The Uyghur Forced Labor Prevention Act (“UFLPA“) took effect on June 21, 2022, and establishes a rebuttable presumption that all goods mined, produced, or manufactured wholly or in part in Xinjiang, China, or by entities identified on the “UFLPA Entity List,” are made with forced labor and prohibits them from entry into the United States under Section 307 of the Tariff Act of 1930.
A few days prior to the implementation of the UFLPA, US Customs and Border Protection (“CBP”) issued the UFLPA Operational Guidance for Importers (“CBP UFLPA Guidance“) (summarized in our blog here), and the Department of Homeland Security, in its role as the chair of the Forced Labor Enforcement Task Force (“FLETF”), issued its enforcement strategy as mandated by the UFLPA (“FLETF UFLPA Strategy“) and published the UFLPA Entity List (collectively the “UFLPA Implementation Guidance”). Importers and other members of the trade community should carefully consider both the CBP UFLPA Guidance and the FLETF UFLPA Strategy to comply with the UFLPA.
This blog focuses on key UFLPA implementation issues. Set forth below are some common questions we are receiving from clients followed by high-level answers, which we believe are worthy of your immediate attention as the US government moves into an enforcement posture with the UFLPA:
- Are withhold release orders (“WROs”) still in effect or do they no longer apply now that the UFLPA has been implemented?
The UFLPA supersedes any WROs covering goods now within the scope of the UFLPA. Thus, shipments imported on or after June 21, 2022 will be subject to the UFLPA procedures (shipments that were subject to such a WRO and were imported prior to June 21, 2022 will be reviewed under the WRO-related procedure). This does not mean all WROs (or the relevant Findings) no longer apply. The WROs (and the relevant Findings) that do not relate to goods sourced from Xinjiang or the UFLPA Entity List parties are still in force.
- If my company’s shipment is detained pursuant to the UFLPA, what are the options?
Once CBP detains a shipment pursuant to the UFLPA, CBP will issue a detention notice to the importer. In many cases, the detention order may not provide specifics (such as which components in the shipment are suspected to be within the scope of the UFLPA or which party in the supply chain is suspected to be on the UFLPA Entity List). In response to CBP’s detention notice, an importer may choose to re-export the goods, provided they are not yet excluded or seized, or demonstrate to CBP that the goods are admissible into the United States either because an “exception” applies (i.e., the presumption of forced labor should be rebutted) (FAQ 3 below) or because the goods are not within the scope of the UFLPA (i.e., the imported good or its inputs is sourced completely from outside Xinjiang and have no connection to a UFLPA Entity List party) (FAQ 4 below).
- How does an importer demonstrate that the goods qualify for an “exception” to the rebuttable presumption, and what are some practical considerations to keep in mind?
To demonstrate an “exception” to the rebuttable presumption, an importer must submit to CBP clear and convincing evidence that the subject goods were not produced with forced labor.
Based on the UFLPA Implementation Guidance, the types of documentation and information required when making a request for an exception under the UFLPA include: (i) supply chain due diligence system or process information, (ii) supply chain tracing information, (iii) supply chain management measure information, and (iv) evidence that goods originating were not made with forced labor.
- Supply chain due diligence system or process information includes, for example, a written supplier code of conduct and evidence of its implementation in practice, mechanisms in place to monitor suppliers on their practices related to human rights due diligence, and a human rights issues-focused risk assessment and its results.
- Supply chain tracing should include, among other things, a detailed description of the supply chain and chain of custody from the raw material to the imported good, including a list of suppliers associated with each step of the production process. This information should be supported by transactional and shipment documents such as purchase orders, invoices, packing lists, payment records, shipping records, bills of materials, certificates of origin, seller and buyer’s inventory records, and import and export records.
- Supply chain management measure information should address measures taken to prevent and mitigate identified risks of forced labor, including: a process to vet potential suppliers for forced labor prior to entering a contract with them; requiring that supplier contracts necessitate corrective action by the supplier if forced labor is identified in the supply chain; outlining the consequences if corrective action is not taken; and having access to documentation, personnel, and workers for verification of the absence of forced labor indicators, including at the recruitment stage.
