International commercial law and the US Uyghur Forced Labor Prevention Act (UFLPA)
Dr Angelika Hellweger considers the impact of this US modern slavery law on international companies’ supply chains
According to an International Labour Organisation estimate, around 24.9m people are victims of forced labour worldwide (www.ilo.org/global/topics/forced-labour/lang--en/index.htm). 16m people are exploited in the private sector such as domestic work, construction or agriculture; 4.8m persons in forced sexual exploitation, and 4m persons in forced labour imposed by state authorities. Cocoa from Côte d’Ivoire and Ghana, cotton from Kazakhstan and Turkmenistan, Brazilian timber, electronic goods from Malaysia, textiles from India – all these examples show that forced labour risks are prevalent on a global scale (www.globalslaveryindex.org).
Over recent years, the support for import bans on forced labour products – and the addressing of forced labour issues in the global supply chain – has grown slowly across the globe. The US has – also having geopolitical considerations in mind – recently introduced the Uyghur Forced Labor Prevention Act (UFLPA). More on the Uyghurs’ position can be read here: www.bbc.co.uk/news/world-asia-china-22278037 and www.bbc.co.uk/news/world-asia-china-59595952. The UFLPA does not allow companies to import goods to the US that were made with the forced labour of Uyghursand other persons or groups in China's Xinjiang Uyghur Autonomous Region (XUAR). It has been in effect since 21 June 2022. Similar pieces of legislation, not limited to the Xinjiang region, are being discussed in the UK, Australia and the EU. The EU Commission has emphasised that forced labour is an EU priority. A legislative initiative for a ‘forced labour products ban’ could be presented on 13 September 2022.
What is the UFLPA?
Under the UFLPA, all goods mined, produced, or manufactured, either wholly or in part, in all sectors in the Xinjiang region are presumed to be made with forced labour – and are presumed to be prohibited from entry into the United States. Usually, goods are assumed to be admissible until proven otherwise. But US customs will now presume that any amount of Xinjiang content is ‘not admissible’ until proven ‘by clear and convincing evidence’ that this is not the case. Thus, the burden of proof is entirely on the importer.
This presumption applies to the whole supply chain. Even if cotton from Xinjiang is sent to various other manufacturing places in Asia before it is turned into a finished dress, it is still presumptively banned from entering the US. A company importing the dress to the US would be in violation and could be sanctioned under the UFLPA, unless it can show with ‘clear and convincing evidence’ no forced labour was used in any part of the production process. Companies now have to take significant steps to overcome this presumption.
The UFLPA also applies to goods from entities implicated in forced labour outside of Xinjiang. These include entities and subsidiaries that employ persecuted groups transferred from Xinjiang, collaborate with the Xinjiang government, or source materials from there or other Chinese government labour schemes that use forced labour. A list of 20 entities subject to the UFLPA has been published. It is expected that this list will expand in the future. Every company importing into the US should check this list as part of its due diligence and screening process.
The product types most likely to be examined and subject to rigorous enforcement initially by US customs in relation to the UFLPA are:
- Silica-based products: including polysilicon — a key material for the manufacture of solar panels (www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/a-decade-into-tariffs us-solar-manufacturing-is-still-deep-in-asia-s-shadow-70236202 - China accounts for between 70 per cent and 98 per cent of the world’s production capacity of the silicon-based raw material and components?in solar panels Most of the Silicon comes from Xinjiang and many of the factories that transform silicon into polysilicon also are in Xinjiang.);
- Apparel, including garments, textiles, thread, and yarn;
- Cotton and cotton products, including related downstream products;
- Tomatoes, including related downstream products.
It is especially critical that companies with goods in these sectors have their supply chains well documented.
The presumption of forced labour
The threshold which has to be met to overcome the presumption of forced labour evidence is extensive and must be provided by the importer within thirty days of the goods being detained by the US customs authorities (see www.dhs.gov/sites/default/files/2022-06/22_0617_fletf_uflpa-strategy.pdf).
The importer must provide:
- A map of the entire supply chain and transport along the supply chain, including the entities involved at each stage.
