The Uyghur Forced Labor Prevention Act (UFLPA)

UFLPA: The Rebuttable Presumption

The rebuttal presumption is indicated in Section 3 of the UFLPA. It states that all goods produced, even in part, in the Xinjiang Uyghur Autonomous Region (XUAR) are assumed to be made with convict labor and that CBP cannot allow these imports to enter the United States. The CBP was previously allowed to issue withhold release orders (WROs) on items that were produced by forced labor, but the rebuttal presumption now expands this power to all goods coming from China’s Xinjiang Uyghur Autonomous Region.

“The downstream impact is deliberately and potentially vast. The rebuttable presumption included in the UFLPA means that almost any goods coming from China that are comprised of cotton, refined metals, circuits, and polysilicon are reasonably subject to inspection and due diligence,” Exiger CEO Brandon Daniels explained. “This has the potential to be just as sweeping and impactful as the Bank Secrecy Act, anti-money laundering and counter terrorist financing (BSA/AML/CFT) changes after 9/11.” As Daniels stated in a recent Fortune article detailing potential UFLPA supply chain disruptions, the effects of the act will be felt by consumers.

UFLPA Impacts Nearly Every Industry

In accordance with the UFLPA, the Forced Labor Enforcement Task Force must create a list of entities that engage in forced labor in XUAR. Nearly every industry — from automotive and electronics to fashion and agriculture — must be vigilant today about forced labor in the supply chain. The stakes for noncompliance are too high to ignore, including costly fines, shipping delays, and reputational damage.

It can be difficult to fully articulate the types of materials coming from the XUAR region. Nonetheless, it is necessary to visualize your reliance on components or raw materials from the XUAR region through robust due diligence and end-to-end supply chain visibility.

The UFLPA is also having an impact on the auto industry, particularly with electric-vehicle batteries and other car parts made in China. The CBP has started monitoring lithium-ion batteries, tires and other auto parts shipments for UFLPA compliance in recent months, according to a Reuters report.

“If you’re a car manufacturer and you have not started mapping your supply chains for the critical minerals and the parts of the sub-assemblies that are going through China and where they are getting their goods from, you are running a real peril,” Exiger CEO Brandon Daniels told Reuters.

These and other products will see additional scrutiny upon entry to the U.S. and require comprehensive supply chain documentation to rebut UFLPA presumptions.

UFLPA: Enforcement Plan

In order to ensure goods from the high-priority sectors are kept from entering the country, the act includes an enforcement strategy. The Forced Labor Enforcement Task Force (FLETF) was created to comply with Section 741 of the United States-Mexico-Canada Agreement Implementation Act. It is the governing body created to ensure the United States does not import goods produced by forced labor. To enforce the UFLPA, the Forced Labor Enforcement Task Force must create an enforcement strategy for each high-priority sector. Each sector must have its own plan.

U.S. Customs and Border Protection (CBP) released UFLPA operational guidance in June 2022 to explain how it will identify Xinjiang goods and enforce the UFLPA:

 

• • CBP must apply a presumption that imports of all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (Xinjiang) of the People’s Republic of China (PRC), or by entities identified by the U.S. government on the UFLPA Entity List, are presumed to be made with forced labor and are prohibited from entry into the United States.

• • The presumption also applies to goods made in, or shipped through, the PRC and other countries that include inputs made in Xinjiang.

• • The presumption is rebuttable, and, to overcome it, importers must, among other requirements in the UFLPA, respond to all CBP requests for information about merchandise under CBP review and demonstrate by clear and convincing evidence that the good, ware, article, or merchandise was not mined, produced, or manufactured wholly or in part by forced labor.

• • The UFLPA also requires that importers demonstrate due diligence, effective supply chain tracing, and supply chain management measures to ensure that they do not import any goods made, in whole or in part, by forced labor, especially from the Xinjiang Region. This requirement extends throughout the entire supply chain, to include goods that may be shipped from elsewhere in the PRC and to third countries for further processing.

According to CBP operational guidance, CBP will enforce the UFLPA by taking specific enforcement actions, including identifying, detaining, and/or excluding, or seizing shipments subject to the UFLPA’s rebuttable presumption, depending upon the specific facts involved in each importation. CBP will review each shipment for UFLPA applicability, and appropriate action to be taken, on a case-by-case basis.

