What does compliance and sustainability mean in logistics?

A brief overview of all of agencies and entities that frame compliance and sustainability, legally and reputationally, from an American and European perspective

Compliance and sustainability are all-encompassing words that mean a variety of things, but relative to the fashion and luxury industries – and within these, the disciplines of import and export logistics – there are clearer definitions of these terms that include significant legal, regulatory and reputational impacts. What an article is made of, where it is made, what kind of factory or workshop it’s made in, who made it and under what circumstances are all subjects of important international treaties and government level regulation. Without a clear and detailed understanding of how these elements relate to a brand’s products, there can be significant legal, financial and reputational risk to the brand itself.

Worldnet sees a world where the impacts of technology, security, climate change, forced labor, anonymous transactions and increased consumption can only result in stricter and more exacting regulation, consistent with the pattern over the last years. We believe compliance and sustainability are perhaps the most important areas for our investment of financial and human capital.

While the largest subject relative to compliance within the import and export framework is the correct classification of goods for the application of duties and taxes, this article will spend more time on compliance and sustainability’s roles in areas outside of duty and tax application alone.

National & International Treaties and Regulations

Within the United States, United Kingdom and European Union, there are a myriad of treaties and regulations that govern imports and exports. Some are at the intergovernmental level of all three entities, while some are EU level regulations or national level regulations. These treaties and regulations are generally administered at the national level, with different agencies in each country responsible for their enforcement. The main subjects the treaties and regulations cover within fashion and luxury imports are the following:

Duty and tax administration (at the national level)
Environmental (including endangered species)
Social (mainly but not exclusively protecting against forced labor)

A brief but non-exclusive list of the agencies most relevant to cross-border trade in fashion and luxury, as well as treaties and regulations they enforce, are below:

European Union

The national customs authorities of the 27 EU member states are the gatekeeping agencies that administer all laws and regulations on imported products. They govern environmental and social sustainability regulations as well as classification, duty and tax administration in the bloc. It is also important to understand that some of the regulations they enforce are at the EU level but some are at the national level, and that some national level laws may differ from similar laws in other EU countries.

Treaties & regulations:

Convention on International Trade in Endangered Species

Corporate Sustainability Due Diligence Directive (voted to enact on April 24, 2024)

National Level Customs & Revenue Authorities (examples)

France
Italy

United Kingdom

His Majesty’s Revenue and Customs’ (HMRC) primary area of enforcement relative to imports is in applying classification, duty and tax law. While HMRC collaborates with other national agencies in enforcing CITES as well as provisions of the Modern Slavery Act of 2015, they have no direct enforcement in either of these areas.

Animal, Plant and Health Agency (APHA), as a department within the Department for Environment Food and Rural Affairs (DEFRA), has primary authority to enforce CITES for goods being imported into the country.

Treaties & regulations:

United States

US Customs and Border Patrol’s (USCBP) primary area of enforcement relative to imports is in applying classification, duty and tax law, however they also have direct authority to enforce other provisions relating to imported goods, including CITES, the Revised Lacey Act, Section 307 of the Tariff Act of 1930 and the Uyghur Forced Labor Prevention Act (UFLPA).

US Fish and Wildlife’s primary area of enforcement relative to imports is in administering the requirements of CITES and the Revised Lacey Act. They operate separately but in cooperation with USCBP for shipments that are subject to CITES’ or the Revised Lacey Act’s provisions. US Fish and Wildlife only operate at designated ports of entry, and shipments subject to their regimes may only enter the United States through one of these ports of entry.

Treaties & regulations:

Understanding CITES

The global international treaty with the most relevance for fashion and luxury imports and exports is CITES, which stands for Convention on International Trade in Endangered Species (of wild fauna and flora). Essentially, if the skins, furs, horns or feathers of crocodiles, alligators, snakes, lizards, turtles, tortoises, leopards, jaguars, tigers, antelopes, ostriches or other birds are used in products, there is a high likelihood that they will be regulated by the applications of CITES.

