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January 12, 2022
2022-0059

President Biden signs Uyghur Forced Labor Prevention Act with implications for US importers

On 23 December 2021, President Joe Biden signed into law the Uyghur Forced Labor Prevention Act (UFLPA), passed by Congress with bipartisan support.1 The UFLPA is intended to enhance existing prohibitions against importing goods into the US made with forced labor.2 The broad scope of the Act may impact a wide range of industries with reliance on supply chains that originate in China.

Effective 21 June 2022, the UFLPA creates a rebuttable presumption that goods mined, produced, or manufactured (wholly or in part) in China's Xinjiang Uyghur Autonomous Region (XUAR), or goods produced by certain entities (to be identified), are produced with forced labor. Where goods are designated as such, they will be prohibited from importation into the US. This new restriction is in addition to the withhold release orders (WROs) issued over the past two years on products from the XUAR.

US Customs and Border Protection (CBP) will apply the presumption unless the importer can show that it has established by "clear and convincing evidence," that the goods were not made with forced labor. Meeting this standard may require the importer to produce and maintain extensive records, including policies and procedures, supply chain audit reports, and other evidence. In these cases where the importer has met the standard, CBP must submit a report to Congress identifying the goods and evidence within 30 days of the determination, which will be made available to the public.

CBP's enforcement strategy

Substantial planning efforts for an enforcement strategy will occur before the restrictions go into effect. The UFLPA requires the Forced Labor Enforcement Task Force (Task Force), already established under the US-Mexico-Canada Agreement (USMCA), to solicit public feedback via a Federal Register Notice by 22 January 2022 (30 days from 23 December 2021), on the development of an enforcement strategy.3 The Task Force must then conduct a public hearing for witnesses to testify with respect to the use of forced labor in China and potential measures to prevent the importation of goods made from forced labor. After public comments and a hearing, the UFLPA requires the Task Force to coordinate with the Secretary of Commerce and the Director of National Intelligence to develop and implement the enforcement strategy.

Among other elements, the enforcement strategy will include the following, which may or may not be made public:

  1. List of entities in the XUAR that mine, produce, or manufacture wholly or in part any goods with forced labor
  2. List of entities working with the XUAR regional government to recruit, transport, transfer, harbor, or receive forced labor or Uyghurs, Kazakhs, Kyrgyz, or "members of other persecuted groups" out of the XUAR
  3. List of products produced by the entities in the above two lists
  4. List of entities that export products identified in the above list (3) from China to the US
  5. List of facilities and entities (including the Xinjiang Production and Construction Corps, XPCC) that source material from the XUAR or from persons working with the XUAR regional government (or the XPCC) as part of the government's "poverty alleviation" or "pairing assistance" programs or any other government labor scheme that uses forced labor
  6. List of high-priority sectors for enforcement, including cotton, tomatoes, and polysilicon
  7. An enforcement plan to detect and prohibit the importation of goods made from forced labor, along with plans for identifying additional facilities and entities
  8. Recommendations for "efforts, initiatives, and tools and technologies" to be adopted to ensure that CBP can "accurately identify and trace goods" made in the XUAR entering the US
  9. Description of how CBP plans to enhance its use of legal authorities and other tools to prevent the importation of such goods, including recommendations for additional CBP resources

The Task Force is also required to provide "guidance to importers" on the following:

  • "Due diligence, effective supply chain tracing, and supply chain management measures" to ensure that companies do not import goods made with forced labor in China, especially the XUAR
  • "Type, nature and extent of evidence" that demonstrates that goods from China are not produced wholly or in part in the XUAR
  • "Type, nature and extent of evidence" that demonstrates that goods from China are not produced wholly or in part with forced labor

The above pending guidance may provide importers with clear instructions on how to demonstrate to CBP that their supply chains do not involve forced labor.

Actions for businesses

Under the UFLPA and its "rebuttable presumption" regarding goods from the XUAR or certain entities, the burden of proof will shift from the US Government to private importers in demonstrating, with the high standard of "clear and convincing evidence," that the goods were not produced with forced labor. Making this case may involve substantial resources and effort on the part of impacted companies to trace their supply chain for a given imported product, and failure to meet the requirements of the UFLPA could result in audits, seizures, or civil or criminal penalties. Immediate actions companies should consider, specifically those with supply chains that involve the XUAR – whether directly or indirectly, include:

  • Conduct a comprehensive review of supply chains, including a detailed mapping of the supply chain, including raw materials, as well as screening suppliers to determine if connections to the XUAR exist.
  • Consider updates to trade compliance processes, including procedures for supplier due diligence and supply chain traceability.
  • Conduct reviews of contract language for current suppliers to assess if updates to address forced labor risks and compliance are needed.
  • Participate in the upcoming public comment period to provide feedback on any areas of concern, such as challenges in performing supply chain due diligence and what evidence to provide for the "clear and convincing" evidentiary standard that supply chains involving the XUAR (or entities that source material from the XUAR) do not involve forced labor.
  • Have trade functions take action to ensure the company's general management and risk groups are informed of findings. Complying with this US law may create political and operational risk with Chinese authorities who have publicly criticized this and similar US measures.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), Global Trade

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ENDNOTES

1 Pub. L. No. 117-78, "An act to ensure that goods made with forced labor in the Xinjiang Uyghur Autonomous Region of the People's Republic of China do not enter the United States market, and for other purposes."

2 Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) prohibits the import of any product made wholly or in part by forced labor.

3 The Forced Labor Enforcement Task Force is an inter-agency group created under the USMCA) to support the US government's prohibition on the importation of goods made in whole or in part with forced labor. The Task Force is chaired by the US Department of Homeland Security and includes representatives from the US Departments of State, Treasury, Justice, and Labor, as well as the Office of the United States Trade Representative (USTR).

 

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