international regulatory enforcement
PL 117-78 (December 23, 2021): The Uyghur Forced Labor Prevention Act
On December 23, 2021, H.R. 6256, the Uyghur Forced Labor Prevention Act, was signed into law. The law builds on the 2020 Uyghur Human Rights Policy Act, and bills that have been pending in the Senate and House of Representatives since last year.
The law states that its intent is to “to strengthen the prohibition against the importation of goods made with forced labor, including by ensuring that the Government of the People’s Republic of China does not undermine the effective enforcement of” U.S. law on the subject. As such, the law seeks to expand Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307), which states that it is illegal to import into the United States “goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part” by forced labor. Forced labor import goods can be subject to exclusion or seizure by U.S. Customs and Border Protection (CBP), and can lead to criminal charges for the importer. The new law uses the blueprint of the “Countering America’s Adversaries Through Sanctions Act” (22 U.S.C. § 9241a) (CAATSA), which creates a rebuttable presumption that goods created wholly or in part by North Korean nationals or North Korean citizens anywhere in the world are forced-labor goods prohibited from importation. Practically speaking, the law forces importers to prove to CBP that goods imported from Xinjiang – and perhaps even much of China – are not produced with forced labor, a burden that many companies are likely to find difficult to satisfy without significantly enhancing their supply chain due diligence capabilities.
Forced Labor Import Ban
Following the CAATSA model, the law includes, with narrow exception, a wide import ban of goods from or connected to Xinjiang. It states nearly all goods “mined, produced, or manufactured wholly or in part in” Xinjiang, by entities connected to the creation or export of forced labor goods (including those that use forced labor to create products, that work with regional authorities to supply forced labor out of the region, and that export forced labor goods from China to the United States), or by entities (b) sourcing material from Xinjiang under the “poverty alleviation” program or the “pairing-assistance” program, are deemed goods subject to seizure and exclusion under section 307 of the Tariff Act. The narrow exception exists if the Commissioner of U.S. Customs and Border Protection determines “by clear and convincing evidence” that covered goods “were not produced wholly or in part by” forced labor, and that the importer has complied with guidance to be issued by a multi-agency task force. That guidance will include: (A) due diligence, effective supply chain tracing, and supply chain management measures to ensure that goods are not mined, produced, or manufactured wholly or in part with forced labor, (B) the type, nature, and extent of evidence that demonstrates that goods originating in China were not created “wholly or in part” in Xinjiang, and (C) the type, nature, and extent of evidence that demonstrates that goods originating from China, or which have been seized under Section 307, were not created with forced labor.
Secretary of State Report
The law also includes a requirement that the Secretary of State and the heads of other government departments and agencies provide a report “to promote initiatives to enhance international awareness of and to address forced labor in” Xinjiang through bilateral and multilateral coordination and diplomacy, to develop coordination with the private sector and civil society to raise awareness about “forced labor made products from” Xinjiang, and similar matters. The report is also to include entities in China that use or benefit from “forced or involuntary labor,” individuals who have “acted as agents of the entities or affiliates” to import covered goods, and a description of U.S. government efforts under the Trafficking Victims Protection Act (22 U.S.C. § 7101 et seq.), the Genocide and Atrocities Prevention Act of 2018 (22 U.S.C. § 2656 et seq.), and the Global Magnitsky sanctions law (22 U.S.C. 2656 et seq.).
Companies impacted by the law have 75 days to provide comments to the multi-agency governmental task force, which will issue a statement describing its enforcement strategy. The strategy largely will focus on providing CBP with adequate resources to implement the law, along with a list of companies in Xinjiang that use forced labor to create products; a list of companies that work with regional authorities to supply forced labor out of the region; a list of products made by companies using forced labor; an enforcement plan for cotton, tomatoes, and polysilicon; and the guidelines for importers noted above.
Analysis of the Law
The most significant aspect of the law is Section 3, the presumed import ban from goods associated with Xinjiang. This section of the law impacts the roughly $64 million in direct U.S. imports from Xinjiang (according to figures from China’s customs agency), some $119 billion imported from China each year, and goods shipped from other locations that use raw materials sourced in Xinjiang. It also will impact the substantially greater amount of goods that include materials produced in or in connection with Xinjiang. We note that similar wide-reaching forced labor import bans are being considered in other jurisdictions, such as Australia and the EU.
