UFLPA Enforcement and Compliance

*Machine Generated Script*
Amy Morgan 0:00
There is no way that you’re going to find a technology, map your supply chains, do the screening and then go through the validations. In 30 days, your products will be gone. Welcome

Lalo 0:09
to simply trade. Brought to you by global Training Center. My name is Lalo, and together with my co host, Andy shines, we have well over 60 years of combined trade logistics and supply chain experience along the way, we have seen and experienced different challenges in trade components. We decided to put the show together and call on our friends and colleagues in the business to discuss these topics and just hang out with us to shoot the ship on all things trade. Thank you for spending some time with us. Enjoy the show.

Hey, Andy, we had great conversation with Anna and a little bit of Amy. She we kicked off the last show talking about guilty by association. So that relates to what she said about rebuttable presumption. I mean, basically, buttable presumption is like Napoleonic Is that what it is napileonic law where you’re guilty before proving innocent, right?

Andy 1:05
It’s like you got to prove your innocence or verify, approve your your the accuracy of your information, basically upfront, so, right? Rather than after the fact. You need to have it upfront. And, you know, satisfy a quick put yourself in custom spot. You don’t want anything that was made with forced labor into the commerce. So what are the questions you’re going to ask? What are you going to look at here? And you’ve got, you know, 1000s of transactions to deal with, so

Lalo 1:45
and as we heard from Anna, I mean, imagine this, though you have a product that’s you need to trace it down to the when it was first, like the raw material, down to the, I mean, down to the origins of that raw material, Even if you’re the second or third or fourth tier on that supply chain. I mean, can you imagine doing that manually? Can you imagine a complicated bill of materials that has hundreds of parts you’re supposed to trace that down all the way down to its origin? Can you imagine doing that manually? Right

Andy 2:19
in Lalo is that there’s no way to do this manually. It’s it’s a case where, as you’re going to about to hear folks is you’ve got to be looking not only at getting the information, you know, correct up front, but you got to incorporate things into your supply chain, into the early stages throughout the whole supply chain, including when you vet a vendor to you know, where’s it coming from, and all those things. So we’ve got an exciting show as far as what to do next steps and things of that nature,

Lalo 2:59
which is a continuation of the last show that we had with Anna. And these two ladies were nice enough to stick around long enough to let us give us a lot more information. You

Andy 3:09
know what? We’ve got an informative show coming up with what to do your next steps, how to work smarter, not harder, in your supply chain, and what to do about this forced labor Prevention Act. So Anna had a great situation there where she laid out the the gravity of the situation with the legislation and the regulations. Now we’re going to be talking about what to do about it? Amy, what about automation is there? What should people be doing here?

Amy Morgan 3:46
One of the big messages I’m trying to get out is, don’t use technology earlier. Don’t wait to seek out a solution, because our traditional compliance approaches that we’re all used to, policies, procedures, questioning your suppliers, and all those things are great and effective, but they’re no longer good enough for legislation like this that requires you know more about your outer tier supply chains, right? And so there’s no choice but to use some sort of advanced technology or AI tooling in order to see what you couldn’t see before at scale. So if you, if we could spin it more like this, isn’t something you do after you’ve analyzed your supply chain. It’s something you need to inculcate into the analysis of your supply chain. And that’s where new technology, that’s the awareness I’m really trying to get out there. Okay, that makes sense.

Andy 4:44
Sure, does. With all this information we’ve been talking about, you know, Amy, let me go to you on this is that there is so much information that, if people are waiting, if you will, kind of like what Anna was saying. Waiting till it arrives. There’s just not enough time frame in there is that there’s a lot of information you got to filter through. You got to try and gather and then put it in a format that will be understandable and acceptable to customers. So in looking at that, there’s no way, especially with global companies, national companies, whatever, that have multiple, multiple vendors to wait till the last minute. That’s a lot of information to try to keep up with manually. So what do you, I guess, suggest or think about that a compliance related person or in group should be doing with in regards to their supply chain here, how to, how to manage it? In other words, yeah,

