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A new law that took effect on June 21 requires all businesses with a global presence to review their supply chain due diligence and documentation practices in order to show that there is no use of forced labor.
The Uyghur Forced Labor Prevention Act (UFLPA), which President Joe Biden signed into law in December 2021, creates a presumption that any products mined, produced, or manufactured in whole or in part in the Xinjiang Uyghur Autonomous Region of China (Xinjiang) or by specific designated entities were made with forced labor and are thus prohibited from entering the United States.
A list of companies in Xinjiang that employ forced labor for mining or manufacturing purposes was recently published as part of the UFLPA implementation strategy by the Forced Labor Enforcement Task Force. The plan also includes a list of foreign nationals who served as agents for organizations that collaborate with local authorities to provide forced labor outside of Xinjiang.
The importer must be ready to provide Customs and Border Protection with "clear and convincing evidence" that the goods were not produced entirely or in part using forced labor and must be prepared to answer all information requests from the CBP commissioner if they believe that the imported goods fall outside the purview of the UFLPA and the designated entities list or that they should be excluded from the presumption of forced labor.
The CBP encourages importers to rely on previous statements it has made to better understand what "clear and convincing evidence" is. These statements essentially clarify that "clear and convincing evidence" is a higher standard of proof than the "preponderance of the evidence" standard.
Evidence that shows there was no forced labor, such as intimidation and threats, abuse of vulnerability, mobility restrictions, isolation, abusive living and/or working conditions, and long hours, is required.
Supply chain tracing is a crucial first step in conducting increased due diligence in order to show that there is no forced labor.
"Supply chain tracing is the ability to demonstrate chain of custody of goods and materials from the beginning of the supply chain to the buyer of the finished product. Without question, importers face several challenges in tracing their supply chains," according to Matthew Caligur, a partner at the law firm BakerHostetler.
To demonstrate the lack of forced labor, it is crucial to map the entire supply chain, including the raw material suppliers used in the manufacture of imported goods or materials.
According to Caligur, importers should be ready to provide the following paperwork and expect increased compliance costs related to CBP document requests.
1. How the imported good was produced, from raw materials to finished product; 2. Who performed the operation(s);
3. Where the operation(s), including all in-house manufacturing, sub-assembly operations, and outsourced production, occurred;
4. Who played what role at each stage; and
5. The relationship between the entities (e.g., whether a supplier is also a manufacturer).
"Importers should have an information system to manage supply chain management data, including all mapping and risk and impact assessment information, which should be entered and updated on a regular basis," according to Caligur. "If a company is unable to perform due diligence to determine that its goods are not made with forced labor, it may be prudent to conclude certain supplier relationships and explore alternative sourcing strategies."
Additionally, businesses must have a supplier code of conduct in place that, in part, expressly prohibits the use of forced labor and offers a strategy for handling potential forced labor in the supply chain.
"Most companies that are a certain size have a supplier code of conduct, but this is the time to make it more robust and flesh out the forced labor language. For all suppliers, importers should draft a very basic letter stating they acknowledge there is no forced labor in their supply chain and have them sign and date it," according to Greenberg Traurig Shareholder Laura Siegel Rabinowitz.
If an importer relies on its direct suppliers to make sure upstream suppliers adhere to importer-approved standards, such expectations should be specified in the supplier contract.
Another action businesses should take is to offer training and educational programs on the UFLPA's new requirements as well as the supplier code of conduct. The supplier selection and contracting processes should include training in efforts to eliminate the risk of forced labor.
As of right now, shipments that fall under the purview of the UFLPA may be detained, excluded, or seized and forfeited by the CBP in accordance with the laws governing customs. According to Rabinowitz, that might also raise the possibility of negative publicity.
Customs previously never disclosed the names of the companies involved in a detention. However, according to the UFLPA, "cif the company files a submission for an exception, customs must produce that list to Congress multiple times a year and publish the list in the Federal Register," said Rabinowitz.
The CBP will also periodically publish the entity list of manufacturers who were found using forced labor. Therefore, Rabinowitz said, even if the company can demonstrate that no forced labor is used in its supply chain, the reputational damage from even being linked to the forced labor issue "could hurt a brand significantly."
The UFLPA strategy and operational guidance issued by the CBP on June 13 should be followed by importers in order to ensure that their products are fully compliant and permitted for importation into the United States, according to the Department of Homeland Security (DHS). The DHS and CBP have made additional resources available, including a list of frequently asked questions. The CBP also stated that it will continue to offer help and support to businesses and importers who have inquiries about how to implement the UFLPA.
By fLEXI tEAM