On 21 June 2022, the Uyghur Forced Labor Prevention Act (UFLPA) took effect and made it United States policy to assume that all goods manufactured in the China’s Xinjiang region are made with forced labour and therefore banned. In this short comment, we look at the background, key features and potential implications of the new region-specific ban for trade into the U.S.
The UFPLA is the latest in a line of U.S. executive and legislative efforts targeting forced labour in the supply chains of goods entering the US. Since 1930, goods have been banned in the United States under Section 307 of the Tariff Act (“Section 307”) if there is reasonable evidence of forced labour in their creation. The Act mandates CBP to issue Withhold Release Orders (“WROs”) excluding or seizing goods and requiring importers to “prove the absence of forced labour in their product’s supply chain” by demonstrating that “every reasonable effort” has been made to determine both the source and type of labour used to produce the merchandise and its components. CBP also may impose civil penalties.
Enforcement of Section 307 picked up after Congress removed the so-called “consumptive demand” provision in 2015, which had allowed the importation of goods made with forced labour if such goods were not made in the US in sufficient quantities to meet domestic demand. By 2021, there were 54 WROs in place, most against specific producers or facilities, primarily in China, and a few geographically bounded orders regarding certain products. That year, CBP detained 1,469 shipments that contained approximately $486 million of goods suspected of being made with forced labour. The CBP, which had not issued any “findings” of merchandise subject to an WRO being conclusively subject to Section 307 since 1996, issued one finding in 2020, one in 2021, and two to date in 2022, and fined at least one of the responsible importers.
Concerns about Xinjiang
The UFLPA passed both houses of the US Congress with broad bipartisan support and was signed into law by President Biden on 23 December 2021. It establishes a rebuttable presumption that all articles produced in whole or in part in the Xinjiang Uyghur Autonomous Region (“XUAR”) of the People’s Republic of China or by entities that source material from persons involved in a XUAR government labour scheme have been produced with forced labour and are thus automatically barred from entry into the U.S.
To rebut the presumption, an importer must demonstrate to the Customs and Border Protection’s (“CBP”) by “clear and convincing evidence” that the goods were not produced with forced labour.
In an implementation strategy released on 17 June 2022, the inter-agency Forced Labor Enforcement Task Force (“FLETF”) explains why goods from Xinjiang are at high risk of involving forced labour (“FLETF Strategy”). First, the FLETF Strategy describes forced labour in Xinjiang and the PRC government’s forced-labour schemes, including the so-called “pairing assistance”, “poverty alleviation”, “vocational training” and “cooperative” land schemes. It then explains how indicators of forced labour, as defined by ILO Conventions and the US Tariff Act, including intimidation and threats, abuse of vulnerability, restriction of movement, isolation, abusive working conditions and excessive overtime, are present in these schemes. Finally, the FLETF explains why supply chains that touch Xinjiang are susceptible to the use of forced labour, including because of lack of visibility, third country manufacturing processes, intentional trans-shipment and evasion practices, and PRC policies and practices designed to thwart U.S. forced labour enforcement efforts.
Approach to the due diligence requirement
The UFLPA requires any importer that seeks to import goods detained pursuant to the UFLPA to comply with all Customs and Border Protection (CBP) and Forced Labor Enforcement Task Force (FLETF) guidance regarding due diligence (UFLPA Guidance). According to the UFLPA Guidance, due diligence involves: (i) engaging stakeholders and partners; (ii) assessing risks and impacts; (iii) developing a code of conduct; (iv) communicating and training across supply chains; (v) monitoring compliance; (vi) remediating violations; (vii) conducing an independent review; and (viii) reporting on performance and engagement.
The FLETF Strategy also notes that effective corporate due diligence may not be possible on goods made in Xinjiang at this stage because, for example, importers may not be able to engage with stakeholders (i.e., workers) or monitor compliance by conducting “credible audits” (i.e., unannounced and unrestricted inspections). It also notes that full remediation of forced labour indicators may be impossible and, as a result, importers may have to terminate business relationships that touch Xinjiang. Importers should also conduct due diligence on their exit plans and seek to mitigate impacts on workers, according to the Strategy.
Approach to enforcement
The UFLPA authorises CBP to use its authority under section 307 of the Tariff Act of 1930 to detain, exclude or seize goods prohibited under the UFLPA and impose civil penalties against individuals and companies involved in the importation of prohibited goods. Although CBP is now authorised to enforce the UFLPA, it will need time to ramp up its capacity. Until then, CBP is likely to focus its efforts on the four high-priority enforcement sectors identified in the FLETF Strategy – cotton, tomatoes, silica-based products including polysilicon, and apparel – as well as goods imported directly from the XUAR and from entities on the UFLPA Entity List that are deemed to have connections to XUAR-sourced forced labour.
While there may be some lag in enforcement, companies in non-priority sectors should not delay their compliance with the UFLPA. The CBP may impose civil penalties on importers who are found have violated the UFLPA even after the goods have entered the U.S. market. Cases of knowing non-compliance also may be referred to Homeland Security Investigations (“HSI”) field offices for potential criminal investigation and prosecution. There may also be potential criminal enforcement under the U.S. Trafficking Victims Protection Reauthorization Act for importers who fail to terminate a relationship with a supplier or take other remedial action while benefiting from forced labour, while knowingly of or recklessly disregarding the forced labour.
In essence, the FLETF Strategy suggests that the US government has already assessed the risk generally of companies being involving in forced labour if they operate in or source from Xinjiang. The government has found the risk to be so high that it merits a blanket ban. A company would have to have a very robust due diligence process in place to stand any hope of countering the government’s general assessment. That hope is likely to be dim even for such a company, given the current situation in the region.
Even enforcement of only the high-priority sectors identified in the UFLPA will have a substantial effect on global supply chains. Half of the world’s polysilicon, a fifth of its cotton supplies and a quarter of its tomato paste originate in the XUAR. Given the breadth of the ban – with so many good created in whole or in part in Xinjiang — experts estimate that the UFLPA eventually will have an impact on the global economy “measured in the many billions of dollars.”