Amy Morgan 5:42
so there’s, there’s three things. It’s an awesome question. I’ve been asked that same question a lot. So there’s three things I’ve been suggesting to people without sounding overly commercial for for the company that I work for. The first thing is one to think differently or approach what we’ve considered to be traditional reasonable care or traditional compliance activities, be open to a new idea. And what I mean by that is all of those recommendations and techniques that we’ve employed previously, like doing our proper due diligence on our suppliers, revisiting your contract language, documenting your policies and procedures, those are all really great tools to have in our toolbox. But the thing we need to think about now is now you have to know not only who you’re doing business with, so you not just your typical supplier questionnaires or whatever, but you’re you need to know who they’re doing business with and who they’re doing business with. And you just said so yourself, there’s there’s too much. You can’t do that manually. You have to be able to do that at scale. So there are technologies. It was only within the last five years or so that the technology even emerged to make it possible to use artificial intelligence and machine learning techniques to do that, to construct what a company may not know or may not have visibility to, or may have been relying on questionnaires and surveys and manual exercises to obtain previously. So there is technology available now that can do that, so that my first advice piece of advice would be to just first know that and to be open to the idea of using it, it. I know it can be intimidating to think about, how do I, how do I, as a compliance person or a procurement manager or a supply chain manager, employ advanced technologies in my in my daily life, but it’s accessible now, and it’s and it’s only going to get better, so better to embrace it sooner, or at least be open to that idea. And the second piece of advice would be if, with that being said, you could use this new technology to maximize the investment you are already making. So if you have people who are submitting or are managing questionnaires and supplier surveys and audits and all of these things, why not maximize those activities? If you could use technology to construct your multi tier supply chain without having to manage a questionnaire, without having to manage a survey, that’s great. Now you can actually automate the screening of all of those parties against the known entities who are affiliated with forced labor activity to find out if there’s even any exposure, sort of like a restricted party screening tool. But now it’s not just your customer or your supplier, it’s who they’re doing business with and who they’re doing business with right so now you can automate that, and once you know where you may have that potential exposure, even it’s if it’s in your tier two or your tier three, you can take that list of potential exposures and now you can laser focus any of your manual activities, any of your audit work, if you’re working with a lab to validate the origin of the product. You can focus those dollars and those resources on where you have reason, like knowledge that there could be risk. Now you’re maximizing those investments. So you’re not just like saying, I’m going to lab test every single one of my products and all of those things. You can focus those dollars. So, so the third thing I’d say, uh, really piggybacks on, on what Anna was talking about, and that is not to wait. If you wait then until you get a detention notice to employ some sort of technology, there is no way that you’re going to find a technology, map your supply chains, do the screening, and then go through the validations. In 30 days, your products will be gone by then. So my advice is to start looking at these new technologies now employ them to the supply chain that you have in front of you, to understand where you may have potential risks today, and then use those same technologies to vet prospective suppliers in the future before you start doing business. With them, so that you can take any mitigating action or maybe make a different decision, and you aren’t caught in that window of time where you’re crunched and you’re stressed and you have to do something. I think this is the new compliance normal, right? Like this is something we’re going to have to do today. It’s forced labor tomorrow. It could be related to having to calculate your carbon emissions, or it could be identifying conflict minerals or cybersecurity, whatever it is, there’s more to come, and you’re going to have to know this information in order to comply with those as well. So starting now is the best piece of advice I would give anybody? Well,

Andy 10:41
it’s the compliance realm, in my opinion, has moved and is moving a lot more rapidly, but it traditionally, it has been very reactive. And what I’m hearing from both of you is that the compliance folks need to be proactive. Now, that’s easier said than done. So, so that

Lalo 11:04
kind of leads me to believe, I mean, with my it and previous experience, I it, this might be a question for Amy as well. Is when importers are doing usmca, for example. I mean, you way well in advance. No, it’s USMC, because you did your analysis. Are you building materials and so very similar, instead of building materials, you’re doing your supply chain, why not just do it now? I mean, is there is customs gonna head towards or go towards, like you can have a certificate where you’re certifying yourself, I mean, the per shipment or, I mean, or is it just as it hits? I mean, why not just have it right then and there?

Amy Morgan 11:46
I think Customs has made it really, really clear in their guidance and in some of their outreach that Certificates of Origin, traditional certificates and validations, are no longer necessarily acceptable, and they won’t necessarily carry the weight that they used to carry, or they still carry, when it comes to like trade program or preference program eligibility. So in this case, I would agree with you that rather, you know, just like you would go get your certificate of origin and do your validation and all these things for to qualify your goods for the Trade Program, early in this case, I would say, vetting your new suppliers or prospective suppliers, screening them, understanding who they do business with, who they buy their materials from, and who they buy their materials from, and knowing whether or not any of those entities have any exposure or potential exposure to known bad actors related to forced labor activity, knowing that upfront, before you make your decisions about who you’re going to do business with, is a absolute best practice, new best practice, hands down, because you won’t be able to rely on certificates of origin or Those validations, audit assessments and things, especially in China, because auditors are no longer allowed, and a lot of auditors are pulling out of China for safety issues, regulatory issues and whatnot. So absolutely, doing it upstream before your business is a good choice on

Ana Hinojosa 13:15
Amy’s point it, you know, the the level of monitoring and observation that is happening, especially in the Xinjiang region, makes any audit really impossible to be an independent audit, because the the Chinese government is supervising to a level that that there it’s impossible to have anything be independent. And

