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(Counterclockwise from top) Mike Todaro, AAPN managing director; Chuck Rogers, Bureau Veritas; Nicole Bivens Collinson, Sandler Travis & Rosenberg, P.A; and Rick Horwitch, Bureau Veritas.

Experts: CBP’s import suspension may bode well for W. Hemisphere

Posted February 18, 2021


By Devin Steele (DSteele@eTextileCommunications.com)


Last week, the Americas Apparel Producers’ Network (AAPN) hosted its latest Fireside Chat, “Traceability and Transparency” that covered the recent issuance of a Withhold Release Order (WRO) by U.S. Customs & Border Protection (CBP).


The WRO pertains to all merchandise containing cotton or cotton products from Xinjiang, and the impact this will have on trade to and within the Western Hemisphere.


In kicking off the event, part of the network’s American Ingenuity Series, moderator Rick Horwitch of Bureau Veritas said: “The AAPN is the supply chain – WE really are the supply chain. Understanding your supply chain and your supply chain’s supply chain is unbelievably critical, particularly around traceability and transparency.”


Subject matter experts included Nicole Bivens Collinson, president of International Trade & Government Relations at Sandler Travis & Rosenberg, P.A., and Chuck Rogers, Americas director of Technical Consulting & Supply Chain Solutions at Bureau Veritas Consumer Product Services. They both explained the reasons the recent ruling could offer competitive advantages in this hemisphere for those entities that put in place the right tools to increase visibility and measure supply chain practices.


To frame the conversation, Horwitch posed the questions “why now?” and “why should we care?” “So why is traceability and transparency so important? It’s important because of future generations – our children and grandchildren,” he answered. “This is what the Millennials, Gen Xers and consumers beyond that are asking questions, and they want to know.”


Collinson amplified that message by asserting that a renewed focus on the manner in which goods are being produced exists. The younger generation, in particular, is concerned about the conditions in which their goods are being made with respect to labor and environmental conditions, she said. She noted that a slew of companies have been created solely to focus on humanity, environmental sustainability, climate impacts, etc. and to increase visibility from “dirt to shirt.”


Additionally, she reminded attendees that the Trade Facilitation and Trade Enforcement Act (TFTEA) of 2015 repealed the “consumptive demand” clause in the Tariff Act of 1930. The clause had allowed importation of certain forced labor-produced goods if the goods were not produced “in such quantities in the United States as to meet the consumptive demands of the United States.”


Lately, of course, the slave labor issue has reared its head through intelligence in the Xinjiang Uyghur Autonomous Region (XUAR) of China – which, incidentally, is four times the size of California, Collinson pointed out – leading to the WRO on cotton products and tomato products produced in that region.


“So everything that comes out of there is going to be tainted by the potential of forced labor,” she said. “But what Customs is making you prove is that your goods were not tainted with any entity that is associated with the XPCC (Xinjiang Production Construction Corporation). So that's why we need to care right now. Things are being stopped at the border, and there is potential for severe disruption to your clients. So if you don't have the ability to demonstrate to your clients by tracing your supply chains, they're going to stop sourcing from there.”

Visibility through the supply chain


Meanwhile, Rogers noted that a recent interview by a CBP official has caused a “rather large ripple” in the industry when she responded to a question about expectations by answering that what CBP will require visibility down to tiers 3 or 4 in importers’ supply chains.


“What we know is that some of you don’t have that level of visibility,” he said. “We have some people who are really overwhelmed when they hear that. Our advice to them and the approach we urge people to take moving forward is to treat it like you're climbing a mountain. So if you already have good visibility and transparency to tier 1, start working on your tier 2. And the work on your tier 2 is going to identify who's in your tier 3, which is where you go next. It's a very daunting task.”


On the bright side, Rogers added, information gleaned from this information-gathering exercise can be used from a sustainability and business continuity perspective going forward.


“The more you understand about your supply chain, the more you're prepared,” he said. “If you have a good map of your supply chain, you can realize very quickly what's going that will impact you and take action before companies that haven't done this strategic work.”


At that point, Horwitch interjected that most AAPN members are manufacturers such as textile mills and various parts of the supply chain, including retailers and brands, and at least two-thirds are on the supply side vs. the buy side – and all are based in the Western Hemisphere. He said: “So if I’m a factory in El Salvador, Nicaragua, Mexico or the U.S., why should I care about this? This is an Asia issue.”


To which Rogers responded: “First of all, it’s not an Asia issue. Those of you who have dealt with the retailers and the major brands realize that very typically when they put a requirement on their supply chain, it's universal. They need to have the evidence that you don't have these China inputs if you're talking about the CBP concern. Another concern that has come up recently is that there was actually a stoppage under this WRO related to yarn made of non-Chinese cotton produced outside of China when a yarn producer – the spinner – had ordered cardboard cones from China in order to get the best price. And those cones were manufactured by an affiliate of XPCC.”


On top of that, he continued, though the forced labor issue is the urgent problem, retailers and brands aren’t stopping their sustainability push.


“If you haven't mapped your supply chain down to that level, you're going to need to when it comes to things like Higg (Index) and those other sustainability initiatives that aren't going anywhere,” Rogers said. “They were slowed a little bit last year because of the virus, but we see those coming back.”


Collinson added that the WRO and related issues may provide a competitive advantage to the Western Hemisphere. She explained that because many buyers are producing under a free trade agreement preference program, their suppliers here already have tracking and traceability processes built into the supply chain, all the way to the cotton fields.


“My selling point is for you to have visibility,” she said. “And as soon as you have that in place fully, you're going to be able to demonstrate transparency. You want to make sure that your goods are not going to be subject of a WRO. You’ll be able to say, ‘use our goods, use our inputs.’ So I see this as an opportunity for the Western Hemisphere to step up and to take a little bit of that market share away from the Chinese. I think the (traceability) science is catching up or is being developed. But in the interim, with the supply chain you already have in place, I think you have a clear advantage.”


Related to products being subject to a WRO, Rogers cautioned that some raw materials could be an area of concern.


“Where you need to be careful is with your spinners because even if the cotton they’re spinning for you is U.S. cotton, you need to be aware of where else they’re getting their cotton,” he said. “If it's in that facility, there's a chance it could be blended with an imported product, and that facility could be flagged, which could pull you into something.”

Near-shoring incentives


Beyond sheer traceability and transparency, retailers and brands might have other incentives to near-shore product, Collinson and Rogers added. Related to the climate issue, they already are looking for ways to reduce their carbon footprint, and shortening the supply chain helps accomplish this, she said. And with consumer shopping habits continuing to transition from brick and mortar to online purchasing, the days of 90-day inventories and buying and holding large containers of goods are gone, she added.


“What they're going to be looking for are those suppliers who are willing or are able to drop-ship goods into their locations or remaining retail operations,” Collinson said. “When you have e-commerce in this hemisphere, you have proximity to market. So the brands are going to be looking at new ways of doing business. I think all of this was coming. I think it was exacerbated by the pandemic, and we have an opportunity in this hemisphere to take advantage of it if we can.”


Another enticement to proximity to market, Rogers noted, is the rise in transportation costs from Asia – also a way to reduce carbon emissions, he said.


“These are all things that have been known for a long time that have needed to be done,” he said. “This issue with Western China has simply brought that to the front. As with other things, (retailers and brands) are going to be pushing these requirements downhill, and they may not have spent much in the past on sustainability issues and traceability. But they are now going to spend the money to get their supply chains mapped out.”

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