Nine Months In: What’s Happening with Forced Labor Implementation & What’s Next

Foley Hoag LLP - Global Business and Human Rights
Contact

Foley Hoag LLP - Global Business and Human Rights

Nine months after the Uyghur Forced Labor Prevention Act (UFLPA) went into effect, the Biden Administration shows no signs of easing up on its tenacious enforcement of the Act’s import ban.  At the same time, the Administration’s approach is still developing and it will take more data collection, multi-stakeholder information sharing, as well as insights from U.S. Customs and Border Protection’s (CBP) own shipment reviews before industry sees a more predictable and stable enforcement regime.

In effect since June 2022, the UFLPA amended Section 307 of the Tariff Act by providing CBP with powerful new authorities to detain and seize imports made in any way with the forced labor of persecuted religious and ethnic minority communities in China.  While the Act is heavily focused on the Uyghur peoples in the Xinjiang region, it is important to bear in mind that the statute is ultimately aimed at forced labor inputs from all religious and ethnic minority groups throughout China.  In principle, whose work contributed to the product is more important than the geographical locus, facilities, and diffuse supply chains with which the product shares a nexus.

As CBP and the UFLPA’s congressional authors have cautioned on myriad occasions, the wide enforcement aperture that the statute sets is premised on a presumption that all imports whose supply chains materially involve Xinjiang and/or the labor of persecuted Chinese minorities are made with forced labor and therefore inadmissible into the United States.  This presumption can only be legally rebutted and reversed if the importer can furnish “clear and convincing” evidence disproving the presumption – a very high legal bar.  Moreover, the prevailing enforcement strategy and industry guidance on complying with the UFLPA is scant in explaining how companies can satisfactorily clear this high bar.

To compound these challenges, CBP has emphasized that field assessments of forced labor at Chinese facilities conducted by independent human rights experts will not be enough meet the clear/convincing standard.  The attorneys and advisors in Foley Hoag’s GBHR Practice, which pioneered the corporate human rights impact assessment, can attest to the critical value that is provided when fieldwork includes the experiences and actual voices of vulnerable rights-holders.  Despite such assessments being considered one of the most credible ways of confirming indicators of modern slavery, CBP and civil society groups have noted the extent to which Chinese authorities interfere in the experts’ work, including by intimidating or threatening the workers who may be interviewed.

In early February, the Senate Foreign Relations Committee held a hearing to evaluate U.S. China policy.  The hearing featured comments from members of both parties adumbrating various geostrategic concerns that are well-worn by now.  With respect to human rights abuses and the prevalence of forced labor in China, Senator Menendez, Chair of the Committee, has expressed deep concern over the treatment of Uyghurs and other minority communities.  While Menendez has not been as full-throated in support of the UFLPA as his other congressional colleagues, he has helped lead related legislation imposing punitive measures for gross human rights abuses and atrocity crimes in Xinjiang.  This includes the Uyghur Human Rights Policy Act, which became law in 2020 and that codified sanctions against Chinese enablers of such abuses; and the Sanctioning Supporters of Slave Labor Act, which would impose secondary sanctions on companies doing business with sanctioned enablers.

Although the latter bill died in the last Congress, a hot button issue like human rights abuse in China could always be reintroduced.  On one hand, even if the measure were to be filed in this congressional session, there is little appetite amongst policymakers to add new penalties when companies are already struggling to absorb the UFLPA’s formidable compliance implications.  On the other hand, the measure’s prospects of becoming law could increase if (1) Congress finds that UFLPA enforcement by CBP has not been particularly effective at preventing products from being made with the forced labor of minority groups in China; and/or (2) China’s persecution of minority communities gets markedly worse.  To help Congress make such determinations, it will rely heavily on reporting by journalists, civil society, policy centers, and federal agencies.

