Executive summary: Impact of Uyghur Forced Labor Prevention Act on importers
On June 21, 2022, the Uyghur Forced Labor Prevention Act (UFLPA) became effective. This law gives U.S. Customs and Border Protection (CBP) increased power to block the importation of goods presumed to be mined, produced or manufactured, in whole or in part, with forced labor. Importers bear the burden of rebutting this presumption by providing clear and convincing evidence to CBP that the merchandise does not contain any inputs from and was not produced using forced labor. Sectors at most risks for enforcement include industrial metals, apparel, electronics, polysilicon and pharmaceuticals. Importers must develop a robust ESG program that includes engaging with suppliers and stakeholders on forced labor and performing due-diligence reviews.
Increased enforcement for imported goods made through forced labor
U.S. importers face increased scrutiny
U.S. importers should be aware of increased policing of forced labor laws by U.S. Customs and Border Protection (CBP), particularly the Uyghur Forced Labor Prevention Action (UFLPA). This law, which President Joe Biden signed in December 2021 and became effective last June, ensures the enforcement of section 307 of the Tariff Act of 1930 (19 U.S.C. 1307), as amended, which prohibits the importation of any goods that were mined, produced or manufactured in any foreign country by convict, forced or indentured labor. The UFLPA specifically targets the importation of goods manufactured wholly or in part with forced labor in the Xinjiang Uyghur Autonomous Region (XUAR) of China.
Under the UFLPA, CBP presumes that all imports from XUAR or from entities identified by the U.S. government on the UFLPA Entity List are made with forced labor, and as a result, are prohibited from entry to the U.S. The same presumption applies to goods made or shipped through China or other countries if they contain inputs made in XUAR or by companies on the entity list. To overcome this assumption, importers must provide CBP with “clear and convincing evidence, that the good, ware, article, or merchandise was not mined, produced, or manufactured wholly or in part by forced labor.” This evidence must illustrate that indicators of forced labor are not present or were fully remediated.
According to the UFPLA Statistics Dashboard on the CBP website, most goods detained or seized by CBP are not of Chinese origin; the majority originate in Malaysia or Vietnam, as they contain a link to XUAR or prohibited entities in the supply chain. Sectors at the most risk for enforcement include industrial metals, apparel, electronics, polysilicon and pharmaceuticals. The UFLPA poses a substantial risk for importers of complex manufactured items such as electronics, which may contain thousands of components from numerous vendors around the world. In cases when materials from multiple countries have been co-mingled or further processed to create a finished good, importers must be able to identify the upstream suppliers and demonstrate that all inputs and merchandise do not contain forced labor or have any connection to parties on the UFLPA Entity List.
Considering the complexity of monitoring all tiers of a supply chain, importers may find it difficult and administratively burdensome to evaluate the ESG policies of their stakeholders. However, proactive due diligence will put companies in the best possible position to support claims that their imports do not incorporate materials made using forced labor.
Recommended next steps
RSM recommends that importers take immediate steps to review their supply chains for indications of forced labor. Among others, this assessment should include the following:
- Map out each stage of the supply chain going back to tier two and tier three suppliers and identify areas at a higher risk of using forced labor.
- Conduct continuous compliance monitoring activities such as unannounced site visits, employee interviews, detailed supplier questionnaires and transaction document reviews.
- Develop a written code of conduct that includes a robust social compliance program and specific supply chain standards which articulate a framework for addressing forced labor risks.
- Coordinate with stakeholders to ensure they are regularly providing forced labor training to employees responsible for carrying out applicable activities throughout the supply chain.