On 16 December 2021, the US Senate unanimously passed the Uyghur Forced Labor Prevention Act (UFLPA), following its approval in the US House of Representatives earlier the same week. The UFLPA is one of several measures that the US hopes to use to prevent what it views as forced labor and human rights abuses in the Xinjiang Uyghur Autonomous Region (the XUAR) of China. The UFLPA is the culmination of bipartisan attempts over a number of months to introduce a bill that would restrict imports from the XUAR.
The UFLPA will, by creating a rebuttable presumption against such imports, effectively prohibit imports into the US of items “mined, produced, or manufactured wholly or in part” in the XUAR, or produced by specific entities to be identified by the Forced Labor Enforcement Task Force.
This new law represents a significant expansion of historic US restrictions on XUAR-origin imports into the United States, which have to date been limited to bans on specific categories of items and items produced by specific suppliers (including one of the world’s major silica manufacturers). This new law will effectively ban imports of all items produced in whole or in part in the XUAR, which produces a large amount of cotton, agriculture items, and key supplies used in solar panel production, among other goods.
To enter into legislation, the UFLPA must now be signed into law by President Biden, and his press secretary has already stated he will sign the Act.
Under the UFLPA, the Forced Labor Enforcement Task Force (an existing body established in 2020), in consultation with the US Secretary of Commerce and Director of National Intelligence, will develop a strategy (the Strategy) for supporting the enforcement of the Tariff Act 1930 to prevent the import into the US of goods mined, produced, or manufactured wholly or in part with forced labor in China.
The Strategy is required to provide guidance (the Guidance) for importers with respect to:
- Due diligence and supply chain management measures that importers may adopt in relation to items produced using Chinese labor
- The type, nature, and extent of evidence that demonstrates that items produced in China were not, in fact, produced in the XUAR
- The type, nature, and extent of evidence that demonstrates that items originating in China, including goods detained at the US border, were not produced using forced labor
This type of guidance was not contemplated in the House version of the bill passed earlier this month, and will provide importers with critical insights into US government expectations regarding appropriate compliance measures and documentation sufficient to overcome the rebuttable presumption against imports (discussed in further detail below).
In addition to the above Guidance, the Strategy also requires the Forced Labor Enforcement Task Force to develop a list of:
- Entities in the XUAR that mine, produce, or manufacture wholly or in part any goods, wares, articles, and merchandise with forced labor (List 1);
- Entities working with the government of the XUAR to recruit, transport, transfer, harbor, or receive forced labor or certain minority groups out of the XUAR (List 2);
- Products mined, produced, or manufactured wholly or in part by entities on the lists required by 1 or 2 (List 3);
- Entities that export products described in 3 from China into the US (List 4); and
- Facilities and entities that source material from the XUAR for the poverty-alleviation or pairing assistance programs or other government labor programs involving forced labor (List 5).
Notably, List 5, by extending the scope of the UFLPA to cover entities involved in government programs such as the poverty-alleviation program and pairing assistance program (programs which have been accused of transporting Uyghur and other ethnic minority workers out of the XUAR to work in factories elsewhere in China), broadens the impact of the UFLPA so that it may affect companies with supply chains that do not actually involve the XUAR. Therefore, all companies with supply chains extending into China should note the possible impacts of the UFLPA on their operations.
The UFLPA requires US Customs and Border Protection (CBP) to apply a presumption that the following categories of goods, wares, articles, and merchandise are in contravention of the Tariff Act 1930 and not entitled to entry at any US port:
- Items mined, produced, or manufactured wholly or in part from the XUAR; or
- Items produced by an entity on one of Lists 1, 2, 4, or 5. The products in List 3 would not be presumed banned, which appears to be form over substance, as those products will, by definition, be produced by an entity on List 1 or 2.
Importantly for importers, the presumption can be rebutted, if the CBP determines that:
- The importer of record has fully complied with the Guidance and any regulations issued to implement it;
- The importer of record has completely and substantively responded to all inquiries for information submitted by the CBP to ascertain whether the items were produced using forced labor; and
- By clear and convincing evidence, the item was not produced wholly or in part by forced labor.
The standard of “clear and convincing” is not detailed in the UFLPA, but usually is interpreted as “highly probable.” See, e.g., Colorado v. New Mexico, 467 U.S. 310 (1984).
If the presumption is rebutted, and the item is permitted to enter the US, the UFLPA requires the CBP to submit to Congress and make available to the public a report identifying the item and evidence considered in rebutting the presumption within 30 days of any determination. As a practical matter, this may mean that CBP will be more reluctant to agree to such rebuttals, as those decisions could be publicly scrutinized.
No XUAR-specific Disclosure Requirements
As noted above, the UFLPA marks the culmination of a lengthy process that involved separate bills, each known as the Uyghur Forced Labor Prevention Act, passing through the House (in 2020 and earlier in December 2021) and the Senate (in July 2021).
Notably, unlike the House bill from earlier this month, the final version of the UFLPA does not include any affirmative disclosure obligations on issuers that deal with the XUAR. This element could have had a significant impact on public companies with dealings in the XUAR, but ultimately was not included in the reconciled version of the law that will be sent to President Biden.
Navigating China Supply Chain Challenges in Light of UFLPA
Companies with supply chains that extend into China should monitor developments with respect to the implementation of UFLPA as well as other current or proposed legislation in the US and globally, and should think strategically about how to deal with the potential impact of UFLPA on their direct and indirect reliance on suppliers in China.
Under the new law, companies attempting to import goods from and relating to the XUAR will need to ensure they have full insight into their supply chain and the ability to clearly and convincingly compile documentation sufficient to meet the standards to rebut the presumption. This may require enhanced internal documentation, representations and warranties from partners, training for employees based in China and around the world, and a system of internal controls to ensure documentation is truthful and accurate. Beyond potential supply chain disruption, the law presents a host of reputational and other legal risks – all of which will undoubtedly increase compliance costs and therefore overall costs for companies wishing to import from the region.
The Latham & Watkins team, including attorneys across our White Collar Defense & Investigations, ESG, and Export Controls and Sanctions, and Public Company Representation practices, are carefully monitoring these legal and commercial developments. Please contact one of the authors of this post or your usual Latham & Watkins contact for:
- A detailed breakdown of the different US and international regimes targeting alleged human rights abuses in the XUAR that could impact China-based supply chains
- Practical guidance to deal with the potential impact of UFLPA and other laws on supply chains in China, including due diligence, contractual terms, monitoring, and remediation