Forced Labor Rules Published – What Do They Mean For Importers?

Written by Susan Kohn Ross

When the Uyghur Forced Labor Prevention Act  (the “Act”) was signed into law in December 2021, many international traders looked at it and quickly realized a very high bar had been set for compliance, and that the impact on many U.S. companies would be significant, as well as negative. The hope was the mandated report to Congress would help clarify some of the issues raised in the new law to make them more commercially reasonable. The laudable aim of the Act is to eliminate forced labor from U.S. supply chains.  While many importers support the desire to root out inequities around the world, the law is broadly and poorly worded, putting American companies of all sizes at a competitive disadvantage, as well as at risk of seeking the importation of goods without being able to adequately ensure compliance.

The Act itself is a modest eight (8) pages. The legal authority is 19 U.S.C. 1307, a statute which was first enacted in 1930. While this statute was, from time to time, used to seize goods or deny them entry, the Act has raised the bar of complexity and perhaps overshot its intent.  The language in the Act mirrors the language in this statute which talks in terms of “… merchandise mined, produced, or manufactured wholly or in part in any foreign country…” using forced labor.

Under the terms of the Act, a Forced Labor Enforcement Task Force (“FLETF”) was created consisting of representation from the U.S. Trade Representative, along with the Departments of Agriculture, Commerce, Energy, Homeland Security, Justice, Labor, State and Treasury, along with Customs and Border Protection (“CBP”), U.S. Immigration and Customs Enforcement, and the National Security Council. The FLETF (chaired by Homeland Security) was tasked with presenting a report to Congress within 180 days. The new requirements take effect today –  June 21, 2022.

We have now seen the publication of two guidance documents, one from CBP labeled Operational Guidance for Importers dated June 13, 2022, and the second in the form of DHS’ Report to Congress published June 17, 2022 (the “Report”).  Both go into quite a bit of detail to provide guidance about how to comply. However, the shock for most importers will be the expectation that American importers be routinely able to gain documents going through the supply chain all the way back to where the raw materials were sourced and, similarly, is routinely able to establish forced labor was NOT used at any stage in the supply chain!

Let’s start at the beginning. What CBP says in its guidance repeats what is in the law, i.e., if the source of the imported product is the Xinjiang Uyghur Autonomous Region of China, there is a rebuttable presumption the goods are made with forced labor. If the requirements stopped there, most importers could live with that standard, but, in fact, because that region in China is the source of key raw materials used to make downstream products, if the raw material used to make the end product originated in the Xinjiang region, the rebuttable presumption is the end product itself is not admissible (unless the importer is able with clear and convincing evidence to establish there was no forced labor involved at any point in the supply chain)!  CBP specifically points to certain products from this region already subject to withhold release orders and findings which are problematic – cotton, polysilicon and tomatoes. [To get a sense of the breadth and scope of the existing withhold release orders, check out CBP’s map and list.]  On Pages 16 and 17 of its guidance, CBP lists the types of documents needed to overcome the rebuttable presumption, and, in each case, CBP articulates the need to produce clear and convincing evidence by way of documentation showing the entire supply chain from origin of the raw materials to final production of the finished good. CBP also recommends mapping the supply chain, providing a list of the entities involved, plus when the same raw material is sourced from Xinjiang and elsewhere must establish either no commingling or rely on a foreign entity’s inventory controls!

CBP’s guidance is intended to compliment what DHS published. Both make clear if an importer seeks relief by way of attempting to establish their goods were not made with forced labor:

  1. The level of evidence must be clear and convincing;
  2. The importer must respond fully to all CBP requests for information; and
  3. The importer must demonstrate it has fully complied with the guidance document.

Most importers will do their best to comply, but since the vast majority will be beholden to supply chain partners (typically farther up the supply chain than their Tier 1 seller), the likelihood of being able to go all the way back to get the needed raw materials and forced labor documentation may be very challenging, even for the large importers whose buying clout allows them significantly more influence over their suppliers than most buyers. Confounding things further is the stated expectation by CBP the importer will be able to do so within 30 days of receiving notice (the detention period deadline)! Frankly, even the most compliant importer will have a serious challenge meeting the 30 day deadline. A more realistic time frame is 60 to 90 days, and that assumes the required documents can be obtained. If they cannot, the importer will need to act prior to seizure to export the goods – but that means either back to origin or to a buyer in a country other than Mexico or Canada (CBP does not permit exports to our USMCA partners, only because the agency’s view is it is “too easy” to get those goods imported back into the U.S. by way of one of those countries)!

There is a procedure which permits importers to seek an exception, but any exception granted must be reported to Congress. The fact of CBP’s obligation to report the granting of exceptions can be expected to work against most importers (since CBP will have to justify its reasoning, and forced labor is a high priority in the current administration), even assuming they can produce all the needed documentation. In this vein, importers will also need to give serious consideration to which service providers they ask to assist if the relevant notice is received.  CBP intends to use more sophisticated means (e.g., training, technology and working with NGOs) to enforce the law while relying on existing authority (e.g., detention and seizure).  Given the critical nature of making sure the document package is complete and accurate when it is first submitted to CBP, hiring the right expert to help with the process is critical. This is one of those situations where there is no second chance.

The DHS Report also has a section which provides guidance to importers on the following topics:

“•  due diligence, effective supply-chain tracing, and supply-chain management measures to ensure that importers do not import any goods mined, produced, or manufactured wholly or in part with forced labor from the PRC, especially from Xinjiang;

• the type, nature, and extent of evidence that demonstrates that goods originating in the PRC were not mined, produced, or manufactured wholly or in part in Xinjiang; [and]

• the type, nature, and extent of evidence that demonstrates that goods originating in the PRC, including goods detained or seized pursuant to 19 U.S.C. § 1307, were not mined, produced, or manufactured wholly or in part with forced labor.”