Andy 13:45
what I’m gleaning out of this is the next steps for some people is to take the compliance people have got to become more in a partnership and alignment with their outsourcing Purchasing Group, with their transportation and logistics group, with their, you know, marketing areas, believe it or not, and all. And I’ve personally done seminars where I’ve the most effective thing you could do is have a representative from several different departments, marketing, customer service, sales, it legal to compliance, to the purchasing, the transportation, all that. And start talking about these. But it sounds like if you are proactive, you can automate these things in such a manner so that when the goods are actually manufactured and moving, it’s not a case now of, oops, we’ve got, you know, problems so on. And with that, let me ask is that if somebody comes to you and follows what Amy is saying here, is that they are putting. Proactive in helping to become part of the vetting process of the new vendor, and goes through that and has appropriate documentation and looks at that, and then they are able to present to you. Here’s what we’ve done. Here’s how we vetted it. We’ve worked together as a team within our company from several different aspects of different departments. Is that going to be looked at favorably from customs, even if you still have a suspicion, but at least you know from a due diligence the company is doing everything they can.

Ana Hinojosa 15:35
Well, I guess I’ll remind you that I don’t work for Customs and Border Protection anymore. However, having my opinion, definitely, I think that CBP is not going to allow anything that they believe is made with forced labor to come into the country, but if they’ve detained a shipment, and they are able to see what the company has done, which you know from what Amy was suggesting, you know, they use the technology a solutions provider like like Amy’s company, to gain better transparency into the supply chain. I mean, it’s no joke that that the Chinese government is, is really, you know, kind of clamping down on businesses, even even giving supporting documentation to to US companies through their foreign sanctions, you know, anti foreign sanctions law, they’re really clamping down. So in some cases, it will be very difficult for a US importer to even see or get, you know, information down downstream. In the past, it was that importers, you know, their manufacturers, didn’t want to, you know, be cut out of a deal. Now it’s just that, you know, they’re, they’re, they’re going to be sanctioned if they give you more information. So there’s, there’s different intricacies into into why companies aren’t giving you the supporting information, but being able to get some of that supply chain transparency through solution providers that have access to to broad data, access to artificial intelligence, to be able to connect the dots to see where there’s linkages. There’s a lot of changing of names, there’s a lot of willful obscurity of the of the supply chains. And having this type of of solution definitely helps an importer be able to to see where their potential risks are, and then to the extent that they need to to get further supporting documentation. They can, if it’s organic material or things that can be can be tested through, through forensic analysis, that’s an added layer of of certainty that the goods are not made, you know, from that geographic area of the world, and still policing and policing their supply chain, for example, all if, if you are not sourcing anything from China, making sure that none of your suppliers are sourcing anything from that particular region. And you can demonstrate that, together with some of these other very important automated tools. I think, I think it, it will be a very strong package. And even the DHS guide guidance specific, specifically articulate that there are these tools. Because a lot of companies were saying, Well, how, where? How do I even start? And there are a lot of solution providers, like Amy’s company, that that can provide that greater transparency.

Andy 18:44
Excellent. One of the things I will say that, you know, where do you start? One of the things, I go back to the fundamentals on things and Amy, you touched on something earlier, is, you know, it would be important to integrate the technology from the start to the end of your supply chain and not wait. But with that to me, as far as a particular action is starting with making sure that, believe it or not, your bill of lading is synchronized with your commercial invoice when the paperwork is actually generated, origin, vendor slash shipper, is preparing the paperwork. A lot of that comes from many companies, from their the importer, records company, and they’re generating a commercial invoice and or bill of lading information, regardless of the mode of transportation, the bill of lading, the information should be synchronized with the CI and then you have special decor declarations with that. Well, what comes of that is also making sure all the information that is required for an accurate and timely clearance is on that paperwork up front to get it that far you. Then it’s like, for example, one of the biggest weaknesses of a com for a compliance person is a new part that is imported, and they don’t know about it until it hits the import port. Well, a part does not just happen. It takes several weeks, if not months, for a part to be designed, looked at is, okay, we’ve got a new widget marketing. Is there a market for it? Can we sell it while they’re doing that? You’ve got sourcing that’s out there trying to find a place to manufacture the item. You have all those things going on. And then it amazes me, on how the compliance is left out in the cold until it arrives at the port and everybody’s hollering and screaming like we don’t even have it classified. Where’s it from? What do we got? So if they get ahead of this, then from what y’all are saying is, I think this would be a smart it’s a working smarter, not not harder, and doing Amy, exactly what you’re talking about, being more proactive in the compliance arena. I’m not going

