Key Takeaways:

• On July 14, the U.S. Senate passed the Uyghur Forced Labor Prevention Act (S.65), which, in relevant part, would create a “rebuttable presumption” that any goods made in whole or in part in the Xinjiang Uyghur Autonomous Region (XUAR) are made with forced labor and prohibited from entering the United States.
  
  
• The prohibition would also apply to products made by any entity worldwide that is identified by the U.S. Government as responsible for certain human rights abuses in connection with forced labor, including working with the XUAR government to move forced labor or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of the XUAR.
  
  
• Though the Act must still be passed by the House of Representatives and signed into law by President Joe Biden, given recent precedent, those steps are all but certain to occur in due course.
  
  
• Companies should consider preparing for this prohibition now by reviewing due diligence best practices and closely reexamining their entire supply chains through to the raw materials to ensure that they will not rely upon importing any components made with forced labor in the XUAR.

On July 14, the U.S. Senate passed by unanimous consent legislation that would dramatically strengthen U.S. Government action on forced labor in China’s Xinjiang Uyghur Autonomous Region (“XUAR”) by instituting a complete ban on imports of all products made in whole or in part from the region.

The Act

Specifically, the Uyghur Forced Labor Prevention Act (S.65)¹ (the “Act”), introduced by U.S. Senators Marco Rubio (R-FL) and Jeff Merkley (D-OR), would, in relevant part, require the Commissioner of U.S. Customs and Border Protection (“CBP”) to apply a “rebuttable presumption” that the import of any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the XUAR is prohibited under section 307 of the Tariff Act of 1930² and not entitled to entry at any U.S. port. 

This prohibition would also apply to any such products produced by entities identified by the U.S. Government as having (i) worked with the government of the XUAR to move forced labor or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of the XUAR; (ii) exported products made by such entities from China into the United States; or (iii) sourced material from the XUAR or from persons working with the government of the XUAR or the Xinjiang Production and Construction Corps for purposes of the “poverty alleviation” program or the “pairing-assistance” program or any other government labor scheme that uses forced or involuntary labor.

The Act would require the CBP Commissioner to apply the presumption unless it is determined that the good was not mined, produced, or manufactured wholly or in part by forced labor and the importer of record has both (i) completely and substantively responded to all CBP inquiries for information to ascertain whether the goods were mined, produced, or manufactured wholly or in part with forced labor; and (ii) fully complied with guidance to be produced by the U.S. Government as part of the Act with respect to:

• due diligence, effective supply chain tracing, and supply chain management measures to ensure that such importers do not import any goods mined, produced, or manufactured wholly or in part with forced labor from China, especially from the XUAR; and
  
  
• the type, nature, and extent of evidence that demonstrates that goods originating in China, including goods detained or seized pursuant to Section 307, were not mined, produced, or manufactured wholly or in part in the XUAR.

This prohibition would take effect 300 days after enactment of the Act.

Next Steps

The Act must now pass the House of Representatives before it can be sent to the White House for President Joe Biden to sign into law.  Though it is not immediately clear when those next steps might occur, it appears almost certain that they will happen.

In February, Representative James McGovern (D-MA), Chair of the Congressional-Executive Commission on China and Co-Chair of the Tom Lantos Human Rights Commission, along with Chris Smith (R-NJ), Thomas Suozzi (D-NY), Vicky Hartzler (R-MO), Tom Malinowski (D-NJ), Mike Gallagher (R-WI), and Jennifer Wexton (D-VA), reintroduced their own Uyghur Forced Labor Prevention Act (H.R. 1155), which similarly would create a “rebuttable presumption” that any goods made in the XUAR are made with forced labor and prohibited from entering the United States unless “clear and convincing” evidence is shown to the contrary. This legislation is an updated version of H.R. 6210 that passed in the House of Representatives in September 2020 by a vote of 406-3.³ 

