What’s Next for the Uyghur Forced Labor Prevention Act – The Dispatch

Good afternoon, Uphill readers. Todays edition focuses on the upcoming implementation of the Uyghur Forced Labor Prevention Act. This isnt comprehensive, by any meansthere are still a lot of unclear details on what enforcement will look likeand Im particularly interested in covering how smaller businesses are preparing for this, which I didnt get into during this piece. If you or someone you know is going to be working on this in the months ahead, feel free to send me an emailhaley@thedispatch.com. Id love to chat. (I also welcome dog photos.)

Congress overwhelmingly approved a ban on imports from the Chinese region of Xinjiang last year, but strong enforcement of the new law depends on how the government navigates an unwieldy set of logistical and political hurdles in the months ahead.

The stakes are high: Countries around the world want to see how implementation of the bill unfolds to determine how to enact their own forced labor prevention measures as China continues its brutal campaign against Uyghurs and other ethnic minorities.

Chinese authorities are carrying out a genocide in Xinjiang, including arbitrary mass detentions in concentration camps, involuntary abortions and sterilizations, and a sweeping forced labor regime that has permeated supply chains around the globe.

Importing goods made with coerced labor into the United States has been illegal for nearly a century. But in recent years, as Chinas oppression of ethnic minorities has mounted, companies have increasingly been complicit in selling products made with forced labor. The Uyghur Forced Labor Prevention Act, which passed the House 428-1 and without any opposition in the Senate, is intended to address the crisis. The law imposes a new presumption that all goods produced in part or in whole in Xinjiang are tainted with forced labor.

The import ban will go into effect in June. It is expected to affect about $64 million in direct imports from Xinjiang, according to the firm Paul Hastings LLP. An estimated $119 billion in imports from China as a whole could be impacted by enforcement of the measure.

Already corporations are raising fears that it is impossible to comply with the law. The bill previously stalled for more than a year after initial House passage as some major brands quietly lobbied against it. While there are still unanswered questions about how exactly the government will roll out the new rules, and businesses may have to dedicate greater resources to the issue, experts push back on the idea that compliance isnt possible.

Industries had a pretty sizable ramp-up window to be able to think about this, research these connections, identify these issues at scale, said Kit Conklin, the director of global client engagement at Kharon, which helps clients comply with sanctions laws.

Many of the indicators the American government relies on to identify instances of forced labor in Xinjiang have been publicly available since July 2020, when the State Department released a business advisory alerting companies to the risks of sourcing from the region. There are several red flags to look out for, including a lack of transparency regarding ownership and any mentions of education training centers, poverty alleviation efforts, ethnic minority graduates, or vocational training. Another key warning sign is location. Factories near prisons or internment camps are likely to be involved in forced labor practices.

Just because the information is difficult to find does not mean that it is not publicly available, Conklin, a former U.S. government official, said of these warning signs. He added that his team has found tens of thousands of entities that represent risk in the China context alone for this issue."

Products and goods from Xinjiang have a massive footprint in the international marketplace. A 2020 report from the Congressional-Executive Commission on China found that global supply chains are increasingly at risk of being tainted with goods and products made with forced labor from Xinjiang. Goods suspected of being made with forced labor range from electronics and textiles to tomatoes and other food products. Major brands like Nike and Coca-Cola have been implicated in having forced labor from Xinjiang in their supply chains.

But the problem isnt physically limited to Xinjiang.

Researchers from the Australian Strategic Policy Institute estimate that at least 80,000 Uyghurs were moved to other parts of China to work between 2018 and 2019. The report found 27 factories in nine Chinese provinces that had used Uyghur labor transferred from Xinjiang since 2017. The factories in question purported to be in the supply chains of 82 well-known global brands.

The legislation requires a government task force to determine how to target these practices, first by identifying organizations and entities involved in transporting ethnic minorities out of Xinjiang to work. The task force will also release a broad strategy on how the government will implement the forced labor law, as well as detailed enforcement plans for high-risk sectors like cotton and tomatoes.

Businesses will have a chance to weigh in soon, during a mandated public comment period. Customs and Border Protection, which is tasked with carrying out the law, will have to tell Congress what resources it needs to effectively identify and block goods made with forced labor.