- Evidence that goods were not made with forced labor should include, among other things, information demonstrating that indicators of forced labor, including intimidation and threats, abuse of vulnerability, restriction of movement, isolation, abusive living and/or working conditions, and excessive working hours, do not exist or are fully remediated.
Most types of documentation and information required build upon commonly understood best practices related to broader responsible and ethical sourcing or sustainability issues and related due diligence, but for the UFLPA, this documentation and information needs particularity that ties the subject shipment under review by CBP to the raw materials. This has proven to be a challenging exercise for many importers given today’s complex supply chains.
Please see Sections VI.A and C of the FLETF UFLPA Strategy and Sections IV.A, B, C, and E of the CBP UFLPA Guidance for more information regarding the types of documentation and information required when making a request for an exception under the UFLPA.
Importers may request an exception to the rebuttable presumption from CBP during a detention period, after an exclusion, or during the seizure process.
When granting an exception, CBP needs to notify Congress and make available to the public a report identifying the merchandise and the evidence considered in granting the exception. Given this Congressional and public scrutiny, we do not expect that exceptions will be readily granted.
Importers can also request an exception in advance of shipments being made into the United States. It appears that an exception could potentially cover multiple shipments that have “identical supply chains to those that have been reviewed previously and determined to be admissible by CBP.” For this reason, obtaining an exception could perhaps be a longer-term option to proactively address detention risks for certain importers that repeatedly source from the same supply chains.
- How does an importer demonstrate that the goods are not within the scope of the UFLPA?
An importer seeking to establish that goods are not within the scope of the UFLPA will need to focus on traceability and provide supply chain tracing documentation establishing that the goods and their inputs are sourced completely from outside Xinjiang and have no connection to a UFLPA Entity List party. Based on the FLETF UFLPA Strategy, unique identifiers should be used to track raw materials and other inputs through the supply chain, when possible. DNA traceability or isotopic testing may make it possible to identify the origin of particular goods or materials without undertaking a comprehensive supply chain mapping exercise, but the reliability of such tests must be demonstrated and they must be traceable to the particular shipment under review by CBP.
See Section VI.B of the FLETF UFLPA Strategy and Sections IV.B and D of the CBP UFLPA Guidance for more information regarding the types of documentation and information required when making an argument that the subject shipment is outside the scope of the UFLPA.
- My shipment may or may not have raw materials from Xinjiang, and even if it does, such raw materials would make up a very small percentage of my overall shipment. Would we have any de minimis argument?
CBP has repeatedly indicated that it would not apply any de minimis exception unless there is a regulation change on this point, which means even a minor raw material sourced from Xinjiang or from a UFLPA Entity List party could prevent the entire shipment from entering the United States. The FLETF UFLPA Strategy suggests a future regulatory change allowing certain types of a de minimis exception could be in the picture; companies should closely monitor further implementation and enforcement of the UFLPA for development related to a potential de minimis exception.
- What types of goods are higher-risk goods from a forced labor compliance perspective? Does the UFLPA change the scope of the higher-risk goods?
During the initial phase of the enforcement of the UFLPA, CBP will likely focus on “commodities with a high risk of forced labor” such as cotton, tomatoes, and polysilicon. Based on past guidance, we also expect CBP will initially focus on goods imported directly from Xinjiang, and those whose supply chains directly include a UFLPA Entity List party. However, we expect CBP to gradually expand its enforcement focus, as guided by the FLETF UFLPA Strategy, and start targeting other goods, perhaps first focusing on other types of goods that have already been subject to a CBP WRO/Finding or flagged by the Department of Labor, and goods imported from a third-country that potentially include components sourced from Xinjiang.
CBP stated that it was ready to implement and enforce the UFLPA on its implementation day, June 21, 2022, and we expect to see more audits, detentions, seizures, and other enforcement activities by CBP on matters related to forced labor more generally. In light of this, US importers and others involved in supply chains connected to Xinjiang and importing into the US are encouraged to review the CBP UFLPA Guidance and the FLETF UFLPA Strategy in detail to assess whether they need to further improve their import compliance and responsible sourcing programs more generally. Further, companies should not overlook the importance of the Anti-foreign Sanctions Law of China and other Chinese countermeasures that aim to counteract the “discriminatory” foreign sanctions against Chinese companies. It is recommended to develop balanced compliance and risk mitigation strategies that address all these relevant concerns.