Uyghur Forced Labor Prevention Act Enforcement Strategy and Guidance Released

Uyghur Forced Labor Prevention Act Enforcement Strategy and Guidance Released

June 21, 2022, Covington Alert

Today, June 21, 2022, the Uyghur Forced Labor Prevention Act (“UFLPA” or the “Act”)[1] takes effect, marking the beginning of a new chapter in United States Government efforts to eradicate forced labor from global supply chains. The UFLPA establishes a rebuttable presumption that all goods mined, produced or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (“XUAR”) of China, or by entities listed pursuant to the UFLPA, have been produced with forced labor and are therefore prohibited from entering the U.S. (see our prior alert on the UFLPA here). On June 13, 2022, U.S. Customs and Border Protection (“CBP”) released its Operational Guidance for Importers (“CBP Guidance”).[2] On June 17, 2022, the inter-agency Forced Labor Enforcement Task Force (“FLETF”)[3] issued its enforcement strategy as mandated by the UFLPA (“FLETF Strategy”).[4] Both the FLETF Strategy and the CBP Guidance provide the trade community with important information regarding compliance measures and risk areas.

This alert summarizes key takeaways from the FLETF Strategy and the CBP Guidance. In short:

• The FLETF Strategy identifies four high-priority sectors for enforcement: cotton, tomatoes, silica-based products (including polysilicon), and apparel.
• The FLETF Strategy also contains an initial list of entities (“UFLPA Entity List”) that trigger the rebuttable presumption and are therefore deemed to have connections to XUAR-sourced forced labor. At this stage all entities on the list were previously identified in withhold release orders (“WROs”) or the Bureau of Industry and Security’s Entity List. The FLETF Strategy sets out a process for updating the UFLPA Entity List going forward.
• CBP has indicated that it will employ a risk-based approach to enforcement, such that CBP is likely to focus its initial enforcement on the high-priority enforcement sectors identified in the FLETF Strategy (i.e., cotton, tomatoes, silica-based products including polysilicon, and apparel) as well as goods imported directly from the XUAR and from entities on the UFLPA Entity List.
• The CBP Guidance outlines detention procedures whereby importers have 30 days to demonstrate admissibility or to re-export goods that have not been excluded or seized. Although extensions may be possible, the default period is significantly shorter than the three months afforded under the regulations governing WROs.
• To demonstrate admissibility of goods detained pursuant to the UFLPA, an importer may either (i) seek to overcome the rebuttable presumption; or (ii) seek to demonstrate that the goods are not subject to the UFLPA because their supply chain does not touch the XUAR or any listed entity. As the FLETF Strategy acknowledges, overcoming the rebuttable presumption is likely to be extremely difficult in practice given the challenges associated with obtaining documentation and conducting credible audits in the XUAR. Demonstrating that goods are not subject to the UFLPA is also likely to be challenging for importers, as they will be required to produce extensive supply chain tracing documentation under the CBP Guidance.
• As a practical matter, CBP will likely require weeks, or even months, to ramp up its enforcement capacity and has estimated that the agency will require an additional 300 positions in FY 2023 to effectively implement the Act. Nevertheless, an importer may incur civil penalties for shipments that have entered the U.S. and are later deemed subject to the UFLPA (see Part II, below).
• CBP is assessing emerging technologies to support enhanced visibility into trade networks and supply chains; this technology may include integration of commercial-data sources with artificial intelligence and machine learning, and mapping major global supply chains that source from the XUAR.

I. UFLPA Background

Under Section 307 of the U.S. Tariff Act, “[a]ll goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by . . . forced labor” are prohibited from importation into the U.S.[5] CBP has traditionally enforced Section 307 through the issuance of WROs that target specific imports, entities, or sectors within certain regions affected by forced labor. The UFLPA expands CBP’s enforcement authority, and imposes a higher evidentiary standard on importers, by creating a rebuttable presumption that all articles produced in whole or in part in the XUAR or by entities that source material from persons involved in a XUAR government labor scheme have been produced with forced labor and are thus automatically barred from entry into the U.S. To rebut the presumption, an importer must: comply with all due diligence and evidentiary guidance; “completely and substantively” respond to all CBP inquiries; and demonstrate by “clear and convincing evidence” that the goods were not produced with forced labor.[6]

Where the CBP Commissioner determines that an “exception” to the import ban is warranted under the criteria above (i.e., that the importer has effectively rebutted the presumption), the Commissioner is required within 30 days to submit a report to Congress, identifying the goods subject to the exception and the evidence upon which the determination is based. All such reports must be made available to the public.

