Importers Beware: The Uyghur Forced Labor Prevention Act Has Become Law
U.S. importers have an obligation to exercise “reasonable care,” which means that importers should, e.g., establish procedures to assess their suppliers (including upstream processes for purchased goods) to understand the risks associated with the potential use of forced labor. This is critical because Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) prohibits the importation of goods made “wholly or in part” by forced labor.
On December 23, 2021, President Biden signed the Uyghur Forced Labor Prevention Act (UFLPA) into law. The UFLPA, passed by the U.S. Senate and House of Representatives with overwhelming bipartisan support, will take effect in June 2022 and seeks to ensure that goods made with forced labor in China’s Xinjiang Uyghur Autonomous Region (XUAR) will not enter the U.S.
Significantly, the UFLPA includes a rebuttable presumption that goods “mined, produced, or manufactured wholly or in part” in the XUAR, or produced by certain to-be-identified entities, are made with forced labor and, therefore, prohibited from importation into the U.S. The UFLPA requires U.S. Customs and Border Protection (CBP) to apply this presumption unless the importer can demonstrate that it has (i) “fully complied” with U.S. government guidance and regulations; (ii) “completely and substantively responded to all inquiries” from CBP; and (iii) established “by clear and convincing evidence” that the goods were not made using forced labor. If CBP determines that an importer has satisfied these conditions, an exception to the rebuttable presumption of forced labor will be available. CBP will begin applying the rebuttable presumption 180 days from enactment of the UFLPA.
The UFLPA charges the Forced Labor Enforcement Task Force (a multi-agency group established pursuant to the United States-Mexico-Canada Trade Agreement) with developing a strategy to address the importation of goods mined, produced or manufactured in whole or in part using forced labor in China. This includes the creation of entity lists that identify companies, etc. in the Xinjiang Region that mine, produce or manufacture, wholly or in part, any goods, wares, articles and merchandise with forced labor. The Act also requires the creation of a list of products mined, produced or manufactured by entities in the XUAR using forced labor, as well as products produced by entities working with the XUAR government to move members of targeted groups (i.e., Uyghurs, etc.) out of the region. The task force will also provide new guidance for importers to rebut the presumption that forced labor was used, including:
-
Due diligence, effective supply chain tracing and supply chain management measures;
-
The type, nature and extent of evidence that demonstrates that goods originating in China were not mined, produced or manufactured wholly or in part in the XUAR; and
-
The type, nature and extent of evidence that demonstrates that goods originating in China were not mined, produced or manufactured wholly or in part with forced labor.
The task force will be developing the guidance in coming months and will offer an opportunity for public comments and a hearing before it issues a report outlining the overall strategy within six months of the enactment of the Act. Unfortunately, the report detailing the strategies will likely be issued at or about the same time CBP will begin applying the rebuttable presumption of forced labor, making it difficult for importers to know which due diligence measures and types of evidence will be required to rebut the presumption and obtain an exception for their goods should the goods be produced or manufactured in the XUAR or by a listed entity.
Accordingly, importers should immediately seek to implement measures to avoid the potentially devastating impacts, e.g., loss of merchandise and reputational harm, of their goods being implicated by forced labor concerns and subject to CBP’s rebuttable presumption. Affected businesses may wish to review the following areas to better understand supplier relationships and sourcing methods for high-risk raw material inputs that could trigger additional CBP scrutiny:
-
Confirm suppliers can document the provenance (country of origin) of raw material inputs used in the production of U.S. imported goods;
-
Establish procedures and processes to assess labor practices of current and new suppliers;
-
Confirm that supplier contract language sufficiently covers the prohibition on forced, convict and child labor and the applicable wage and hour requirements;
-
Consult the Department of Labor’s (DOL) list of Goods Produced by Child and Forced Labor and CBP’s List of Withhold Release Orders to assess supplier relationships;
-
Consult the International Labour Organization’s “11 Indicators of Forced Labor” and provide to suppliers;
-
Consider hiring a third party to conduct a risk assessment of current supply chain procedures and processes with a specific focus on the provenance of the raw materials and the 11 indicators noted above; and
-
Assess whether current Environmental and Social Governance (ESG) policies and practices uphold CBP’s “reasonable care” guidelines and the DOL’s “Comply Chain” principles for effective social compliance program practices.
To comply with the Act, importers must develop source tracing mechanisms or strengthen mechanisms already in place, requiring a significant investment of time and resources. Importers already mapping their supply chains know where products are sourced, including the raw materials. Importers not knowing where their finished goods’ raw materials are sourced will have the greatest exposure and vulnerability and will have to quickly implement processes and find alternative sources of supply, if necessary. Importers should realize that a presumption of forced labor against any of their products being imported into the U.S. could negatively impact the company by resulting in potential exclusion of goods, loss of sales, revenue, and—most importantly—reputational risk.
How BDO Can Help
BDO’s Customs and International Trade Services practice, together with its BDO advisory teams, can help businesses avoid the importation of goods made with or by forced labor by conducting assessments so the importer knows how goods are made, by whom, where and under what labor conditions. We can also assist in establishing procedures for conducting periodic internal audits to check for forced labor in the supply chains and vetting new suppliers and vendors for forced labor risks, as well as assessing importers’ adherence to CBP’s “reasonable care” standard.
Our services include:
-
Tariff classification reviews
-
FTA qualification
-
Customs valuation and transfer pricing analyses
-
Import and export compliance assessments
-
Supply chain planning
-
Customs rulings, protests and other administrative filings
-
VAT registration
SHARE