Meanwhile, President Biden has made it abundantly clear that his administration will not tolerate forced labor from the XUAR in U.S. supply chains, having already issued a series of Withhold Release Orders aimed at products from the region.  In announcing its most recent measure against silica-based products made by Hoshine Silicon Industry Co., Ltd.,⁴ the White House effectively committed itself to “imposing additional costs on [China] for engaging in cruel and inhumane forced labor practices and ensuring that Beijing plays by the rules of fair trade as part of the rules-based international order” by ensuring that “we continue to remove goods made with forced labor from our supply chains.”⁵

Plan Ahead: Look to North Korea

Given this potential likelihood, companies with U.S. operations should consider taking steps now to ensure that their supply chains will not rely upon importing components made with forced labor in the XUAR.

Though the “rebuttable presumption” would take U.S. Government action on forced labor in the XUAR to a new level, it is not without precedent. 

As part of the imposition of new sanctions on Iran, Russia, and North Korea pursuant to the Countering America’s Adversaries Through Sanctions Act⁶ (“CAATSA”), signed into law in August 2017, Section 321(b)⁷, which amended the North Korea Sanctions and Policy Enhancement Act of 2016⁸, similarly created a “rebuttable presumption” that significant goods, wares, merchandise, and articles mined, produced, or manufactured wholly or in part by North Korean nationals or North Korean citizens anywhere in the world are forced-labor goods prohibited from import under the Tariff Act of 1930.

In guidance⁹ issued in connection with the promulgation of CAATSA Section 321(b), the U.S. Department of Homeland Security (“DHS”) advised companies to review due diligence best practices and closely reexamine entire supply chains with the knowledge of high risk countries and sectors for North Korean workers.

As DHS noted, though due diligence will likely vary based on the size of the company and industry, practices should identify, prevent, and mitigate actual and potential adverse impacts, as well as account for how these impacts are addressed. Examples of actions that may be taken to ensure due diligence is a flexible, risk-based process include:

• a high-level statement of policy demonstrating the company’s commitment to respect human and labor rights;
  
  
• a rigorous continuous risk assessment of actual and potential human rights and labor impacts or risks of company activities and relationships, which is undertaken in consultation with stakeholders;
  
  
• integrating these commitments and assessments into internal control and oversight systems of company operations and supply chains; and,
  
  
• tracking and reporting on areas of risk.

In addition, DHS reminded companies that importers have the responsibility under U.S. customs laws to exercise “reasonable care” and provide CBP with such information as is necessary to enable CBP to determine if the merchandise may be released from CBP custody. To demonstrate reasonable care, DHS advised that an importer may present any material that it chooses to, which may include comprehensive due diligence efforts that may have been undertaken, such as:

• Information demonstrating that the company engaged meaningfully with affected stakeholders, including workers and trade unions, as part of the due diligence process;
  
  
• Workforce composition at the location in question;
  
  
• Training materials on forced labor prohibitions that have been provided to suppliers and sub-contractors;
  
  
• Company policies, and evidence of implementation, on using certain laborers;
  
  
• Contracts with suppliers and sub-contractors that state company policy on forced labor;
  
  
• Publishing the full names of all authorized production units and processing facilities, the worksite addresses, the parent company of the business at the worksite, the types of products made, and the number of workers at each worksite;
  
  
• Information on how and to whom wages are paid at the location;
  
  
• Information demonstrating that recruitment agencies are within the scope of any third-party audit with suppliers;
  
  
• Documents verifying the use of authorized recruitment agencies and brokers or that the company uses direct recruitment;
  
  
• Documents verifying that the fee structure presented by the recruitment agency is transparent and has been verified through worker interviews;
  
  
• Verification of reimbursement for any fees paid;
  
  
• Demonstrated commitment to human rights and labor due diligence at the highest levels of the company; and,
  
  
• Results of human rights and labor impact assessments.

Adoption of processes like these to identify risks of forced labor in supply chains, address identified issues, implement lasting solutions, and monitor supplier performance over time will help companies with U.S. operations ensure that key supply chain inputs will not be denied U.S. entry due to forced labor concerns, thereby protecting critical supply chains.

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