Companies will have the option to rebut the presumption of forced labor if they can prove with clear and convincing evidence that their supply chains are not tainted.

The government is expected to issue guidance on the burden of proof to obtain exemptions in the coming months, but one thing is certain: Congress did not intend it to be an easy bar to meet. And lawmakers are in a strong position to make sure the law is rolled out as they want it to be, particularly because the legislation requires Customs and Border Protection to publicly share any exceptions it grants to the import ban, along with the evidence backing such a decision.

Anyone whos looking at whats happening, saying, We have to gear up so that we can rebut this presumption with product made in Xinjiang, I think theyre probably either deluding themselves or just not really aware of whats going on, Frederic Rocafort, an attorney with the international law firm Harris Bricken, told The Dispatch.

Conducting due diligence to root out forced labor practices is notoriously difficult in China, let alone in Xinjiang. Rocafort, who said he has participated in more than 100 audits, most of which were related to intellectual property protection, said there are a number of limitations to the work. Not only are many suppliers hesitant to be transparent, he said, but there can also be language barriers and competence issues among the auditors.

"There are concerns with retaliation, both with the auditors and the persons with whom they talk, Rocafort added. Another issue with audits is that even in the case of the more reputable audit companies, by the time you go down the line to the people who are conducting these audits, in many cases there can be something of a disconnect. The head office might have the intention of acting in an ethical manner, but that doesnt always trickle down to the auditors out in the field. And even if theyre not necessarily on the take or anything like that, theyre going to be concerned. In many cases, these auditors are from the country where they are working, or they live there. Theres a human element to all this.

Audits involve compiling relevant documents, such as factory codes of conduct, personnel records, time cards, and pay stubs.

Auditors also carry out site visits to check if a suppliers purported position in a supply chain makes sense. For instance, Rocafort said, auditors may be told that production is taking place entirely within one facility, so they will check if that adds up given the work being done in that facility. He recounted one instance in which his team discovered a factory was working with a prison nearby, with incarcerated people making its products.

Independent audits are impossible to conduct in Xinjiang, and due diligence remains difficult in other parts of China. The U.S. government has noted reports of auditors being detained or intimidated. In 2020, five audit organizations announced they would withdraw from Xinjiang, as the Chinese governments oppressive conditions in the region made it too difficult to conduct the work.

Any company that thinks that theyre going to audit their way out of this needs to reassess that idea, Rocafort said.

He added that companies are doing less than they should in the areas they can control. That includes drafting internal guidelines, providing training to staff, and modifying supplier contracts to have robust forced labor language.

Companies are, in general, not doing a very good job of protecting themselves, Rocafort said.

Corporate pushback to the new regulationsand the surprise in some quarters that Congress would move so aggressively on the matterunderscores how the forced labor prevention landscape has shifted in the past few years.

According to the nonpartisan Congressional Research Service, early enforcement of the longstanding broad ban on imports made with forced labor was minimal. Between 1930 and the mid-1980s, per the CRS, there were only eight instances of a product or goods exclusion from importation under the ban.

The United States rules against selling products made with forced labor didnt initially emerge out of particularly humanitarian concerns. Soon after the end of slavery in the United States, lawmakers grew worried about market competition from goods made with prison labor. They banned imports of all products made with convict labor, followed by another law in 1930 expanding the prohibition to forced and indentured labor. But there was an important catch, which explains why enforcement wasnt strong: Congress carved out a broad exemption for products like coffee, tea, and rubber that at the time were not made domestically to the extent necessary to meet American demand.

There was a period of renewed interest in targeting forced labor practices between the mid-1980s and the late 1990s, although it soon tapered off with increased economic collaboration with China. In that period, Customs and Border Protection issued several withhold release orders per year, per the Congressional Research Service. Withhold release orders come after the CBP finds evidence that merchandise from specific areas or entities should be blocked from entering the United States.

From 2000 to 2015, Customs and Border Protection did not issue a single withhold release order. But in 2015, Congress eliminated the consumptive demand exemption, growing the number of products subject to the forced labor prohibition.

Customs and Border Protection soon began blocking more imports in accordance with the law.

According to CBP data, the amount of cargo detained under withhold release orders grew from 6 detainments in fiscal year 2018a combined value of $218,000to 1,469 in fiscal year 2021, worth $486 million.

