New Bills in Congress May Lead to Region-Wide Ban on Goods from Xinjiang Region of China

Two bills, both titled the Uyghur Forced Labor Prevention Act (UFLPA) (H.R. 1155 and S. 65), have been re-introduced in Congress that may effectively ban all goods produced in whole, or in part, in the Xinjiang Uyghur Autonomous Region (XUAR) unless importers can prove that the goods were not made with forced labor. This would place a high burden on companies to evaluate their entire supply chain, consider shifting sourcing or production out of the XUAR, or implement significant tracing and documentation policies to prove goods were not produced with forced labor. The recent reintroduction of these previously stalled bills demonstrates public outcry against the abuses in the XUAR and bipartisan support for action against forced labor in the region.  The bills will also have more time to gain traction as they have been introduced at the beginning of a congressional term, as opposed to being introduced late in the last term.

On February 18, 2021, Representative Jim McGovern (and six cosponsors reintroduced the UFLPA in the US House of Representatives (H.R. 1155). The UFLPA calls for sanctions on those responsible for forced labor in the XUAR, or engaging in importing goods produced with forced labor. Senator Marco Rubio (R-Fla.) reintroduced a parallel Senate bill (S. 65) in January 2021.

As we previously reported, a prior version of the UFLPA was overwhelmingly passed by the House on September 22, 2020, and then referred to the Senate, where it stalled in the Senate Foreign Relations Committee.

The bills come at the heels of recent reports, including a BBC report alleging systematic abuse at Uyghur internment camps. Efforts to respond to the use of forced labor in XUAR have been a focus of the United States government. In July 2020, the US Government issued the Xinjiang Business Advisory, reporting on entities suspected of forced labor and other human rights and national security issues and subsequently, US Customs and Border Protection issued a number of Withhold Release Orders (WRO’s) on products from XUAR. Most recently, US Customs and Border Protection (CBP) issued a region-wide Withhold Release Order (WRO) on cotton or tomatoes grown in the XUAR or goods made from those commodities based on “information [that] reasonably but not conclusively indicated that the merchandise” was produced with forced labor. 19 CFR § 12.42(e). The Biden Administration emphasized in its Trade Agenda published on March 2, 2021, that forced labor will be a priority issue.

What Do the Two Bills Provide For?

House Bill

The UFLPA provides that with limited exceptions, all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the XUAR, or by persons working with the XUAR government for purposes of the “poverty alleviation” program or the “pairing-assistance” program, which subsidizes the establishment of manufacturing facilities in the XUAR, shall be deemed to be goods, wares, articles, and merchandise described in section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) produced with forced labor.

The UFLPA’s presumption would create a new basis, beyond WRO’s, for CBP to detain and exclude all shipments from the XUAR. It also provides the possibility of sanctions against importers and possibly downstream US customers.

Import-Related Enforcement Provisions Under the UFLPA

Section 5 establishes the bill’s enforcement strategy and indicates that Congress anticipates enforcement principally through WROs issued pursuant to 19 U.S.C. § 1307. The UFLPA would strengthen the legal basis for CBP to issue XUAR-specific WROs. Further, the UFLPA:

• Instructs CBP to provide its enforcement strategy and lists of companies/products produced by forced labor, “and a list of businesses that sold products in the United States made wholly or in part by forced or involuntary labor in the XUAR.”
• Executive agencies should issue a report to Congress that includes, to the extent practicable, a list of Chinese entities or affiliates that directly or indirectly use forced or involuntary labor in the XUAR, and a list of “[f]oreign persons that acted as agents of the entities or affiliates” of those entities. (Sec. 7(c)(1)).

Sanctions Under the UFLPA

The UFLPA requires the President to submit annual reports to Congress that identify foreign persons determined to be knowingly involved in XUAR forced labor and imports into the United States of XUAR forced labor goods. It then mandates blocking and visa sanctions on those persons. If enacted, it is also possible that the President would issue a new Executive Order under the Emergency Economic Powers Act (IEEPA) and the UFLPA to assist with implementing these sanctions, and also target persons who provide material support to, or are owned or controlled by, sanctioned persons.

Before the President can remove the sanctions with respect to any particular person, the UFLPA requires that the President make a determination and give a 15-day notice to Congress that the sanctioned person did not engage in activity for which sanctions have been imposed, the person has been appropriately sanctioned, there has been a credible change in the person’s behavior, or termination of sanctions is in the national security interests of the US.

The UFLPA also includes language that appears to provide that the penalties available under IEEPA extend beyond a US violator to a “foreign person that violates, attempts to violate, conspires to violate, or causes a violation” of the sanctions. Further clarification on this point would be helpful.

