U.S. Congress Finally Eliminates the Consumptive Demand Exception

iStock_000068742157_SmallOn February 11, the U.S. Senate passed the Trade Facilitation and Trade Enforcement Act and President Obama is expected to sign the legislation this week. A key provision in the Act eliminates the “consumptive demand exception,” a long-standing loophole in the prohibition against the importation into the United States of goods made with forced labor.

Pursuant to the consumptive demand exception, companies have been able to import goods produced with forced labor if the “consumptive demand” for those goods in the United States exceeds the capacity of domestic production.

Specifically, Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) states that,

[a]ll goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions shall not be entitled to entry at any of the ports of the United States, and the importation thereof is hereby prohibited… but in no case shall such provisions be applicable to goods, wares, articles or merchandise so mined, produced, or manufactured which are not mined, produced, or manufactured in such quantities in the United States as to meet the consumptive demands of the United States.

With the elimination of the exception, civil society organizations are likely to petition the U.S. customs authorities to halt the import of a range of products. Notably, each year, the U.S. Department of Labor produces a list of goods that it has reason to believe are produced with child or forced labor. The most recent list includes 102 separate goods linked to forced labor, including fish from Thailand, palm oil from Malaysia, and cocoa from the Ivory Coast.

Congress’s action likely resulted, at least in part, from recent stories on the use of forced labor in the harvesting of fish stocks in Southeast Asia. These stories have highlighted the existence of forced labor deep within the supply chains of products currently sold in the United States. In 2015, a number of lawsuits were filed seeking to hold companies accountable for their efforts to address these concerns.

What Should Companies Do Now?

The exploitation of workers in global supply chains is one of the most significant reputational issues facing companies today. With the elimination of the consumptive demand exception, companies will likely face even greater scrutiny with regard to their product supply chains. Companies should certainly expect that petitions filed with U.S. customs authorities will involve publicity efforts aimed at highlighting the use of forced labor in connection with the production of goods currently sold in the United States.

In the near term, companies seeking to address these concerns should:

  1. Assess the extent to which their current supply chains may include goods produced with forced labor. These assessments can be structured in order to prioritize higher-risk products and sourcing locations.
  2. Develop plans to address any current reliance on goods that may be linked to forced labor.
  3. Review, and augment as necessary, existing prohibitions on the use of forced labor by corporate suppliers. Evaluate the extent to which these prohibitions are supported by appropriate oversight and monitoring functions.
  4. Engage appropriate internal stakeholders to ensure that corporate efforts to address forced labor concerns are appropriately resourced.
  5. Prepare to address the concerns of external stakeholders concerned about the potential use of forced labor in their product supply chains.

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