Companies are able to appeal for release of their products within three months in the event that a shipment is detained, if they have evidence their supply chains are clean.

Penalties for violating the law can sting: In August 2020, CBP collected $575,000 in fines from a stevia producer that imported products made with prison labor in China.

Some industries have had a head start in moving their sourcing out of Xinjiang. The U.S. government banned imports of tomatoes and cotton from Xinjiang, and products made with those goods, a year ago. During the summer, Customs and Border Protection further took aim at solar panel materials from major producers in the region.

But forced labor is pervasive in supply chains, and some brands that have pledged to move their production away from Xinjiang are still connected to the region.

Buzzfeed News Alison Killing and Megha Rajagopalan, who have done excellent work in the past exposing the massive network of factories underpinning Chinas forced labor regime, reported last week that a Guangdong-based subsidiary of a textile company, Esquel Group, sources its cotton from a branch in Xinjiang. Large brands, including Hugo Boss, source from Esquel.

Given the scope of the problem, members of Congress are urging a boost in resources for CBP. In April, a group of House Democrats called for an additional $25 million to empower CBPs forced labor division. The members said the funding would pay for at least 75 employees to work on forced labor prevention.

According to the CRS, before 2016, CBP handled these matters through an informal internal forced labor task force, which sporadically pulled approximately 8-12 staff from other divisions on a temporary basis. The agency has formalized the task force into a division within the office of trade, with 13 full-time positions as of mid-2020. Last summer, Ana Hinojosa, executive director of the CBPs forced labor division, told the Wall Street Journal CBP was in the process of doubling the staff of the division.

Olivia Enos, a senior policy analyst in the Asian Studies Center at the Heritage Foundation, wrote in Forbes last week that dedicating more resources to the division is essential.

This increase would go a long way towards ensuring CBP has the resources it needs to combat rising instances of forced labor abroad, she said.

Given the remarkably strong congressional consensus on combating the Uyghur genocide and forced labor in China, the Uyghur Forced Labor Prevention Act likely wont be the last step lawmakers take on the matter. Beyond boosting CBP funding, members of Congress may consider other actions to encourage companies to address forced labor in their global supply chains. Some experts are concerned that some large businesses, in complying with the law, will seek to rid their supply chains of forced labor for the products they sell in the United Statesand not the products destined for international markets with less stringent regulations.

Michael Sobolik, a fellow in Indo-Pacific studies at the American Foreign Policy Council, suggested Congress could look into establishing mandates for federal contracts, grants, and other forms of government funding. Such legislation could require entities to present a plan to scrub globalnot only products for sale in Americasupply chains from forced labor concerns, and after a reasonable amount of time provide clear and convincing evidence they have done so, in order to qualify for some forms of funding.

This dynamicenforcement of UFLPA, and how firms will lobby for loose regulations and/or seek to skirt them after implementationwill become ground-zero in the China human rights space, he said.

The Senate is in this week, despite previously being scheduled to have a recess. Democrats will try to change the chambers rules to allow passage of sweeping voting rights legislationbut they arent expected to have enough support to pull it off. You can read more background in Fridays Uphill, here.

The House is also in this week. Among several other bills, members are expected to consider legislation to automatically enroll eligible veterans in VA health benefits.

A House Homeland Security subcommittee will hold a hearing on the state of Americas seaports tomorrow afternoon. Information and livestream here.

A House Foreign Affairs subcommittee will meet to discuss transatlantic cooperation on supply chain security. (Fellow Trade Talks fans will be thrilled to hear Chad Bown is testifying at this one.) Information and livestream here.

The House select panel on modernizing Congress will meet for a status report on its recommendations Thursday morning. Information and livestream here.

The House Judiciary Committee will hold a hearing on voter suppression and threats to democracy Thursday morning. Information and livestream here. A House Homeland Security subcommittee will also meet Thursday for a hearing on protecting democracy against election interference and voter confidence. Information and livestream here.

A House Science, Space, and Technology panel will convene Thursday at 11 a.m. to examine NASAs Artemis program and the goal of exploring Mars. Information and livestream here.

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What's Next for the Uyghur Forced Labor Prevention Act - The Dispatch