Tag: forced labor

International Trade, Enforcement & Compliance Recent Developments Update (January 17, 2024)

One of the most consistent messages coming from the U.S. government is that multinational companies need to take control of their supply chains. Forced labor, human trafficking, supply chain transparency, OFAC sanctions, even conflict minerals — all are areas in which the best defense against potential violations is strong compliance and due diligence to ensure that companies properly manage their supply chains, rights down to the last supplier. Today’s mix of enforcement actions and guidance from the U.S. government underscores the importance of doing so.

EXPORT CONTROLS AND HUMAN RIGHTS

The Department of Commerce has stated that it has the authority to put companies on the Entity List (requiring special licensing and restrictions) solely for human rights violations. Does your company conduct full due diligence on its suppliers and sub-suppliers to ensure that they are operating in accordance with U.S. forced labor and human trafficking laws?

FORCED LABOR/UFLPA

The Department of Homeland Security continues to add Chinese and other companies to the Uyghur Forced Labor and Prevention Act (UFLPA) Entity List. Does your organization specifically screen against the UFLPA Entity List, as well as have in place UFLPA compliance and due diligence measures?

FORCED LABOR/UFLPA

The U.S. government has issued a pointed six-agency set of compliance guidelines regarding “the Risks and Considerations for Businesses and Individuals with Exposure to Entities Engaged in Forced Labor and other Human Rights Abuses linked to Xinjiang Uyghur Autonomous Region.” Does your organization maintain a compliance policy, vendor code of conduct, supply chain transparency and due diligence procedures, and other measures designed to ensure your supply chain is free of forced labor, human trafficking, or goods sourced from forced labor in the Xingjian Autonomous Region?

CUSTOMS PENALTY FOR ERRONEOUS USE OF FIRST SALE RULE

Due to the imposition of special Section 301 tariffs on most goods from Customs, many companies have begun to use the first sale rule, which allows the reporting of a lower value where there is a bona fide sale to a middleman. Improper application of the rule, however, can be the basis for substantial penalties, as an apparel company that paid a $1.3 million settlement with the DOJ found out. If your company uses the first sale rule, do you regularly review pricing and relevant circumstances to ensure you are meeting all the requirements for all entries?

EXPORT CONTROLS

Pledging “a new era of trilateral partnership,” the U.S., Japan, and South Korea governments have announced expanded collaboration to fight illegal exports of dual-use products, including high-tech products that might be shipped to China in violation of U.S. export controls. Has your organization performed a recent classification review to confirm it is aware of any restrictions that might adhere to the export of any of its products to sensitive countries, governments, or users?

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Uyghur Forced Labor Prevention Act Takes Effect: What Importers Need to Know

The Uyghur Forced Labor Prevention Act (UFLPA) is in effect as of June 21, 2022. Congress passed the Act in December 2021 to increase enforcement of longstanding U.S. policy prohibiting the importation of goods, or components thereof, made with forced labor and to create a “rebuttable presumption” that merchandise from the Xinjiang Uyghur Autonomous Region (XUAR) or by an entity on the UFLPA Entity List is made with forced labor and thereby prohibited from entry into the United States. The rebuttable presumption applies to downstream products that incorporate inputs from XUAR, regardless of where the finished products are manufactured, including goods from outside XUAR in the People’s Republic of China (PRC), or in third countries. There is no de minimis provision in the law – any prohibited content, no matter how small, will make a product subject to the rebuttable presumption made by the law. If an importer can demonstrate by “clear and convincing” evidence that the goods were not produced wholly or in part by forced labor, U.S. Customs and Border Protection (CBP) will grant an “exception” to the presumption. The UFLPA provides for increased detentions and seizures of merchandise and potential civil and criminal penalties. See prior GT Alerts on the UFLPA.

