PwC Shares New Information on Forced Labor Law

As reported in SCMR, a new U.S. law signed in March bans the import of goods produced by forced and slave labor. A wide range of industries, including Technology and Electronics Manufacturing, will be impacted.

PwC has published a paper on “3 Things You Need to Know” about the law recently for supply chain managers to consider. In this exclusive interview with Brian Dunch, Principal at PwC, we explore some of the finer details.

Supply Chain Management Review: Which particular industries are most vulnerable to penalties?

Brian Dunch: In the near term, the focus will be on the ‘usual suspects’ such as fishing (shrimp), garment/footwear manufacturing and the mining industry. As the law matures and enforcement of it expands, penalties will spread to many other industries. With that being said, the tides may be turning as just a few weeks ago a shipment of soda ash from China was seized by the CBP, alleging it was produced by forced prison labor. This seizure was the first since 2001, and this may signal that enforcement has already started. Other companies that might be targets for enforcement are those that make SEC disclosure related to conflict minerals. Quite often those minerals are mined used forced/slave labor.

SCMR: Which geographic regions are a special concern?

Dunch: This applies to many regions but mostly Asia and Africa. Products coming from countries such as China (e.g. Bricks, Coal, Cotton, Electronics, Garments, Footwear, Fireworks etc), Bangladesh (e.g. Garments, Footwear, Leather etc), Thailand (e.g. Fish, Shrimp etc), Indonesia (e.g. Fish, Rubber, Palm Oil etc), Malaysia (e.g. electronics, palm oil etc), DRC (e.g. Cassiterite, Gold, Diamonds, Wolframite, Copper, Tantalum etc), and Sierra Leone (e.g. coffee, cocoa, diamonds etc) are also under special scrutiny.

SCMR: Will we see more “near shoring” as a consequence of the law?

Dunch: We may see this in the longer term. The decision whether to near shore or not will be driven primarily by cost. Companies will shift to near shoring if the cost of compliance with this law outweighs the cost benefits of sourcing these from further away regions. If there is significant public sentiment response and activism regarding forced labor in the US, the brand reputation may motivate a change.

SCMR: Will manufacturers and transport companies carry extra insurance policies?

Dunch: There are not suitable insurance policies out there to cover all the risks arising from this law. In addition to operational costs of not receiving shipments, penalties, and other risks, there will also be significant reputational and brand damage which is hard to quantify and insure. In the past, OEMs have pushed these types of responsibilities upstream to their suppliers, but the new legislation in this space is showing that this is not anymore possible or accepted. The OEMs are responsible for their products including all their components, parts and raw materials.

SCMR: Does PwC have a “checklist” to provide protection against violating this law?

Dunch: We do not have a “checklist” that provides protection, however we do have at a high level five things companies should do now:

· Review your Bill of Materials and get to know your supply chain partners and sub-tier suppliers to identify goods produced by forced labor and suppliers that may engage in forced labor practices.
· Update Procurement Code of Conduct, Supplier Code of Conduct and other relevant procurement policies and programs to include the requirements of the new law
· Communicate to and train staff on changes to internal and supplier facing procurement policies and programs.
· Prepare to address concerns/queries from CBP, DHS or other external stakeholders by assigning resources and developing communication protocols
· Continue to monitor the regulatory space as details around the enforcement of the law are still shaping up, work with industry groups, outside counsel, etc as required.

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