Uyghur Forced Labor Prevention Act Takes Effect in United States

Leading up to the June 21 effective date, US Customs and Border Protection issued operational guidance and a strategy document to assist importers with Uyghur Forced Labor Prevention Act compliance and to define its enforcement strategy. While the enforcement tools are consistent with existing forced labor mechanisms, the act’s evidentiary standard is expected to be significantly higher. Preparing for compliance presents many challenges, but there are steps importers can take now to mitigate delays.

The Uyghur Forced Labor Prevention Act (UFLPA), signed into law on December 23, 2021, recently took effect on June 21, 2022. The UFLPA creates a rebuttable presumption that any goods that were mined, produced, or manufactured, wholly or in part, in the Xinjiang Uyghur Autonomous Region (XUAR), were made with forced labor, and bars their importation into the United States.

Since the act was signed into law, interested parties have provided input via submission of public comments on Regulations.gov and during a public hearing on April 8, 2022. US Customs and Border Protection (CBP) also released a complementary Operational Guidance for Importers (Guidance) on June 13, 2022, to facilitate implementation of the rebuttable presumption. CBP’s Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People's Republic of China (Strategy) was delivered to the US Congress on June 21, 2022. Alongside the Strategy, CBP also published the UFPLA Entity List (Entity List), which identifies entities in the XUAR that mine, produce, or manufacture, wholly or in part, any goods, wares, articles, and merchandise with forced labor.

What to Expect

Section 307 of the Tariff Act of 1930, 19 U.S.C. § 1307 (Section 307), has long prohibited the importation into the United States of goods made by forced labor, including forced child labor. However, it wasn’t until 2016, when the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) repealed Section 307’s consumptive demand exception to forced labor imports, that CBP and the US Department of Homeland Security were able to enforce Section 307 more fully.[1]

Beginning in 2016, CBP’s Trade Enforcement Task Force developed specific procedures for enforcing Section 307, which generally includes a four-phase process: (1) initiation (CBP’s Forced Labor Division receives allegations of forced labor in the supply chain of imported goods through one or more communication channels); (2) investigation (Forced Labor Division analysts investigate allegations by collecting import data and other evidence and may propose a withhold and release order (WRO) or finding); (3) legal review (CBP’s Office of Chief Counsel conducts a legal review for sufficiency); and (4) implementation (CBP issues a WRO or finding and may then detain shipments to determine whether they are subject. If a shipment is subject, CBP issues a detention notice to the importer, which then has three months to provide evidence that the shipped goods were not produced with forced labor).

CBP issued 29 WROs between February 2016, when TFTEA was enacted, and January 2021. Based on CBP’s post-TFTEA enforcement of Section 307, importers can anticipate CBP’s approach to enforcement of the UFLPA—though the UFLPA carries a higher evidentiary standard, as set out in the Strategy.

UFLPA Procedures

On a high level, all imports from the XUAR that were imported prior to June 21, 2022, will be adjudicated through the WRO process, while shipments imported on or after June 21 will be processed under UFLPA procedures, with the burden of proof resting entirely on the importer. In fact, CBP has been sending importers a “known importer” letter stipulating that “[i]t is incumbent upon you as an importer to apply due diligence, effective supply chain tracing, and supply chain management measures to ensure that such imports are free from any goods mined, produced, or manufactured wholly or in part with forced labor from the People’s Republic of China, especially from the XUAR.”

Goods subject to the UFLPA will be detained, and the importer must provide documentation within 30 days that meets the “clear and convincing evidence” standard in order to qualify for an exception and have the goods released. Estimates are for a more than eleven-fold increase in the number of transactions subject to review and enforcement. For reference, in fiscal year 2021, CBP detained 1,469 shipments that contained approximately $486 million of goods suspected to be made by forced labor.

The CBP conducted several webinars to help importers prepare for enforcement in advance of the UFLPA’s effective date. Presenters did not offer additional details or specificity, particularly about the evidentiary standard, but did confirm several key points:

• The tools and processes currently used to address forced labor in imports to the United States will remain in place, but the evidentiary standard will be significantly higher.
• There will be no “grace period” between the issuance of the Strategy and enforcement commencing for importers.
• Only the CBP commissioner can grant an exception. When an exception is granted (i.e., the importer provides clear and compelling evidence), the exception is reported to Congress and made publicly available.
• “Made wholly or in part” has no de minimis value threshold.

Requesting an Exception

In the Guidance, CBP explained that it is possible to request an exception to the UFLPA presumption. To do so, an importer must “clearly state that the importer is seeking an exception” in one of the various replies noted above, as well as include supporting documentation substantiating the request. If the CBP commissioner determines an exception is warranted, CBP will notify the appropriate congressional committees not later than 30 days after that determination.

CBP explained that the type, nature, and extent of evidence required from the importer will vary based on the facts and circumstances of the import in question. As a general matter, however, the required evidence has several common elements:

• When presenting evidence, it should be well organized and in English (or with an English translation of the documents) to expedite review.
• Evidence must demonstrate that indicators of forced labor (e.g., intimidation and threats, abuse of vulnerability, restriction of movement, isolation, abusive living and/or working conditions, and excessive hours) do not exist or are fully remediated.
• Evidence that none of the workers involved in the production were recruited, transported, transferred, harbored, or received with the involvement of the Chinese government or entities on the UFLPA Entity List.
• A complete list of workers at an entity, including evidence to demonstrate how and to whom wages are paid, whether a worker comes from the XUAR, number of workers in each job category, and total volume of material or goods inputs and outputs, among other things.
• An importer’s audit of its supply chain is one piece of evidence that can be considered, but the importer will also have to demonstrate the reliability of the audit (e.g., explain methodology, provide a description of all evidence considered, demonstrate no interference or retribution from other parties, including government entities).
• An importer may provide clear and convincing information to CBP indicating that the goods are not in any way subject to the UFLPA (i.e., its importations and inputs are sourced completely from outside the XUAR and have no connection to the UFLPA Entity List).