Enhanced SEC Disclosure Requirements Under the UFLPA

Section 9 of the UFLPA would amend Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m) by requiring companies with SEC filing requirements to disclose certain activities in the XUAR, including knowingly engaging in an activity with an entity or the affiliate of an entity:

• Creating/providing technology or other assistance to create mass population surveillance systems in the XUAR,
• Building/running detention facilities for Muslim minorities in the XUAR,
• Engaging in the “pairing-assistance” program or with any entity for which the Department of Homeland Security has issued a withhold release order; or
• Conducting any transaction or having had dealing with any person the property and interests in property of which were sanctioned (i) by the Secretary of State for the detention or abuse Muslim minority groups in the XUAR; (ii) pursuant to the Global Magnitsky Human Rights Accountability Act (22 U.S.C. 2656); or (iii) any person or entity responsible for, or complicit in, committing atrocities in the XUAR.
• Engaging in activity with any entity identified by the Secretary of State as using forced or involuntary labor in the XUAR and for which CBP has issued a WRO.
• Section 9 also provides the scope of the required disclosure, including: (i) the nature and extent of activity; (ii) gross revenues and net profits attributable to the activity; and (iii) whether the activity will be continued.

Disclosure exceptions: There are broad exceptions from the disclosure requirements activities relating to: (i) the import of manufactured goods, including electronics, food products, textiles, shoes, and teas, that originated in the XUAR; or (ii) manufactured goods containing materials that originated or are sourced in the XUAR.

Unlike prior legislation requiring SEC disclosure for certain Iran-related transactions, there currently is no exception for transactions that are authorized by the US Government (e.g., pursuant to an authorization issued by the Department of the Treasury to engage in certain transactions with a blocked person).

Senate Bill

Enforcement strategy

The Senate bill provides that the Secretary of Homeland Secretary shall, within 45 days of enactment, in consultation with other designated agencies, provide for notice in the Federal Register, solicit comments, and hold hearings to discuss how to prevent the importation into the United States of “goods made with forced labor in the People’s Republic of China, including by Uyghurs, Kazakhs, Kyrgyz, and members of other persecuted groups in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China” and discuss measures on how to trace any such goods. This process is intended to assist the United States Trade Representative, the Secretary of State, the Secretary of Labor, and the Director of National Intelligence in formulating a strategy to prevent the US importation of goods made with forced labor in the XUAR.

Rebuttable presumption

The Senate bill applies a presumption that any goods manufactured wholly or in part by the XUAR, or a list of entities as required under the bill, are prohibited from importation into the US. This presumption will apply unless the Commissioner of CBP determines that:

• the importer of record has fully complied with the guidance described in the bill (regarding importers obligations to prove forced labor was not used) and has completely responded to the Commissioner’s inquiries to ascertain whether the goods were manufactured through forced labor;
• “the good was not produced wholly or in part by forced labor;” or
• “the President certifies that the Government of the People’s Republic of China is not impeding in any way attempts to investigate abuses of Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups or to address any other instances of forced labor in the People’s Republic of China.”

The bill provides for the enactment of regulations to implement this section. The section would take effect 300 days after the date of enactment of the bill.

Diplomatic relations

Just as in the bill passed in September 2020, the Secretary of State shall submit to Congress a report that includes a United States strategy to promote initiatives to enhance international awareness of and to address forced labor in XUAR.

Critically, the bill provides that the report shall include a “[a] plan for working with private sector entities seeking to conduct supply chain due diligence to prevent the importation of goods made with forced labor.”

Sanctions

The sanctions section of the revised UFLPA Senate bill primarily adds a sixth criterion – “serious human rights abuses in connection with forced labor”’ – to the existing list in the Uyghur Human Rights Policy Act of 2020 for which a foreign individual or entity can be included in a required Presidential report to Congress and, if so included, would be required to be sanctioned, absent the issuance of a waiver.

Sanctions under the Uyghur Human Rights Policy Act of 2020 include asset blocking and ineligibility for visas.

We will monitor Congressional activity on these bills.

What Does This Mean for US Importers?

If passed, these bills will grant US Customs and Border Protection authority for a region-wide WRO enabling the agency to detain all products from XUAR. Companies will have the burden of proof to establish that goods were not produced with forced labor in order to secure release. US importers and their downstream US customers will need to develop, implement and monitor internal control systems to ensure that operations are not disrupted by changes in US law. Companies should immediately assess their supply chains for risk, establish codes of conduct prohibiting forced labor, and implement procedures and documentation to evidence that goods are not prohibited.

In addition, failure to comply with provisions of the UFLPA could lead to sanctions that would impact more than just a company’s bottom line. Accordingly, the time for companies to act is now.