Pursuant to the UFLPA, a multi-agency task force chaired by the Department of Homeland Security was mandated to develop a strategy for the Act’s implementation. On June 17, in anticipation of the June 21 effective date, DHS released the “Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China” (Enforcement Strategy), which includes:

  • An assessment of risk of importing goods mined, produced, or manufactured, wholly or in part, in the PRC; according to the strategy, complex supply chains that touch XUAR are “highly susceptible to contamination by goods made using forced labor.”
  • A list of entities affiliated with forced labor; therefore, their products are subject to the presumption that their goods are prohibited from entry. The Entity list will be updated multiple times per year and will be publicly available.
  • A list of high priority sectors and products including apparel and textiles, cotton and cotton products, polysilicon, and tomato products. Other products listed include footwear, nails, electronics, and toys.
  • Guidance to importers advising that companies need heightened due diligence to ensure compliance with UFLPA and to identify potential supply chain exposure to Xinjiang. Supply chain tracing is the general method to demonstrate that goods are free of inputs from Xinjiang, but CBP expects that barriers to supply chain tracing may make it difficult for importers to be compliant and has stated that third-party audits alone are insufficient to demonstrate due diligence.

Should CBP detain goods on suspicion of being made wholly or in part with forced labor, the importer has options. It can re-export the goods (up until CBP seizes them); it can abandon the goods; it can seek an “exception” for the goods, to get them released from CBP custody; it can also provide information to CBP demonstrating that the goods are not subject in any way to the Act. The evidence and documentation needed for the latter two must be “clear and convincing.”

It should be noted that in order to obtain an “exception” for goods that have been detained, an importer must meet all three of the following requirements:

  • Provide clear and convincing evidence that the detained goods were not made in whole or in part with forced labor, or were sourced from entities on the Entity List.
  • Fully and substantively respond to any questions from CBP.
  • Show that it has complied with all of the requirements set out in the Enforcement Strategy and CBP’s Operational Guidance (i.e., due diligence, supply chain tracing and management, etc.).

The Enforcement Strategy document provides importers with guidance in the following three areas:

  • Due diligence, effective supply chain tracing, and supply chain management measures to ensure that no goods violating the Act enter the importer’s supply chain.
  • The type, nature, and extent of evidence that demonstrates that goods originating in China were not mined (or grown), produced, or manufactured wholly or in part in Xinjiang.
  • The type, nature, and extent of evidence that demonstrates goods originating in China, including goods detained under Section 307 of the Tariff Act, were not mined (or grown), produced, or manufactured wholly or in part with forced labor.

CBP has made it clear that should there be a detention, participants in the Customs and Trade Partnership Against Terrorism program (C-TPAT) will be prioritized for review of submissions to rebut the presumption that the merchandise was made with forced labor.

Importers may wish to plan for contingencies should CBP detain imported merchandise, map complex supply chains and review purchase agreements and supplier codes of conduct.

Article By Laura Siegel Rabinowitz and Donald S. Stein of Greenberg Traurig, LLP

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©2022 Greenberg Traurig, LLP. All rights reserved.

Uyghur Forced Labor Prevention Act Is Coming… Are You Ready? CBP Issues Hints at the Wave of Enforcement To Come

US Customs and Border Protection (CBP) has issued some guidance relating to its enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) prior to June 21, 2022, the effective date of the rebuttable presumption.

What to Know

  • US Customs and Border Protection (CBP) has issued some guidance relating to its enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) prior to June 21, 2022, the effective date of the rebuttable presumption.
  • The new guidance imposes tighter timelines and a higher burden of evidence on importers to rebut the presumption that merchandise was produced with forced labor. If CBP does not make a decision within specific timeframes, goods will automatically be deemed excluded.
  • CBP is expected to issue additional technical guidance at the end of May or early June. The Department of Homeland Security (DHS) is also expected to issue guidance closer to June 21, 2022.
  • CBP is scheduled to host informational webinars detailing their UFLPA guidance in the coming weeks.

