While global political news has focused on Russia’s war in Ukraine, the Biden Administration and the US government have continued to expand the US-China trade war. In 2022 so far, this has included rules targeting trade with China in the Inflation Reduction Act of 2022, the CHIPS and Science Act of 2022, Executive Order 14083 (outlining key factors relevant to foreign investment review by the Committee on Foreign Investment in the United States), enhanced export controls targeting the Chinese semiconductor industry, more Chinese companies added to the Commerce Department Entity List and the Federal Communications Commission Covered List, as well as the long-awaited effective date for the Uyghur Forced Labor Prevention Act (UFLPA) on June 21.
These developments spell a sustained US focus on China with particular attention to issues of forced labor, including stepped-up enforcement of the UFLPA. In a recent interview, the chair of the Forced Labor Enforcement Task Force (FLETF)—the inter-agency group tasked with monitoring enforcement of the UFLPA—identified forced labor as a “top-tier” compliance issue on equal footing with anti-corruption and sanctions.
Recently released CBP Statistics
The limited data available suggests that UFLPA enforcement may have a meaningful impact on imports from China. US Customs and Border Protection (CBP) has reported that, as of September 20, it had already targeted under the UFLPA 1,452 cargo entries valued at $429 million. While full information for 2022 is not yet available, imports from China in 2021 totaled $504.94 billion. Extrapolating to a full year, the UFLPA could end up targeting billions of dollars of import entries from China. The current data is based on a period where enforcement has been ramping up, so future figures may show even more imports targeted under the UFLPA.
Background on the UFLPA
On December 23, 2021, the UFLPA became law with overwhelming bipartisan support. Among other things, it creates a rebuttable presumption that “any goods, wares, articles and merchandise mined, produced, or manufactured wholly or in part” in the Xinjiang Uyghur Autonomous Region (Xinjiang) of the People’s Republic of China, or by an entity on the UFLPA Entity List (last updated on August 5, 2022), are the product of forced labor and, therefore, barred from entry into the United States (the Presumption). This includes downstream products anywhere in the world that incorporate inputs, however small, from Xinjiang or from an entity on the UFLPA Entity List.
The standards and expectations around the UFLPA’s implementation are outlined in the US Department of Homeland Security (DHS) Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China (the UFLPA Strategy) and the CBP Operational Guidance for Importers (the UFLPA Guidance).
CBP typically enforces the prohibition on forced labor imports through Withhold Release Orders (WROs) and Findings of forced labor. Before the UFLPA, China-related enforcement consisted of entity-specific WROs and Findings and a 2021 regional WRO covering cotton, tomatoes, and downstream products. The UFLPA, however, supersedes all current WROs related to Xinjiang for goods imported to the US on or after its June 21 implementation date.
Challenges for Importers
Unless importers can demonstrate to CBP that their goods are not in any way subject to the UFLPA (e.g., they are sourced completely from outside Xinjiang with no connection to the UFLPA Entity List), importers must clear three hurdles to rebut the Presumption. They must (1) provide “clear and convincing” evidence that the goods in question were not made with forced labor; (2) “fully compl[y]” with UFLPA Strategy guidance and any implementing CBP regulations; and (3) “completely and substantively” respond to all CBP inquiries to ascertain whether the goods were manufactured with forced labor. Importers may find it difficult to obtain the necessary information within the timelines set by the UFLPA, if they can obtain it at all.
The UFLPA’s “clear and convincing” standard is higher than the “satisfactory evidence” standard that importers must meet to challenge WROs and Findings. It is untested and undefined in the UFLPA context, although other CBP precedent has interpreted the standard to be higher than a preponderance of evidence standard. Furthermore, neither the UFLPA nor attendant guidance articulate a standard for showing that an import is outside the scope of the UFLPA. The UFLPA Strategy states that the evidence required to rebut the Presumption or show that a good is outside the scope of the UFLPA “will vary based on the facts and circumstances of the import in question.” CBP devotes ten pages to describing the due diligence, supply chain tracing and mapping, and other evidence that may be necessary to show that a good was not made with forced labor or is outside the scope of the UFLPA.
Timing is also tight. Under the UFLPA, importers have 30 days before CBP makes a final determination about the admissibility of merchandise detained pursuant to the UFLPA, compared with the 90 days available to object to a WRO. In either case, importers can still lodge a protest within 180 days of a CBP determination to exclude goods. However, this formal, administrative process can be burdensome and time-consuming.
CBP may hesitate to grant exceptions for policy reasons and due to potential public and political backlash. For every exception that it grants, CBP must submit to Congress a publicly available report identifying the goods and the evidence CBP considered in granting the exception.
Chinese suppliers and multinational corporations face legal and reputational pressure in China not to make operational changes or subject themselves to the scrutiny of foreign parties, especially regulators. The Chinese government has reportedly already acted against some Chinese companies for complying with US requirements to eliminate Xinjiang inputs from supply chains. Accordingly, foreign laws – including China’s Anti-Foreign Sanctions Law and the country’s Blocking Rules – can also frustrate importers’ efforts to rebut the Presumption. Moreover, China’s Data Security Law and Personal Information Protection Law require approval from Chinese authorities before certain data or personal information stored inside China can be provided to foreign law enforcement authorities, which may present challenges to importers seeking to supply CBP with information.
US Government guidance addresses these challenges but does not excuse failure to respond on this basis. The UFLPA Strategy acknowledges that barriers to obtaining information exist and “may prevent an importer from qualifying for an exception to the rebuttable presumption.” Even so, it states that “these due diligence barriers do not relieve importers seeking an exception to the rebuttable presumption of the statutory requirement to comply with this guidance.”
If an importer cannot rebut the Presumption, then the affected goods are subject to exclusion, seizure, and forfeiture. Depending on the circumstances, CBP could also impose civil penalties that can extend up to the domestic value of the merchandise on an importer for fraud, gross negligence, or negligence that can extend up to the domestic value of the merchandise. In short, importers must completely satisfy CBP and the UFLPA’s high standards to rebut the Presumption. Doing so in the manner and time frame required may prove to be challenging for importers, even with adequate preparation (e.g., comprehensive supply chain mapping) due to the legal standards and practical realities involved.
The UFLPA has been impactful, and CBP enforcement activity is likely to continue to ramp up despite US regulators’ concerns about resource constraints. Importers are increasingly confronted with forced labor challenges, and following developments will continue to be important as long as US regulators view forced labor and the UFLPA as a “high commitment” and “high priority” area. As the US-China trade war escalates – even without headline-grabbing statements from the Biden Administration – the UFLPA has established itself as a fixture in the constellation of US actions impacting international trade with China.
Our Global Sanctions and Trade team will continue to monitor developments in connection with the UFLPA and will provide additional updates on any significant further developments. Please contact any member of our Global Sanctions and Trade team if you have any questions or would like to discuss any of these points.