Companies from various sectors prepare for the application of the Uyghur law on the prevention of forced labor1(“UFLPA”), which became effective June 21, 2022. People working in UFLPA’s high-risk industries have expressed justified concerns about law enforcement, supply chain due diligence opaque and complex and the volume of evidence needed to prove forced labor has not been used in a production run. This article provides an overview of the steps and challenges companies face when managing UFLPA compliance.
KEY POINTS TO REMEMBER
- U.S. Customs and Border Control (“CBP”) will likely include too many products in high-risk industries with a connection to China, even if shipped from other regions or countries.
- Importers of products in high-risk industries must document the entire supply chain to the origin of raw material inputs
- Advanced preparation and experience in China will be essential to gain maximum cooperation from overseas sellers and to meet heavy evidentiary requirements
HOW THE UFLPA WORKS
The UFLPA itself is simple. It operates in conjunction with 19 USC § 1307, which prohibits the importation and entry of “all goods, commodities, articles, and commodities extracted, produced, or manufactured in whole or in part in a foreign country by convict labor or /and forced labor or/ and indentured labor.”2The UFLPA supplements this provision and creates a rebuttable presumption that all goods, commodities, articles and merchandise manufactured in whole or in part in China’s Xinjiang Province are made with forced labor and, therefore, are prohibited from importation. in the USA.3This is where the simplicity ends.
The complex question is which products are made with inputs from Xinjiang province and how will this be identified. Some high-level answers are provided in the UFLPA Operational Guidelines for Importers (“Operational Guidelines”) from Customs and Border Protection (“CBP”).4and the Department of Homeland Security’s (“DHS”) enforcement strategy for UFLPA (“Enforcement Strategy”).5CBP has also addressed several iterations of these questions in its recent UFLPA enforcement webinars. Taken together, these documents specify the application plan and methods, focus areas and industries, and how the application will develop.
CBP, as the primary enforcement agency for UFLPA, will focus on three high-risk industries: tomatoes, cotton, and silicon (including polysilicon).6Likewise, CBP and DHS are aware that inputs originating in Xinjiang are mixed, transshipped, and otherwise manipulated to obscure their Xinjiang/China connection. Thus, companies involved in high-risk sectors should expect CBP to be overly inclusive for items involving high-risk inputs and a connection to China.
For enforcement of the UFLPA, CBP may use detention, exclusion, seizure, and forfeiture.sevenUpon commencement of enforcement, CBP will notify importers with a notice, such as a Customs Detention Notice, Customs Seizure Notice, etc. The notice will explain the action and the rights of the importer, including providing evidence to rebut the presumption under the UFLPA. After receiving a notice, importers will have the opportunity to provide documentary evidence to claim an exception to the rebuttable presumption that forced labor was used in the manufacture of the product.
To be successful in obtaining an exception, importers must provide clear and convincing evidence that no forced labor was used in the manufacture of the products. The Guidance provides a general overview of the evidence that may be required to obtain an exception, including:
- Evidence of an importer due diligence procedure and that it is used
- Evidence of the supply chain, including a detailed description of the entire supply chain, including product components at all stages down to raw material level
- Global proof that the products are not from forced labor
HOW TO PREPARE
At a high level, companies, especially importers, who deal with UFLPA high-risk industries – i.e. industries with a connection to China that may have cotton or silicon inputs – must exercise increased due diligence on suppliers and the supply chain. Essentially, this means companies need to be able to know and document the entire product supply chain down to the level of raw material extraction.
From a business perspective, companies need to engage in this due diligence and collect evidence early, preferably before the final purchase is made. If goods are held up, upstream sellers will have limited incentive to cooperate, although their cooperation will be required to obtain receipts, shipping information, manufacturing records, employment records, etc., which may all be necessary to obtain an exception if the goods are detained, excluded or seized. UFLPA is a sensitive topic in China and supply chains in China are often opaque to protect a commercial role in the manufacturing process. Suppliers will have concerns about providing detailed information and will likely cite China’s privacy laws as justification for not sharing information. Local knowledge and a keen eye will be needed to spot fraudulent documents, which are common.
Assuming accurate supply chain information and documentation is obtained, the next challenge will be to document the entity and individual relationships throughout the supply chain. Experience investigating Chinese organizational structures is essential, not only to understand the structures, but also to effectively explain them to CBP. For example, an identified Chinese silicon manufacturer has more than 40 direct subsidiaries and these subsidiaries also have several subsidiaries. The legal representative of the parent company has more than 30 additional current business interests and a separate director has more than 25 additional current business interests. Products that touch on these types of relationships present an increased risk of law enforcement.
CBP plans to map relationships in and out of China with other countries to increase and develop UFLPA enforcement. Specifically, the enforcement strategy discloses deployment technology to access, among other things, foreign company registry data to identify entity relationships. Companies need to be one step ahead so that they can clearly and convincingly defend their position that the UFLPA does not apply to their products.
Despite the simplicity of the UFLPA, its application and application promise to be extremely complex, especially when CBP reviews submissions from various importers and obtains a macro and micro understanding of high-risk industries and participants. Companies that purchase products with high-risk inputs and a connection to China must take steps to prepare.
Professionals in Winston & Strawn’s International Trade Group routinely deal with complex and sensitive issues involving Chinese interests. We invite you to contact us with any questions regarding UFLPA, China-based due diligence and investigations, or risk or loss prevention measures that may be taken.
1 Public Law 117-78, available at https://www.govinfo.gov/content/pkg/PLAW-117publ78/pdf/PLAW-117publ78.pdf.
2 19 USC § 1307.
3 Public Law 117-78.
4 Customs and Border Protection Guidance for Importers, available at https://www.cbp.gov/sites/default/files/assets/documents/2022-Jun/CBP_Guidance_for_Importers_for_UFLPA_13_June_2022.pdf.
5 Department of Homeland Security UFLPA Enforcement Strategy, available at https://www.dhs.gov/sites/default/files/2022-06/22_0617_fletf_uflpa-strategy.pdf.
6 All of these areas have already been subject to hold release orders. These suspension orders will be superseded by the UFLPA and the UFLPA has wider application throughout the Xinjiang region.
seven See19 USC § 1499 (detention); 19 USC § 1959a (seizure and forfeiture).
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.