Last week, the U.S. House of Representatives considered two bills that would place broad restrictions on products from the Xinjiang Uyghur Autonomous Region (“XUAR”) of China, and would require publicly listed companies to disclose if they trade in products manufactured using forced labor from the region.
Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) (“Section 307”) currently prohibits the importation of merchandise mined, produced, or manufactured, wholly or in part, in any foreign country by forced labor, and such merchandise is subject to exclusion and/or seizure by U.S. Customs and Border Protection (“CBP”).
On September 22, 2020, the House of Representatives, by a vote of 406-3, approved H.R. 6210, the Uyghur Forced Labor Prevention Act. The bill would deem “all goods, wares, articles and merchandise mined, produced or manufactured wholly or in part” in the XUAR to be covered under Section 307 and therefore denied entry into the United States, except where CBP has determined by “clear and convincing evidence” that such goods were not produced, wholly or in part, with forced labor. In short, the bill would effectively impose a blanket “mini-embargo” on goods from the XUAR by presuming they are produced using forced labor, and substantially raise the evidentiary standard for CBP to release the goods. It would also require the U.S. government to publish reports addressing the issue, including providing a list of products, businesses, and facilities that source materials from the XUAR. Sanctions would be authorized against any foreign person who knowingly “engages in, is responsible for, or facilitates the forced labor of Uyghurs” and other Muslim minority groups in the XUAR.
H.R. 6210 further includes several notable new reporting requirements for publicly traded companies: each issuer subject to certain U.S. Securities and Exchange Commission (“SEC”) rules would be required to describe in its annual report whether the company or any affiliate knowingly engaged with an entity involved in providing mass surveillance technology, or running detention facilities in the region, or knowingly conducted business with certain sanctioned entities.
A separate House bill currently being considered by the House focuses entirely on disclosure. H.R. 6270 (The Uyghur Forced Labor Disclosure Act), would require companies, pursuant to new SEC rules, to disclose in their annual reports or proxy statements whether they or any affiliate, directly or indirectly, engaged with an entity to import manufactured goods sourced from or made in the XUAR or manufactured goods containing materials that originated from the XUAR, as well as whether the goods originated from forced labor camps. Among manufactured goods and merchandise covered by the bill would be electronics, food products, textiles, shoes, and teas. Companies also would need to disclose the gross revenue, if any, attributable to the goods or materials and whether they intend to continue importing them. The House approved procedural measures for the bill last Wednesday, and a full vote is scheduled for this week.
These bills follow an escalating trend of recent U.S. administrative actions on this issue. Earlier this month, CBP used its Section 307 authority to block goods and merchandise from five entities whose products the agency determined were made using state-sponsored forced labor in the XUAR. In July, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) sanctioned one government entity, the Xinjiang Production and Construction Corps (“XPCC”), and former government officials in connection with XUAR. On September 25, OFAC issued General License 2A allowing companies engaged in otherwise prohibited dealings with XPCC and its subsidiaries until November 30, 2020 to wind down those transactions. We also understand CBP to be on the cusp of issuing a blanket prohibition on the importation of cotton and certain agricultural products from the XUAR.
The U.S. Senate has not yet acted on either H.R. 6210 or H.R. 6270, and much could change before their provisions are enacted into law. If enacted, however, these measures would effectively put the onus on companies to proactively establish that their products were not made with forced labor in the XUAR. Because 20% of the world’s cotton is produced in the region, this requirement, and the restrictions on importation from the XUAR, could disrupt global supply chains, particularly for the apparel, footwear, and retail industries. This is the latest in a wide range of trade restrictions imposed by the U.S. administration. Many companies will no doubt follow these developments closely in the coming weeks and months.