The Most Interesting Law in the World

Why Forced Labor and Trade Warrants a Substack

Since late last year, when I started writing an intermittent newsletter dedicated to insights and commentary on enforcement of the U.S. forced labor import ban (Section 307 of the Tariff Act of 1930), I’ve had this raucous ongoing internal debate.  Sometimes, even bubbling into unrelated conversations.  Am I just a walking case study of availability bias, I wonder, or is this law actually the most interesting in the world?

Admittedly, I do spend almost all day, every day, thinking about it.  But whether that had caused me to over-estimate the law’s significance, or simply accounted for why I saw things about it others seemed to overlook, I could not say.  Then, at some point in the build-up toward the Uyghur Forced Labor Prevention Act (UFLPA)¹ implementation, I found myself explaining to a colleague that, “this law doesn’t always combat forced labor, but when it does, it combats the largest instance of state-sponsored forced labor since World War II”.  And then I knew I had my answer.²

On the advice of a friend, I’ve decided to move this newsletter over to Substack, for a few reasons.  Primarily, the growth in interest was outpacing my email-based distribution, and Substack permits both email distribution and hosted content.  But even more compelling is that Substack has a reputation as a community of writers and thinkers, many of whom I’ve long respected. I think that the question of how trade laws can, should, and are being deployed to combat forced labor in global supply chains is an endlessly interesting topic, and certainly worthy of dedicated commentary. Hence, Forced Labor & Trade.

So today, on the launch of UFLPA enforcement, allow me to articulate a few reasons why I think Section 307 / UFLPA really is the most interesting law in the world. First, it represents a slightly different strategy, and an entirely new tactical approach in the U.S.-China trade war. Second, it constitutes a quiet revolution in sustainability legislation. And third, it has a credible claim to having the furthest extraterritorial reach of any law in history.

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A State-of-the-Art Weapon of (Trade) Warfare

Consider the tools used by the U.S. to achieve objectives in its ongoing trade dispute with China. The opening salvos were (1) the tariffs on what ultimately became an indiscriminate range of imports from China imposed under Section 301 of the Tariff Act of 1974, and (2) the tariffs imposed on imports of steel and aluminum under Section 232 of the Trade Expansion Act of 1962.

Ostensibly, the 301 tariffs were deployed because China refused to address the underlying U.S. grievances about intellectual property theft and forced technology transfer. The 232 steel and aluminum tariffs were ostensibly deployed as a response to chronic overproduction of the metals, predominantly by China. As such, while the two tariff actions had many distinctive features, what they had in common was being the vulnerable to the criticism as being “too blunt” to be effective.

The Section 301 tariffs were maligned for imposing costs on the imports of products (like basic consumer goods) that had never been linked to IP theft or forced technology transfers. Critics bemoaned that the 232 tariffs applied to imports from countries other than China, including trading partners considered by U.S. presidents not named Trump to be “allies”.

If these initial enforcement actions were like the trade version of a generalized aerial bombardment, then Section 307 of the Tariff Act of 1930, as augmented by the UFLPA, is like a battalion of surgical strike drones.

Unlike the initial two maneuvers in the U.S.-China trade war, Section 307 and the UFLPA are intended to prevent traders from causing a very specific instances of unwanted trade: the importation of goods made with forced labor. This will be accomplished by targeting individual shipments, discrete supply chains, and individual Chinese companies linked to Xinjiang or a social program of concern, and ultimately by persuading importers that they can’t afford not to invest in unprecedented levels of supply chain mapping and traceability.

Longtime readers will recall my update from March 11 of this year, when I sounded the alarm about current FY budget allocations to CBP for forced labor enforcement at the relatively unprecedented funding level of $24.7M. According to the long-awaited UFLPA strategy published last Friday, the Biden Administration is now seeking $70.3 million in funding in the FY 2023 budget so CBP can hire 300 full time personnel to do battle against shipments from China that may be linkable to Xinjiang or to entities listed by the United States for affiliation with forced labor in China.³

That might not sound like much, especially against the shock and awe campaign of Section 301 and Section 232 tariffs, which have now netted over $150 billion in import tariffs since July 2018 (over 90% of that is Section 301). But this is an unprecedented level of funding for the enforcement of a single trade law, and augurs a devastating level of supply chain disruption for importers that are ill-prepared.

