On December 14, 2021, the U.S. House of Representatives and the Senate reconciled their respective versions of the Uyghur Forced Labor Prevention Act (“UFLPA”) and unanimously passed the final version of the bill, sending it to President Joe Biden, who signed it into law on December 23, 2021. The UFLPA goes into effect on June 21, 2022, which is 180 days after the date of enactment, and sunsets after eight years, a period which can be shortened if the President determines that the human rights issues in the Xinjiang Uyghur Autonomous Region (“XUAR”) are resolved.
The UFLPA strengthens the existing prohibition against the importation of goods produced in the XUAR using forced labor. The UFLPA represents the U.S. Government’s latest pronouncement on U.S. trade policies with respect to Xinjiang since the release of the Administration’s updated Xinjiang Supply Chain Business Advisory in July 2021. The final version of the UFLPA leaves out controversial Securities and Exchange Commission (“SEC”) reporting requirements on U.S. issuers of securities regarding activities in connection with the XUAR or dealings with certain sanctioned parties, which were included in the House version of the bill. Regardless, the UFLPA is still likely to generate considerable challenges for many U.S. importers of Chinese goods, as discussed below.
Rebuttable Presumption & Clear and Convincing Evidence
Concerns related to forced labor in the XUAR are longstanding. As early as September 2019, the U.S. Customs and Border Protection (“CBP”) began issuing Withhold Release Orders (“WROs”) pursuant to Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307), prohibiting the importation of certain products from the XUAR in response to these concerns. The WROs covered silica-based products, garments, cotton, and a few other types of goods, but they did not go as far as prohibiting all imports from the region. The import prohibition in the UFLPA is modeled after Section 307, which prohibits the importation of merchandise “mined, produced, or manufactured wholly or in part” in a foreign country by forced, indentured, or convict labor. The UFLPA strengthens the implementation of Section 307 by imposing a rebuttable presumption that all goods from the XUAR are made with forced labor. Beginning on June 21, 2022, a business wishing to import into the U.S. goods from the XUAR bears the burden of demonstrating with “clear and convincing evidence” that its imports do not include forced labor in its supply chain.
The bill also directs the Forced Labor Enforcement Task Force (“Task Force”), originally established through the United States-Mexico-Canada Agreement Implementation Act (19 U.S.C. 4681), to develop additional guidance for importers, which companies must comply with – in addition to responding to all CBP inquiries – if they plan to continue importing from the XUAR.
The evidentiary standard is expected to be difficult for most businesses to meet. If CBP determines that the standard is met in a particular case, the agency will have to submit a report to Congress no later than 30 days of making such a determination. The UFLPA also requires that this report be made public, although it does not specify CBP’s method for doing so. This reporting requirement, and its implicit invitation to second-guess the CBP, will make an already difficult burden even more challenging.
Strategy for Implementation
In addition to the rebuttable presumption described above, the UFLPA also directs the Task Force, in consultation with the Secretary of Commerce and the Director of National Intelligence, to develop an implementation strategy for CBP.
The UFLPA specifies that the Task Force must develop a strategy, based on public comments and a hearing, that assesses the risk of importing goods produced through forced labor and identifies threats (including those through supply chains) and processes that could mitigate those threats. The strategy will include some of the key information that will help businesses and importers comply with the law:
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a list of entities in the XUAR that use forced labor to mine or produce products;
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a list of entities that work with the government to supply forced labor out of the XUAR;
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a list of products made by entities using forced labor; and
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a list of high-priority sectors for enforcement, including cotton, tomatoes, and polysilicon, with an enforcement plan for each high-priority sector.
Most importantly, as noted above, the strategy will also include additional guidance importers must comply with if they intend to import from the XUAR moving forward, including guidance on:
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due diligence, effective supply chain tracing, and supply chain management measures;
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the type, nature, and extent of evidence that demonstrates that goods originating in China were not mined, produced, or manufactured wholly or in part in the XUAR; and
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the type, nature, and extent of evidence that demonstrates that goods originating in China were not mined, produced, or manufactured wholly or in part with forced labor.