On June 17, 2022, following a public comment period and a public hearing, the FLETF released the FLETF Strategy to outline its planned enforcement strategy for the Act. The CBP Guidance, which was published on June 13, 2022, is intended to complement the FLETF Strategy by providing operational guidance to importers on the types of documentation CBP will require under the UFLPA and the enforcement procedures and authorities it will follow.

Below, we summarize key sections of the FLETF Strategy and CBP Guidance—namely, those pertaining to enforcement priorities and procedures, evidentiary guidance for demonstrating admissibility of goods, and opportunities for stakeholder engagement.

II. Enforcement Timing and Priorities

CBP has stated that the UFLPA will be implemented starting on June 21, 2022, and that there will not be a grace period for importers. As a practical matter, however, CBP will likely require weeks, or even months, to ramp up its enforcement capacity to handle the large number of shipments that may be affected by the Act. The FLETF Strategy notes, for example, that CBP has estimated it will require an additional 300 positions in FY 2023 to effectively implement the legislation. In addition to increasing the number of personnel focused on UFLPA enforcement, the FLETF Strategy details technology enhancements CBP is exploring to enhance its ability to identify shipments in the scope of the Act.[7]

While shoring up its ability to enforce the UFLPA, CBP is likely to focus its initial enforcement efforts on the high-priority enforcement sectors identified in the FLETF Strategy (i.e., cotton, tomatoes, silica-based products including polysilicon, and apparel) as well as goods imported directly from the XUAR and from entities on the UFLPA Entity List. The initial UFLPA Entity List includes entities that were previously subject to CBP WROs and the Department of Commerce’s Bureau of Industry and Security Entity List.[8] However, the list is likely to develop over time, as member agencies of the FLETF will be able to recommend the addition, removal, or modification of entities for the UFLPA Entity List.[9] The FLETF Strategy also indicates that CBP will prioritize illegally trans-shipped goods with inputs from XUAR and goods imported by entities that have affiliates in XUAR and are likely to contain such inputs.[10]

Despite the potential lag time in full enforcement of the Act, companies should seek to comply from today, as even where shipments are not detained initially upon entry, potential liability in the form of civil penalties may apply to goods after entry if they are later deemed to have violated the UFLPA or any other U.S. law.[11] In addition, cases of knowing non-compliance may be referred by the Department of Homeland Security’s Center for Countering Human Trafficking to Homeland Security Investigations (“HSI”) field offices for potential criminal investigation and prosecution. The FLETF Strategy includes several references to potential criminal enforcement under the U.S. Trafficking Victims Protection Reauthorization Act.[12]

III. Enforcement Procedures

The UFLPA supersedes any XUAR-focused WROs that were in place as of June 21, 2022. Thus, shipments that were subject to XUAR-related WROs and were imported prior to June 21, 2022, will be adjudicated under WRO regulations and procedures, whereas shipments imported on or after June 21, 2022, will be subject to UFLPA standard and procedures.

The UFLPA importation and enforcement procedures differ in certain important respects from the WRO regime, including that importers will have a shorter timeframe in which to seek to demonstrate admissibility of detained goods. The enforcement procedures under the UFLPA are summarized below:[13]

• Detention: After the date on which goods are presented for examination, CBP has five days, excluding weekends and holidays, to decide whether to detain the goods. Goods not released within that five-day window are considered detained.[14] CBP will evaluate information provided by the importer to determine admissibility during and after the five-day period.
• Exclusion: CBP may exclude (i.e., prohibit from entry) goods in violation of the UFLPA; if CBP does not make a decision as to admissibility within 30 days after the goods are presented to CBP for examination, the detained goods are deemed excluded.[15] This 30-day window for determining admissibility is shorter than the three-month period that applies under a WRO,[16] though CBP has stated that importers may request extensions to this period.
• Protest: If an importer does not rebut the presumption and its goods are found to be or deemed excluded, the importer may submit a protest within 180 days challenging the exclusion.[17]

• Seizure/forfeiture: Certain goods imported in violation of the UFLPA may be subject to seizure and forfeiture.[18] CBP has suggested during public webinars on the UFLPA that such action will likely be reserved for cases involving fraud (e.g., deliberate mislabeling of XUAR goods as non-Chinese).

CBP will issue detention notices to importers, although it remains unclear if CBP will detail the specific evidentiary basis for the detention.[19] In response to CBP’s notice, importers may choose to re-export the goods provided they are not yet excluded or seized,[20] or demonstrate to CBP the goods are admissible (see Part IV, below).

