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Companies Prepare for the Uyghur Forced Labor Prevention Act (UFLPA) | Pillsbury Winthrop

On December 23, 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act (UFLPA) to prevent goods made with forced labor in the Xinjiang Uyghur Autonomous Region (XUAR) of China from entering the U.S. market. Beginning on June 21, 2022, the UFLPA will require U.S. Customs and Border Protection (CBP) to presume that all goods from the XUAR and from entities listed pursuant to the UFLPA are made with forced labor and banned from import to the United States under Section 307 of the Tariff Act of 1930. Importers of record will have a path to overcome that rebuttable presumption by showing that the items are not mined, produced, or manufactured wholly or in part by forced labor and demonstrating other elements of compliance.

The UFLPA reflects an expansion of U.S. policy efforts over the past two years to address reported violations of human rights in the XUAR. Thus far, the U.S. government has deployed Withhold Release Orders (WROs), export control restrictions pursuant to the Entity List, and sanctions designations under the Global Magnitsky Human Rights Accountability Act, which have targeted several large Chinese companies including the Xinjiang Production and Construction Corps (XPCC), as well as categories of products.

This statute expands on those earlier efforts and is likely to impact a large number of U.S. companies, non-U.S. companies engaged in manufacturing or distribution in the United States, and other importers. Companies will have limited time between now and June 21 to identify and manage both legal compliance and business risks. That timeline will be exacerbated by the expected announcement of additional prohibited companies on June 21, and the potential delay until that day of guidance from CBP on standards to demonstrate that imports are not connected to forced labor. Adding to these challenges, the efforts to comply with or plan for the UFLPA may cause a number of companies to consider their policies for supply chain ethics and due diligence—issues that may tie into broader environment, social and governance (ESG) efforts.

From Company-Specific WROs to a Broader Import Ban in the XUAR
The UFLPA will replace the existing case-by-case implementation of WROs on companies operating in and product categories from the XUAR with a broad U.S. import ban and rebuttable presumption of the involvement of forced or otherwise prohibited labor. Section 307 of the Tariff Act of 1930 currently prohibits the importation of all “goods, wares, articles, and merchandise mined, produced or manufactured wholly or in part in any foreign country by … forced labor.” Under 19 U.S.C. § 1307, CBP is authorized to issue WROs to ban imports on goods and merchandise produced “wholly” or “in part” from forced or indentured labor, including child labor or convict labor. (See here.) In January 2021, CBP issued a region-wide ban on all XUAR-produced cotton and tomato products, irrespective of the associated company. (See here.) The UFLPA now would effectively apply the presumption of forced labor to all goods made in the XUAR without the need for CBP to issue WROs.

Task Force Strategy Report and Potential for Additional Parties Subject to Prohibitions
The UFLPA mandates a review and strategy-development process expected to result in the identification of additional parties whose products will be presumed to derive from forced labor and banned from import. These parties can include companies outside of the XUAR.

Between January 22, 2022, and June 21, 2022, the Forced Labor Enforcement Task Force established under the U.S.-Mexico-Canada Agreement Implementation Act, in consultation with the Secretary of Commerce and the Director of National Intelligence, will undertake a process that will result in a strategy “for supporting enforcement of Section 307 of the Tariff Act of 1930 (19 U.S.C. 1307) to prevent the importation into the United States of goods mined, produced, or manufactured wholly or in part with forced labor in the People’s Republic of China.” This will involve opportunities for public comment and ultimately a report to Congressional committees by June 21, 2022 (the “Task Force Strategy Report”).

Among the required elements of the Task Force Strategy Report are lists of entities meeting the characteristics outlined at Section 2(d)(2)(B) of the UFLPA at (i), (ii), (iv) and (v). Products linked in whole or in part to these entities will be treated by CBP as having the same prohibitions as any products from the XUAR. Specifically, this will include:

(i) a list of entities in the Xinjiang Uyghur Autonomous Region that mine, produce, or manufacture wholly or in part any goods, wares, articles and merchandise with forced labor;

(ii) a list of entities working with the government of the Xinjiang Uyghur Autonomous Region to recruit, transport, transfer, harbor or receive forced labor or Uyghurs, Kazakhs, Kyrgyz or members of other persecuted groups out of the Xinjiang Uyghur Autonomous Region;

* * *

(iv) a list of entities that exported products described in clause (iii) from the People’s Republic of China into the United States [being products mined, produced, or manufactured wholly or in part by entities on the list required by clause (i) or (ii)];

(v) a list of facilities and entities … that source material from the Xinjiang Uyghur Autonomous Region or from persons working with the government of the Xinjiang Uyghur Autonomous Region or the Xinjiang Production and Construction Corps for purposes of … government labor scheme that uses forced labor.