Also, there are additional commodities that one might not associate with CITES regulated fashion goods including rosewood, ebony and orchids, just to name a few, that can be affected. CITES requires additional inspections, permits and paperwork, and if your logistics partner is not significantly versed in CITES, even at the port level (as different ports of entry can work in different ways, even within the same country), the import process can result in significant delays or even abandonment. Additionally, penalties for noncompliance can be severe, both monetarily and criminally, at the corporate and/or personal levels. Enforcement and penalties will be the subject of a subsequent brief to be released in the coming weeks.

In the European Union, CITES is primarily regulated by the national customs authorities of each of the 27 member states.

In the United Kingdom, CITES is primarily regulated by DEFRA, and within DEFRA APHA has enforcement authority at the border, as well as the UK Border Force (UKBF).

In the United States, CITES is primarily regulated by the U.S. Fish and Wildlife Service but is also regulated by the United States Department of Agriculture (USDA) for plants through the Plant Protection and Quarantine program. USCBP also has authority to carry out CITES related inspections and permit verification. In addition to CITES, at the national level the Revised Lacey Act places additional regulations on the importation of certain plants and plant products. The aforementioned agencies are also responsible for enforcing its provisions.

Social treaties & regulations

There is a growing focus in the Western world on issues related to forced labor, which has relatively recently resulted in and will also soon result in important regulations in the European Union, United Kingdom and United States.

The Corporate Sustainability Due Diligence Directive

In the European Union, the Corporate Sustainability Due Diligence Directive (CSDDD) will imminently become law as it was voted on in April 2024. The CSDDD will require that companies that import goods into the EU ensure that their products are produced in a socially and environmentally responsible manner per the requirements of the Directive. The CSDDD will be enforced at the member state level, and each member state will create a national supervisory authority responsible for overseeing and enforcing the CSDDD’s rules.

The Modern Slavery Act of 2015

In the United Kingdom, the Modern Slavery Act of 2015 is designed to combat modern slavery as well as consolidate previous offenses relating to trafficking and slavery. Specifically relevant to imported goods, the act requires companies with a global turnover of £36 million or more to disclose their efforts to identify and address modern slavery risks in their supply chain.

While the Modern Slavery Act itself doesn't have strong enforcement mechanisms, it has led to increased scrutiny from government agencies, nongovernmental organizations and the media. Companies that fail to comply with the reporting requirements or demonstrate adequate due diligence can face negative publicity and potential legal action.

The Tariff Act of 1930

In the United States, The Tariff Act of 1930, Section 307, explicitly forbids entry of goods into the United States if it is found that they were mined, produced, or manufactured wholly or in part in any foreign country using forced or indentured labor, including convict labor, forced child labor and indentured child labor. Additionally, UFLPA became law at the end of 2021. It places restrictions on goods made in the Xinjiang Uyghur Autonomous Region within China. US Customs and Border Patrol is the primary agency that carries out enforcement of Section 307 and the UFLPA.

The correct classification of shipments

Not discussed thus far, but perhaps the subject of the largest impact regarding compliance across borders, is the correct classification of all shipments being imported into the country of destination, as well as the provision of any additional permitting or documentation required. Not only are the impacts of this type of compliance extremely consequential, but often they allow for advantageous duty and tax treatment, mainly but not exclusively for goods being imported only temporarily, which can cover a significant amount of transactions within fashion and luxury (samples, press events, fashion shows, etc.).

Application of classification, duty and tax laws is always carried out by the national customs authority of the importing country, including all 27 countries in the European Union. Financial advantages to be gained by understanding duty/tax classification as well as temporary import provisions, as well as risks for noncompliance in these areas, will be discussed in a subsequent article.

Conclusion

The above should not be regarded as comprehensive information on any of the laws, regulations or agencies mentioned, but it should be helpful in providing an overview as to how these elements relate to the cross-border commerce within the fashion and luxury industries.

We believe it is exceedingly important that a brand have complete confidence in their shipping companies’ and customs brokers’ fluency and skill in navigating the complexities of global, supranational and national laws and regulations relative to compliance and sustainability. Ultimately, shipping companies and customs brokers are representatives of the brand itself to governments around the world, and missteps can be consequential.

We look forward to sharing our next article in this series, which dives into why brands should care about these subjects, and why they would be wise to dedicate their own resources in these areas.