a shipment who is found by CBP to have knowledge of the use of forced labor can be charged under criminal statutes.  Risk-management capabilities in third-party lifecycle management platforms are built with this type of scenario in mind, and can help companies stay clear of any enforcement actions.

Audit your current supplier base. Companies can be proactive and lessen risk by identifying which suppliers are most likely to violate these rules, now and in the future. It’s important to assess their infrastructure, upstream relationships, transactions and ultimate beneficial owners (UBOs). For example, suppliers that import from nearby regions might be acquiring products made in whole or part in the XUAR, perhaps without their knowledge. CBP provides a guide to operationalizing UFLPA compliance as a good starting point, but it’s important that companies communicate with their suppliers to build transparency into the latter’s own sourcing activities, and make sure they’re aware of the act. Track all such conversations in the supplier management system for auditing purposes, and to streamline the process. Check public records for proof of forced labor being used at contracted suppliers; if a supplier’s parent company or subsidiaries utilize forced labor or source from the region, that could put a company at further risk.

Take action. Continuing to work with a supplier found to be in violation puts an importer’s critical supply lines in jeopardy. Action should be taken to have the supplier change its activities, or be removed from the company’s list of suppliers. Of course, if a company does an audit and realizes it has a supplier in the XUAR, that will also need to be addressed right away. That was a violation even before this latest enhancement to UFLPA, but taking action now is better than failing to divest from that supplier, or waiting for CBP to get involved. A supplier-management platform can help supply chain teams organize the review process, flag suppliers that require action and help source replacements.

Supply chain teams are constantly navigating complex regulatory environments while making sure that their suppliers are steering clear of a myriad of potential violations. Expect to see more of these regulations pop up, making it essential that teams work risk-management practices right into their software and supplier-management suites. Current suppliers need to be assessed — not just once, but regularly — and enhanced due-diligence checks should be part of onboarding and ongoing monitoring. The more the process can be automated, the easier it will be for companies to identify, mitigate and manage these risks, and the platforms in question should be flexible enough to keep processes up to date in line with ever-evolving regulatory environments.

It’s important that companies assess their supply chains for possible violations of the UFLPA and prepare for these enhanced requirements — not just because it’s financially prudent to do so, but because it’s a way to ensure an end to human rights abuses, both in the XUAR and throughout the world.

Jag Lamba is chief executive officer of Certa.