Congress Passes Uyghur Forced Labor Prevention Act: Includes New Import Ban and Sanctions with Opportunity for Public Comment

Congress Passes Uyghur Forced Labor Prevention Act: Includes New Import Ban and Sanctions with Opportunity for Public Comment

December 16, 2021, Covington Alert

On December 16, 2021, Congress passed the Uyghur Forced Labor Prevention Act (“UFLPA” or “Act”), the latest piece of legislation intended to counter China’s alleged human rights abuses in the Xinjiang Uyghur Autonomous Region (“XUAR”). This development caps a nearly two-year effort in both the House and Senate to pass the UFLPA, where numerous starts and stops had left the future of the legislation in question. After reconciling differences between the House and Senate versions of the UFLPA, the Act passed unanimously in both chambers. President Biden is expected to sign the UFLPA into law.

The UFLPA imposes an expansive import ban on goods mined or produced in whole or in part in the XUAR or made with forced labor from the XUAR. It also expands the U.S.’s ability to impose sanctions on foreign entities that commit “serious human rights abuses in connection with forced labor” in the XUAR. This alert provides an overview of how the UFLPA will affect companies in the United States and globally, including potential disruption to supply chains and U.S. imports, compliance strategies, and China-specific considerations.

Import Ban

The import ban under the UFLPA is notable for both its expansive scope and heightened evidentiary standard.

With respect to scope, the law prohibits the importation of all goods or articles mined or produced in whole or in part in the XUAR. The UFLPA further prohibits the importation of all goods or articles mined or produced by entities working with the XUAR government to recruit, transport, or receive forced labor from the XUAR.[1] Accordingly, goods produced in facilities or by entities located outside of the XUAR may also be subject to the ban if workers from the XUAR are forcibly transferred to a facility in another region of China.

As for the evidentiary standard, the UFLPA creates a rebuttable presumption that covered goods were made with forced labor. Should the presumption be rebutted, the Act permits those goods to be imported into the United States notwithstanding the prohibitions of the Act.

Customs and Border Protection (“CBP”) has traditionally had the authority under U.S. law to prevent the importation of “[a]ll goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by . . . forced labor” through the issuance of Withhold Release Orders (“WROs”) (19 U.S.C. § 1307). The UFLPA effectively expands this power by creating a rebuttable presumption that all articles produced in whole or in part in the XUAR or by entities that source material from persons involved in a XUAR government forced labor scheme are automatically barred from entry into the United States, even absent a WRO or any specific showing of forced labor in the supply chain. The UFLPA’s import ban will take effect 180 days after enactment.

Exceptions to the Import Ban

To rebut the presumption under the import ban, the Act provides that the CBP Commissioner must determine that:

(i) the importer of record has fully complied with due diligence and evidentiary guidance, and any associated implementing regulations, to be established after enactment;

(ii) the importer of record has completely and substantively responded to all CBP inquiries seeking to ascertain whether the goods were produced with forced labor; and

(ii) “clear and convincing” evidence shows that the goods were not produced wholly or in part with forced labor.

Each time the Commissioner determines that an exception to the import ban is warranted under the criteria above, the Commissioner is required within 30 days to submit a report to Congress, identifying the goods subject to the exception and the evidence upon which the determination is based. The Commissioner is further required to make all such reports available to the public.

Meeting the Evidentiary Threshold

The Act does not specify what types of evidence an importer might offer to obtain an exception to the import prohibition. Instead, the Act charges an existing inter-agency Forced Labor Enforcement Task Force to undertake a period of public comment and a hearing, after which the Task Force will publish an enforcement strategy containing, among other things, “[g]uidance to importers with respect to . . . the type, nature, and extent of evidence that demonstrates that goods originating in the People’s Republic of China . . . were not mined, produced, or manufactured wholly or in part with forced labor.” Importantly, the public comment and hearing period provides an opportunity for private sector entities to collaborate with the Task Force and provide information that can help inform the ultimate enforcement strategy.

