New Government Forced Labor Actions Reemphasize Supply Chain Diligence for Government Contractors and Importers
What to Know
1. What’s In a Name? Interim DFARS Amendment Replaces Forced Labor “Certification” with “Representation”
Effective June 9, 2023, the US Department of Defense (DoD) published a new Interim Rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) provisions that prohibit contractors from using funds to knowingly procure products manufactured in whole or in part by forced labor from the Xinjiang Uyghur Autonomous Region (XUAR) of the People’s Republic of China.
While a version of the prohibition has been in effect since December 2022, the interim rule changed what was previously an affirmative “certification” with both backward-looking and forward-looking effect (“forced labor from XUAR was not or will not be used in the performance”) into an exclusively forward-looking “representation” that is made through the submission of an offer.
Under the interim rule, merely by submitting an offer, offerors represent that they made a good faith effort to determine that forced labor from the XUAR will not be used in the performance of the DoD contract. The proposed changes, which are immediately effective under the interim rule, might catch some unwary DoD contractors off-guard, not realizing that they are making a representation requiring significant supply chain due diligence obligations merely by submitting an offer. Interested parties may submit comments to the proposed rule through August 8, 2023, but are required to meet the obligations of the interim rule pending any further amendments that may arise out of the final rule.
2. DHS and CBP UFLPA Enforcement Updates
The US Department of Homeland Security (DHS) recently published the addition of several entities of the Uyghur Forced Labor Prevention Act (UFLPA) Entity List: Xinjiang Zhongtai Chemical Co. Ltd.; Ninestar Corporation and eight of its subsidiaries; Camel Group Co.;and ChenGuang Biotech Group Co., Ltd. and its subsidiary, Chenguang Biotechnology Group Yanqi Co. Ltd. Goods produced in whole or part by these entities are banned from US importation. US Customs and Border Protection (CBP) also recently updated the UFLPA Enforcement Statistics Dashboard.
3. CPTAT Forced Labor Requirements Took Effect August 1, 2023
As of August 1, 2023, Customs Trade Partnership Against Terrorism (CTPAT) Trade Compliance partners must meet new forced labor prevention compliance requirements.
4. The FLETF Updates Its UFLPA Strategy
The Forced Labor Enforcement Task Force (FLETF) recently updated its UFLPA strategy, requesting more resources to effectively handle the increasing enforcement scope of the UFLPA. The update also recognizes the FLETF’s engagement with stakeholders, such as non-governmental organizations (NGOs), to identify high-priority sectors, and identifies new products that may be targeted for enforcement.
The DoD Interim Amendment to the DFARS
The forementioned interim rule amends the DFARS pursuant to section 855 of the National Defense Authorization Act for fiscal year 2023 (FY23 NDAA). This provision repeals section 855 of the National Defense Authorization Act for fiscal year 2022 (FY22 NDAA), which similarly prohibited contractors from using DoD funds to knowingly procure any products mined, produced, or manufactured (in whole or in part) by forced labor from the XUAR.
Under a previous interim rule stemming from section 855 of the FY22 NDAA, offerors were required to affirmatively “certify” that they made a good faith effort to determine that forced labor from the XUAR both “was not” (i.e. looking back, which could be a problem if the clause was inserted into a contract mid-stream) and “would not” (in the future) be used in the performance of a contract resulting from the relevant solicitation.
The DoD’s most recent interim rule repeals this certification requirement, and instead requires an offeror to “represent” by submission of an offer that the offeror made a good faith effort to determine that forced labor from XUAR will not be used in the performance of a DoD contract. Regardless of whether this is phrased as a “certification” or a “representation,” this rule requires DoD contractors to conduct adequate supply chain due diligence in order to accurately state whether they have made the requisite “good faith effort” to determine whether forced labor from XUAR will be used in the performance of the contract. If it is subsequently determined that a contractor has knowingly misrepresented that it had made such a “good faith effort,” the contractor could potentially be subject to false claims liability or even suspension or debarment.
The interim DFARS amendment became immediately effective beginning June 9, 2023, but the DoD will continue to receive comments on the interim rule until August 8, 2023.