What’s New: Tighter Timelines  

While US importers were eagerly anticipating the issuance of technical guidance regarding implementation of the UFLPA from CBP last week, which is now expected this week, CBP did post a new guidance document summarizing the UFLPA and forced labor Withhold Release Orders (WRO) enforcement mechanisms. Specifically, CBP’s authority to detain merchandise under the UFLPA will be pursuant to 19 CFR § 151.16, which provides for a much different timeline for the detention of merchandise than the WRO process. Under this process, if Customs does not make a timely decision regarding admissibility, goods are automatically excluded.

UFLPA Timeline Enforcement under 19 CFR § 151.16

Number of Days

Actions
5 Days from Presentation for Examination

CBP must decide whether to release or detail merchandise

  • If the merchandise is not released, it is detained
5 Days after Decision to Release or Detain

CBP will issue a notice to importer advising them of:

  • The initiation of detention
  • Date merchandise examined
  • Reason for detention
  • Anticipated length of detention
  • Nature of tests and inquiries to be conducted
  • Information to accelerate disposition
  Upon written request, CBP must provide importer with testing procedures, methodologies used, and testing results
Within 30 Days of Examination

CBP will make a final determination as to the admissibility of merchandise

  • If CBP does not make a determination within the 30-day period, the merchandise will be deemed excluded
  • This means any submission to rebut the presumption should be made before this 30 day period
Within 180 Days of CBP Determination/Exclusion Importers may protest CBP’s final determination
Within 30 Days After Protest Submitted The protest is deemed denied if CBP does not grant or deny the protest within 30 days
Within 180 Days after the Date the Protest is Denied

The importer may commence a court action contesting the denied protest (28 U.S.C. § 1581(a))

  • In a court action, CBP must establish by a preponderance of the evidence that an admissibility decision has been reached for good cause
  • Customs can decide to grant the protest after the deemed denial but before a court case is filed

This is a much shorter timeline than the WRO process. Importantly, a company contesting CBP’s detention of merchandise pursuant to the UFLPA would be required to submit documentation to rebut the presumption within the 30-day period that CBP is assessing admissibility, whereas the WRO process permits 90 days. Like the WRO process, the importer may also file a protest 180 days after CBP makes its final determination regarding the exclusion.

CBP Listening Session: A Higher Burden of Evidence 

On Tuesday, May 24, 2022, CBP provided information regarding the publication of guidance and enforcement of the UFLPA:

  • CBP Publication of Guidance. CBP’s guidance regarding its enforcement of the rebuttable presumption and the UFLPA is scheduled to be published the week of May 30.
  • DHS Publication of Guidance. DHS guidance will be published on or about June 21, 2022, which will include information relating to supply chain due diligence, importer guidance, and the entity lists.
  • Clear and Convincing Evidence Required to Rebut the Presumption that Merchandise was Produced with Forced Labor. It was confirmed that the UFLPA will have a much higher burden of evidence required to rebut the presumption that merchandise was produced with forced labor than that of a WRO. Any exception to the rebuttable presumption must be reported to Congress, and thus the level of evidence that will be required to overcome the rebuttable presumption is very high. As a practical matter, it appears that very few detained entries will be released. Importers are advised to start conducting due diligence on supply chains in order to ensure that they will be able to obtain documentation should merchandise be detained once the rebuttable presumption goes into effect. Importantly, products that are subject to an existing WRO from Xinjiang will now be enforced under the UFLPA process instead of the WRO process.
  • Evidence Required if Merchandise is Detained. The forthcoming guidance will set forth information regarding how an importer may meet the exception to the rebuttable presumption and to demonstrate that merchandise was not produced with forced labor, by meeting the following three criteria:
    • Demonstrate compliance with the Forced Labor Enforcement Task Force/DHS strategy;
    • Demonstrate compliance with CBP’s guidance and any inquiries that CBP raises; and
    • Provide clear and convincing evidence that the supply chain in question is free of forced labor.
  • Binding Rulings. Importers may apply for a binding ruling to confirm or request an exception to the rebuttable presumption under the UFLPA. Although CBP is still finalizing the process for importers to apply for a binding ruling, importers would be required to prove by clear and convincing evidence that merchandise is not produced with forced labor. If the ruling is granted, it applies to future shipments for the specific supply chain in question.
  • Known Importer Letters and Detention Notices. Going forward, CBP will not issue Known Importer letters, and CBP will notify importers that merchandise is subject to the UFLPA through the issuance of detention notices.
  • Detention of Merchandise. If goods are detained by CBP because they are suspected of having a nexus to Xinjiang Uyghur Autonomous Region (XUAR) of the People’s Republic of China (PRC), importers may either provide clear and convincing evidence that merchandise was not produced with forced labor or export the products. If detained products that fall under the UFLPA are comingled with other products that are not subject to the UFLPA, importers may request the segregation of the merchandise that is not subject to the UFLPA.
  • Chain of CBP Review for Importer Submissions Relating to Detained Merchandise. Chain of CBP review for the request of an exception to the rebuttable presumption has not been finalized yet. However, importers will be required to submit evidence that rebuts the presumption that merchandise was produced with forced labor to the applicable CBP Port Director. For the moment, the CBP Commissioner is the final individual who can ultimately make an exception to the rebuttable presumption, but CBP is deciding if it will delegate this responsibility to any additional persons.

