Angela Santos David Salkeld March 19 2021 New bills may lead to region-wide ban on goods from Xinjiang Region Arent Fox LLP | International Trade - USA Angela Santos, David Salkeld International Trade IntroductionBackgroundWhat do the bills provide for?What does this mean for US importers?IntroductionCompanies should review their supply chain and establish compliance plans because forced labour laws are here to stay.Two bills, both titled the Uyghur Forced Labour Prevention Act (UFLPA) (HR 1155 and S 65), have been reintroduced in Congress and 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 labour. This would place a high burden on companies to:evaluate their entire supply chain;consider shifting sourcing or production out of the XUAR; orimplement significant tracing and documentation policies to prove that goods were not produced with forced labour.The recent reintroduction of these previously stalled bills is a response to public outcry against the abuses in the XUAR and bipartisan support for action against forced labour in the region. The bills will have more time to gain traction as they have been introduced at the beginning of a congressional term, as opposed to late in the previous term.If passed, these bills will grant US Customs and Border Protection (CBP) authority for a region-wide withhold release order (WRO) enabling it to detain all products from the XUAR.BackgroundOn 18 February 2021 Representative Jim McGovern (and six co-sponsors) reintroduced the UFLPA in the House of Representatives (HR 1155). The UFLPA calls for sanctions for parties which are responsible for forced labour in the XUAR or engage in importing goods produced with forced labour. Senator Marco Rubio (Republican-Florida) reintroduced a parallel Senate bill (S 65) in January 2021.A prior version of the UFLPA was overwhelmingly passed by the House of Representatives on 22 September 2020 and then referred to the Senate, where it stalled in the Senate Foreign Relations Committee (for further details please see "Government steps up actions against forced labour as Congress considers further measures").The bills come on the heels of recent reports, including a BBC report alleging systematic abuse at Uyghur internment camps. Efforts to respond to the use of forced labour in the XUAR have been a focus of the US government. In July 2020 the government issued the Xinjiang Business Advisory, reporting on entities suspected of forced labour and other human rights and national security issues. Subsequently, CBP issued a number of WROs on products from the XUAR. Most recently, CBP issued a region-wide WRO on cotton and tomatoes grown in the XUAR and goods made from those commodities based on "information [that] reasonably but not conclusively indicated that the merchandise" was produced with forced labor (19 Code of Federal Regulations Section 12.42(e)) (for further details please see "CBP begins 2021 with expansive new enforcement against forced labour"). The Biden administration emphasised in its Trade Agenda published on 2 March 2021 that forced labour will be a priority issue.What do the bills provide for?House billThe 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 programme or the pairing assistance programme, which subsidises the establishment of manufacturing facilities in the XUAR, will be deemed to be goods, wares, articles and merchandise described in Section 307 of the Tariff Act 1930 (19 US Code (USC) Section 1307) produced with forced labour.The UFLPA's presumption would create a new basis, beyond WROs, for CBP to detain and exclude all shipments from the XUAR. It also provides for the possibility of sanctions against importers and possibly downstream US customers.Import-related enforcement provisions Section 5 establishes the bill's enforcement strategy and indicates that Congress anticipates enforcement principally through WROs issued pursuant to 19 USC Section 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 and products produced by forced labour "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 labour in the XUAR and a list of "[f]oreign persons that acted as agents of the entities or affiliates" of those entities (Section 7(c)(1)).SanctionsThe UFLPA requires the president to submit annual reports to Congress that identify foreign persons determined to be knowingly involved in XUAR forced labour and imports into the United States of XUAR forced labour goods. It then mandates blocking and visa sanctions on those persons. If enacted, the president may issue a new executive order under the Emergency Economic Powers Act (IEEPA) and the UFLPA to assist with implementing these sanctions and target persons which 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 15 days' 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 behaviour; ortermination of sanctions is in the national security interests of the United States.The UFLPA also includes language that appears to provide that the penalties available under the 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 Section 9 of the UFLPA would amend Section 13 of the Securities Exchange Act 1934 (15 USC 78m) by requiring companies with Securities Exchange Commission (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 or providing technology or other assistance to create mass population surveillance systems in the XUAR;building or running detention facilities for Muslim minorities in the XUAR;engaging in the pairing assistance programme or with any entity for which the Department of Homeland Security has issued a WRO;conducting any transaction or having had dealing with:any person whose property and interests in property were sanctioned by the secretary of state for the detention or abuse of Muslim minority groups in the XUAR or pursuant to the Global Magnitsky Human Rights Accountability Act (22 USC 2656); orany person or entity responsible for, or complicit in, committing atrocities in the XUAR; orengaging in activity with any entity identified by the secretary of state as using forced or involuntary labour in the XUAR and for which CBP has issued a WRO.Section 9 also provides the scope of the required disclosure, including:the nature and extent of the activity;gross revenues and net profits attributable to the activity; andwhether the activity will be continued.Disclosure exceptionsThere are broad exceptions to the disclosure requirement activities relating to:the import of manufactured goods – including electronics, food products, textiles, shoes and teas – that originated in the XUAR; ormanufactured goods containing materials that originated or are sourced in the XUAR.Unlike prior legislation requiring SEC disclosure for certain Iran-related transactions, there is no exception for transactions that are authorised by the government (eg, pursuant to an authorisation issued by the Department of the Treasury to engage in certain transactions with a blocked person).Senate billEnforcement strategyThe Senate bill provides that the Secretary of Homeland Secretary will, 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 import 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 US trade representative, the secretary of state, the secretary of labour and the director of national intelligence in formulating a strategy to prevent the US import of goods made with forced labour in the XUAR.Rebuttable presumptionThe 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 being imported into the United States. This presumption will apply unless the CBP commissioner determines that:the importer of record has fully complied with the guidance described in the bill (regarding importers' obligations to prove that forced labour was not used) and has completely responded to the commissioner's enquiries to ascertain whether the goods were manufactured through forced labour;"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 bill's date of enactment.Diplomatic relationsJust as in the bill passed in September 2020, the secretary of state will submit to Congress a report that includes a US strategy to promote initiatives to enhance international awareness of and address forced labour in the XUAR.Critically, the bill provides that the report will 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".SanctionsThe 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 2020 for which a foreign individual or entity can be included in a required presidential report to Congress. If so included, the foreign individual or entity would have to be sanctioned, absent the issuance of a waiver.Sanctions under the Uyghur Human Rights Policy Act 2020 include asset blocking and ineligibility for visas.What does this mean for US importers?If passed, these bills will grant CBP authority for a region-wide WRO enabling it to detain all products from the XUAR. Companies will have the burden of proof to establish that goods were not produced with forced labour in order to secure release. US importers and their downstream US customers must 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 labour and implement procedures and documentation to evidence that goods are not prohibited.In addition, failure to comply with the UFLPA could lead to sanctions that would affect more than just a company's bottom line. Accordingly, the time for companies to act is now.For further information on this topic please contact Angela Santos at Arent Fox LLP's New York office by telephone (+1 212 484 3900) or email ([email protected]). Alternatively, contact David Salkeld at Arent Fox LLP's Washington DC office by telephone (+1 202 857 6000) or email ([email protected]). The Arent Fox LLP website can be accessed at www.arentfox.com.Natan Tubman, associate, and Sylvia G Costelloe, associate, assisted in the preparation of this article.