What has changed?
On March 11, 2020, the Congressional-Executive Commission on China ("CECC") announced new proposed legislation, the Uyghur Forced Labor Prevention Act, co-sponsored by the chairs of the CECC, Rep. Jim McGovern (D - MA) and Sen. Marco Rubio (R - FL), targeting supply chains linked to forced labor in the Xinjiang Uyghur Autonomous Region in China. The Uyghur Forced Labor Prevention Act would establish a rebuttable presumption that all labor occurring in Xinjiang, China, or by persons anywhere in China who are involved with the "re-education through labor" program targeting Chinese Turkic Muslims constitutes forced labor within the meaning of the U.S. forced labor import ban, 19 U.S.C. § 1307. The Uyghur Forced Labor Prevention Act would also impose sanctions, require reporting and strategic guidance on policy concerns from the Secretary of State, and impose an SEC disclosure requirement addressed to the commercial engagement of U.S. publicly-traded companies with individuals or entities in Xinjiang, China.
The CECC concurrently issued a report, detailing the intersection of global supply chains with forced labor—specifically, the "systematic repression of ethnic minority groups" in Xinjiang—citing "credible reports" linking a range of products and specific companies with such forced labor. Among the products highlighted are textiles, including yarn and cotton, electronics, including cell phones and computer hardware, and various food products. The CECC recommends a range of actions, including Magnitsky Act sanctions and Entity List designations, as well as enforcement activity by U.S. Customs and Border Protection ("CBP") under 19 U.S.C. § 1307.
If the Uyghur Forced Labor Prevention Act is enacted, any U.S. imports which originated to any degree in Xinjiang, China, or which were produced by Chinese suppliers that have participated in a labor pairing program offering subsidized employment opportunities for participants in the re-education through labor program, will be presumptively subject to denial of entry into the United States.
Whether or not the Uyghur Forced Labor Prevention Act is enacted, CBP is very likely to engage in additional forced labor enforcement activity which could impact a broad range of goods imported from China.
What does it mean?
The CECC Report on "Global Supply Chains, Forced Labor, and the Xinjiang Uyghur Autonomous Region" lays out an array of concerns about the Chinese government's "re-education through labor" program for Chinese Turkic Muslims (including Uyghurs, Kazakhs, Kyrgyz and others) in Xinjiang, China. The existence of this program is acknowledged by the Chinese government, and promoted as a means of "job training" and "poverty alleviation" for the rural poor in Xinjiang, China. The CECC views the program as a "targeted campaign of repression, mass internment, and indoctrination of ethnic minorities in the [Xinjiang] region." Individuals in the re-education through labor program may work in Xinjiang, China, or with partnering Chinese companies outside Xinjiang, China pursuant to "mutual pairing assistance" programs. A number of such Chinese companies have been identified in journalistic and NGO reporting on this issue, and are cited in the CECC report and proposed legislation.
By establishing a rebuttable presumption that all labor in Xinjiang, China is forced labor and imposing an SEC disclosure requirement regarding the same, the Uyghur Forced Labor Prevention Act would require all companies importing from China to engage in new compliance activity, and will impose new constraints on the business activity of any companies which have any degree of sourcing reliance on Xinjiang, China.
The new compliance obligation will be to evaluate whether any direct or indirect suppliers are located in Xinjiang, China and whether any production, processing or raw materials sourcing has taken place in Xinjiang, China or with suppliers affiliated with the re-education through labor program pursuant to a mutual pairing assistance program. The new obligation on businesses under this proposed legislation will be to eliminate all such sourcing for goods destined to the US market.
Actions to take... now
Companies importing into the United States from China should:
- Reach out to the contacts below to request a detailed analysis of the Uyghur Forced Labor Prevention Act from Baker McKenzie, and updates on the proposed legislation as it moves through the legislative process.
- Convene an intra-company working group of stakeholders with responsibility for affected business operations - e.g., directors of sourcing / supply chain / procurement, social and labor compliance, and trade compliance.
- Review and update policy documents and sourcing agreements as appropriate.
- Develop a plan for supply chain mapping, communicating policy changes to suppliers, and adjusting sourcing activity as necessary.
- Visit our new Global Supply Chain Compliance Blog for supply chain compliance insights from practitioners around the globe offering analysis of emerging legal trends and hot topics in supply chain risk management.
ICYMI: Background on 19 U.S.C. § 1307, the use of "rebuttable presumptions" in the forced labor context, and related legislation addressed to Uyghurs
The United States has had a ban on importing goods made wholly or in part with forced labor (19 U.S.C. § 1307) since the early 20th century. For much of this history, of the law contained an exception—goods not available in sufficient quantities in the United States to satisfy "consumptive demand" were not subject to the ban. Thus, a company could import goods made wholly or in part with forced labor, if there was not enough competing U.S.-produced product to satisfy domestic demand.
In 2016, Congress eliminated the consumptive demand exception, triggering a new era of forced labor enforcement by CBP. Under the current approach to enforcement, CBP issues withhold release orders ("WROs") against products for which it identifies evidence "reasonably, but not conclusively" indicating production, wholly or in part, with forced labor. WROs have been issued against specific products manufactured by individual companies, as well as against entire classes of products from entire countries.
In 2017, Congress established a "rebuttable presumption" with respect to North Korean labor similar to the one now proposed for Xinjiang labor in the Uyghur Forced Labor Prevention Act. In the Countering America's Adversaries with Sanctions Act, CAATSA (Pub. L. 115-44), Congress shifted the burden of proof with respect to the use of the labor of North Korean nationals or citizens, regardless of the location where such labor might take place. Pursuant to Section 321 in CAATSA, goods manufactured by North Korean labor are presumptively inadmissible, absent proof from the importer that the labor of such North Korean nationals did not constitute forced labor.
In 2019, the Uyghur Human Rights Policy Act of 2019 (S. 178) passed the Senate (by unanimous consent) and the House (406-1) with minor differences that have not yet been resolved. That bill would also authorize the imposition of Magnitsky Act sanctions, and would impose export controls on certain types of surveillance items for China.