As of February, Obama signed the Trade Facilitation and Trade Enforcement Act of 2015. The law sought fairer and more consistent labor practices with international businesses. Because parent companies are now legally liable for the actions of their suppliers, companies need to take a better look at their sources and cut relationships with those who will not comply.
The major issue the new Act addresses is the Consumptive Demand Rule. This was a loophole in the Tariff Act of 1930 that allowed imports into the country regardless of production operations if domestic demand was higher than domestic supply. The law also addresses other important trade issues, like dumping and the misclassification of country of origin labels.
Any company that does business outside the US is affected by the new law. This is especially the case for businesses that manufacture or sell goods labelled as susceptible to forced labor by the US Department of Labor.
The regulatory consequences are a major concern for global businesses. Non-compliant companies may be restricted or completely cut off from doing international businesses. Non-compliers will face trade restrictions and barriers from the US government. As a result, the business can lose access to an entire market or markets.
Non-regulatory consequences exist as well, including negative media attention and lower brand perception. These events can result in decreased sales.
Some potential sources of trouble listed by the US Department of Labor include:
Any products listed by the Department will be on closer watch by the government. Any businesses that rely on these types of products will need to more closely monitor these supply sources to prevent non-compliance.
Mickey Rizza, vice president of strategic services at BravoSolution, discussed how companies can comply with the new legislation. Following is the 6 steps for compliance.
Before anything else, employees need to educate themselves on the details of the law and identify the areas where they may be at risk.
Reflect on Visibility
By identifying where your known risks are and how good your visibility is, you’re better able to improve weak spots and set new standards.
Gain the support of your executives when developing new plans related to the supply chain. Collaborate with these executives on certain projects:
It’s entirely necessary for everyone to be on-board with adapting to new regulatory requirements. It requires the cooperation and collaboration of of higher management.
Creating a disaster plan with executives is one task that will help your company prepare. Be sure to include in the plan alternative sources of supply. Secondary suppliers should be ideally found for all supply chain members, but particularly those where you have identified risk. Also note that finding a supplier will now be increasingly difficult as a result of the law. You will have to take an extra step in your research of new potential partners by ensuring they comply with the US trade law.
Create an information system where suppliers can directly enter important information, like audit results and information about their compliance. The benefits of a successful information system:
Keeping track of all important pieces of information helps organizations discover and address risks as early as possible.
It’s extremely important to set up or revise your company’s audit program.
Audits should be a mix of routine audits and surprise audits. At a minimum, your company needs to audit suppliers once per quarter. For flagged suppliers, conduct more frequent and surprise audits. This will allow your company to ensure that they are complying and to address those who are not following the rules.
Be sure that you are employing high-quality auditors. An ideal auditor is one that:
If an auditor is unreliable or dishonest, all of your supply chain monitoring can go to waste.
Contact your company’s legal function, whether it’s internal or external to understand all complexities and details of the new trade law. Make sure to understand how your company must respond to any non-compliant suppliers. Work with your lawyers to review current supply chain processes and compare it to the criteria of the new law. Decide what processes need to be revised and make a plan to change them where necessary.
By ensuring your business complies with the new trade law, your organization will benefit from better brand perception and safety from government fines and trade restrictions. Not complying to the new Act can result in extraordinarily damaging trade barriers and media backlash. Protect your company and work as a team to respond to this new policy.
"MEP has put together an intelligent program that was well thought out and challenging for supply chain management team. They challenged our supply chain approach and current paradigm – forcing us to take a fresh look at what we do and how we do it. We are using the supply chain strategy tools that they provided as “take-aways” to change how we do things."
-Bruce Broxterman, President, Richards Industries