Uyghur Forced Labor Prevention Act Becomes Law: Importers Must Prepare for Increased Enforcement and Detentions at the Border
What to Know
- Effective June 21, 2022, 180 days after enactment of the Uyghur Forced Labor Prevention Act (UFLPA), a rebuttable presumption will apply that goods produced in whole or part in the Xinjiang Uyghur Autonomous Region (XUAR) of the People's Republic of China (PRC) are produced with forced labor and banned from US importation, unless the importer can provide "clear and convincing evidence" that the goods were not produced with forced labor.
- Following a notice, comment, and hearing period, the Forced Labor Enforcement Task Force (Task Force) will develop a strategy to enforce the forced labor import prohibitions, including formulating a list of entities involved in the production of goods with forced labor, as well as a list of high priority sectors, including cotton, tomatoes, and polysilicon.
- The Government will publish guidance regarding how importers can conduct effective due diligence and supply chain tracing evidencing that goods from XUAR were not produced with forced labor.
What US Companies Should Do
- US importers should participate in the Task Force's comment and hearing process to flag due diligence challenges and formulate the strategy to enforce the import prohibitions.
- Companies in the cotton, solar, and tomato industries should prepare for increased enforcement.
- US importers in other industries should also be wary and review their supply chains to ensure that there is no nexus with XUAR. Arent Fox's Forced Labor Task Force has developed a list of products exported from XUAR that may be subject to increased enforcement.
- US Companies should ensure that they are not doing business with any entities sanctioned due to forced labor.
Following over a year of lobbying and negotiations, on December 23, 2021, President Biden signed the UFLPA (Public Law No: 117-78) into law. The UFLPA aims to address the human rights violations imposed on the Uyghur population and other Muslim minorities in XUAR by implementing a broad prohibition on the importation of goods (including raw materials) that are made with forced labor, as authorized in section 307 of the Tariff Act of 1930. This legislation is also intended to force companies to fully extract their supply chains from XUAR, a recommendation made by the State Department and other agencies that we previously reported in July, which was further supported by the White House in mid-December while the bill was pending in Congress. This version removes the controversial Securities and Exchange Commission reporting requirements that were included in the original House version (H.R. 1155).
Government Will Presume Forced Labor Is Involved
Starting on June 21, 2022, US Customs and Border Protection (CBP) will apply a presumption that any goods produced in whole or in part in XUAR are produced with forced labor and prohibited from importation. This broad prohibition includes products that were made with raw materials produced in XUAR, but was finished in third countries or in other regions of China. The law does not provide for any de minimis exception. The exception to this presumption will only apply if the importer can demonstrate by "clear and convincing evidence" that forced labor was not used and that:
- It has sufficiently performed due diligence, effective supply chain tracing, and supply chain management measures to ensure that goods are not manufactured wholly or in part with forced labor from XUAR;
- The type, nature, and extent of evidence demonstrate that goods originating in the PRC (including goods detained or seized) were not manufactured wholly or in part in the XUAR.
Any exception to the presumption must be submitted to Congress and made publicly available, likely resulting in few exceptions.
Government Development of Enforcement Strategy
Following a notice, comment, and hearing period, the Task Force will develop a strategy to enforce the forced labor import prohibitions. The Task Force will formulate a list of entities that are complicit in, produce, or export materials or goods with forced labor and a list of goods produced with forced labor. The strategy will include an enforcement plan and a list of high priority sectors. The relevant dates concerning the notice, comment, and hearing period are as follows:
- January 24, 2022: The Task Force published a Federal Register Notice soliciting public comments on how best to ensure that goods produced with forced labor are not imported into the United States.
- March 10, 2022: Deadline to submit comments pursuant to the January 24, 2022 Federal Register Notice.
- April 8, 2022: Within forty-five (45) days after the close of the comment period, a public hearing will be conducted to discuss the use of forced labor in the PRC and measures to prevent the importation of goods produced with forced labor.
Following these procedures, by June 21, 2022, the Task Force, in consultation with the Secretary of Commerce and Director of National Intelligence, will submit to Congress a strategy to enforce the provisions of 19 USC § 1307 and prevent importation of goods using forced labor. Among other requirements, this strategy will include recommendations for tools and efforts to enable CBP to accurately identify and trace goods made in XUAR that are subsequently imported into the United States and guidance to importers regarding the supplier due diligence required and "clear and convincing" evidence needed to prove forced labor was not used.
Other US Government Actions Related to Forced Labor
In addition to the UFLPA, the US Government has taken other actions to challenge forced labor in the XUAR. Starting in October 2019, the Commerce Department, Bureau of Industry and Security (BIS) has added over 60 companies in numerous tranches to its Entity List in connection with participating in the practice of accepting or utilizing forced labor in the XUAR. Companies (and individuals) designated on the Entity List are subject to stringent controls on their ability to receive exports of hardware, software, and technology from the United States. In the case of those designated on the Entity List in relation to forced labor concerns, BIS requires a license for all exports, reexports, and in-country transfers of items subject to the US Export Administration Regulations (EAR) to those companies, even if the items at issue have low export controls or are EAR99. Generally, BIS has a policy of denial for these types of licenses, but is conducting a case-by-case consideration for a very limited number of export classifications and items necessary to detect, identify, and treat infectious diseases.
The Treasury Department, through the Office of Foreign Assets Control (OFAC) has sanctioned several actors in the XUAR under the Global Magnitsky Sanctions Regulations and Executive Order 13818 and added them to the Specially Designated Nationals (SDN) List. OFAC repeatedly has targeted Chinese government officials that have been implicated in forced labor in the XUAR in multilateral actions that have included the European Union, the United Kingdom, and Canada. Generally, OFAC sanctions block the designated party's property and interests in property that are in the United States or in the possession or control of US persons. This includes any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons, regardless of whether OFAC has explicitly designated them on the SDN List.
XUAR Produces More Than Cotton and Silica: Other Industries Beware
The apparel, solar, and tomato industries have been grappling with supply chain due diligence challenges and forced labor import bans for nearly a year, however these industries do not account for the bulk of goods produced in XUAR. Arent Fox's Forced Labor Task Force has developed an internal list of products produced in the region; many other industries (e.g., machinery, chemical, plastics, light, and agricultural industries) will be affected by the UFLPA import bans. Supply chain due diligence is particularly important because many goods produced in XUAR are raw materials that may be used in the production of other subassemblies or intermediary products in other Chinese provinces (outside of XUAR) or in third countries that are used in the production of final products.
Next Steps for Importers
Our Forced Labor Task Force Team was formed to help companies navigate the rules relating to the recently passed UFLPA and related forced labor enforcement initiatives. Companies have less than six months to prepare for the new UFLPA restrictions and potentially shift their supply chains. As a part of this process, it is necessary for companies to take the following steps:
- Determine if your supply chain (products, subassemblies, or raw materials) touches XUAR. Our team can assist companies in reviewing their bills of material and conduct the diligence required to determine whether any items are produced in XUAR.
- Participate in the comment and hearing process. Importers should:
- Advise the Government of any challenges in conducting supply chain due diligence.
- Consider whether they should argue for exceptions or a de minimis threshold.
- Obtain clarification on the "clear and convincing" evidence CBP will require to overcome the presumption of forced labor.