Those who handle imports from China need to be thoroughly knowledgeable about newly imposed and likely to be expanded restrictions on certain imports of commodities thought to have been manufactured by slave labor as described in the recently enacted new law called the Uyghur Forced Labor Prevention Act (UFLPA).
The federal government also had other regulations in place earlier to address the issue of forced labor and other human rights concerns in China’s Xinjiang Uyghur Autonomous Region (XUAR) that arise from the Chinese Communist governments’ persecution of the Uyghur people, which has risen to the level of being deemed genocide.
New legislation has been introduced in the Senate that would add significantly to the penalties imposed on American companies. If it eventually becomes law, the proposed Slave-Free Business Certification Act would require businesses to publicly report and certify their supply chain audits annually with possible non-compliance penalties of up to $600 million for willful violations.
“Taken together, these actions show that, as we have previously, combatting modern-day slavery is likely to be an ongoing priority for the U.S. government, regardless of which party is in control, such that companies and their executives should be prepared to carefully scrutinize—and, if necessary, clean up—their supply chains,” said attorneys for the law firm of Dechert LLP.
“Corporations should get on the right side of the fight by proactively utilizing their resources to investigate their supply chains and root out any possible signs of slave labor before they are mandated to do so and before they are punished civilly, criminally, and/or reputationally for not doing so.”
The Trump administration had taken executive action in this direction long before the UFLPA was passed. However, that enforcement effort targeted specified products and named companies as enforcement targets, where the new law is much broader because it encompasses the entire region and all products. Since 2019, the U.S. Customs and Border Protection (CBP) has issued 11 withhold release orders (WROs) covering certain products originating from the XUAR.
However, the UFLPA establishes a rebuttable presumption that “any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in” the XUAR were made with forced labor and therefore are ineligible for entry into the United States.
In addition, the UFLPA details congressional expectations for a government enforcement strategy with respect to allegations of XUAR-related forced labor and expands economic sanctions introduced previously, note attorneys for the law firm of Steptoe & Johnson.
The UFLPA, which went into effect on Dec. 23, 2021, also created a federal task force called the Forced Labor Enforcement Task Force (FLETF) to examine how best to ensure that “goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part with forced labor in the People’s Republic of China are not imported into the U.S.” It is currently mulling over public comments on how this enforcement program should take shape
What Companies Should Do
The FLETF standards ultimately will be used to inform the CBP’s future enforcement strategy. One thing you can count on is that it will include criteria for seizing products at ports and warehouses as well as what is considered to be a rebuttable presumption. FLETF is expected to submit recommendations to Congress no later than June 21, which is the same day that the rebuttable presumption will go into effect.
While awaiting the FLETF standards, importers should begin at this time top-to-bottom reviews of their supply chains to ensure compliance with the newly-introduced rebuttable presumption prior to its implementation in late spring, the Steptoe & Johnson attorneys recommend.
Under a WRO, port directors are authorized to withhold the release of imported goods when information reasonably but not conclusively indicates that the goods were produced by forced, indentured, or convict labor (collectively considered forced labor).
In such circumstances, importers must either export the withheld shipments or submit, within three months, a certificate of origin and detailed statement demonstrating that the goods at issue were not produced with forced labor.
Those definitely considered to be prohibited goods come from:
• Companies in the XUAR that mine, produce, or manufacture wholly or in part any goods, wares, articles and merchandise with forced labor.
• Entities working with the government of the XUAR to recruit, transport, transfer, harbor or receive forced labor or Uyghurs, Kazakhs, Kyrgyz or members of other persecuted groups out of the XUAR.
• Organizations that exported products mined, produced, or manufactured wholly or in part by entities in or from China to the U.S.
• Facilities and entities, including the Xinjiang Production and Construction Corps, that source material from the XUAR or from persons working with the government of the XUAR or the Xinjiang Production and Construction Corps for purposes of the PRC’s “poverty alleviation” program or the “pairing-assistance” program or any other government labor scheme that uses forced labor.
No later than April 24, 2022, the FLETF will hold a public hearing, inviting witnesses to testify regarding the use of forced labor in China and potential measures to prevent the importation goods produced with forced labor in China.
Learn How to Make Your Case
CBP is not the federal agency companies doing business with China need to worry about. Other executive branch agencies that have taken steps to address forced labor in the XUA since 2020 include the U.S. Departments of State, Treasury, Commerce and Homeland Security. They issued a joint business advisory warning of the potential legal, reputational and economic risks associated with supply chain exposure in the region.
In 2021, an updated advisory (now including the Department of Labor and the Office of the U.S. Trade Representative) was released to further emphasize risks under U.S. law of supply chain exposure to XUAR or XUAR-related products, the Steptoe & Johnson attorneys add.
“Importers should begin top-to-bottom reviews of their supply chains to ensure compliance with the newly-introduced rebuttable presumption prior to its implementation in June of this year,” they said. The problem is that American businesses are not expected to have a clear picture of what evidence can be used to establish a rebuttable presumption until the FLETF delivers its report in June.
It might be helpful to look at how CBP has established a rebuttable presumption in previous situations where WROs were issued, the Steptoe & Johnson attorneys suggest. For example, in regard to WRO blocking products from the Hoshine Silicon Industry Co. of Xinjiang, the following evidence was considered acceptable:
• Affidavit from the provider of the silica-based product about the origin and components of the silica-based product.
• Other business documentation that can support the origin of the materials, such as but not limited to purchase orders, invoices and proof of payment.
• A list of production steps and records for the imported merchandise.
• Transportation documents.
• Daily manufacturing process reports.
• A list of entities that supplied inputs for the silica-containing products being imported.
• Any other relevant information that the importer believes may show that the shipments are not subject to the WRO.
• Evidence regarding the importer’s anti-forced labor compliance program.
In addition to CBP sources, numerous existing guidelines issued by reputable international organizations can help structure due diligence efforts, the attorneys point out. Each of these materials was previously endorsed by the U.S. Department of the Treasury as best practices on conducting high-risk human rights due diligence investigations.
These include the United Nations Guiding Principles on Businesses and Human Rights, OECD guidelines on multinational enterprises, handbook on “Combating Forced Labor” published by the International Labor Organization, and the Office of the High Commissioner for Human Rights guide on “The Corporate Responsibility to Respect Human Rights,” (OHCHR guide)
“By acting now, businesses can help shape the enforcement regime ultimately adopted by CBP at the border and prepare for the upcoming implementation of the new rebuttable presumption on alleged forced labor in the XUAR this June,” the Steptoe & Johnson attorneys stress.