In the meantime, the Biden Administration has issued several new resources intended to help industry with their due diligence requirements under the UFLPA.  CBP has issued a new document that may best be summarized as a technical guidance on existing CBP guidance for complying with the import ban.  The new guidance and accompanying best practices for importer responsibilities aim to aid importers with presentation of evidence in their applicability review submissions to CBP.  As many in industry know by now, the review submissions are used by the agency to determine if importers have clearly demonstrated that their goods are not made with forced labor from persecuted minority groups in Xinjiang or elsewhere in China.

In addition, CBP has issued a new FAQ sheet that addresses some of the key concerns that companies have raised regarding compliance and supply chain due diligence.  The FAQ sheet is in large part the result of recommendations that were provided by the industry-led working group that advises CBP on forced labor in trade.  Those recommendations reflected ongoing frustrations from companies over the lack of data on imports targeted and detained by CBP under the UFLPA.  While the FAQ sheet and technical guidance do elaborate on some of the enforcement information sought by companies, the information is quite limited and will not give risk managers the confidence they need to conduct comprehensive due diligence within their supply chains.

Some industry associations have already criticized the FAQ sheet for providing only partial answers to a number of questions raised by companies through their many written comments to the agency.  In particular, associations were expecting a FAQ sheet that provided more granular data on shipment detentions, the agency’s rationale for detaining specific shipments, identifying the particular entity(s) within a supply chain that establish a material connection to forced labor in Xinjiang, the agency’s process for determining additional high-risks sectors/products that will be targeted for enforcement, and how the private sector can provide input on that process.  Industry is also eager to see the agency collaborate on new technologies being adapted by companies to better trace the source of materials, including isotope- and DNA-based testing.

The FAQ sheet and technical guidance appear to be an attempt to throw industry some bones as the agency continues to pursue aggressive enforcement and potentially widens the scope of high-risk product sectors to target.  In theory, there should be a point when CBP’s unflagging enforcement of the import ban achieves a critical mass, generating richer datasets and supply chain mapping.  Such information should then be communicated to industry in the form of equally robust due diligence and much deeper mapping of the global supply chain’s nexus with forced labor in China.

In the meantime, the agency in mid-March launched an interactive UFLPA enforcement dashboard containing data on the number and value of shipments detained under the UFLPA.  The dashboard breaks out enforcement statistics by date range, commodity, and country of origin information.  Some industry associations have urged CBP to additionally include the number of shipments targeted for review, the number of shipments detained, specific reason why shipments were detained (including identifying the specific entity(s) in the supply chain bearing direct responsibility), and the number of shipments that were detained but ultimately released.

Overall, there have been no notable indications that the Biden Administration will relax the punitive scope of the import ban under the UFLPA or provide other regulatory dispensations, particularly when a company’s imports are ensnared by a detention order under the UFLPA.  Some in the renewable energy sector have been banking that the Administration might restrain enforcement, out of fear that a hardline approach will rankle China and thwart potential bilateral collaboration on climate change.  But such collaboration between Beijing and Washington is wishful thinking considering the widening disconnect between both countries over virtually every other major policy issue.  For their part, members of Congress on both sides of the aisle have been adamant that the Executive remain completely committed to the law with very few, if any, exceptions for importers.  With respect to renewable products, a growing number of lawmakers understand that environmental sustainability and human rights goals are increasingly reliant on one another.

Furthermore, some of the United States’ most important allies and economic partners are pushing forward on landmarks changes to their laws that will make legally binding forced labor standards an inevitability.

Having emulated the UFLPA, the European Union is probably less than two years away from promulgating a statute that will impose significant penalties on companies for any of their products entering the E.U. market deemed to have been made with forced labor regardless of where such abuses originated.  Moreover, the United States’ neighbors to the north and south have taken significant steps to institute their own measures.  This cross-regional effort recognizes key tenets in the U.S.-Mexico-Canada Agreement (USMCA) whereby the three parties agreed to implement concrete measures for ending forced labor.  This, in turn, will increase scrutiny of company activities throughout the continent and be complemented by enhanced regulatory coordination and information-sharing between the three neighbors.