- A complete list of workers at the location suspected of forced labour, including the workers’ wages paid at each workplace, the origin of the worker and the worker’s residency status (however, it is possible companies in China might get punished for complying with US sanctions. Thus, it is unlikely all will comply with such requests);
- Evidence that demonstrates outputs are consistent with the number of documented workers in each job category, the volume of material inputs and outputs, documents in connection with workers’ hours and a daily production output;
- Evidence none of the workers who were involved in the production of the product were recruited, transported, transferred, harboured or received with the involvement of the government of China, Xinjiang Production and Construction Corps (XPCC), or entities on the UFLPA Entity List. Evidence should specifically address the controls each entity has in place to ensure that all workers are recruited voluntarily;
- Evidence that reliably demonstrates that every worker from Xinjiang is working voluntarily, and without menace or threat of penalty, including credible evidence that demonstrates for each such worker that:
1) recruitment to work, including recruitment to any job fair, was fully voluntarily.
2) recruitment and working at the job were – and are – not subject to government or entity coercion such as restricted movement, required activities, and government surveillance or reporting.
- Any audit performed to demonstrate goods were not made wholly or in part with forced labour. Evidence regarding this should explain its methodology, how it determined the presence or absence of forced labour indicators, a description of all evidence upon which the determination was based, and a description of how the auditor determined the reliability of the evidence used to reach the audit’s conclusions.
Auditing suppliers in China, and in particular in Xinjiang, will be difficult, if not impossible. Companies might face hurdles beyond their control. But they will, nevertheless, have to ensure they comply with UFLPA’s requirements. This may, in many cases, ultimately lead to companies having terminate contracts with suppliers.
Sanctions and enforcement
US customs may detain, seize or exclude goods from importation into the US, and may issue civil penalties for companies found to be wilfully non-compliant with the UFLPA. The US government is authorised to impose visa sanctions, export restrictions and import controls on companies found in violation of the UFLPA.
The UFPLA also authorises the US government to impose sanctions on enterprises not involved in export to the US, as long as Uyghur forced labour is found in their supply chains.
How companies should assess and mitigate risk
Given worldwide developments regarding forced labour, the current geopolitical risks and the authorities’ appetite for enforcement, every company acting internationally is advised to urgently gain in-depth insight into the risk exposure in its supply chains.
This is even more so the case for any supplier and importer that does business in the US, now that the UFLPA has come into effect. The ultimate goal is to gain full transparency of each product’s supply chain, from raw material to final product, including subcontractors. However, many companies and their boards of directors may be unaware if and where their supply chain is vulnerable to forced labour in general, and whether they are sourcing materials from Xinjiang or from other companies that are associated with rights violations in Xinjiang.
It would be prudent to look to the UFLPA guidance document and assess whether they conduct the kind of supply chain tracing and supply chain due diligence US customs now expects. The ability to fully map out supply chains to include the suppliers of intermediaries is crucial to having a more accurate picture of a company’s exposure to forced labour in Xinjiang. Most probably, every company will need to use a due diligence and/or screening of UFLPA-listed entities and all parties identified in the supply chain. Such activity is likely to be conducted by a third party.
If it has not already been done, companies will need to make sure that their supply chain is aware of forced labour policies that the company has implemented, including training of employees, adequate whistleblowing and complaints procedures and a code of conduct. They also need to ensure that the whole supply chain is adhering to these. Questionnaires and formal requests should be sent out to all suppliers (including subcontractors) as a means of obtaining confirmation that they do not use forced labour. On a contractual level, companies should introduce a language which is in line with the recommendations of the UFLPA and which requires suppliers to allow auditors to assess their activities. Moreover, the company should be able to terminate the contract immediately with any supplier should any forced labour issues arise.
In particular, listed companies need to be careful that their public statements in relation to the UFLPA and forced labour in general reflect reality and are not misleading when it comes to the number of internal investigations and due diligence conducted in their supply chain. Otherwise, they may make themselves vulnerable to shareholder and other claims, as well to civil and criminal liabilities on a company and an individual level.
Dr Angelika Hellweger is legal director with Rahman Ravelli: rahmanravelli.co.uk