Further, it will be challenging to overcome the presumption that covered goods will be subject to exclusion – importers will be required to prove covered goods are not made with forced labor to a “clear and convincing evidence” standard. As the Department of Homeland Security (DHS) notes in connection with CAATSA, “Clear and convincing evidence is a higher standard of proof than a preponderance of the evidence, and generally means that a claim or contention is highly probable. An importer who wishes to import merchandise that is subject to the rebuttable presumption under CAATSA Section 321 carries the burden to overcome the presumption by providing sufficient information to meet the clear and convincing standard.”
While the mandatory guidance from the multi-agency task force regarding the kind of information that might be considered by CBP will be forthcoming, DHS has issued detailed guidance regarding CAATSA, and last year CBP began issuing Risk Analysis and Survey Assessment (RASA) Questionnaires for agricultural goods potentially connected to Xinjiang that were largely consistent with that guidance. Both are largely consistent with the UN Guiding Principles on Business and Human Rights (UNGPs, and provide early indications for what the guidance might contain. The highly detailed RASA questionnaires included a Procedural Questionnaire and a Transactional Questionnaire. The Procedural Questionnaire seeks information about the company’s supply chain and labor used at each step, the company’s procedures and controls on forced labor, and evidence of its risk assessments and internal controls. The Transactional Questionnaire asks the importer to map its supply chain from cultivation or extraction of raw materials to the U.S. export shipment, and to include commercial and production documents, including certificates of origin or manufacturers’ affidavits.
The CAATSA Guidance provides that, while diligence will likely vary based on the company and industry, the importer should identify, prevent, and mitigate actual and potential adverse impacts, and account for how these impacts are addressed. Examples of relevant steps identified by the government, consistent with the UNGPs, may include:
- A human rights policy;
- A “rigorous continuous” human rights due diligence assessment, focusing on actual and potential human rights impacts or risks, performed in consultation with stakeholders;
- Integrating the policy and assessment findings into internal processes that apply to the company’s operations and supply chains; and
- Tracking and reporting on relevant risk areas.
When engaging with CBP about potentially covered goods, the CAATSA guidance requires that importers demonstrate “reasonable care” to enable it to make a determination. Material that may help show “reasonable care” will generally include comprehensive due diligence efforts, such as:
- Proof that the company engaged meaningfully with affected stakeholders as part of its diligence process;
- The composition of the workforce at the location in question;
- Relevant training materials that have been provided to suppliers and sub-contractors;
- Relevant company policies, and evidence of their implementation, on using laborers from the locale;
- Contracts with suppliers and sub-contractors that incorporate the company’s policy on forced labor;
- Publishing the names of all production units and processing facilities, their addresses, their ownership chain, the nature and types of products made, and the number of workers at each relevant working location;
- Information on how and to whom wages are paid, and their amounts, at the relevant location;
- Proof that third-party supplier audits include recruitment agencies;
- Details regarding worker recruitment, such as authorized recruitment agencies and brokers, or confirmation of direct recruitment;
- Documents showing that the fee structure presented by any recruitment agency is transparent, and that the fee structure has been verified through worker interviews;
- Any reimbursements of fees paid, and a verification of that reimbursement;
- A demonstrated commitment to human rights due diligence at the highest levels of the company; and,
- The results of human rights impact assessments.
- Copies of policies and evidence of their implementation
- Copies of recent unannounced third party audits
- Copies of remediation plans
- Supply chain maps that specify locations of manufacturers, factories, farms, processing centers
- Pictures of living and working accommodations.
The new law is by no means a surprise – nearly identical bills were passed in the House and Senate in the Summer and Fall of 2020, the Senate passed its updated version six months ago, and the companion House bill passed several weeks ago. The law’s enactment also follows the announcement of the Biden Administration, and other governments, for diplomatic boycotts of the Winter Olympics in Beijing. However, its coverage of goods from Xinjiang, and even more significantly goods that contain raw materials from the region or potential forced labor elsewhere in China, will nonetheless have substantial effects on company diligence efforts associated with their imports. Practically speaking, this means that a much wider net of companies sourcing materials, components and goods from China will need to understand, and conduct significantly more due diligence on, their supply chain than ever before.