Canada will soon be enacting a new forced labor law that requires companies to report on their modern slavery prevention efforts, while fortifying enforcement of the country’s extant prohibitions on products derived from forced labor.  Mexico, meanwhile, has announced that it is publishing a new regulation designed to match the efforts of its North American counterparts.

In a further twist, Chinese investors have begun pouring unprecedented amounts of capital into Mexican manufacturing facilities, taking advantage of “nearshoring” provisions in the USMCA that allow products under this arrangement to be labeled with the “Made in Mexico” appellation and thus come into the United States duty free.  The practice, however, would not prevent any such products from being detained or denied entry if they can be linked to forced labor in Xinjiang and other parts of China –including instances where senior leadership in the Chinese parent company or the company itself can be linked to such abuses.  In all, nearshoring initiatives are likely to draw special attention from CBP, and will add an additional layer of complexity to due diligence when a company’s supply chains intersect with Mexico and goods destined for the U.S. market.

Since the current Congress began in January, lawmakers in both parties have issued letters to the Biden Administration cautioning against any watering down of enforcement, and Senator Wyden – Chair of the Senate Committee – sent a letter to U.S. automakers (including Tesla, General Motors, Ford, and Toyota North America) at the close of the last Congress.  The Wyden letter essentially served as a warning to these car companies: even though your supply chains are especially labyrinthine, you shouldn’t expect any exemptions if you fail to ferret forced labor out of them.

Given the sheer number of high-risk materials, interlocking supplier tiers, and geographical nodes that underpin a modern vehicle’s supply chain, businesses whose products feed into U.S. car manufacturing facilities need to update their due diligence program and establish reliable processes for exchanging information with other relevant suppliers.

On February 16, the Senate Finance Committee held a hearing that put enforcement of the UFLPA on display.  The hearing included a number of witnesses from industry, worker rights organizations, and labor associations.  A central objective of the hearing was to gain feedback from the witnesses regarding ways UFLPA enforcement can be strengthened, in particular by improving CBP’s data disclosures.

As evinced by the hearing testimony, there is growing consensus between industry groups and civil society organizations that the agency needs to share more information regarding the reasons for import detentions and other granular-level information that would shed greater light on CBP’s process, with the long-term goal of helping all stakeholders involved in risky sectors more effectively coordinate their forced labor prevention efforts across every tier of a good’s value chain.

CBP has also begun enforcing the UFLPA import ban on products in high-risk sectors beyond cotton and renewable energy products.  CBP is planning to give greater attention to imports made with aluminum alloys, which CBP identified as high risk in its previous UFLPA guidances to industry. Wyden’s letter to U.S. automakers likely played a major role in this new focus, illustrating the ways Congress remains closely engaged in the implementation process.

The Biden Administration’s enforcement expansion to other high-risk sectors could also cause risk management headaches for businesses whose products are cross-sectoral in nature, such as those containing both polysilicon and aluminum elements, and/or whose supply chains weave through multiple geographies (e.g. China and Mexico), are elaborately tiered, or otherwise fraught with complexity.

In all, we expect this year to be one where CBP and the Biden Administration as a whole become significantly more active on U.S. efforts to eradicate forced labor and other forms of modern slavery.  Despite the heavy compliance burden imposed by the Uyghur import ban, it is quite clear that international jurisdictions are starting to speak with one voice that will lead to greater pressures on corporate risk management and due diligence.  We will be seeing further implementation of strict laws penalizing companies that fail to eliminate forced labor in their supply chains.

The silver lining, however, comes from the fact that there are mounting calls from diverse stakeholders for CBP to provide a lot more information that will help companies craft responsive risk management strategies.  This will likely lead in 2023 to more granular guidances, fact sheets, and other materials that aid corporate efforts to end modern slavery, and that have the potential to lower a company’s compliance learning curve over the long term.

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.

© Foley Hoag LLP - Global Business and Human Rights | Attorney Advertising

Written by:

Foley Hoag LLP - Global Business and Human Rights
Contact
more
less

Foley Hoag LLP - Global Business and Human Rights on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide