Some garments, fabrics and other goods are more likely to get stuck at the border if U.S. Customs and Border Protection (“CBP”) suspects they contain cotton from Xinjiang or from companies listed on a recently released U.S. government, or otherwise involve forced labor — whether the brand is aware of it or not.
How do you avoid your autumn/winter collection being held up at the border for weeks, months or forever? Well, we must start with an explanation of the new law that came into effect on June 21, 2022. It is the legal “presumption” under the Uyghur Prevention of Forced Labor Law, pub. L. No. 117-78, 135 Stat. 1525 (2021) (“UFLPA”). This is a rebuttable presumption that goods mined, produced or manufactured in whole or in part in Xinjiang or by a company on the UFLPA entity list are prohibited from U.S. importation under 19 USC §1307. The companies that are now on the list of companies are listed on pages 22 to 25 of the Strategy to Prevent Imports of Goods Mined, Produced or Manufactured Using Forced Labor in the People’s Republic of China (“Strategy”), which was issued on April 17, 2008 June 2022 by the Department of Homeland Security on behalf of the Forced Labor Enforcement Task Force (“FLETF”).
CBP has clarified in its public statements about the UFLPA that there is no de minimis rule and “in whole or in part” is applied literally. The far-reaching scope of application is also made clear by the requirements of the FLETF strategy for importers:
To perform a forced labor risk assessment, importers need to map supply chains for their imported goods and then identify steps where there is a risk of using forced labour.
Factors to consider when assessing the risk of forced labor include:
origin of the imported goods and any raw materials or components in the imported goods;
Business-to-business transactions along the supply chain associated with certain imported goods;
locations and identities of companies in the supply chain;
business-to-business relationships in the supply chain;
Using publicly available datasets to estimate the likelihood that raw materials or components are from Xinjiang (if there is evidence that raw materials or components are not from the specified location, such as volume, additional due diligence is required); and
Evidence that a supplier employs inmates, ex-inmates, or receives workers from Xinjiang through PRC government work programs at any level of the supply chain.
Strategy, at 42-43 (emphasis added).
The fashion and apparel industry has long focused on social responsibility and labor conditions in apparel manufacturing, but this typically affects the supply chain and factories that fashion companies contract with to produce goods. The rigor with which the UFLPA compels companies to look farther up the supply chain is more akin to efforts years ago to track conflict minerals up the supply chain in the electronics sector, leading to the Conflict Mineral-Free Sourcing Initiative’s whitelist from smelters and refiners that industry could use to meet their due diligence and reporting requirements. Some service companies with global databases of suppliers and supply chains have already begun offering risk assessment reports for US importers under the UFLPA, which they say will use extensive datasets and artificial intelligence to reduce UFLPA risks.
Under the UFLPA, cotton is one of the commodities to be prioritized for tracking. It was even explicitly mentioned in Section 2(d)(2)(B)(viii) of the UFLPA text. Companies that source fabrics or clothing from China that contain cotton need to be extra vigilant. But it’s not just China. CBP has clarified that it will also target goods from other countries if it believes they have content from Xinjiang or companies on the entity list or otherwise involve forced labor.
With the UFLPA presumption now in effect, the industry is watching what CBP is actually doing at the border. CBP released its own US Customs and Border Protection Operational Guidance For Importers (“CBP Guidance”) on June 13, 2022 and conducted three webinars to provide guidance to importers.
If CBP has information indicating that goods have content from Xinjiang or entities on the entity list, or otherwise involve forced labor, CBP will take one of three actions upon import: detention, expulsion, or confiscation. CBP has also said it can request redelivery of goods already cleared for import within the previous 30 days if it receives such information after import.
As long as CBP does not actually seize the goods, the importer is free to re-export them to another country.
After a detention, if the importer provides evidence demonstrating that “the imported goods and their inputs are entirely from outside of Xinjiang and have no connection with companies on the UFLPA entity list,” CBP will import the goods provided they are otherwise compliant with US law. CBP guidance on 17.
In a case where the importer does not disprove the connection to Xinjiang or the Entity List, but provides “clear and compelling” evidence that forced labor was not used, CBP grants an exception and allows the goods to be imported. “Clear and convincing evidence” is of course a heavy burden, and much will depend on how judiciously and fairly CBP applies the test. If the CBP finds an importer’s evidence satisfactory and allows goods to be imported, it will “make available to the public a report identifying the goods and the evidence considered in granting the exemption.” CBP guide at 10.
The CBP guidance notes that companies should obtain “independent verification” of the implementation and effectiveness of their due diligence system and report their due diligence performance to the public. ID. at 14. This implies the need for independent legal counsel or consultants to review a company’s due diligence. Some fashion companies have used the services of certified suppliers that comply with the Global Organic Textile Standard (“GOTS”). The experiences with independent reports in the field of conflict minerals should be recalled again.
By construing the UFLPA to require tracing throughout the supply chain, the strategy and CBP guidance conflict with China’s Anti-Foreign Sanctions Law, Article 12(1) of which provides that “organizations and individuals fail to implement or support the implementation of discriminatory restrictive measures taken by a foreign country against Chinese citizens or entities.” We expect this lockdown law to significantly increase the difficulty of gathering evidence of supply chains in China under the UFLPA becomes.
In the case of conflict minerals, the industry has been able to develop very useful tools to help verify supply chain compliance. It is hoped that over time similar tools will become available in apparel and other priority sectors under the UFLPA.
Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 178