These categories appear likely to include additional manufacturers and intermediate supply chain participants outside of the XUAR.

Rebutting the Forced Labor Presumption
The UFLPA includes a process for importers to show via “clear and convincing evidence” that an imported item from the XUAR or linked to additional listed entities “was not mined, produced, or manufactured wholly or in part by forced labor.” In addition to providing such evidence, Section 3(b) of the UFLPA requires (A) compliance with forthcoming guidance under Section 2(d)(6) on “due diligence, effective supply chain tracing, and supply chain management measures to ensure that such importers do not import any goods mined, produced, or manufactured wholly or in part with forced labor from the People’s Republic of China, especially from the Xinjiang Uyghur Autonomous Region”; and (B) cooperation with CBP in completely and substantively answering inquiries and information requests.

Thus, it may be challenging for an importer to obtain an exception. The level of evidence remains to be clarified by CBP. However, existing CBP guidance for WROs indicates a demanding standard for documentation and tracing. (See here.) The UFLPA also appears to envision a supply chain compliance program meeting certain minimum standards. The guidance referenced above under Section 2(d)(6) is not expected until closer to June 21, 2022, as part of the Task Force Strategy Report, and thus companies may not know for some time what are the “due diligence, effective supply chain tracing, and supply chain management measures” that will meet CBP standards.

In addition, CBP is subject to reporting requirements that likely will discourage easy granting of exceptions. Whenever CBP determines that an exception is appropriate, it is required to make a report to Congressional committees within 30 days. This report must include both the goods and the evidence considered.

Enforcement Priorities
The Task Force Strategy Report will identify a list of high-priority sectors for enforcement, which at a minimum must include cotton, tomatoes and polysilicon. The report and process for its preparation also are designed to help CBP improve its capacity to administer the import ban. Thus, companies can expect that CBP will improve its detection and enforcement capabilities relative to the last two years of WRO enforcement.

This enhanced enforcement already is underway. WROs on materials like cotton (where an estimated 20 percent of world supply and 85 percent of Chinese supply is from the XUAR) and polysilicon (a key material in solar panels and the photovoltaic supply chain) reportedly are causing CBP to block broad categories of certain products incorporating those materials.

Preparing for June 21, 2022
Most companies will require advance planning to assess the risks posed by the UFLPA and develop the compliance and due diligence mechanisms that will be needed to monitor supply chains and commercial partners. While some industries may have experience with conflict minerals, blood diamonds or child labor, not all compliance and ethics programs are designed to look at supply chain risks.

Best practices for compliance and supply chain due diligence still are evolving. CBP guidance for XUAR WROs, and standards like the ILO Indicators of Forced Labor can provide reference points. However, each company and industry will have unique risks and therefore we may see bespoke risk assessments, supply chain ethical goals and resulting due diligence approaches. For some products and industries, it may be easier to track sources and seek certifications of product origin. For others—particularly complex products with long, disparate supply chains—upgrading supply chain due diligence may require investment and management attention, as the companies may not previously have had a commercial need to track the sources of every upstream component and material.

Looking ahead, this focus on supply chain ethics appears to reflect a trend and not a blip. The Biden administration has been vocal about human rights in China and other jurisdictions, and efforts to enforce supply chain ethics appear to have bipartisan support. These legal developments also dovetail with broader ESG and corporate responsibility trends. Thus, investment in supply chain due diligence, compliance and contractual requirements for commercial partners may emerge as a key development in 2022.

Read More: Companies Prepare for the Uyghur Forced Labor Prevention Act (UFLPA) | Pillsbury Winthrop

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