On 22 September 2020 the U.S. House of Representatives nearly unanimously (406-3) passed the Uyghur Forced Labor Prevention Act, H.R. 6210, introduced by Representative Jim McGovern, D-Mass. The legislation contains three notable provisions amongst other congressional reporting requirements for the administration.

First, it would prohibit the importation of all items produced "wholly or in part" in the XUAR into the United States unless CBP determines by "clear and convincing" evidence that those items were not produced by forced labor. If enacted, this would require U.S. importers to overcome CBP's presumption that all items produced in the XUAR are made with forced labor in order to import any products from the XUAR region of China.

Second, the legislation would require the president to sanction any foreign person who knowingly is involved in forced labor in the XUAR or knowingly assists in the contravention of U.S. law.

Third, U.S. issuers of securities would be required to disclose certain information to the SEC regarding involvement with entities and persons connected to human rights abuses in the XUAR.

Some of the industries identified as using forced labor in Xinjiang, and thus potentially impacted by this legislation, include: agriculture (such as garlic), cell phones, cleaning supplies, construction, cotton yarn, fabric, and makeup products, electronics assembly, extractives (such as coal, copper, hydrocarbons, oil, uranium, and zinc), hair accessories, food processing, hospitality services, noodles, printing products, footwear, stevia, sugar, textiles (such as apparel, bedding, carpets, wool), and toys.[1]

The Senate has not yet voted on this bill or the Senate companion bill (S. 3471) introduced by Senator Marco Rubio, R-Fla., and the timing of a potential vote is not yet clear. If passed, the legislation would go to President Trump's desk to be signed into law.

Background

Both the Trump administration and Congress have expressed growing concerns with the documented human rights abuses committed by the Chinese Communist Party and related entities against Uyghurs and other Muslim minorities in the XUAR.

The House passage of H.R. 6210 came on the heels of a series of actions the U.S. government has taken to address these violations. For example, in July 2020 the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) began imposing sanctions on Chinese government entities and current and former government officials in connection with these human rights abuses. These designations include the Xinjiang Production and Construction Corps., which is a paramilitary organization in the XUAR that is heavily involved in agriculture, particularly cotton production, as well as other industries. As a result, all transactions by U.S. persons anywhere in the world or by any persons within the United States are prohibited if they involve any property or interests in property of designated or otherwise blocked persons. These actions were taken pursuant to Executive Order 13818, "Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption," which implements the Global Magnitsky Human Rights Accountability Act (Pub. L. 114-328).

Similarly, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) has added a number of Chinese entities to the Entity List for being complicit in human rights violations in the XUAR. BIS added the first tranche of 28 entities in October 2019. More recently, BIS added nine additional entities in May 2020. And since October 2019, the U.S. Department of State also imposed visa restrictions on certain Chinese officials believed to be responsible for or complicit in the human rights abuses in the XUAR. For example, in July 2020, the U.S. Department of State imposed visa restrictions on current and former officials of the People's Republic of China to complement OFAC's July 2020 sanctions.

Additionally, CBP has played a significant role in detaining imports of items produced by forced labor pursuant to Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307). Under Section 307, "all goods, wares, articles, and merchandise mined, produced or manufactured wholly or in part in any country" by forced labor are prohibited from entering the United States. This provision had not been frequently enforced until the Trade Facilitation and Trade Enforcement Act (TFTEA) (Pub. L. 114-125) was enacted into law in 2016. TFTEA eliminated the "consumptive demand" exception, which permitted importation if domestic supply could not meet U.S. demand.

Since then, CBP has increasingly issued withhold release orders (WROs) after conducting investigations and determining that the evidence reasonably indicates that goods were produced by forced labor in any country. In the past two months, CBP has issued several WROs prohibiting the importation of goods from certain companies in the XUAR. These WROs are issued without any prior notice to importers and without the opportunity to comment or rebut the allegations of forced labor.

The most recent WRO, issued 30 September 2020 by CBP, bans imports into the United States of palm oil and palm oil products made by FGV Holdings Berhad and its subsidiaries and joint ventures. Palm oil is a common ingredient in processed foods, cosmetics, pharmaceuticals, soap, and biodiesel.