CBP will provide importers with notice, in accordance with the customs laws, when enforcement actions are taken on their shipments. In response to a detention notice, exclusion notice, or notice of seizure, an importer may provide information to CBP to request an exception to the UFLPA’s rebuttable presumption.

To grant an exception, CBP may require importers to provide documentation from these categories:

 

• • Due diligence system information

• • Supply chain tracing information

• • Information on supply chain management measures

• • Evidence goods were not mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region

Importers may also identify additional shipments that have identical supply chains to those that have been reviewed previously and determined to be admissible by CBP, to facilitate the faster release of identical shipments.

One solution that can help is Exiger’s purpose-built technology that brings even greater supply chain visibility and granularity. Our PAC and SDX solutions can illuminate your entire raw materials ecosystem for a deep understanding of sourcing.

[WATCH ON-DEMAND: Navigating UFLPA Enforcement: Strategies for Compliance and Risk Mitigation]

Complying with the UFLPA

In order to comply with the UFLPA, companies must evaluate their supply chains and take any necessary action. “It’s no longer a competitive advantage, even though it can be,” said Exiger CEO Brandon Daniels. “But most importantly, it’s a critical aspect of complying with the law. So knowing that you’re not sourcing goods from this region is so critical.” 

Review these steps to learn what your company needs to do for UFLPA compliance.

Drill Down to the Raw Materials

A common misunderstanding is that supply chain visibility ends at the part or component. Companies should instead prioritize visibility to see where raw materials are sourced, whether it is the second or the fifth tier. Statistics show that only about 2% of supply chain executives can see beyond the second tier, and very few companies have true visibility into how materials flow at the fifth tier.

Fortune 100 companies and federal agencies leverage Exiger’s supply chain management solutions to audit raw material flows. In addition to illuminating the deepest layers of the supply chain, we help organizations apply due diligence and supply chain risk management to their own supply chain flow.

Assess Supply Chain Links to XUAR

Review your list of vendors and vendor partners to see links to the XUAR. While you could manually check the U.S. Department of Homeland Security (DHS) UFLPA Entity List to see if any of your partners or vendors are linked to the area, this will not provide a full picture of their partners’ and vendors’ activities. This lack of transparency poses a risk to ensuring your supply chain is in compliance with the UFLPA.

A more robust solution leverages technology through supply chain risk management software.

This type of software replaces manual review of volumes of disparate data sources. It also provides visibility into each tier of a company’s supply chain, allowing risk management analysts to identify where points in a supply chain may be linked to the XUAR. SCRM software can comb through billions of records related to an entity to surface where your suppliers and their suppliers may harbor potential risks. If any of your suppliers are linked to the XUAR area, they pose a risk to your supply chain’s UFLPA compliance, and you will need to conduct thorough due diligence and potentially, remediation.

Conduct Due Diligence with FLETF’s Guidance

Dig deeper into your supply chain by performing due diligence and incorporating FLETF and CBP guidance with respect to high-risk commodities. Many companies and government agencies use a third-party risk management solution to conduct due diligence. This type of platform helps your team work efficiently and identify risks more easily.

Publicly Note Any Internal Investigations

If you find areas of concern in your due diligence or the CBP informs you of them, you must provide disclosures. This will let the CBP know what you have found in your research and that you are actively investigating any concerns. This will protect you from further risk and keep officials informed where needed.

The penalties associated with noncompliance are strict and go well beyond fines. If imports are found to be in violation of the UFLPA, the materials and parts will be seized at the border, and your organization will be publicly exposed as benefiting from forced labor. 

According to McKinsey, a single prolonged production-only shock could wipe out 30 to 50 percent of a company’s one-year EBITDA. If your materials are seized and your supplier eliminated, your organization is in a vulnerable position with limited negotiating leverage to find a compliant supplier able to deliver replacement materials quickly.

Public attention to a UFLPA violation is equally damaging. For companies doing business with the government, noncompliance may terminate your contracts. For companies that operate in the consumer and B2B space, the damage to brand reputation could have consequences beyond public perception to hurt hiring, retention, pricing and revenue.