In terms of the timeline, the Task Force must “publish in the Federal Register a notice soliciting public comments on how best to ensure that goods mined, produced, or manufactured wholly or in part with forced labor in the People’s Republic of China, including by Uyghurs, Kazakhs, Kyrgyz, Tibetans, and members of other persecuted groups in the People’s Republic of China, and especially in the [XUAR], are not imported into the United States” within 30 days of enactment, which is January 22, 2022. The scope of public comments will likely cover the entirety of the implementation strategy, including guidance to importers.
After the notice is published, the public will have at least 45 days to submit any comments. No later than 45 days after the close of the comment period (potentially around mid-late April), the Task Force must conduct a hearing with testimony on the use of forced labor in China and potential measures to prohibit importation of goods made with forced labor into the U.S. If the Task Force follows this timeline, the final report will likely be published in late June.
Imposition of Sanctions
The UFLPA also amends the Uyghur Human Rights Policy Act of 2020 (Public Law 116–145; 22 U.S.C. 6901 note) to require the President, within 180 days of the UFLPA’s enactment, to identify and impose sanctions on foreign persons responsible for serious human rights abuses connected to the XUAR. Unlike many statutory sanctions mandates in different contexts, the UFLPA does not permit the President to waive the imposition of sanctions on the basis of U.S. national interest. An earlier version of the legislation in the House of Representatives had provided such waiver authority. We note that sanctions on certain parties involved in human rights abuses in the XUAR had already been imposed by the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”) under the Global Magnitsky Executive Order. The UFLPA provides additional authority to OFAC to impose sanctions on parties involved in sanctionable activities in or involving the XUAR.
Next Steps and Concerns for Businesses
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With its imposition of the rebuttable presumption, the UFLPA shifts the burden of proof for demonstrating the involvement of forced labor in the supply chain of a good from the Government to businesses and individual importers. Importers should ensure that they trace their products and source materials throughout their supply chains diligently and assess their methods for identifying vulnerabilities. In addition, they should prepare their compliance programs to include proper due diligence procedures.
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The UFLPA affects a broad range of industries and products but specifically requires the Task Force to devise enforcement plans for “high-priority” sectors such as cotton, tomatoes, and polysilicon. Companies importing materials in these high-priority sectors should anticipate and be prepared for rigorous enforcement aimed at their businesses. Notably, the UFLPA does not restrict the application of existing WROs, and new WROs may be imposed at any time.
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Congress specifically included provisions in the UFLPA that allow industry groups and companies to participate and provide feedback as the Task Force develops enforcement standards. Businesses should consider submitting comments or testimony in order to shape the Task Force’s implementation of these enforcement standards.
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Holding China accountable for alleged human rights violations has been a top priority in Congress with wide bipartisan support. U.S. scrutiny of China’s human rights record, the implementation of the UFLPA, and the Biden Administration’s imposition of export controls and executive actions, such as the diplomatic boycott of the upcoming Beijing Olympics, will further inflame tensions in U.S.-China relations in 2022.
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China’s government officials have sharply criticized the UFLPA and have repeatedly threatened to retaliate against U.S. restrictions, prompting Beijing to bolster its ability to retaliate through blocking statutes in 2021. Companies should expect that compliance with U.S. laws may present potential risks under Chinese laws, including China’s Anti-Foreign Sanctions Law.
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Indeed, compliance with the UFLPA has risks of its own, since it invites a backlash in China for companies that have major sales, operations, and personnel there. While companies must comply with U.S. law, they should try to do so in a way that avoids further inflaming the issue or calling attention to their actions and policies in a way that invites a consumer backlash or government retribution in China.
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Hogan Lovells would be pleased to discuss how your business might be impacted by the legislation and whether submitting comments or seeking to testify would be the right strategy for your business. In addition, we can also advise on due diligence and mitigation measures to ensure supply chain integrity and how to implement compliance programs to avoid being implicated in violating trade or sanctions laws.
Authored by: Tim Bergreen, Aleksandar Dukic, Ajay Kuntamukkala, Warren Maruyama, Chandri Navarro, Beth Peters, Kelly Ann Shaw, Jonathan Stoel, Ari Fridman, Shelley Castle, and Hao-Kai Pai.