The UFLPA provides that the process for developing the enforcement strategy will include the following three stages:

• Within 30 days of enactment, the Forced Labor Enforcement Task Force will solicit public comment on how best to ensure that goods mined or produced with forced labor by certain ethnic minorities and what the Act terms “other persecuted groups" in China—and particularly in the XUAR—are not imported into the United States. The public will have at least 45 days to submit comments.
• Within 45 days of the public comment period closing, the Forced Labor Enforcement Task Force will conduct a public hearing, inviting witnesses to testify regarding measures that can be taken to trace supply chains for goods mined or produced in whole or in part with forced labor in China and to ensure that goods made with forced labor do not enter the United States.
• After the public comment period and hearing, the Forced Labor Enforcement Task Force, in consultation with the Secretary of Commerce and the Director of National Intelligence, must develop a strategy for supporting CBP’s enforcement processes to prevent goods mined or produced with forced labor in China from entering the United States. This strategy must include guidance to importers regarding due diligence and supply chain tracing, as well as the nature and extent of evidence required, to demonstrate that goods originating in China were not mined or produced with forced labor. The strategy must also include a plan to collaborate with the private sector to implement and update the enforcement strategy. This strategy report must be completed and submitted to Congress within 180 days of the Act’s enactment, which coincides with the day the import ban must take effect. Accordingly, there may be little or no advance notice as to what evidence an importer must submit to rebut the presumption.

While the Act does not clarify what evidence would be necessary to meet the “clear and convincing” standard outlined in the import ban, CBP has issued guidance regarding the wide-ranging and detailed evidence importers may need to provide to obtain the release of goods detained pursuant to certain WROs, and a similar high bar of documentation would likely be required under the UFLPA. For instance, with respect to the June 2021 WRO covering silica-based products made by Hoshine Silicon Industry Co. and its subsidiaries, CBP highlighted the following types of documentary support, in addition to the Certificate of Origin and importer’s detailed statement set forth in 19 C.F.R. § 12.43:

• an affidavit from the provider of the product;
• 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; and
• any other relevant information that the importer believes may show that the shipments are not subject to the import ban.

Accordingly, the UFLPA may impose significant supply chain diligence and documentation obligations on companies that import goods from China, particularly the XUAR. However, the timing and granularity of any guidance issued by CBP is uncertain, and it is not clear that such guidance will be issued well in advance of the import ban’s taking effect.

High-Priority Enforcement Sectors

The UFLPA further provides that the Forced Labor Enforcement Task Force must prepare (i) a list of high-priority sectors subject to CBP enforcement, and (ii) a sector-specific enforcement plan for each high-priority sector, to be included in the aforementioned strategy report. The Act mandates that cotton, tomatoes, and polysilicon must be among the high-priority sectors. As above, the 180-day timeline for preparing the strategy report and establishing the high-priority enforcement plans will leave limited time for companies to prepare for or mitigate potential enforcement.

Sanctions

The UFLPA also amends the Uyghur Human Rights Policy Act of 2020 to underscore that sanctions may be imposed due to “[s]erious human rights abuses in connection with forced labor” related to the XUAR. Within 180 days of enactment, the President is required to submit an initial report to Congress identifying non-U.S. persons subject to sanctions under this new provision. The sanctioned individuals will be subject to asset blocking, as provided under the International Emergency Economic Powers Act, as well as the revocation or denial of visas to enter the United States. The President must submit additional reports at least annually identifying non-U.S. persons responsible for human rights violations in the XUAR, including with respect to forced labor, as provided under the Uyghur Human Rights Policy Act.

Compliance Takeaways for Companies

Due to the complexity of global sourcing, companies importing goods into the United States should conduct due diligence of their supply chains to identify potential ties to the XUAR. As discussed in our prior alerts, effective due diligence programs should draw on recognized international standards, such as the United Nations Guiding Principles on Business and Human Rights, and should be tailored to address key risks. For companies whose supply chains have ties to China, due diligence should include a particular focus on identifying not only direct XUAR links, but suppliers in other regions who are supported by workers transferred from the XUAR. Effective due diligence programs generally include the following components:

• Developing and implementing supplier policies, such as codes of conduct, that set forth requirements and expectations related to forced labor risk in supplier operations;
• Conducting comprehensive supply chain mapping to develop a better understanding of supply chains and whether raw materials, intermediate processing steps, or finished or semi-finished products are sourced in the XUAR or from suppliers in other regions of China that may themselves source from the XUAR;
• Performing risk assessments and screening of new suppliers to determine whether they have ties to the XUAR and to develop a better understanding of the labor policies and practices of suppliers and their business partners;
• Implementing an audit program for existing suppliers based on their risk profiles to monitor potential forced labor risks, and employing best practices such as announced and unannounced audits, adequate language and cultural interpretation tools, and opportunities for independent verification of facilities, documents, and worker accounts;
• Using other due diligence tools, such as traceability systems that can help to confirm geographic product origin, and credible third party databases and other sources that provide information on risk indicators tailored to particular regions, sectors, or suppliers; and
• Implementing incident remediation procedures to respond promptly and effectively to “red flags” or confirmed incidents involving violations of labor rights.

