Ensure Your Supply Chain Complies with New US Trade Laws

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.

What the Law Addresses

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.

Who is Affected?

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.

Results of Non-Compliance

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.

Risky Suppliers

Some potential sources of trouble listed by the US Department of Labor include:

• Silver from Bolivia
• Shrimp from Thailand
• Cotton from Argentina
• Christmas Decorations from China

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.

Six Steps to Comply

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.

1. Understand the Law and Your Vulnerabilities

Before anything else, employees need to educate themselves on the details of the law and identify the areas where they may be at risk.

Identify Risks

• Map your supply chain. Note any risks of compliance.
• Work top to bottom.
• Reference the Department of Labor’s list of goods susceptible to forced labor. Then compare your suppliers and supply chain members with the list.

Reflect on Visibility

• Honestly evaluate what your company knows and does not know. Wherever visibility is not crystal-clear, improve processes.
• Audits: are you doing enough? Are your auditors trustworthy and effective?

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.

2. Work with the C-Suite: Align Your Goals

Gain the support of your executives when developing new plans related to the supply chain. Collaborate with these executives on certain projects:

• Map out the impact of non-compliance. Note where and how the supply chain will be affected.
• Prepare a disaster plan. This will protect your company if a supply chain member does not comply.

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.

3. Be Prepared to Manage Risk

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.

4. Leverage Technology: Improve Visibility

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:

• Suppliers are held accountable for their actions. By entering the information themselves, they take on greater responsibility in their need to comply.
• It’s easier to find non-compliance risks. Parent companies can note red flags and eliminate any non-compliant suppliers.

Keeping track of all important pieces of information helps organizations discover and address risks as early as possible.

5. Regularly Audit

It’s extremely important to set up or revise your company’s audit program.

Frequency

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.

Ideal Auditor

Be sure that you are employing high-quality auditors. An ideal auditor is one that:

• Is aware of local laws- both those of the supplier and the parent company.
• Understands your company’s regulatory needs.
• Correctly follows the standards of the audit and can accurately label a company as compliant or non-compliant.
• Is unafraid to point out unethical and non-compliant practices.

If an auditor is unreliable or dishonest, all of your supply chain monitoring can go to waste.

6. Stay on Top of Laws

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.

Compliance = No Regulatory or Consumer Backlash

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.