Blocking imports from Xinjiang starts Tuesday June 21, 2022 - What U.S. businesses need to know

Dentons

Only a few days remain before U.S. Customs and Border Protection (CBP) begins blocking imports of goods connected to the Xinjiang Uyghur Autonomous Region (Xinjiang) of China. It is long-standing U.S. law that businesses cannot import goods made by companies forcing people to work. Forced labor is a form of human trafficking, the elimination of which is a bi-partisan priority. By passing the Uyghur Forced Labor Prevention Act (UFLPA), which takes effect on June 21, 2022, Congress dramatically changed the rules around blocking imports of goods made by human trafficking victims.

U.S. businesses should be prepared for this new importation framework as follows:

Burden and standard shifting

The UFLPA amends the Tariff Act of 1930, which allowed CBP to determine if there was reasonable information that goods were made in whole or part by forced labor victims. If so, CBP had the power to block the import and possibly seize the goods. The UFLPA shifts the burden of proof from CBP to businesses by creating a presumption all goods made in Xinjiang or connected to Xinjiang are made by forced laborers and, therefore, are barred from entry. Congress also raised the standard of proof. Businesses must prove the absence of forced labor by “clear and convincing” evidence, not the much lower “reasonable information” standard that CBP enjoyed.

What businesses are at risk?

Unlike other laws that apply to businesses with a certain amount of gross revenue or employee threshold, the UFLPA applies to all businesses of any size and from any sector that source goods connected to Xinjiang. Congress specifically directed CBP to focus on goods containing cotton, tomatoes, and polysilicon. This emphasis implicates entities importing apparel, footwear, linens, tomato-based products and seeds, technology, electronics, and solar panel products. As discussed below, every business should be checking its supply chains to determine what shipments might be at risk of detention.

How will this work?

CBP announced it will review each shipment entering the United States for UFLPA applicability. That means on a case-by-case basis, CBP will seek to determine if the import originates from Xinjiang, if any of the component parts were made in Xinjiang, or if all or part of the import was made by an entity outside of Xinjiang listed on the UFLPA Entity List. CBP has five days (excluding weekends and holidays) to make its decision. If there is no connection to Xinjiang and the UFLPA does not apply, the goods will be released and the importation process will continue. If there is a connection to Xinjiang or the five-day period expires without a CBP determination, the US government blocks the goods from entry.

An affected importer has 30 days to challenge CBP’s detention decision and/or seek permission from the port director to export the detained shipment. By contrast, under other CBP detention actions, companies often have 90 days to make their case to CBP. Hence, relevant entities should be ready to move quickly with material to support a challenge to the applicability of UFLPA or seek what CBP calls an “exception” under the law in order to avoid a seizure and total loss of the goods.

“Outside the scope” challenge

If imports are detained, the first option is to argue the goods are “outside the scope” of the UFLPA. That is, a business can challenge the decision that the goods or their inputs have any connection to Xinjiang by showing where they actually originated. On Monday, June 13, 2022, CBP issued its “Operational Guidance for Importers” under the UFLPA. The Guidance provides a non-exhaustive list of documents a company might use to persuade CBP that the goods are “outside the scope” of the new law. Most notably they include evidence the goods were not mined, produced, or manufactured wholly, or in part, in Xinjiang. So, for example, a company can present:

  • Documentation tracing the supply chain from raw materials to the imported goods
  • Detailed description of the overall supply chain including imported merchandise and components thereof, including all stages of mining, production, or manufacture
  • The role(s) of the entities in the supply chain, including shippers and exporters
  • A list of suppliers associated with each step of the production process, including names and contact information
  • Affidavits from each company or entity involved in the production process
  • Purchase orders, invoices, packing lists, bill of materials, certificates of origin, payment records, shipping records, manifests, bills of lading, etc.
  • Information about the goods or any component thereof for raw materials related to cotton, polysilicon, and tomatoes
  • Production orders
  • Reports on factory production capacity for the merchandise
  • Reports on factory site visits by the importer, a downstream supplier sourcing from this factory, or a third party
  • Evidence that the volume of inputs of component materials matches the volume of output for the merchandise produced
  • Any other evidence to demonstrate that a good was not mined, produced, or manufactured wholly or in part by forced labor

Importantly, the “clear and convincing” standard does not apply to an “outside the scope” challenge. The CBP Guidance states the “clear and convincing” standard applies to rebutting the presumption of forced labor, but not a challenge related to the goods connection to Xinjiang. If a company is successful in convincing CBP that the goods are “outside the scope” of the UFLPA applicability, CBP will release the goods.

Rebutting the presumption to get imports through

If CBP determines the goods are within the scope of the UFLPA, an importer can still seek an exception to the UFLPA. The UFLPA and the CBP Guidance outline the three-part process for exception, which requires:

  1. Full compliance with the UFLPA Strategy (expected to be issued by June 21, 2022),
  2. Responsiveness to all CBP inquiries, and
  3. “Clear and convincing evidence” that the goods were not made in whole or part by forced labor victims.

In addition to the evidence of the source of goods discussed with respect to an “outside the scope” challenge, the CBP Guidance provides an additional list of information and measures that a company could use to rebut the presumption of forced labor, including:

  • Due diligence system information
    • Mapping of the supply chain and assessment of forced labor risks along the supply chain from raw materials to production of the imported good
    • Written supplier code of conduct forbidding the use of forced labor and addressing the risk of use of Chinese government labor schemes
    • Training on forced labor risks for employees and agents who select and interact with suppliers
    • Monitoring of supplier compliance with the code of conduct
    • Remediation of any forced labor conditions identified or termination of the supplier relationship
    • Independent verification of the implementation and effectiveness of the due diligence system
    • Reporting performance and engagement publicly on its due diligence system
  • Information on supply chain management measures
    • Internal controls to prevent or mitigate forced labor risk and remediate any use of forced labor identified in the mining, production, or manufacture of imported goods.
    • An importer should be able to demonstrate that the documents provided are part of an operating system or an accounting system that includes audited financial statements.

If CBP finds “clear and convincing” evidence sufficient to rebut the presumption of forced labor, the goods proceed through the importation process. The law also requires CBP to notify Congress if it issues an exception and allows goods connected with Xinjiang to enter the United States. We expect, however, that few exceptions will be granted, which highlights the importance of a proactive approach to UFLPA compliance.

UFLPA Strategy

Complicating an importer’s ability to prepare for June 21 is the fact the U.S. government still has not released the UFLPA Strategy. Compliance with the UFLPA Strategy is the first element of rebutting the presumption and obtaining an exception under the law. It is expected that the UFLPA Strategy will be published on Tuesday, June 21, the same day CBP can operationalize the presumption of forced labor and block imports of goods from Xinjiang.

Additional resources / upcoming webinars

Dentons will offer informative webinars about how U.S. businesses should prepare for this new importation framework. Stay tuned for more details.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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