The fight against forced labor in trade is not a new concept. For decades, the United States has banned the importation of goods produced with forced labor through the U.S. Tariff Act of 1930 (“Tariff Act”). Section 307 of the Tariff Act has prohibited the importation of “[a]ll goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by […] forced labor.” What is relatively new, however, is the fight against forced labor in China, specifically the Xinjiang Uyghur Autonomous Region of China (“Xinjiang”).
Although forced labor has allegedly been persistent in China for years, the United States began paying serious attention to the issue in 2020 when government departments, such as the U.S. Department of State and the U.S. Department of Labor, increased reporting on forced labor practices in Xinjiang, and non-governmental organizations, such as Sheffield Hallam University, published detailed studies and worksheets about China’s forced labor practices. By the end of 2021, a detailed act was passed to specifically target forced labor in Xinjiang, the Uyghur Forced Labor Prevention Act (“UFLPA”).
The UFLPA established a rebuttable presumption that any goods or products coming from Xinjiang are deemed to be produced with forced labor using Uyghur minority Muslims. Therefore, all such products are prohibited from entering the United States, unless the importer can rebut the presumption with clear and convincing evidence. The UFLPA also created the UFLPA Entity List, which identifies specific companies and entities that are known to engage in forced labor practices in Xinjiang. Being listed under the UFLPA Entity List means that U.S. Customs and Border Protection (“CBP”) will apply a rebuttable presumption that goods mined, produced, or manufactured by the listed company are made with forced labor, and therefore, cannot be imported into the United States.
The UFLPA has been extensively enforced since it was passed in 2021. To date, CBP has reviewed more than 5,000 shipments valued at almost $2 billion and has denied entry to approximately 2,000 shipments (see the UFLPA Statistical Dashboard). The enforcement is expected to increase rapidly in the upcoming months, with the CBP actively adding more entities to the UFLPA Entity List.
The United States is not the only country making efforts to fight forced labor in China. Mexico and Canada, in compliance with their obligations under the United States-Mexico-Canada Agreement, have made similar efforts. Mexico passed the new administrative regulation prohibiting imports of goods produced with forced labor, while Canada passed the Fighting Against Forced Labour and Child Labour in Supply Chains Act as well as an amendment to its own Customs Tariff. Other countries, such as Australia, the United Kingdom, and the European Union also joined the fight by putting similar measures in place targeting forced labor in China.
Companies worldwide are also taking notice, as many now pay special attention to their supply chains to confirm that imported products are compliant with the UFLPA. Notably, companies in the fashion industry, have been the focus of higher scrutiny for forced labor allegations. This is mainly due to the rise of “fast fashion” and the fact that most apparel company suppliers are based in China. Fast fashion (i.e., the speedy turnover of fashion trends and production of high-volume products) is dependent on supply chain management capable of keeping up with fast-shifting consumer demands and the use of cheap international labor.
Notably, forced labor allegations have rapidly increased against certain fast fashion companies. Such companies, however, have not been subject to many of the laws passed to prevent forced labor. That is due in large part to a CBP exemption for low-value shipments. Under this exemption, shipments with a value of $800 or less are exempt from CBP’s formal entry processes, provided the shipments are addressed and delivered to individual consumers. These shipments typically move as courier or postal shipments. Although the UFLPA captures all upstream and downstream goods coming from Xinjiang, it does not require CBP to examine and detain low-value shipments covered under this exemption. Put differently, because of their low value of $800 or less, many fast fashion shipments are not subject to the UFLPA or even the broader Tariff Act enforcement targeting goods made with forced labor. As such, it has been alleged that fast fashion companies are able to grow tremendously, despite being faced with forced labor allegations. For example, two fast fashion companies, Shein and Temu, are currently facing such allegations while reportedly remaining the first and second most downloaded fast fashion shopping apps in the United States, as of May 2023.
To remedy this trade loophole, U.S. bipartisan bills (such as the De Minimis Reciprocity Act of 2023) have been introduced that would limit the applicability of the de minimis exception to goods from China or eliminate it altogether. The Uyghur Genocide Accountability and Sanctions Act (“UGASA”) is also being considered, which would require new reporting to the U.S. Securities and Exchange Commission by companies listed or seeking to be listed on U.S. stock exchanges, including fast fashion companies.
Now, more than ever, it is imperative for companies to trace and analyze their supply chains to determine if there are any connections to the Xinjiang region (or other possible forced labor regions) as it is only a matter of time before the above proposed measures are passed into laws and enforced. With the likely rise of such enforcement measures, it is further wise for U.S.-based companies to revisit their supply agreements with foreign suppliers to move some of the associated risk of detention and costs to their suppliers. Such measures will require international suppliers to comply with the various U.S. laws focused on preventing forced labor and protect domestic businesses from mistakenly entering agreements with companies utilizing forced labor.