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30 October 2020
What imports does UFLP prohibit?
Import-related enforcement provisions under UFLP
Sanctions provisions under UFLP
How will UFLP change SEC disclosures?
CBP continues issuing WROs
The government has recently stepped up its enforcement against forced labour. As particular regions come under increased media scrutiny, this issue has seen renewed interest in Congress, which is considering several bills to enhance forced labour enforcement. Moreover, with the United States taking a whole-of-government approach against goods made from forced labour, companies must act now to mitigate risk in their supply chains. This article discusses these actions in further detail.
On 22 September 2020 the House of Representatives overwhelmingly passed the Uyghur Forced Labour Prevention Act (UFLP). The UFLP seeks to:
On 30 September 2020 the House of Representatives passed a related bill, the Uyghur Forced Labour Disclosure Act 2020 (UFLD). The UFLD would require additional disclosures without providing exceptions established under the UFLP.
On 15 October 2020 industry and trade associations submitted a letter to Senate leadership on the Committees on Foreign Relations, Finance, and Banking, Housing and Urban Affairs, in which they urged the Senate to consider modifications to:
While Congress has been working on this legislation to target supply chains that use forced labour in Xinjiang, on 1 July 2020 the Departments of State, Commerce, Homeland Security and the Treasury issued a Xinjiang supply chain business advisory highlighting the reputational, economic and legal risks to businesses with potential exposure in their supply chains to Xinjiang or to facilities outside Xinjiang that use labour or goods from Xinjiang. The advisory includes analysis on:
On 31 July 2020 the Department of the Treasury's Office of Foreign Assets Control blocked the property and interests in property of the Xinjiang Production and Construction Corps (including all of its 50% or more owned subsidiaries) and two related officials for their connection to serious human rights abuse in Xinjiang.
On 30 September 2020 the Department of Homeland Security's Customs and Border Protection (CBP) issued a new withhold release order (WRO) targeting palm oil from Malaysia produced with forced labour.
Also on 30 September 2020 the US Department of Labour's Bureau of International Labor (ILAB) released the annual List of Goods Produced by Child Labour or Forced Labour.
The UFLP establishes, with limited exceptions, that all goods, wares, articles and merchandise mined, produced or manufactured wholly or in part in Xinjiang, or by persons working with the Xinjiang government for purposes of the poverty alleviation programme or the pairing-assistance programme, which subsidises the establishment of manufacturing facilities in Xinjiang, "shall be deemed" to be goods, wares, articles and merchandise described in Section 307 of the Tariff Act 1930 (19 US Code (USC) Section 1307) as produced from forced labour.
This "shall be deemed" language appears to create a rebuttable presumption that all goods from Xinjiang are prohibited from entry into the United States under 19 USC Section 1307.
This presumption raises several issues for importers and potentially downstream US customers, including possible detention of shipments and sanctions, as discussed below. Shipments suspected of being produced with forced labour could be detained by CBP and excluded if CBP determines that forced labour was used in the production of the goods. Here, the presumption would lead CBP to first determine that all goods from Xinjiang are prohibited and then seize such goods. As reported in a 12 October 2020 S&P Global Market Intelligence report, this ban could affect companies across many industries.
Because of the UFLP's potential expansion of downstream products to an import ban, importers must exercise reasonable care to ensure that supply chains do not have products made by forced labour. In other non-region wide contexts, CBP has provided general guidance on reasonable care. CBP would likely have to update its guidance if the law passes.
Section 5 of the UFLP provides the enforcement strategy. The UFLP's language indicates that Congress anticipates enforcement principally through WROs issued pursuant to 19 USC Section 1307. In particular, the provision:
The UFLP requires annual reports, starting 180 days after enactment, that identify foreign persons determined to be knowingly involved in Xinjiang forced labour or imports into the United States of Xinjiang forced labour goods, and then mandates blocking and visa sanctions on those persons. The UFLP authorises the use of the authorities provided in the International Emergency Economic Powers Act (IEEPA) to take these actions but, if enacted, the president may issue a new executive order under the IEEPA and the UFLP to assist with putting these sanctions in place, such as by also targeting persons which provide material support to, or are owned or controlled by, sanctioned persons.
Before the president can remove the sanctions for any particular person, the UFLP requires that the president make a determination and give 15 days' notice to Congress that:
While a court may find that the president is not bound by this language, presidents have so far followed similar notice provisions on other sanctions laws before removing a sanctioned entity.
The UFLP has some penalties language that appears to need further refinement, but the intent seems to be to provide that the penalties available under the IEEPA will apply not only to a US person which violates the sanctions, but also to a "foreign person that violates, attempts to violate, conspires to violate, or causes a violation" of the sanctions.
The sanctions section also includes a sunset provision that terminates all sanctions five years after the UFLP's enactment.
Section 9 of the UFLP would revise Section 13 of the Securities Exchange Act 1934 (15 USC 78m) by requiring disclosure of certain activities in Xinjiang, including knowingly engaging in an activity with an entity or the affiliate of an entity:
Section 9 also provides the scope of disclosure that would be required under the UFLP. This includes:
As passed in the House of Representatives, Section 9(b)(2)(B) of the UFLP provides broad exceptions from the disclosure requirement activities of issuers or affiliates of issuers relating to:
Unlike prior legislations requiring an SEC disclosure for certain Iran-related transactions, there is currently no exception for transactions that are authorised by the US government, such as pursuant to an authorisation issued by the Department of the Treasury to engage in certain transactions with a blocked person.
In addition to the Xinjiang region-wide prohibition established under the UFLP, CBP is continuing to issue WROs. Merchandise is subject to exclusion through WROs enforced by CBP and seizure and may lead to criminal investigation of the importers (for further details please see "CBP gets tough on forced labour: turning supply chain risks into advantages"). These WROs range across industries and products. Most recently, on 30 September 2020, CBP issued a WRO on palm oil and palm oil products from Malaysia produced by FGV Holdings Berhad and its subsidiaries and joint ventures.
On 30 September 2020 ILAB issued the List of Goods Produced by Child Labour or Forced Labour (ILAB List or ILAB Report). Currently, the ILAB List comprises 155 goods from 77 countries. The ILAB List "is adding five goods produced by forced labor by Muslim minorities in China", which raises the listed number of goods from Xinjiang to nine.
These goods newly added to the ILAB list include gloves, hair products, textiles, thread and yarn and tomato products.
This is in addition to other goods from Xinjiang which were previously on the ILAB List, including cotton, electronics, footwear and garments.
The ILAB Report states that "the production of these goods through forced labor takes place primarily in Xinjiang". However, the report also raises the possibility that future actions against regions outside Xinjiang may be forthcoming.
The ILAB Report states that:
[w]hile previous research has focused on goods and products produced in Xinjiang, recent external reports indicate that Uyghurs also have been transported to work in other provinces in China, increasing the number of goods potentially made with forced labor and broadening the risk of forced labor in supply chains.
As the ILAB Report notes, "[c]ompanies with supply chains that link to China, including, but not limited to, Xinjiang, should conduct due diligence to ensure that suppliers are not engaging in forced labor."
The United States is continuing to take expansive actions to combat forced labour. Ensuring that companies remain compliant with increased US efforts to enforce human rights standards requires the implementation of enhanced compliance programmes that:
For further information on this topic please contact David Salkeld, Matthew Tuchband, Sylvia G Costelloe or Natan Tubman at Arent Fox LLP by telephone (+1 202 857 6000) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The Arent Fox LLP website can be accessed at www.arentfox.com.
Lee M Caplan, partner, assisted in the preparation of this article.
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