Upcoming CBP Informational Webinars

CBP will be holding three webinar sessions, all covering the same material, to discuss and review its guidance relating to the UFLPA. The dates of the webinars and the registration links are listed below.

Article By Angela M. Santos, Christine E. Hintze, and Jodi Tai of ArentFox Schiff LLP

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© 2022 ArentFox Schiff LLP

U.S. House and Senate Reach Agreement on Uyghur Forced Labor Prevention Act

On December 14, 2021, lawmakers in the House and Senate announced that they had reached an agreement on compromise language for a bill known as the Uyghur Forced Labor Prevention Act or “UFLPA.”  Different versions of this measure passed the House and the Senate earlier this year, but lawmakers and Congressional staff have been working to reconcile the parallel proposals. The compromise language paves the way for Congress to pass the bill and send it to President Biden’s desk as soon as this week.

The bill would establish a rebuttable presumption that all goods originating from China’s Xinjiang region violate existing US law prohibiting the importation of goods made with forced labor. The rebuttable presumption would go into effect 180 days after enactment.  The compromise bill would also require federal officials to solicit public comments and hold a public hearing to aid in developing a strategy for the enforcement of the import ban vis-à-vis goods alleged to have been made through forced labor in China.

This rebuttable presumption will present significant challenges to businesses with supply chains that might touch the Xinjiang region.  Many businesses do not have full visibility into their supply chains and will need to act quickly to map their suppliers and respond to identified risks.  Importers must present detailed documentaton in order to release any shipments that they think were improperly detained, a costly and time-consuming endeavor.  Notably, the public comment and hearing processes will guide the government’s enforcement strategy, providing business stakeholders an opportunity to contribute to an enforcement process that could have implications for implementation of the import ban more broadly.

China’s Xinjiang region is a part of several critical supply chains, lead among them global cotton and apparel trade, as well as solar module production.  According to the Peterson Institute:

Xinjiang accounts for nearly 20 percent of global cotton production, with annual production greater than that of the entire United States. Its position in refined polysilicon—the material from which solar panels are built—is even more dominant, accounting for nearly half of global production. Virtually all silicon-based solar panels are likely to contain some Xinjiang-sourced silicon, according to Jenny Chase, head of solar analysis at Bloomberg New Energy Finance. If signed into law, the bill will send apparel producers and the US solar industry scrambling to find alternative sources of supply and prices are bound to increase.

Article By Ludmilla L. Kasulke and Rory Murphy of Squire Patton Boggs (US) LLP

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© Copyright 2021 Squire Patton Boggs (US) LLP