U.S. Takes Legal Action on the Uyghur Humanitarian Crisis

Alert

On December 23, President Biden signed the Uyghur Forced Labor Prevention Act (UFLPA) into law, which will come into force on June 21, 2022. Pub. L. No. 117-78, 135 Stat. 1525.  The UFLPA bans the importation of goods or materials made with forced labor. The UFLPA aligns with and expands the U.S. Tariff Act’s existing prohibition on importing into the United States any goods or materials that are produced in a foreign country by forced labor. The UFLPA targets the Xinjiang Uyghur Autonomous Region (XUAR) of China and the Uyghur humanitarian crisis, although it covers all goods made or materials sourced with forced labor, regardless of the country or region of origin. Additionally, the UFLPA establishes the Forced Labor Enforcement Task Force, a group to be led by a representative of the Department of Homeland Security, which will identify and sanction entities that produce goods or materials with forced labor.  While the UFLPA will sunset in eight years, enforcement could be concluded earlier upon executive determination that the Uyghur humanitarian crisis is resolved.

Broad Prohibitions on Imported Goods Made with Forced Labor.

The UFLPA greatly expands the enforcement authority of U.S. Customs and Border Protection (CBP) and establishes a new mandatory rebuttable presumption that any goods or materials coming from the XUAR are made with forced labor. The UFPLA will require all companies which import goods or materials into the U.S. to ensure that no materials, components or end-use goods or materials were directly or indirectly produced with Uyghur forced labor.  All companies should take note, even if not directly importing goods or materials from China, as the import prohibition will apply to goods or materials produced outside the XUAR by entities that source parts and materials from the XUAR.

There is a very limited and fact-based two-prong exception to the UFLPA’s ban on XUAR-imported goods:

• If the importer or producer provides “clear and convincing evidence” to CBP that the goods or materials were not made with forced labor, then the rebuttable presumption will not apply. This prong of the exception places the onus on importers to prove the goods were not made in whole or in part with forced labor.
• The importer must also fully comply with the forthcoming guidance and CBP regulations, and cooperate with the CBP’s requests for information regarding the goods or materials in question in order to fully meet the exception.

Additional Regulations for Diligence to Come.

Under the UFLPA, the Forced Labor Enforcement Task Force (FLETF) is required to develop a strategy and promulgate regulations pertaining to enforcement of section 307 of the U.S. Tariff Act.  

The Task Force’s strategy will offer much-needed clarity into the newly required corporate supply chain due-diligence. This law requires the government to aide importers by providing guidance for supply chain due diligence as well as the types of evidence that are sufficient in proving to the government that the imported goods or materials are in fact made without forced labor.

On Friday, April 8, 2022 from 9:00am-1:30pm EST, the FLETF will hold a public hearing via web conference regarding potential measures to prevent the importation of goods or materials produced with forced labor in the People’s Republic of China. Those interested in providing public comment or attending to listen, should register here by Wednesday, March 30, 2022.

Compliance Recommendations.

Although the specific UFLPA enforcement regulations are not yet promulgated, its passage has important implications for all businesses that source products from China at any stage of the supply chain.  Companies engaging in business with entities in China should conduct a thorough supply chain assessment to identify the sources of all manufacturing inputs and assess the risk of employing forced labor. Deeper supply chain links may post greater potential for illicit labor practices and decreased transparency.

• XUAR Focus: Companies ought to pay particular attention to goods or materials produced in or near the XUAR. The U.S. Department of Commerce has already named certain companies located in XUAR to its Entity List for suspected human rights violations.
• Global Scope: the UFLPA targets forced labor around the world regardless of location, despite the Act’s purpose to combat Uyghur forced labor.
• Broad Application: The UFLPA targets any type of good made by forced labor, although certain goods and materials traditionally sourced from the XUAR are subject to additional scrutiny, such as tomatoes, cotton and polysilicon.

Companies should develop reporting mechanisms and procedures to identify and communicate vulnerabilities in the supply chain, changes in the supply chain, and policy changes. In addition, companies are advised to develop or fortify compliance programs and mechanisms for identifying sources of materials and sanctioned party screening processes.

In the near-term, it is recommended companies align their practices with the Act’s language, in anticipation that the forthcoming regulations will closely resemble the Act. This will best position companies in the early stages of the Act’s adoption for cooperation with the law, and exemption from CBP’s rebuttable presumption. All companies are expected to perform internal due-diligence to identify the source of all materials and goods or materials to ensure they are not importing prohibited items.

Diligence May Be Difficult to Achieve.

The UFLPA and the enforcement regulations that come with it are likely to clash with Chinese national laws due to the foreseeable impact on certain Chinese enterprises with operations in the XUAR. On January 9, 2021, the Ministry of Commerce of the People’s Republic of China (MOFCOM) issued Order No. 1, Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures, otherwise known as the Chinese Blocking Statute. This statute is designed to combat the foreign sanctions, such as the UFLPA, and their impact on Chinese parties. The Chinese Blocking Statute creates a mechanism to assess foreign laws to determine if they appear to be an “unjustified extra-territorial application of foreign legislation” that will impact Chinese economic interests. If the State Council determines that a foreign national law affects Chinese interests in such a way, they have the authority to issue an order prohibiting  the Chinese entity from complying with such a law. It is unclear how the Blocking Statute’s assessment mechanism will respond to the UFLPA, but it appears to be the type of national law that the Blocking Statute was created to counteract.  Companies which are operating business units in China should consult with local counsel for a fulsome analysis of these concerns.

For further questions regarding the UFPLA or other international transaction matters, please contact John P. Kanan (313.465.7438), Angela Gamalski (734.418.4244) or your regular Honigman attorney.

Trevor J. Coval, International Transactions Practice Group Law Clerk, is recognized for his contributions to this alert.