CBP has also indicated that there will be no de minimis exception, such that even a minor input sourced from the XUAR or made with forced labor from the XUAR may subject a good to the rebuttable presumption preventing entry into the U.S.

The FLETF Strategy states that CBP is also considering revisions to its regulations that will allow the agency “to respond more quickly and nimbly to allegations of forced labor; provide importers with clear guidance as to processes, requirements, and timeframes for admissibility and exception determinations; and more uniformly implement admissibility determination processes for those determinations.”[21] The FLETF Strategy does not indicate when such regulations may be announced, but importers should watch for future rulemaking proceedings that may further define UFLPA compliance obligations.

IV. Demonstrating the Admissibility of Detained Goods

Should an importer’s goods be detained by CBP under the UFLPA, the importer may submit evidence to (i) rebut the UFLPA’s presumption that the goods were made with forced labor; or (ii) demonstrate that the goods are not subject to the UFLPA because their supply chain is wholly outside the XUAR and unconnected to any listed entities. CBP has asked that importers indicate when making submissions whether they are seeking an exception to the UFLPA’s import prohibition or seeking to demonstrate that goods do not fall under the UFLPA.

a) Rebutting UFLPA’s Presumption

An importer seeking to rebut the UFLPA presumption—what CBP calls seeking an “exception to the rebuttable presumption”[22]—must submit clear and convincing evidence that the goods were not produced with forced labor.[23] To overcome the rebuttable presumption, the CBP Guidance and FLETF Strategy provide that importers should submit three kinds of evidence: (i) evidence of supply chain due diligence and management measures;[24] (ii) evidence of supply chain tracing;[25] and (iii) evidence that goods originating in China were not made with forced labor.[26] Examples of these three types of evidence are as follows:

• Evidence of supply chain due diligence and management measures includes supplier engagement (e.g., written code of conduct, training, and monitoring of supplier compliance); mapping of the supply chain and assessment of forced labor risks at each stage of the supply chain; remediation of any forced labor conditions identified or termination of the supplier; and independent verification of due diligence systems.[27] CBP emphasizes such documentation should be part of an operating or accounting system that includes audited financial statements.[28]
• Evidence of supply chain tracing includes a detailed description of the supply chain and chain of custody from raw material to the imported good, including a list of suppliers associated with each step of the production process and affidavits from these companies, factory site visit reports, as well as evidence pertaining to the specific merchandise or any component in the merchandise (including purchase orders, invoices for all suppliers and sub-suppliers), packing lists, bills of materials, certificates of origin, seller and buyer’s inventory records, among other documents.[29] The FLETF Strategy notes that if imports have inputs from factories that source materials both from within the XUAR and outside of the XUAR, there is a risk that these imports will be subject to detention, as it may be harder to verify that the supply chain for the U.S. imports have not been replaced by or commingled with XUAR materials at any point in the manufacturing process.[30]
• Evidence showing the goods were not made with forced labor requires importers to provide information on workers at each entity involved in production in China, such as wages and output levels, information on worker recruitment and internal controls to ensure that all workers in China were recruited and are working voluntarily, and credible audits to identify forced labor indicators and remediation activities.[31] Any audit performed to demonstrate that goods originating in China were not made wholly or in part with forced labor must explain its methodology, how it determined the presence or absence of forced labor indicators, a description of all evidence upon which the determination was based, and a description of how the auditor determined the reliability of the evidence used to reach the audit’s conclusions.[32]

In practice, it will likely be extremely difficult for an importer to compile sufficient evidence to rebut the presumption with respect to any goods that include inputs produced in the XUAR, given the challenges associated with obtaining documentation and conducting credible audits in the region. The FLETF Strategy acknowledges that barriers to performing due diligence, conducting supply chain tracing, and obtaining other evidence on supply chains “may make it difficult for importers to fully comply with [its] guidance.”[33] Because CBP will be required to notify Congress of (and make public) any exception to the import ban, CBP will likely be judicious in granting any exceptions.

Should an importer successfully rebut the presumption, CBP will allow importers to identify additional shipments that have identical supply chains to facilitate the faster release of identically-sourced shipments.[34] When reviewing exception requests, CBP has indicated that it will attempt to prioritize the requests of Customs Trade Partnership Against Terrorism (“CTPAT”) Trade Compliance members in good standing.[35]

b) Demonstrating That Imports Are Not Subject to the UFLPA

An importer seeking to establish that goods are outside the scope of the UFLPA will be required to provide supply chain tracing documentation (as described above) establishing that the goods and their inputs are sourced completely from outside the XUAR and have no connection to entities on the UFLPA Entity List.[36] The FLETF has suggested that unique identifiers should be used to track raw materials and other inputs through the supply chain, where possible. Furthermore, where raw materials or inputs from different suppliers are commingled, there should be an auditable process in place for demonstrating the origin and control of each raw material or input.[37] The FLETF has noted that DNA traceability or isotopic testing may make it possible to identify the origin of particular goods or materials without tracing the supply chain, but that the reliability of such tests must be demonstrated and they must be traceable to the particular shipment under review.[38]

