Among the myriad challenges facing US companies with Chinese suppliers, perhaps none is more problematic than addressing the use of forced labor in the remote northwestern Xinjiang Uyghur Autonomous Region (“Xinjiang”). Responding to claims of widespread human rights violations against the indigenous population, the US Congress passed the Uyghur Forced Labor Prevention Act (“UFLPA”) late last year. Senator Marco Rubio (R-FL), the primary sponsor, declared it an important step towards holding “the Chinese Communist Party accountable for their use of slave labor.” For American businesses trading with the world’s second largest economy, the legislation, which took effect on June 21, 2022, portends a legal and reputational minefield that necessitates a sea change in supply chain due diligence.
Even companies lacking direct relationships with Xinjiang suppliers need to consider the UFLPA’s implications. According to an analysis by the Center for Strategic and International Studies, a Washington think tank, “raw materials and components from the region are integrated into dozens of categories of products finished in other parts of China or transshipped via other countries before being exported to the United States.” By some estimates, Xinjiang produces more than 40 percent of the world’s polysilicon, 25 percent of its tomato pastes, 20 percent of its cotton, 15 percent of its hops, and 10 percent of its walnuts, peppers, and rayon. The region also reportedly produces or processes over 75 percent of the world’s lithium-ion batteries and hold 9 percent of the global reserve of beryllium.
The prevalence of Xinjiang-originating goods in global supply chains is a serious problem, given that the UFLPA establishes a rebuttable presumption that all goods mined, produced, or manufactured in Xinjiang — whether wholly or in part — were produced with forced labor and are therefore prohibited from importation into the US. There are no de minimis exceptions in the UFLPA. The presumption also applies if the goods were mined, produced, or manufactured by entities identified on the UFLPA Entity List issued by the Department of Homeland Security. Subject to this presumption, the US Customs and Border Protection (“CBP”) may detain, exclude, or seize imports. Under its existing authority, the CBP may also impose civil penalties and fines on importers who fraudulently or negligently import, or provide materially false information about, goods that violate the UFLPA.
Methods of Implementation
The CBP has only just begun to enforce the UFLPA. Given the law’s wide scope and finite governmental resources, however, some trade experts expect that enforcement will focus initially on priority industries — including cotton, tomatoes, and polysilicon — as well as on goods directly imported from Xinjiang. That said, the CBP has already seized a shipment of solar panels pursuant to the UFLPA, indicating the possibility of aggressive enforcement. Accordingly, US importers need to prepare by gathering all information necessary to demonstrate compliance with the act.
As the CBP’s “UFLPA Operational Guidance for Importers” makes clear, compliance will be laborious and complicated. The CBP has the authority to seize and detain any goods it determines were manufactured in or obtained from Xinjiang. To gain release of the cargo, an importer needs to rebut the UFLPA presumption by either: (i) showing that the goods originated from outside the region; or, for goods originating in Xinjiang, (ii) proving that no forced labor was involved in their production. In either scenario, according to recent Department of Homeland Security guidance, companies should seek to map the entirety of their supply chains, down to the producers of any raw materials that constitute a finished good.
The case an importer must present to rebut the presumption of forced labor can vary but it must meet a “clear and convincing” standard, a high evidentiary bar. The CBP provides a list of examples of evidence needed to meet that standard, such as documentation of “engagement with suppliers and other stakeholders to assess and address forced labor risk,” “a list of suppliers associated with each step of the production process,” and “information on workers at each entity involved in the production of the goods in China.” The Center for Strategic and International Studies analysis predicts the level of compliance required by UFLPA will equal that demanded by the 2017 Countering America’s Adversaries Through Sanctions Act, which rigorously banned goods produced by North Koreans under the same “clear and convincing” standard.
A Growing International Trend
The UFLPA, one of the world’s most aggressive supply chain-focused due diligence laws, is part of an emerging international trend. Investors, civil society groups, and consumers are increasingly demanding full transparency and accountability from multinational corporations vis-à-vis their suppliers. Successive geopolitical disruptions — from the Rohingya refugee crisis in Myanmar to the Russian invasion of Ukraine — that increase the risk of worker exploitation have only reinforced the urgency.
Governments are responding to these developments by enacting supply chain due diligence laws at various levels. In addition to national legislation such as the UFLPA, two of America’s largest states — California and New York — have enacted stringent laws of their own. Other countries, such as the United Kingdom, Australia, France, Germany, and Norway have recently followed suit, seeking to eliminate human rights violations from global supply chains.
Comprehensive Due Diligence is Essential to UFLPA Compliance
The complexity of nearly any modern product’s supply chain underscores the need for businesses to know and monitor their vendors and trading partners. Formulaic ‘one-size-fits-all’ due diligence programs may no longer suffice given the plethora of new legislation seeking to hold companies to account for their supply chains. By compelling American importers to prove the negative, the UFLPA effectively mandates that businesses scrutinize the whole of their supply chains; something they may never have done before. An effective multifold strategy requires the following steps:
Only by taking these measures can companies avoid liability under UFLPA and similar legislation.