The compromise version of the Uyghur Forced Labor Prevention Act (HR 6256) (“Act”) was recently passed by both chambers of Congress, and the legislation is now cleared for President Biden’s signature. It is expected that President Biden will sign the legislation into law soon. With strong bipartisan support, earlier versions of this legislation had passed the US House and Senate in the preceding months, and lawmakers reached an agreement that merged versions from each chamber. Compared to earlier versions of this legislation, the Act no longer includes broad notification requirements for US Securities and Exchange Commission filings, but it retains the earlier legislation’s establishment of a rebuttable presumption that all goods (i) “mined, produced, or manufactured wholly or in part” in the Xinjiang Uyghur Autonomous Region of China (“Xinjiang”), or (ii) produced by an entity on one of the lists required under the legislation, are made with forced labor, and would be prohibited from entering into the United States under Section 307 of the Tariff Act of 1930, enforced by US Customs and Border Protection (“CBP”). The Act further requires a strategy to strengthen the existing prohibitions on the importation of goods mined, produced, or manufactured with forced labor, potential additional sanctions, and a diplomatic strategy to address alleged forced labor in Xinjiang.
Below we expand upon the main provisions of the Act and summarize the key takeaways for companies:
CBP’s import ban and “rebuttable presumption”
The Act would require CBP to presume that any goods made in Xinjiang, or by certain other entities, are made with forced labor and are not entitled to entry into the United States unless the importer can, among other things, demonstrate “by clear and convincing evidence” that the goods are not made with forced labor. Demonstrating admissibility to CBP (i.e., demonstration, by clear and convincing evidence, that a certain good is not made with forced labor) requires overcoming an extremely high level burden of proof that can essentially amount to trying to prove a negative. In light of these practical challenges, and taking into consideration Xinjiang’s role in the broader Chinese economy, industry has been expressing its concerns against a broad import ban on all goods made in Xinjiang or by Xinjiang labor.
The “rebuttable presumption” standard generally against Xinjiang goods under the Act is a significant development from the withhold release orders (“WRO”s) previously issued by CBP related to Xinjiang, as those focused on specific products and entities. (CBP’s issuance of WROs is CBP’s main enforcement tool under Section 307 of the Tariff Act of 1930.) This “rebuttable presumption” is similar to the provision under the Countering America’s Adversaries with Sanctions Act (PL 115-44) with respect to North Korean labor. The presumptive import ban will likely go into effect in mid-June 2022, if the legislation is signed into law this week, as expected.
“Strategy” to provide guidance to CBP and importers
Following a public comment period, within 180 days after enactment, the Act would require Forced Labor Enforcement Task Force (chaired by the US Department of Homeland Security) to develop a strategy to support CBP’s enforcement of Section 307 of the Tariff Act of 1930. This strategy is to include, for example, designating (i) specific entities in Xinjiang, or those that work with the government of Xinjiang, that allegedly engage in, or source from entities allegedly engaged in, forced labor practices, (ii) specific goods allegedly made by forced labor, and (iii) entities that export goods allegedly made with forced labor to the United States. This strategy would also include further guidance to importers with respect to CBP’s expectations regarding the level of due diligence, effective supply chain tracing, and supply chain management measures, and specific type, nature, and extent of evidence that would overcome the “rebuttable presumption” standard.
These measures are consistent with growing concerns both by the industry and lawmakers on the challenges regarding a broad import ban on all goods made in Xinjiang or by Xinjiang labor. The public comment period provides a unique opportunity for the industry to help shape the effective implementation of, and CBP’s compliance expectations under, this Act.
Additional sanctions authorized
The Act expands the list of reasons for which sanctions may be imposed under the Uyghur Human Rights Policy Act of 2020 (PL 116-145) to include serious human rights abuses in connection with forced labor. The Uyghur Human Rights Policy Act of 2020 authorizes the President to impose sanctions on persons, including Chinese government officials, deemed to be responsible for certain human rights violations and abuses committed against Muslim minority groups in China or elsewhere. The law requires the administration to sanction those individuals by blocking their assets and declaring them ineligible for visas or admission into the United States. The President may waive sanctions if determined to be in the national interest.
This means within 180 days of enactment, the President is required to identify each foreign person, including any official of the government of China, responsible for serious human rights abuses in connection with forced labor in Xinjiang, and to impose sanctions required by law on those persons, unless such sanctions can be waived. This could result in additional sanctions imposed by the Office of Foreign Assets Control (“OFAC”) in the US Treasury Department, such as the addition of new parties to OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”).
Diplomatic strategy
The Act requires the US State Department, within 90 days of enactment, to submit to Congress a report on US strategy to promote initiatives to enhance international awareness of, and to address alleged forced labor in, Xinjiang. The report must also include a list of entities in China that the US Government has determined to use or benefit from forced labor in Xinjiang, and a list of foreign persons that act as agents for these entities to import goods into the United States. The listing by the US State Department could potentially result in additional restrictions targeting such parties. Finally, the report must include a plan to work with the private sector to conduct supply chain due diligence and a plan of action taken by the federal government to address alleged forced labor in Xinjiang under existing authorities.
Takeaways for companies
- The most immediate compliance risk for companies as a result of the Act is the “rebuttable presumption” that goods made in Xinjiang, or by certain entities with ties to Xinjiang, are deemed to have been made with forced labor, and thus are inadmissible in the United States. We expect this to result in more audits, detentions, seizures, and other enforcement activities by CBP.
- US importers and other interested parties should consider actively engaging the US government during the public comment period to help shape the effective implementation of this Act, including the scope of the import ban, CBP’s forced labor enforcement processes, and the standard under which entities allegedly engaged in forced labor practices would be designated.
- Companies importing into the United States from China (and not just from Xinjiang) should assess their supply chains to identify potential vulnerabilities (e.g., second or third tier suppliers that could be sourcing raw materials from Xinjiang or that could have ties to the government of Xinjiang) and proactively establish plans to address such vulnerabilities. This could include, for example, refining supply chain mapping exercises, communicating policy changes to suppliers, and updating policy or other agreements. Due to the cross-cutting nature of these risks, these efforts should ideally involve an intra-company working group of various stakeholders with responsibility in supply chain, e.g., procurement, supply chain/logistics, social and labor compliance, substantiality, legal, and trade compliance.
- Companies should assess whether their trade compliance programs include appropriate risked-based measures that seek to address the risks associated with SDNs and other sanctioned parties. Considering that the Act could result in additional sanctioned parties, now is a good time for companies to assess their restricted party screening procedures, supplier/customer onboarding processes, periodic supplier/customer due diligence refresher processes, and other relevant procedures.
- Companies considering compliance assessments and other actions in response to the Act should also consider whether those actions could potentially create risks under Chinese law, such as under the Chinese Anti-Foreign Sanctions Law.