Companies seeking to implement these best practices may nonetheless face challenges in complying with the new mandates. Many companies and other entities have reported significant difficulties in conducting XUAR-related due diligence in China, including restricted on-site activities and surveillance-related limitations. As a result, diligence efforts may need to focus on external or public sources and collaborative information-gathering to identify risks in supply chains.

In addition to conducting due diligence, importers should be sure to develop and maintain documentation that speaks to the evidentiary standards set forth in CBP regulations and guidance described above, as well as any new regulations or guidance coming out of the Forced Labor Task Force’s work. Importers may also seek to provide input to the Task Force during the public comment and hearing period. Finally, businesses should ensure that existing trade controls compliance processes capture any new sanctions issued pursuant to the UFLPA.

China’s Reaction and Potential Countermeasures

Allegations of human rights abuses in XUAR have increasingly become a flashpoint in U.S.-China relations. The U.S. government, and CBP in particular, has increasingly focused enforcement efforts on the XUAR region over the past year, with CBP issuing WROs against cotton, tomato, and silica products from the XUAR region. (See our prior alerts here, here, and here.) The rebuttable presumption in the UFLPA now introduces a more sweeping measure to deny entry to imports that have ties to the XUAR or XUAR-related forced labor practices. U.S. government agencies also released XUAR business advisories in 2020 and 2021, describing the business and legal risks for business that do not eliminate supply chains or ventures connected to the XUAR. (See our prior alert here.) On December 6, the Biden Administration announced that it “will not send any diplomatic or official representation to the Beijing 2022 Winter Olympics and Paralympic Games given China’s ongoing genocide and crimes against humanity in Xinjiang and other human rights abuses.”

China has harshly criticized these moves, and on December 15, a Foreign Ministry spokesperson vowed that China “will make a resolute response if the United States insists on advancing the [UFLPA]” without specifying what countermeasures China may take. China has previously sanctioned members of the U.S. Congress and other political actors in response to U.S. sanctions aimed at Chinese government actions in the XUAR and Hong Kong, including most recently by invoking China’s Countering Foreign Sanctions Law, which took effect on June 10, 2021 (see our prior alert here). In addition to this law, China has other tools that potentially could be used to penalize foreign companies that suspend business relationships with Chinese entities for “non-commercial” reasons, such as compliance with foreign government sanctions or other measures. However, these tools, including the Unreliable Entity List and Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (see our prior alerts here and here), to our knowledge have not been used. Aside from these formal tools, the Chinese government has at its disposal a wide range of informal levers that could impact businesses. Given the significant latitude the UFLPA gives the U.S. Administration to determine how vigorously and how broadly the law is enforced, it is possible that the Administration’s actions in this regard may influence China’s response. Covington will continue to monitor China’s reaction and potential countermeasures.

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Covington’s diverse International Trade, Business & Human Rights, Trade Controls, and Public Policy teams in Washington and Beijing, which include former senior government officials, are uniquely positioned to provide thoughtful strategic advice to clients seeking to prepare for and react to UFLPA developments.

Covington is one of the few U.S.-based international law firms that has specialized expertise and a growing global practice devoted to advising multinational clients on Business & Human Rights, including forced labor allegations. In conjunction with our active Customs practice—including former CBP Commissioner Alan Bersin—Covington is particularly well positioned to advise companies on how to navigate CBP procedures, assess risks to global supply chains, manage crisis communications and reputational damage, and mitigate the impact of the UFLPA or forced labor allegations on companies’ supply chains.

If you have any questions concerning the material discussed in this client alert, please contact the members of our International Trade, Business & Human Rights, Trade Controls, and Public Policy teams.