Gary M. Barraco, director of global product marketing at trade management software provider Amber Road, discussed how the recent enforcement of North Korean sanctions will impact social compliance.
Social responsibility team, meet trade compliance team. Not that the two teams haven’t talked in the past, but generally social compliance and customs compliance aren’t sitting in meetings together. However, with the recent enforcement of North Korean sanctions, the social and trade compliance teams can expect to spend a lot more time working together.
On Aug. 2, 2017, provisions were made to the Countering America’s Adversaries through Sanctions Act (P.L. 115-44) prohibiting the entry of any merchandise mined, produced, or manufactured wholly or in part by North Korean nationals or citizens into the United States. It is ever more critical that US importers are fully aware of their compliance responsibilities, the risks associated with forced labor, and have the necessary systems in place to ensure their supply chains are free of forced labor.
The U.S. Customs and Border Protection (CBP) is dedicated to ensuring importers abide by their corporate social responsibilities, and the agency holds the power to approve or deny the entry of any merchandise into the United States. If the CBP finds evidence of North Korean labor anywhere in the supply chain, the agency is poised to deny entry and alert the Immigration and Customs Enforcement (ICE) Homeland Security Investigations (HSI) with a request to initiate a criminal investigation.
Recently, major retail brands in the U.S. received CBP Form 28s from Customs. The request for information form was seeking to learn more about the processes each company follows to identify potential North Korean workers in suppliers’ factories. This form is typically issued to solicit additional information and verify the regulatory compliance of goods entering the US and must be completed within 30 days of its issuance. The questions are similar to those posed in a recent update of the Informed Compliance Publication’s (ICP) What Every Member of the Trade Community Should Know section on Reasonable Care and Forced Labor.
Forced labor in North Korea. Annually, North Korea receives roughly $500 million from overseas workers who are predominantly based in China and Russia. With almost 100,000 overseas workers, the North Korea regime has maintained a reliable source of income from outside its borders.
The Chinese bordering city, Dandong, is known for hiring North Korean waitresses and musicians—a demographic that local restaurants and hotels have advertised to attract tourism. Chinese-owned garment and electronics factories in Dandong employ thousands of North Korean workers, who contribute a significant portion of their wages to the North Korean regime. Although Dandong reaps some economic benefits of North Korean labor, the Chinese city has historically struggled cut down industrial overcapacity and pollution.
Farther outside its borders, North Korean workers are exported to Russia to work as construction workers, in extremely unsafe and unregulated working conditions. The low cost and strong, fear-driven work ethic of North Korean laborers have made them all the more attractive to Russian businesses.
The cross-border movement of North Korean workers is far from voluntary. These are impoverished citizens who are forced out of their homes to earn money for the state. A NY Times article says, “Human rights groups say this state-controlled traffic amounts to a slave trade, but so desperate are conditions in North Korea that laborers often pay bribes to get sent to Russia.”
Out of the country’s total population of 25 million, it is estimated the 400,000 citizens are in the lowest class of forced laborers known as dolgyeokdae. This class of worker is generally young and untrained. Although not all of these workers are exported out of the country, they are subject to inhumane working conditions and motivated by the threat of being sent to prison.
In December 2016, the Data Base Center for North Korean Human Rights, issued the report; “Conditions of Labor and Human Rights: North Korean Overseas Laborers in Russia.” The report states the Workers’ Party of Korea confiscates 80% of forestry workers’ wages and at least 30% of the construction worker’ salaries. Additional money is then seized to cover living expenses, mandatory contributions to a so-called loyalty fund and other “donations.” This program has expanded rapidly since the commencement of Kim Jong-un’s reign as an effort to combat existing sanctions against North Korea trade.
North Korean sanctions and their purpose. On Sept. 11, 2017 the U.N. Security Council passed a resolution prohibiting the use of North Korean workers. These sanctions were enforced in response to Pyongyang’s 6th and largest nuclear test on Sept. 3, 2017. The goal of these sanctions is to curtail the country’s missile and nuclear weapons programs by cutting off a substantial stream of their income.
The sanctions ordered the closure of all North Korean joint business ventures and banned 90% of the country’s $2.7 billion publicly reported exports (including textiles, coal, iron ore and seafood). North Korean workers are allowed to serve out their existing contracts however these will not be renewed and new visas will not be approved.
In a USA Today article, researcher Henri Féron with the Center for Korean Legal Studies at Columbia University School of Law says, “The North Korean economy appears to be beating sanctions thanks to Chinese aid and trade, as well as the re-allocation of conventional defense spending to the civilian economy.” Other economists monitoring North Korea’s performance have stated that measuring the impact of sanctions in such a closed society is extremely difficult although some negative consequences have become apparent.
Repercussions outside of North Korea are have impacted Dandong in particular. Dandong’s economy which relied on border trade is now also taking a hit due to increasingly stringent customs checks and Chinese border patrol. This is a rude awakening to the Dandong businesses who depended on China to keep North Korea’s unpredictability in check. Now that it is harder to smuggle goods across the North Korea-China border, Dandong’s poor economy can be expected to grow even worse.
Collaboration across social and trade compliance teams. Now with the North Korean labor sanctions in place, it is your corporate responsibility to comply. Compliance requires an interception of your social and trade compliance teams’ responsibilities. In reference to Form 28 and Reasonable Care, the CBP requires traceability and verification that supply chains are free of North Korean labor and forced labor in general. The best course of action for importers is to leverage technology for all aspects of supplier/product traceability.
A global trade management platform provides the ability to implement:
• Preventative measures through visibility and reporting;
• Pre-emptive processes to anticipate and respond promptly to issues by managing risks that can be controlled;
• And a new focus on uncertainties rather than certainties; in other words, point you to the problems that need attention when a reactive measure is necessary.
Designed on the pillar of collaboration, Amber Road’s Risk and Quality Management solution provides global organizations with facility level visibility tying in product and purchase order data, enabling complete transparency throughout every stage of the supply chain.
Our solutions help manufacturers and retailers accurately ensure that all trading partners are in compliance with regulatory requirements, and standards for product safety, ethical sourcing of labor, health and safety and product quality. This accounts for validating your supply chain is free of forced labor and compliance with the CBP’s requirements.
To learn how Amber Road’s commitment to social compliance extends beyond the North Korean sanctions, download our Supply Chain Collaboration Solutions Brochure.