How to Discuss Forced Labor With Chinese Suppliers Without Getting Into Hot Water (Part 2)

This article is part two of a series exploring the challenge of achieving regulatory compliance with Chinese suppliers. Part one discussed the myriad obstacles Western companies and their Chinese manufacturers face in achieving compliance under the shadow of the CCP.

Article Highlights:

• The best way to avoid potential issues with goods being seized is to verify that there are no risky materials in any of the items being imported in the first place. 
• By enshrining expectations around forced labor free supply chains in contracts with suppliers, companies can communicate the importance of this screening with their suppliers up front.
• While penalties and fines outlined in the contract will likely not aid in getting goods released, they can serve as an appropriate incentive to foreign suppliers to avoid producing products that may be seized upon import.

There are a wide range of obstacles companies face in compelling their Chinese suppliers to adhere to regulatory obligations, including the fluid nature of trade compliance laws and the intense political pressures coming from the Chinese government. That hardly means, however, that manufacturers can afford to embrace a laissez-faire approach, letting suppliers source however they want and turning a blind eye to the systematic forced labor allegedly rampant among firms with ties to Xinjiang. 

It’s fair for companies to ask, then, what effective, practical steps they can take to try to address these issues with their suppliers. While extracting clear information around these types of manufacturers is almost always difficult, there are some tactics that businesses can employ to try and get as much information and transparency out of their suppliers as possible.

Clearly Lay Out Expectations for a Forced Labor-Free Supply Chain Within Supplier Contracts

The best way to avoid potential issues with goods being seized is to verify that there are no risky materials in any of the items being imported in the first place. To do this, organizations should firmly establish an expectation that their suppliers screen for forced-labor and other trade compliance risks. By enshrining expectations around forced labor free supply chains in contracts with suppliers, companies can communicate the importance of this screening with their suppliers up front, before any orders have even been placed. 

While this strategy won’t necessarily stop goods from getting seized at the border by CBP if the agency suspects forced labor was involved, it can provide an indirect platform to open discussion around trade compliance issues (including forced labor).

Discussions around initial contracts serve as an excellent opportunity to discuss business-relevant items that aren’t necessarily directly related to the products being purchased. By setting expectations and gathering information before a contract is even signed, companies can ensure that they have proper compliance from the start, or can adjust their sourcing if a supplier is unwilling or unable to provide satisfactory trade compliance information.

Add in Penalties for Goods Seized by CBP to Supplier Contracts 

Incorporating penalties for seizure of goods due to forced labor (or other issues) is another effective strategy for compelling foreign suppliers to ensure their supply chains have been screened appropriately. These penalties could include freeing the importing company from responsibility for payment for goods seized on suspicion of forced labor, compensation for shipping costs used to send seized goods, and automatic business reduction clauses if a supplier is found to have shipped material manufactured using forced labor.

While penalties and fines outlined in the contract will likely not aid in getting goods released, they can serve as an appropriate incentive to foreign suppliers to avoid producing products that may be seized upon import. For the importing company, these penalties can help reduce the headache of seized goods somewhat. Equally important, however, they can serve as a strong deterrent to suppliers—effectively creating the appropriate checks on their compliance and supply chain due diligence systems.  

Not all companies will have the luxury of being able to negotiate language into their contracts that can help mitigate trade compliance risk. Many companies already have deep relationships with suppliers in China and other countries that pose a high trade compliance risk. For these companies, it is possible to re-negotiate contracts. But there are also other tactics that can be deployed to try and get the trade compliance answers so crucial to minimizing the risk of having your imports seized at the border. 

Use an Indirect Approach When Talking With Suppliers 

While many trade compliance specialists may want to be direct and to-the-point when requesting information from their foreign counterparts, the reality is that this direct approach may well be off-putting for foreign and especially Chinese suppliers. Instead, businesses may want to bring up the expectations in a more subtle, roundabout way, asking suppliers about screening their sub-tier for “human rights violations” or if they have the capabilities to map out their sub-tier supply chain directly. And by stressing the value of “supply chain stability” and other related concepts to your suppliers, you can frame these efforts as “win-win” due diligence measure for all stakeholders. By emphasizing the fact that sharing data can provide trade compliance insights—rather than approaching the subject of forced labor head-on—tentative suppliers may be more willing to provide this information, which can then be used to screen for sanctioned entities and forced labor risks. 

Understand the Bill of Material (BOM) for Every Part Purchased

While having suppliers conduct their own trade compliance due diligence research is always the ideal method for identifying sanctioned identities and forced labor, it’s just not always an achievable objective. In lieu of receiving direct answers to trade compliance questions, foreign customers can also request bill of materials (BOM) information for items they are purchasing and associated supplier information for sub-components of the finished goods. This information can be used to screen for sanctioned entities and forced labor risks, while also minimizing the “head-on” request of forced labor screening. 

Unable to Verify the Supply Chain? It May Be Time to Search for Alternative Manufacturing Options

For companies who’ve exhausted the direct approach—having had numerous conversations where foreign suppliers have either continued to resist or outright refused to provide information on forced labor screening in their supply chain—it may be time to consider looking for an alternative supplier who can provide the necessary compliance data. 

In many countries, it’s impossible to import goods that were suspected of being made with forced labor, and the reputational damage and potential fines for attempting to import such tainted products are likely not worth the risk. In the majority of cases, finding a manufacturing partner that is capable of providing satisfactory trade compliance answers will be the best long-term solution for companies looking to maximize stability across their supply chains. 

Z2Data’s Supplier Insights module provides suppliers an easy-to-use platform to quickly and conveniently analyze supplier risks, including everything from financial vulnerabilities and cyber security threats to trade compliance and geopolitical risk. Screen sub-tier supply chains for potential trade compliance risks and analyze ESG compliance with a 130+ question survey for your suppliers. 

Z2Data takes the guesswork out of supplier management and provides an out-of-the-box data solution for researching suppliers. To learn more about the Z2Data platform and how its tools can help you comprehensively scan for risk in your supply chain, schedule a free demo with one of our product experts.