If approved, this funding level will exceed by some $30M the entire budget of the Office of Foreign Asset Control (OFAC), at the U.S. Department of the Treasury, charged with enforcing U.S. sanctions laws. It is roughly equivalent to the entire budget of the Bureau of Industry and Security (BIS) within the U.S. Department of Commerce, charged with enforcing U.S. export controls laws.

Overall, this constitutes a subtle shift in strategy, and some entirely new tactics in the U.S.-China trade war. Rather than deploying a blunt instrument to serve as a drag on a huge volume of trade fundamentally unrelated to underlying grievances, the U.S. is putting unprecedented levels of resources into rooting out very specific forms of undesirable trade. It will be interesting to see how successfully the U.S. executes this fundamental shift, and whether it is ultimately effective in achieving its stated objectives.

A Quiet Revolution in Sustainability Law

Today’s launch of UFLPA enforcement happens to coincide with the summer solstice, and also happens to overlap with a planetary alignment visible in the Northern Hemisphere for the first time in 18 years. Auspicious, then, that the little combo of Section 307 and UFLPA is about to pass into the center of a constellation of laws in the sustainability, anti-modern slavery, anti-human trafficking, and supply chain transparency space.

Lenin’s quote comes to mind that “there are decades when nothing happens, and then weeks where decades happen.” Sustainability law is having one of those weeks.

Within the constellation of laws that seek, on their face, to create a better world by tackling problems like modern slavery and lack of transparency in global supply chains, the primary approach taken to date has been to require speech.

For example, the groundbreaking California Transparency in Supply Chains Act of 2010 required covered companies to put statements on their websites explaining how they manage risks of things like modern slavery in their supply chains. This model was replicated and modestly enhanced in the Modern Slavery Act of 2015 adopted by the United Kingdom, and introduced or adopted in other jurisdictions. Today, many of your favorite retailers will publish statements under one or both laws.

To the extent that the disclosures mandated by these early laws incentivized action, such action has generally been fairly incremental. And to the extent that a new generation of sustainability laws are now taking the next incremental step to demand action (such as the “Duty of Care” laws enacted in France and Germany, and the proposed EU-wide human rights due diligence regime), the stated goal of such laws is often to ensure that companies not currently invested in sustainable practices keep pace with those that are. In other words, incremental progress, and leveling of the playing field, codified.

But starting today, U.S. Customs and Border Protection (“CBP”) will begin detaining shipments and expecting that importers are able to produce comprehensive procurement and traceability documentation for their entire supply chain. Importers will be expected to prove that their shipments are not linked to Xinjiang, by solving for global supply chain complexity on a 30 day clock. The natural arc and evolution of sustainability law wasn’t on track to arrive here for decades, if ever. And then suddenly: this week. It will be interesting to see which companies are the quickest to adjust.

The Longest Arm of the Law

Assessing the capacity of different laws to have extraterritorial effect can be something of a parlor game within the legal academy. A country adopts a law, and wants to affect or regulate things in the world beyond its clear jurisdiction. Does it have a chance of success, and if so how? Legal scholars eat this stuff up.

I touched on the extraterritorial effect of Section 307 in my newsletter update from January 2021, but taking a slightly wider lens, laws with extraterritorial effect can also be seen as a constellation. They include laws like the Alien Tort Claims Act, an 18th century statute granting U.S. federal courts jurisdiction over tort claims brought by non-U.S. citizens (aliens) for torts occurring in violation of U.S. or international law. Some enterprising plaintiffs’ lawyers had sought to use as a basis for imposing corporate liability for supply chain harms such corporations had allegedly, theoretically, indirectly caused. This was such an interesting question, it made it all the way to the Supreme Court!

The Court contemplated and debated extraterritoriality, waxing about concepts of international comity and forum non conviens, drawing analogies between 18th century piracy on the high seas and modern slavery, before deciding (8-1) that no, that’s ridiculous. Such claims cannot be cognized in U.S. courts.

