On March 11, 2020, the Congressional-Executive Commission on China (“CECC”) announced new proposed legislation, the Uyghur Forced Labor Prevention Act, to establish a rebuttable presumption that all labor occurring in Xinjiang, China, or by persons anywhere in China who are involved with the “re-education through labor” program targeting Chinese Turkic Muslims constitutes forced labor within the meaning of the U.S. forced labor import ban, 19 U.S.C. § 1307. The proposed act would also impose sanctions, require reporting and strategic guidance on policy concerns from the Secretary of State, and impose an SEC disclosure requirement for U.S. publicly-traded companies with commercial ties to individuals or entities in Xinjiang, China.
The CECC concurrently issued a report detailing the “systematic repression of ethnic minority groups” in Xinjiang and linking a variety of products and specific companies with such forced labor. Among the products highlighted are textiles (including yarn and cotton), electronics (including cell phones and computer hardware), and various food products. The CECC recommends a range of actions, including Global Magnitsky Act sanctions and Entity List designations. Under the Global Magnitsky Act, persons that the US Government believes are engaged in corruption or human rights abuses can be added to the List of Specially Designated Nationals (“SDNs”) maintained by the Office of Foreign Assets Control (“OFAC”) in the US Treasury Department. Designation as an SDN can impose significant economic harm on the party designated. US companies are prohibited from dealing with parties on the SDN List or any entities 50% or more owned by listed parties, so an SDN designation effectively cuts those parties off from the US market and US financial system. Moreover, non-US persons who deal with SDNs can themselves be at risk of being designated. Parties on the Entity List are subject to a different set of restrictions prohibiting anyone – not just US companies – from exporting or reexporting items subject to US jurisdiction to parties on the Entity List. For parties that rely on US suppliers or US content, this can create major disruptions in their supply chains.
The CECC also recommends enforcement activity by U.S. Customs and Border Protection (“CBP”) under 19 U.S.C. § 1307. If the Uyghur Forced Labor Prevention Act is enacted, any U.S. imports which originated to any degree in Xinjiang, China, or which were produced by Chinese suppliers that have participated in a labor pairing program offering subsidized employment opportunities for participants in the re-education through labor program, will be presumptively subject to denial of entry into the U.S. This presumption would be similar to a presumption established with respect to North Korean labor in 2017 legislation (“CAATSA”)—namely, that the covered class of labor is presumptively forced labor, unless an importer is able to marshal proof that the labor was not forced in a given instance. Whether or not the Uyghur Forced Labor Prevention Act is enacted, CBP is very likely to engage in additional forced labor enforcement activity which could impact a broad range of goods imported from China.
By establishing a rebuttable presumption that all labor in Xinjiang, China is forced labor and imposing an SEC disclosure requirement regarding the same, the Uyghur Forced Labor Prevention Act would require all companies importing from China to engage in new compliance activity in order to evaluate whether any direct or indirect suppliers are located in Xinjiang, China and whether any production, processing or raw materials sourcing has taken place in Xinjiang, China or with suppliers affiliated with the re-education through labor program pursuant to a mutual pairing assistance program. The new obligation on businesses under this proposed legislation will be to eliminate all such sourcing for goods destined to the U.S. market.
Companies importing into the United States from China should act now. To review recommended next steps and additional background on this update, please visit our publication on the Baker McKenzie International Trade Compliance Blog.