Potential Regulatory Restrictions Under Chinese Law

The Chinese government strongly opposes and categorically denies the XUAR forced labor accusations and has vowed to respond strongly to the enforcement of the UFLPA, including the imposition of countersanctions. China has developed tools including the blocking statute enacted in 2021, which allows China’s Ministry of Commerce (MOFCOM) to nullify “unjustifiable” foreign sanctions that impose restrictions on trade activities between Chinese persons and a third state or its persons, and further allows Chinese persons to bring private lawsuits in China to claim damages against any person complying with those banned foreign sanctions (such as multinational companies terminating or refusing to do business with a Chinese supplier due to risks of noncompliance with the UFLPA).

In addition, the Anti-Foreign Sanctions Law (AFSL) expressly prohibits “aiding and abetting” the enforcement of any type of foreign sanctions as long as they are deemed by the Chinese government as aiming to “constrain or suppress” China by employing “discriminatory restrictive measures” against Chinese persons and organizations or “interfere with China’s internal affairs.” In preparing to comply with the UFLPA, multinational companies are well advised to carefully evaluate the risks of potential countersanctions imposed by the Chinese government against themselves and their employees and to develop strategies to mitigate such risks, including careful evaluation of communication strategies.

Multinational companies may also carefully review the manner in which supply chain due diligence is conducted as the collection, storage, and cross-border transfer of sensitive data could be subject to regulatory scrutiny under the Chinese State Secrets Law, Data Security Law, and Personal Information Protection Law.

How to Prepare and Respond

US importers should already be making sure their supply chains are free of forced labor and be able to document it.

First, importers must be sure that the due diligence on the importers’ supply chains includes a review of prior contact with CBP relating to forced labor, including all inquiries, surveys, and notices. As the Strategy has explained, importers may refer to the US Department of Labor’s Comply Chain to develop an effective due diligence system, which generally includes eight steps: (1) engage stakeholders and partners; (2) assess risks and impacts; (3) develop a code of conduct; (4) communicate and train across supply chain; (5) monitor compliance; (6) remediate violations; (7) independent review; and (8) report performance and engagement.

Second, importers should consider the standards required in a CBP forced labor detention notice:

• Sufficient documentation to (1) show the entire supply chain from the origin of the raw material through the final production of the finished product and (2) identify the parties involved in the production process.
• A list of suppliers and labor sources at all levels of the supply chain, with associated production processes
• Enumeration of each step along the production processes and the additional supporting documents associated with each step of the process.

Third, importers should consider implementing supply-chain management measures as part of due diligence to include a process to screen potential suppliers prior to entering a contract with them, require supplier corrective action in the supplier contract, and outline the consequences if corrective action is not taken, such as unilateral termination of the contractual relationship.

Fourth, the Guidance has provided additional instruction on the information that must be provided to substantiate a request for an exception. Accordingly, importers should be prepared to gather evidence prior to the importation:

• Due Diligence System Information (documentation showing a due diligence system or process in place at the importer)
• Supply Chain Tracing Information (documentation tracing the supply chain from raw materials to the imported goods)
• Information on Supply Chain Management Measures (documentation on internal controls to prevent or mitigate forced labor risk)
• Evidence Goods Were Not Mined, Produced, or Manufactured Wholly or in Part in the Xinjiang Uyghur Autonomous Region (again, documentation tracing the supply chain from raw materials to the imported goods)
• Evidence Goods Originating in China Were Not Mined, Produced, or Manufactured Wholly or in Part by Forced Labor (documentation on all entities involved in production)

Fifth, importers should review their existing procurement contracts with respect to the allocation of risk of detention and the contractual consequences flowing from that risk. Specific forced labor clauses should be negotiated, and risk-allocating terms of sale (e.g., Delivered Duty Paid US) specified, because reliance on boilerplate force majeure clauses will not be sufficient to address the risk of detention.

Additional resources are available on the CBP UFLPA resource page.

HOW WE CAN HELP

Morgan Lewis assists clients with third-party risks, including ensuring responsible labor in their supply chains and navigating the conflict of laws between the United States and China. Our cross-disciplinary global team works collaboratively to advise clients regarding compliance with legislation and trade policies and to represent them in contentious governmental agency proceedings, including filing comments with respect to the proposed implementing regulations of the UFLPA.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:

Boston
Carl A. Valenstein

London
Chris Warren-Smith

Miami
Clay M. Carlton

Paris
Xavier Haranger

Philadelphia
Franco Corrado

Pittsburgh
Elizabeth S. Goldberg

Shanghai
Todd Liao

Washington, DC
Giovanna M. Cinelli
Sandra Moser
Katelyn M. Hilferty
Jiazhen Guo

[1] See US Government Accountability Office report, FORCED LABOR: CBP Should Improve Communication to Strengthen Trade Enforcement (Mar. 2021).