The DHS Adds Entities to the UFLPA Entity List
Under the UFLPA, the DHS is required to identify and publish a consolidated Entity List. Entities are subject to the UFLPA’s rebuttable presumption and the products they produce are prohibited from entry into the United States. The Entity List comprises the following four lists:
- A list of entities in Xinjiang that mine, produce, or manufacture merchandise with forced labor;
- A list of entities working with the government of Xinjiang to recruit, transport, transfer, harbor, or receive forced labor or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of Xinjiang;
- A list of entities that exported products made by entities in lists one and two from the People’s Republic of China to the United States; and
- A list of facilities and entities that source material from Xinjiang or from persons working with the government of Xinjiang or any other government-labor scheme that uses forced labor.
The DHS recently updated the Entity List to include four entities and their affiliates:
- Xinjiang Zhongtai Chemical Co. Ltd. (chemical products); and
- Ninestar Corporation and its eight Zhuhai-based subsidiaries, which include (integrated circuit chips, printer cartridge chips, and printing supplies):
- Zhuhai Ninestar Information Technology Co. Ltd.;
- Zhuhai Pantum Electronics Co. Ltd.;
- Zhuhai Apex Microelectronics Co., Ltd.;
- Geehy Semiconductor Co., Ltd.;
- Zhuhai Pu-Tech Industrial Co., Ltd.;
- Zhuhai G&G Digital Technology Co., Ltd.;
- Zhuhai Seine Printing Technology Co., Ltd.; and
- Zhuhai Ninestar Management Co., Ltd.
- Camel Group Co. (battery manufacturer)
- ChenGuang Biotech Group Co., Ltd. and its subsidiary Chenguang Biotechnology Group Yanqi Co. Ltd. (spice and extract manufacturer)
Although these most recent additions mark the first changes to the Entity List since it was first published in June 2022, we expect this List to be updated more frequently moving forward.
Additionally, last week CBP updated the UFLPA Statistics Dashboard of shipments targeted for UFLPA examination or enforcement. According to the Dashboard, a total of 4,651 shipments valued at over $1.6 billion have been subject to review since the implementation of the UFLPA.
CTPAT Trade Compliance Partner Requirements
On August 1, 2023, CTPAT Trade Compliance partners were required to upload the following forced labor prevention compliance documents to the CTPAT portal:
- Code of Conduct – Partners must upload their code of conduct statement that represents their position against the use of forced labor within their supply chain. This Code of Conduct must also be accessible on the Partners’ external facing website.
- Evidence of Implementation - Partners must provide CBP with evidence of implementation of their social compliance program.
Additionally, Partners must be able to provide the following information to CBP upon request:
- Risk Based Mapping – Partners must conduct risk-based analysis of their supply chain partners that outlines the regions, suppliers, and other factors that the importer feels poses the most risk for forced labor.
- Due Diligence and Training – Partners must provide training about the social compliance program requirements to their suppliers that identifies the specific risks and helps identify and prevent forced labor in the supply chain.
- Remediation Plan – Partners must maintain a remediation plan for their organization, in the event forced labor is identified in their supply chains.
- Shared Best Practices and Path Forward – Partners are encouraged to share best practices with the CTPAT Trade Compliance program to help mitigate the risk of forced labor.
Updates to the FLETF UFLPA Strategy
The FLETF recently published its first update to the UFLPA Strategy. Significantly, the FLETF recognizes that it will continue to work closely with stakeholders, including NGOs, to monitor the supply chains of all sectors. Further, the FLETF has identified several products that may be future targets of detentions, “including red dates and other agricultural products, vinyl products and downstream products, aluminum and downstream products, steel and downstream products, lead-acid and lithium-ion batteries, copper and downstream products, electronics, and tires and other automobile components.” Accordingly, entities importing merchandise in these industries should be aware of potential increased enforcement under the UFLPA.
To comply with these developments, DoD contractors and US entities must have effective forced labor and supply chain due diligence programs in place. CTPAT Trade Compliance partners are also required to develop and implement certain additional forced labor prevention procedures.
ArentFox Schiff’s Forced Labor Task Force Team was formed to help companies navigate the rules relating to the UFLPA and related forced labor enforcement initiatives. For more information, please contact Angela M. Santos, Lucas Rock, Travis Mullaney, Jodi Tai, or the ArentFox Schiff attorney you regularly work with.