Many Companies Aren't Looking at Supply Chain Past Tier 2 Level, KPMG Survey Says

Suppliers are not really focusing on finding forced labor violations past a Tier 2 level, Pierfilippo Natta, KPMG's manager of Trade and Customs, said at a KPMG webinar Nov. 9. The survey that revealed that found 68% of companies surveyed only focused on supplier activity in Tier 1 and Tier 2, Natta said, while only 22% of those surveyed focused on Tier 3 and 19% on Tier 4.

The numbers are a part of KPMG's benchmark survey on forced labor. The data was collected from the private sector with roughly 130 respondents. Of those surveyed, 78% had an annual revenue of over $1 billion, "roughly" 70% of the respondents are located in the U.S., and 82% of respondents act as the importer of record, Natta said. He also said that 65% of the respondents to the survey were importers of record.

Part of the reason this number is so low is because of "updates to blocking statutes" this year that have brought down these numbers for companies, he said. "I think we used to have a higher percentage of response rate from Tier 3 and 4 suppliers" whereas now there is "a little more hesitancy," he said.

This risk is part of the reason that it's really critical to know your supply chain and "where the challenges are," Laura Clawson, the Tax ESG Hub lead for KPMG U.S., said during the webinar. While most companies are only able to get to a Tier 2 level, regulations are now requiring companies to review the full supply chain, she said.

"Forced labor risks often increase the farther upstream you go in the supply chain," Clawson said. In order to really understand the risks, it will require companies to go "deeper where that's possible," she said.

Only 12% of those surveyed had been issued an inquiry relating to forced labor and only 9% of those surveyed had been issued a detention notice on the goods, Natta said. Among those who had their goods detained, 45% of the respondents reexported their goods, 27% destroyed their goods, 18% released their goods, and 9% were still under review, Natta said. Although many have been able to reexport their goods, the "window" to reexport their goods to a foreign country is becoming "smaller and smaller" due to the new regulations, Natta said.

With the new regulations, there are no specific rules that prevent a country from accepting goods that have been denied because of forced labor concerns elsewhere, but there is "communication between the customs authorities," Natta said. The places this has been seen are with Canada and Mexico, both of which are linked to the USMCA and the provision to address forced labor, Natta said. This means that the option to reexport "will not become a feasible option in the future."

Of those surveyed, 29% provided dedicated training to Chinese entities "despite the regional risks," Natta said. Because of the Chinese anti-blocking statutes, which say that companies may not give information that could hurt trade in Chinese goods, trainings are designed to "not include specific terminology" that would trigger the blocking statute, Natta said. Importers still feel it's important to train suppliers in those regions, because the laws in the U.S. are targeting those suppliers, Natta said.