Amy Morgan 21:08
to disagree with anything you just said, Andy, but I, and I wish I could flip into a mode where I’m giving you a demo right now, because I can actually show you what, what how that looks could look in practice. And one of the things that I’ve always been passionate about, and anyone out there in the trade circles who knows this is moving compliance further upstream, making it more organic to the process, less an afterthought like it has been in previous decades. So one of the things that we have applied into our technology is a basic principle of collaboration. Compliance should not be an afterthought, and compliance shouldn’t be using different information than procurement or supply chain or sourcing or any of those other groups. So if we’re operating off of one source of truth that all the stakeholders can engage in work with each other on compliance is no longer that afterthought. Now, compliance is woven into the entire process from the very beginning, from screening prospective suppliers to customs clearance where you started your question. So if that is the case, we’re looking at a whole new era and opportunity for trade compliance people now, instead of doing the rote work, and I don’t mean rote to be disrespectful, they started my career as a trade compliance practitioner. I’m a proud one. But if you could automate or use technology to audit, to not only automate, but to streamline all of those compliance procedures, now you can elevate the role of the trade compliance professional focus on the areas that are deemed most risky. You’re not classifying the same item 50 ways just because of its colorway. Now you’re looking at the things that need to be looked at because there’s a risk opportunity. In this case, we’re talking about forced labor. So instead of auditing and surveying all of your suppliers and all of your products, maybe you’re just looking deeply at the ones that are at risk of being exposed. Let

Andy 23:07
me ask this. Amy is and I agree with you, because as we’re going through this a lot of times, the compliance specialist and whatnot has been rendered to almost a menial task, when, in fact, if there’s the use of automation now they can apply their expertise to what’s needed, which is the true exception. But all that said, let me ask this question. Ana, from your perspective, how can somebody get what would they need to do to become proficient in this, or at least have a working knowledge of what they need to do. Obviously, you can’t memorize everything under the sun, but what do you suggest somebody does to get up to speed? Well, I

Ana Hinojosa 23:49
mean, I think that despite some of the claims from some of the private sector representatives, the government has done quite a bit of trying to put out information. I think that you know, some of the expectations from business to have a checklist, or to have some sort of a, you know, get out of jail free card. There is no such thing. You really have to do the hard work and and I think it’s important to be able to get the message to C suite. And getting the message to the C suite is, it’s not just about customs. It’s not just about the change detention of the good. This is getting into the Securities and Exchange Commission. You know, it’s getting into investors. You know this is going to impact whether or not your business is successful moving forward, if you if you can’t police your supply chain sufficiently, it’s going to be viewed as too high of a risk to put some money into, to invest in, and to keep listed into some of these markets. So it’s the stakes are really high, much more than just not being able to clear good. It really is reputational, it’s economic, very financial partnerships is a huge deal. You. And so I would say, definitely read all of the things that CBP is publishing. CBP and DHS are putting a lot of information, but if it seems too much, certainly, there’s a number of consultants out there that would that are experts in this area who might be able to help

Andy 25:16
you. Amy, what about from your perspective, especially with going to the C suite and of what we’ve just been talking about in managing the data and all that, the ability to get proficient with taking in a message of what Ana was just talking about is like, Okay, here’s the regulations. It’s at risk. But I would highly recommend that you say, here’s where we’re at, here’s what we’re doing, here’s what we’re importing or exporting. And that would come only way from, you know, some very good managing of data in your supply chain.

Amy Morgan 25:56
Well, not even just managing your data, but seeing what you don’t what you can’t see today. So if you were to ask me where to start, absolutely be familiar with all of the great information that customs is putting out there. But I would also say, call me and I’m not beating if for no other reason than just to understand the art of the possible and how to get started with the technology, because it’s it. We’ve tried really hard. A lot of companies are trying to make this really accessible. So let’s say you were to call me up Amy. I want to understand that my risk exposure. I want to look at my top 50 tier one suppliers. We can start there. You start small, learn and understand what your ecosystem looks like and where you may have exposure. And then once you understand that, you can take that action to your C suite. And better than that, you can approach your sweet, sweet C suite as a cohesive unit, because now you can take that same information and partner up with your it’s trade compliance, partnered up with procurement, partnered up with supply chain, and you can work together and approach your C suite with that information that way. That’s how I would suggest getting started. And when I say, call me, I’m not kidding, please call me. And if you’re not calling me, even you’re calling somebody else that offers a technology that’s somewhat similar, but understand what is possible. Inform yourself, because there are new tools, and it’s important that the trade community know that for all those

Andy 27:29
that are watching, we’re going to be posting in the show notes, the contact information and the bios for both of these wonderful ladies. But that’s another thing, is it again, reach out to somebody. If it’s not you two, it’s like, you know, reach out. It’s what I call bird dog. And it’s like, if you’ve got an issue, you got a question, you need some information, you go searching for somebody that can give you hopefully.