A new rule to ban the US import of products made with forced labor could mean trouble for companies whose supply chains reach into the darkest corners of the global labor market.
Last week, US Customs and Border Protection (CBP) issued a seizure order for a shipment of soda ash produced by Tangshan Sanyou Group, alleging that the chemicals exporter relies on prison labor. It was the first such order since 2001, granted after Congress closed a loophole that had rendered a century-old ban on forced labor imports toothless.
A second order against another Chinese chemical company, Tangshan Sunfar Silicon Industries, was announced on April 13. Both companies provide the chemical processors to a huge range of common products, from glass and dyes to silicone and food preservatives.
Now, activists and companies are gearing up for a battle over the rule, which came into effect last month. A coalition of human rights advocates and labor groups are organizing to use the rule to force the seizure of imported goods and to call attention to dangerous labor practices abroad, even as companies respond to mounting pressure to clean up their supply chains.
Adding to the sense of uncertainty for companies that rely on foreign goods and materials for their products is that the CBP has yet to say how it will evaluate allegations of forced labor. If the CBP issues an order to seize cargo, its purchaser must provide a detailed demonstration that it was not produced with forced labor.
“The decision on whether the proof submitted is satisfactory and whether detained shipments may be released will be made by CBP on a case-by-case basis,” CBP said in a statement. “If the proof does not establish admissibility of the merchandise, the goods will be excluded from entry into the U.S. These cases often involve numerous allegations that require extensive agency investigation and fact-finding, often involving the cooperation of investigative resources within foreign countries.”
Companies have been caught unawares by import rules before. In 2001, Dutch customs officials seized shipments of Sony Playstation video game consoles that violated EU rules because they contained too much cadmium, a heavy metal that can build up in the body and lead to illness. Sony blamed a supplier for the out-of-spec cables, but the seizure cost the company more than €150 million.
Given the growing interest in ethical production and laws to encourage it, the problem for many companies, according to Brian Dunch, a PwC partner who advices companies about following government rules, isn’t their own facilities or their own contractors. Instead, the trouble tends to come from dodgy vendors even further down the supply chain.
“It’s important that you have, whether you like it or not, accountability in your secondary, tertiary supply chains,” he says.
John Sifton, the Asia advocacy director at Human Rights Watch, says that groups dedicated to labor rights were meeting to figure out how best to take advantage of the legislation and coordinate their efforts to report offenders. He expects the mineral, seafood, and garment industries to attract significant attention. Electronics manufacturers may see the labor practices at foreign factories put them on the target list as well, he says.
The International Labor Rights forum has already announced that it filed a report with the CBP against Swedish home-goods giant IKEA, alleging that cotton in some of its duvet covers is produced by forced labor in Turkmenistan.
When a global cotton trade group first raised the issue in February, IKEA told the Swedish news agency TT that “we know of the challenges that exist in the cotton industry in Turkmenistan when it comes to forced labor. Therefore, we have implemented enhanced controls and third-party testing in the cotton fields and in production.”
Though the company says it has just one supplier in Turkmenistan, it now may face problems at US ports.
The CBP, on its website, requests information about forced labor imports and says it will act if the information “reasonably but not conclusively” suggests the goods in question were made with forced labor. But it’s hard to predict how consistent the agency will be in its enforcement.
Dunch compares the new rule to a law passed in 2010 that required publicly traded companies to disclose minerals obtained from conflict zones.
That rule caused consternation among tech firms like Apple, Google, IBM, and Amazon, which rely on minerals like gold, tungsten, and tin to build their devices. But the law was largely a disclosure challenge that required companies to explain how they obtain their raw materials. The only real deterrent it offered for keeping companies on the right side of the rules was the threat of public embarrassment. Apple, for example, has publicized its recent efforts to comply with the rule, but is still reluctant to call its supply chain conflict-free.
“This is different, now you are talking about penalties, seizures of shipments—it has more teeth in it,” Dunch says. “Some of those same companies disclosing [conflict minerals] are probably targets for the CBP to look at as potential cases for enforcing this legislation.”
Correction: An earlier version of this article referred to a government agency as US Customs and Border Patrol instead of US Customs and Border Protection.