The rebuttable presumption of the Uyghur Forced Labor Prevention Act (“UFLPA”) took effect on June 21, 2022. As a reminder, under this presumption for purposes of Section 307 of the Tariff Act of 1930, goods produced in the Xinjiang Uyghur Autonomous Region (“XUAR”) of China, or by certain identified entities, are made with forced labor, and therefore subject to an import prohibition in the United States. Violations can empower US Customs & Border Protection (“CBP”) to detain, exclude, or seize goods and assess monetary penalties, unless “clear and convincing evidence” shows that no forced labor, situated anywhere in the supply chain, produced any part of the goods. Importantly, the statute contains no de minimis exception. Our earlier alerts describing the UFLPA are available here and here.
Lack of Enforcement Data
On September 27, The Wall Street Journal published an article emphasizing just how seriously the US Department of Homeland Security (“DHS”) is approaching enforcement. US interagency Forced Labor Enforcement Task Force (“FLETF”) chairman Robert Silvers described forced labor as a “top-tier compliance issue”—one that boards and management need to be focused on, and that compliance teams need to be “laser focused on.” CBP is “strongly enforcing” the UFLPA with “significant resources”1 and, while noting that the UFLPA designates priority products for enforcement, he emphasized that CBP is “looking closely at any other product category where forced labor may come into play…”
To date, CBP has published limited UFLPA enforcement data.2 Figures from the 2023 DHS funding package, once passed, will set the stage for increased enforcement activity.3 Although CBP officials have expressed an intent to communicate additional information to importers with respect to enforcement, the scope of such information and/or additional communications or collaboration with industry is unclear.
Practical implementation has challenged US importers and their suppliers (particularly in the solar industry),4 given the significant compliance steps and the volume of evidentiary information required to satisfy the new standards. CBP has not issued formal checklists beyond detailed guidance,5 and, to date, no precedent besides one ruling that certain third-party audits alone will not suffice confirms how hard CBP will expect companies to push their supply chains and to provide whole of chain information.
Additional information might become more visible in the future as a result of public reports UFLPA requires CBP to make to Congress, where CBP grants an exception to the presumption allowing entry of the import.6
While the precise nature of an importer’s challenge depends on what it is trying to demonstrate—either that its goods are (i) outside the scope of the UFLPA, making the presumption not apply, or (ii) within scope but eligible for an “exception” to the UFLPA presumption—common industry challenges include:
- An inability to obtain information from upstream suppliers either not related to immediate (Tier 1) suppliers, or not incentivized or legally able to provide specified information;
- An inability to produce “credible” audits as defined in regulatory guidance7;
- Traceability challenges associated with commingling;
- Compliance with foreign laws that may put a producer and/or an importer at odds with UFLPA compliance, or create barriers to achieving compliance8; and
- Time and resource constraints, or the impossibility of finding and evaluating producer options beyond China, given China’s sphere of influence, where the presumption will be difficult to disprove and will therefore require production elsewhere than in the XUAR.
Importers will almost certainly continue to confront a considerable burden in compliance. For many companies, solving for UFLPA compliance will be fraught with trade-offs and may be unattainable, as the regulatory guidance reflects.9 Nevertheless, common approaches importers are taking, informed by their risk profiles, objectives, and other factors, include:
- Obtaining supplier affidavits attesting to the specific origin of the product/input supplied, and for entities in China, certifying that no forced or other prohibited forms of labor were used;
- Collecting upstream raw materials invoices, bills of lading, production records, and other documentary evidence to support country-of-origin certificates and supplier affidavits;
- In agreements covering sales of foreign-made goods for exportation to the United States, or agreements with downstream customers, introducing contractual provisions providing assurances and addressing performance obligations if CBP detains, excludes, or seizes imported goods;
- Preparing narrative information in advance (e.g., a supply chain “map”) that, even if not entry-specific, the importer could submit to CBP in the event of a detention, which may include developing or adapting policies, procedures, internal controls, and oversight measures that apply to the company’s operations and supply chain, and ensure they are appropriately scaled and address both known and unknown risks;
- Evaluating the possibility and promise of new technological approaches to prove the provenance of products and inputs; and
- Revisiting past disclosures on UFLPA-related risk, and considering and providing new disclosures to customers, shareholders, and other stakeholders.
1 Richard Vanderford, “Forced Labor a ‘Top-Tier’ Compliance Issue, Says US Official,” The Wall Street Journal (Sept. 27, 2022), available here.
2 According to CBP’s August 2022 Monthly Operational Update, in August, “CBP targeted 838 entries valued at more than $266.5 million for suspected use of forced labor in the production of imported goods, including goods subject to the Uyghur Forced Labor Prevention Act and Withhold Release Orders”. The update fails to clarify the final disposition as to targeted goods: whether they were detained, excluded, seized, or released.
3 In June 2022, the House Appropriations Committee recommended $15.74 billion for CBP total, including $89.8 million for preventing the importation of items made with forced labor. The Senate Appropriations Committee appears poised to recommend a similar funding level; however, the DHS spending bill has not yet come to the floor of either chamber, and with the current fiscal year expiring on September 30, funding levels will most likely remain static until the end of the year.
4 Confirming conclusions reported by trade journals, the Solar Energy Industries Association (“SEIA”) recently noted that CBP’s UFLPA enforcement had detained several module shipments, and that efforts to comply with UFLPA’s heightened documentation requirements would further limit solar deployment through 2023.
5 See CBP, Operational Guidance for Importers (June 13, 2022), available here (“Operational Guidance”) and Forced Labor Enforcement Task Force (“FLETF”) Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China (June 17, 2022), available here (“FLETF Strategy”).
6 That said, if CBP considers such supporting documentation on a case-by-case basis, enforcement might be inconsistent.
7 The FLETF Strategy articulates that in order to be credible, an audit must include the following core elements: “(1) unannounced arrival at the worksite and at a time when the workforce, especially workers at risk of forced labor, are likely to be present; (2) examination of ILO indicators of forced labor, in particular those described in Section II; (3) worker, management, and labor broker or recruiter interviews completed in the interviewee’s native language and free of employer or government intimidation; (4) unrestricted access to the worksite and any associated locations, such as cafeterias and dormitories, to observe conditions; and (5) review of documents and other information to provide additional proof of compliance and to identify or corroborate discrepancies in the information and observations of the worksite and associated facilities. Because coercion often occurs at the recruitment stage, a credible audit should include documentation of the supplier’s involvement with PRC-labor transfer programs, receipt of workers from Xinjiang, and measures to ensure voluntary participation by all workers in the supply chain.” See p. 44.
8 For instance, China’s Anti-Foreign Sanctions Law (“AFSL”), established in 2021, creates barriers to performing due diligence activities within the country. The AFSL bars compliance with “discriminatory” restrictive foreign measures against PRC citizens or entities and provides a number of penalties for such compliance. To the extent that certain due diligence activities could be assessed as compliance with “discriminatory” foreign measures, they could jeopardize companies’ ability to operate within China.
9 See Operational Guidance and FLETF Strategy generally.