Congress has also been active on this issue, passing Senator Marco Rubio's, R-Fla., Uyghur Human Rights Policy Act of 2020 (Pub. L. 116-145), which was signed into law in June 2020. Rubio's bill requires, in part, various U.S. departments and agencies to provide Congress with reports on the human rights abuses in the XUAR.

Summary

The Uyghur Forced Labor Prevention Act builds upon the above-mentioned framework. First, the legislation would significantly expand the application of Section 307 by creating a legal presumption that all "goods, wares, articles, and merchandise mined, produced, or manufactured  wholly or in part"  in the XUAR or by persons working with the XUAR government for purposes of the "poverty alleviation" or "pairing-assistance" programs are produced by forced labor. This would effectively prohibit the importation of any goods produced wholly or in part in the XUAR unless U.S. importers provide CBP with "clear and convincing evidence" that the items are not produced by forced labor. These prohibitions impact not just the finished good, but any materials used in the production of the finished good being imported.

Second, the legislation would require the president to submit a report to Congress at least once a year with the names of any foreign person that (a) knowingly engages in, is responsible for, or facilitates the forced labor in the XUAR; and (b) knowingly engages in, contributes to, assists, or provides financial material or technological support for efforts to contravene U.S. law regarding the importation of forced labor goods from the XUAR. The legislation further requires the president to impose sanctions on the foreign persons identified in these reports. Sanctions include asset blocking; visa revocation; and ineligibility for visas, admission to the United States, and parole. This section, and any sanctions imposed under this section, would terminate five years after the date of enactment.

Third, the legislation would require U.S. issuers of securities to disclose certain information to the SEC in their annual and quarterly reports. Based on these reports, the president may decide to initiate an investigation into whether sanctions should be imposed on the issuer or its affiliates and whether a criminal investigation should be initiated. Specifically, the disclosure requirements apply if either the issuer or an affiliate of the issuer:

• "knowingly engaged in an activity with an entity or affiliate of any entity": (1) engaged in creating or providing technology or other assistance to create mass population surveillance systems in the XUAR; (2) engaged in building and running detention facilities for minority groups in  the XUAR; or (3) directly or indirectly using forced labor in the XUAR including any entity for which CBP has issued a WRO; or 
• "knowingly conducted any transaction or had dealings with" (1) any person the property and interests in property of which were sanctioned for human rights violations in the XUAR or sanctioned pursuant to the Global Magnitsky Human Right Accountability Act; or (2) any person responsible for, or complicit in, committing atrocities in the XUAR.

Any of the above-mentioned issuers must disclose the nature and extent of the activity; the gross revenues and net profits attributable to the activity; and whether the issuer or the affiliate intends to continue the activity. The SEC must make the information in the disclosure publicly available and must transmit the report to the president and Congress. Based on the report, the president must determine whether to initiate an investigation into the possible imposition of sanctions or initiation of a criminal investigation. No later than 180 days after such an investigation, the president must determine whether to impose sanctions or initiate a criminal investigation with respect to the issuer or its affiliate. These requirements on U.S. issuers would sunset the earlier of eight years after the date of enactment or on the date on which the president determines that the government of the People's Republic of China has ended the human rights abuses in the XUAR.

In addition, Uyghur Forced Labor Prevention Act would:

• Require the Forced Labor Enforcement Task Force to submit a report to Congress containing an enforcement strategy to effectively address forced labor in the XUAR.
• Require the Secretary of State to determine whether practice of forced labor in the XUAR constitute crimes against humanity or genocide.
• Require the Secretary of State to submit a report to Congress containing a U.S. strategy to promote initiatives to enhance international awareness of and to address forced labor in the XUAR.

Next steps

Businesses across all sectors should continue to pay close attention to the status of this legislation, which will have significant implications for any imports of goods made wholly or in part in the XUAR. More generally, business should ensure they have adequate internal controls to prevent, as much as possible, forced labor or products/labor from the XUAR entering any stage of their supply chains, and consider the risk of exposure to entities in the XUAR engaged in forced labor and other human rights abuses.

For further information or assistance, please contact any of the Hogan Lovells lawyers identified below.

Authored by Craig Lewis, Warren Maruyama, Chandri Navarro, Kelly Ann Shaw, Jonathan Stoel, Adam Berry and Molly Newell