Another fixture in the constellation would be the Trafficking Victims Protection Reauthorization Act which has, since 2008, had explicit extraterritorial application in combatting forced labor globally in certain circumstances. This law has been more frequently utilized than the ATCA, but still, extraterritorial enforcement has been limited.

Lower toward the horizon, you may see a whole array of sanctions laws (which penalize entities directly subject to the sanctioning authority’s jurisdiction), and secondary sanctions laws (which penalize entities not directly subject to the sanctioning authority’s jurisdiction, by making it illegal to conduct transactions with such targets). These laws are often rebutted in foreign jurisdictions by so-called blocking statutes, which make it illegal for entities subject to the laws of that foreign jurisdiction to comply with the original jurisdiction’s sanctions. Deciding which side is prevailing in dueling sanctions regimes or boycott and antiboycott laws are a favorite sub-genre of the extraterritoriality parlor game.

Hark! What is that sterling beacon direct overhead? It is, of course, a U.S. law that seeks to assert extraterritorial authority over conduct happening anywhere in the world, without any required condition on the nationality or citizenship of the individuals or companies involved. This is a law so extraterritorial it makes the Alien Tort Claims Act look like a municipal ordinance. It is a U.S. law that would seek to regulate the commercial conduct of non-U.S. companies, even when such companies rely exclusively on the labor of non-U.S. workers, don’t do business directly with U.S. persons, and regardless of whether the conduct in question is or is not lawful within the jurisdiction where it occurs. With respect to this private commercial activity happening anywhere in the world, Section 307 and the UFLPA prescribe an outcome: no forced labor.

And how, pray tell, is this accomplished? How do Section 307 and the UFLPA give effect to the most radically extraterritorial law of any law that has ever existed? The operative legal language within Section 307 and the UFLPA is just four words: “wholly or in part”.

The U.S., like every sovereign state, has the power and authority to regulate and restrict the flow of goods into the country. And Section 307 builds on that intrinsic right of the state to prescribe the conditions of access to the U.S. market. It says that goods made wholly or in part with forced labor shall be prohibited from importation. A foreign entity is only subject to the expectations and constraints of Section 307 if it wishes to sell goods or materials that are destined for the U.S. market. Compliance is technically voluntary, but then again, so is access to the largest consumer market in the world.

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What To Expect from Forced Labor and Trade

My plan for this newsletter over the coming months is to take time to write about Section 307 and the UFLPA and its enforcement is evolving. The features I’ve described here only scratch the surface of what makes this law interesting and consequential.

As you know, I’m a practitioner in this space, and much of my day to day is spent helping clients navigate this new “drone warfare” phase of the U.S.-China trade war. I help sustainability leads grapple with the requirements of a law that few had on their radar even three years ago. And I help parties that wish to comply with the most extraterritorial law in history understand how to do so.

Ultimately, my hope is that my experience working with this law on a daily basis will allow me to shed light on things not so easily recognized, for a broad audience of interested stakeholders, including companies, policymakers and others.

Sometimes, I expect to steal a page from Paul Krugman and label a post “wonky” when I feel the need to really get in the weeds on a particular detail or wrinkle in the customs law. Other times, I want to write about the policy questions raised by trying to use trade laws to help end practices like forced labor. I expect to devote a fair amount of space just to trying to explain the law and how it’s operating.

Cards on the table, I’m net positive on this law. I do believe we ought to be trying to learn from its successes and failures, as it comes into its prime. But at the same time, for all its potential, I do fear the law isn’t not quite ready for the spotlight it’s about to receive. There are some clear gaps that need to be improved for it to be fair and effective. I’ll try to illuminate that more in due course.

If you appreciate the commentary, I hope that you will subscribe and share generously. No paid subscription requests will be forthcoming; this is just a labor of love. My best analysis and advice isn’t for a paywall, it’s for clients! It’s also an invitation to dialogue, so please reach out with questions, comments, and dissents, which I promise to address herein.⁴

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1. which functions as an augmentation of Section 307

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3. https://www.dhs.gov/sites/default/files/2022-06/22_0617_fletf_uflpa-strategy.pdf at 37.

4. h/t Andrew Sullivan!