Throughout the DHS and CBP guidances, there are reference materials cited which importers may consult to help identify indicia of forced labor, organizations which are involved with forced labor (especially middlemen), plus DHS has published the required list, starting on page 22 of its Report, which identifies those entities whose goods are subject to the presumption of prohibition from entry. DHS also makes clear the list will be reviewed and updated as warranted. DHS and CBP also clarify any goods from the Xinjiang region will become subject to these new procedures as of June 21, 2022, including those for which a withhold release order is already in place.

There are a number of reasonable sounding recommendations – but are they really doable?

A) Engage stakeholders and partners;
B) Assess risks and impacts;
C) Develop a code of conduct;
D) Communicate and train across the supply chain;
E) Monitor compliance;
F) Remediate violations;
G) Provide for third party verification; and
H) Report performance and engagement to CBP.

In trying to sort out how best to implement these requirements, American importers are going to have to make significant changes in how they do business. First, it is no longer a matter of simply not importing goods made in China. Since the reach of the Act is to any part in any imported product made with forced labor, a lot more in depth discussions with trading partners are needed, especially regarding sourcing (labor and raw and intermediate materials).

Further, there is no de minimis rule, meaning the term “in part” could mean a part or component of meager value which was made with forced labor could disqualify from entry the entirety of the imported good.

When it comes to the supporting documentation, DHS included the following language – and of course translation of the documents into English is recommended:

“• Detailed description of the supply chain for the imported good and components thereof, including all stages of mining, production, or manufacture, including any step of the sourcing, manufacturing, or processing of goods in third countries. This includes documenting how the imported good was made from raw materials to finished good, by what entities, and where, including all in-house manufacturing, sub-assembly operations, and outsourced production related to the imported good. This also includes documenting the roles of the entities involved at each stage of the supply chain, as well as the relationship between the entities (e.g., whether a supplier is also a manufacturer).

• Evidence that indicates the provenance of each component of the imported good. When possible, unique identifiers should be used to track raw materials and other inputs through the supply chain. When raw materials/inputs from different suppliers are commingled, there should be an auditable process for demonstrating the origin and control of each raw material or input.”

CBP’s guidance covers the same ground. Plus, as noted earlier, there are indications CBP will seek additional equipment and technology to assist its enforcement efforts, so it comes as no surprise that DNA traceability and isotopic testing are mentioned as means by which to assist in tracing the supply chain.

When it comes to the forced labor topic, DHS refers to documentation to include:

“• Evidence mapping the entire supply chain, and transport along the supply chain, including which entities were involved at each stage;

• Complete list of all workers at an entity subject to the rebuttable presumption in the production of the imported goods, including:

➢ Evidence to demonstrate how and to whom wages are paid at each workplace;
➢ Evidence to identify whether each worker comes from Xinjiang, as well as the worker’s residency status;
➢ Evidence to demonstrate that output is consistent with the documented workers, including:

  • number of workers in each job category, total volume of material or goods input, and total volume of outputs of materials or goods; and,
  • documents relating to hours worked and daily production output of goods.

• Evidence that none of the workers who were involved in the production of the product were a) recruited, b) transported, c) transferred, d) harbored, or e) received with the involvement of the government of the PRC, XPCC, or entities on the UFLPA Entity List. Evidence should specifically address the controls each entity has in place to ensure that all workers are recruited voluntarily;

• Evidence that reliably demonstrates that every worker from Xinjiang is working voluntarily, and without menace or threat of penalty, including credible evidence that demonstrates for each such worker that:

➢ recruitment to work, including recruitment to any job fair, was fully voluntary;
➢ recruitment and continuation at the job were and are not subject to government or entity coercion;
➢ recruitment was free of any forced labor indicator (see Strategy Section II), including detention, prior detention or threats of detention, detention or threats of detention of family members, or forced transfer of land to the government;
➢ transport from Xinjiang was voluntary and free of any forced labor indicator, including government surveillance or control of worker movements during transport from Xinjiang;
➢ transfer to the entity was voluntary and free of any forced labor indicator, including government surveillance;
➢ living and working conditions at the entity are free of any forced labor indicator, including government surveillance or reporting by the entity to the government, restriction of movement, or required activities such as political, language, or cultural classes; and,
➢ receipt of the worker by the entity was undertaken voluntarily and without any indicators of forced labor, including government surveillance or reporting. Any audit performed to demonstrate that good.”

When all is said and done, the first step any American company should undertake is to map its supply chain. After that, it comes down to commercial contract terms with consequences for non-compliance and how well your suppliers will cooperate. We know there is a blocking policy in China, meaning China makes it a violation for its local companies to cooperate with any forced labor request from American buyers. So, the question is how readily will foreign suppliers be willing to cooperate? There are no viable alternatives if your foreign supply chain partners refuse – except to find new ones! Hence, the concern about making American companies not competitive.

If you would like to learn more on this topic, the Foreign Trade Association is putting on two webinars. The first occurs on June 28, 2022 and features Elva Muñeton, who is currently serving as the Acting Executive Director for CBP’s Office of Trade leading the Uyghur Force Labor Prevention Act implementation task force – CBP Presentation re Forced Labor. The second webinar on June 30th features Su Ross and others discussing the Private Sector Perspective re Forced Labor, including compliance tips. Feel free to contact us directly with any questions.

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