How the Trade Facilitation and Trade Enforcement Act affects supply chains

The Trade Facilitation and Trade Enforcement Act which was adopted by Barack Obama prohibits the United States to import any goods made by forced labor. But does forced labor or slavery still exist today? According to The International Labor Organization (ILO) there are approximately 5.5 million children in slavery still today.

Nowadays companies are increasingly exposed to pressure in terms of innovations and costs. As a result, companies often rely on low-cost strategies when it comes to their supplier network. Forced labor or slavery appears in different stages of the supply chains from the production of raw materials, e.g. cotton, to the manufacturing every-day goods such as mobile phones.

Lately large international companies were accused of using child labor in their production although it is clearly documented that child labor is against the law. But does the Trade Facilitation and Enforcement Act really represent a law to rid supply chains of forced labor?

Trade Facilitation: Start digging further down your supply chain now!

It´s hard to think of an issue that you would less like your company to be associated with than modern slavery. However, companies often give extensive orders with a short process time to their suppliers. Consequently, the suppliers may subcontract work to factories or workers that are not regulated by the same standards as the supplier to accomplish the order within the given short turnaround time. At this point the monitoring process is endangered.

Companies need to take a deep look into their supply chains, starting at the very first production step. For this purpose, the Trade Facilitation and Trade Enforcement Act was called into action on the 24 of February 2016 by President Obama.

The act allows the government to ban U.S. companies from accepting imports produced by slave or child workers. To find out if there is slavery or child labor within companies supply chains, the company needs to dig all the way down to the very first step within their supply chain. Also companies not only need to investigate their main suppliers but also tier 2 and tier 3 suppliers. Furthermore, the law aims to enforce the U.S. American trade laws, modernize Customs and Border Protection (CBP) and promote legitimate trade.

Through the Trade Facilitation and Trade Enforcement Act companies will have to be well informed about the true origin of their critical suppliers and components so that the suppliers are obligated to disclose whether forced or child labor was used within their manufacturing process or not.

Potential risks need to be detected at an early stage to assure delivery, maintain compliance and protect the corporate image. The goal is to make data visible for all stakeholders, including the customer (supply chain visibility).

trade facilitation supply chain

trade facilitation supply chain

What Pierre-Francois Thaler from Eco Vadis says

Within an interview by Spend Matters, Pierre-Francois Thaler, co-founder and co-CEO of our partner, supplier rating technology provider EcoVadis gives his view towards the Trade Facilitation and Trade Enforcement Act and the positive and negative influences the act has on supply chains worldwide. Thaler says: “Procurement teams need to voluntarily and actively vet and monitor suppliers to get a truly holistic picture of the supply base.”

He also points out that the Act is more of a hindrance than a help for organizations that already monitor their supply chains because they would have to look for new suppliers instead of continuing to support sustainable suppliers that might be located in endangered areas. To the question what actions companies have to take to mitigate risks like forced labor in their supply chains, Thaler replies that companies need to focus on investing in sustainable procurement programs. In addition, he points out that sustainable businesses have the chance to promote a shared value by improving working conditions with non-exploitative employment at a fair salary.

riskmethods solution

From the riskmethods perspective, as a provider for a supply chain risk management software, it is indispensable to monitor sub-suppliers as well as monitoring companies’ compliance. Corporate social responsibility also needs to be kept in focus by companies to generate a sustainable work flow.

Have you dug all the way down to the very first step within your supply chains yet?

Let me know your thoughts!

Heiko Schwarz is the Founder and Managing Director of riskmethods, responsible for Sales, Marketing and Business Development. Heiko has been working in the software business for 16 years, with 13 years in different areas of the strategic purchasing market. He has excellent knowledge in procurement, supply management and risk management and has been successfully helping supply chain and procurement organizations implement solutions to increase performance, reduce costs and minimize risks.

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