CBP has not yet clarified the standard applicable to its review of evidence submitted to establish that goods are not subject to the UFLPA. Based on CBP’s approach to reviewing similar evidence in enforcing WROs, the standard may in practice be comparable to a “clear and convincing” standard. The burden is therefore likely to be onerous in practice, though that may evolve over time as CBP develops greater familiarity with specific supply chains and suppliers.

V. Engagement with Private Sector Entities & NGOs

The FLETF Strategy describes the FLETF’s plan to coordinate and collaborate with private sector entities and NGOs to implement its enforcement strategy. Among other things, the FLETF plans to: host inter-agency meetings with the private sector and NGOs to discuss enforcement initiatives and trade facilitation measures;[39] institute recurring working-level meetings with the private sector, NGOs, and other stakeholders at least twice a year; and establish platforms to enable parties fearing retaliation to share feedback anonymously.[40] To continue tracking UFLPA developments, the FLETF has created a webpage that will feature resources and regularly updated information on UFLPA implementation.[41]

CBP has similarly created a UFLPA webpage, and established a designated email account (UFLPAInquiry@cbp.dhs.gov) through which entities may submit questions regarding the CBP Guidance and UFLPA’s implementation.[42] CBP’s Commercial Customs Operations Advisory Committee (“COAC”), comprised of a cross-section of industry stakeholders (membership list here), will also discuss UFLPA implementation in meetings of the COAC’s Intelligent Enforcement Sub-Committee. The next meeting is scheduled for June 29, 2022.

As a concluding recommendation for stakeholder engagement, the FLETF suggests that companies undertake collaborative efforts within their industries to promote compliance. Such efforts may include:

• sharing risk assessment information about particular sourcing locations or suppliers;
• joining together to train or communicate with shared suppliers and other stakeholders on codes of conduct; and
• arranging joint audits or independent verification processes.[43]

While such collaborative efforts may be difficult to implement in certain respects—for example, due to informational barriers like those described above—the largely unprecedented nature and scope of the UFLPA’s rebuttable presumption offers companies a unique opportunity to remain engaged in its implementation and to provide feedback to relevant government agencies on enforcement strategy. CBP and members of the FLETF have publicly expressed a desire to maintain a dialogue with stakeholders as the UFLPA enters into full effect.

VII. China’s Response to UFLPA Implementation

The Chinese government has harshly criticized the UFLPA and has urged the U.S. not to implement it. A spokesperson for China’s Foreign Ministry said: “If implemented, the Act will seriously disrupt normal cooperation between Chinese and American businesses, undermine the stability of global supply chains, and eventually hurt the U.S.’s own interests. We urge the U.S. to refrain from enforcing the Act, stop using Xinjiang-related issues to interfere in China’s internal affairs and contain China’s development. If the U.S. is bent on doing so, China will take forceful measures to firmly defend its own interests and dignity.”[44] The Chinese government did not specify what measures it would be prepared to take in response. It has a number of countermeasures it could employ, such as the 2021 Countering Foreign Sanctions Law (see our alert here) but has so far refrained from applying these measures to non-Chinese companies for their compliance with non-Chinese laws, although some companies that have made public statements with regard to compliance activities have encountered backlash in China.

Covington will continue to closely monitor developments related to UFLPA implementation and stands ready to address questions regarding UFLPA enforcement and compliance, supply chain due diligence and management efforts, as well as U.S. government engagement.

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Covington’s diverse International Trade, Business & Human Rights, Trade Controls, and Public Policy teams in Washington and Beijing, which include former senior government officials, are uniquely positioned to provide thoughtful strategic advice to clients seeking to prepare for and react to UFLPA developments.

Covington is one of the few U.S.-based international law firms that has specialized expertise and a growing global practice devoted to advising multinational clients on Business and Human Rights, including forced labor allegations. In conjunction with our active Customs practice—including former CBP Commissioner Alan Bersin—Covington is particularly well positioned to advise companies on how to navigate CBP procedures, assess risks to global supply chains, manage crisis communications and reputational damage, and mitigate the impact of the UFLPA or forced labor allegations on companies’ supply chains.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Business and Human Rights practice.