[NOTE: A version of this newsletter update was originally published on March 11, 2022]
Happy Friday to you. I promised to write a bit more frequently this year, and with the Uyghur Forced Labor Prevention Act (UFLPA) now barreling towards full implementation, opportunities abound.
Seeing as yesterday (March 10) was the deadline for filing public comments on the UFLPA, you might expect that I’m writing with a quick preview of all the things that all the organizations had to say about all the tricky questions presented by the UFLPA. But no – I’m directing your attention somewhere else, to something that I judge to be far more important.
Trade developments are often associated with great fanfare. But even for close observers, sometimes the fanfare (or crowing headlines) can be hard to contextualize. How can you tell if something really is a big deal or not?
Here’s an example. Trump launched his trade war with 25% tariffs on $34 billion of annualized imports from China, grabbing headlines across media outlets. Big deal or not? Answer: it was a big deal for importers of products on the covered tariff lines, mostly manufactured and industrial goods at first, and ultimately proved a harbinger of similar future actions on a far wider range of products, including most consumer goods.
Here’s a trickier one. CBP issued a press release this week that it had seized $2.5 million in palm oil shipments in Baltimore under a forced labor finding. Big deal or not? Answer: Seems biggish, but . . . it actually appears to be a fluke. A single importer seems to have been asleep at the wheel, and imported merchandise subject to a forced labor finding (something that’s pretty easy to avoid, all things considered). CBP claims it provided the importer with multiple notices of the importer’s legal right to re-export the detained merchandise, which were reportedly unheeded, hence the seizure.
Feel like you have the hang of this? Well, here’s a really challenging one: This week, the final text of the FY22 omnibus appropriations bill was settled, is expected to be enacted in the coming days, and provides $27,495,000 for the implementation of Uyghur Forced Labor Prevention Act1. Big deal or not?
Answer: it’s unprecedented. In fact, it’s SUCH A BIG DEAL, we’re going to eschew standard typesetting, and crib a font from the Gray Lady . . .
Let’s break this down.
It’s the middle of March, so we’re almost halfway through fiscal year 2022, and Congress still hasn’t passed a budget . . . which checks out. House and Senate have each passed versions of the FY 22 funding bills, which will allocate money to various government agencies. Because the final bill has been delayed, by the time Congress got around to sorting out differences in the House and Senate bills in conference, they also had the chance to consider allocating funds for the UFLPA. The UFLPA happens to be one of the very few pieces of consequential, robustly bipartisan legislation to pass in the 117th Congress, so they’re really swinging for the fences on this one. Because this allocation was decided in the bipartisan, bicameral conference, barring a true force majeure, these numbers are all but guaranteed to be reflected in the final enacted legislation, likely within a matter of days.
Longtime readers will recall that I also previously called out that Congress was allocating $10 M to CBP’s Office of Trade specifically for forced labor enforcement. This $27.495 M is in addition to that. Taken together, $37.5 M will amount to nearly 12% of CBP’s Office of Trade budget, all exclusively dedicated to forced labor enforcement. This is up from essentially 0% just a few years ago.
How can we put this number in context? Well, for starters, it’s probably somewhere in the range of 130 to 160 full time equivalent (FTE) positions, dedicated exclusively to forced labor enforcement. About 3/4 of that headcount will be dedicated to enforcing on the Uyghur issue, alone.
Can you imagine what type of enforcement environment can be built by a team of 100+ full time specialists over a multi-year time horizon, equipped with de facto subpoena power over the entire U.S. import community?
I’m not going out on much of a limb to say that there is almost no company in the United States currently truly prepared for this type of enforcement on the question of supply chain links to forced labor. I took a deep dive yesterday trying to find suitable reference points.
How about the Office of Foreign Asset Control (OFAC), the division of Treasury responsible for administering and overseeing all U.S. sanctions programs. According to this GAO report, in FY 19, the total budget for OFAC at the Department of Treasury, had a budget of $46.8 M and a staff of 204 FTE.
Or what about the office of Export Enforcement in the Department of Commerce’s Bureau of Industry and Security (BIS), charged with enforcing the full suite of U.S. export controls. They have a FY 22 budget request of $74.6 M, covering 226 FTE.
The congressional allocation to CBP for forced labor and UFLPA enforcement will be almost as high as Treasury’s budget request of $39.6 M to fund operations of the Committee on Foreign Investment in the United States (CFIUS). (Federal CFIUS funding is also buttressed by $20 M in user fees, but still.)
CBP will, on short order (relative to government pace, anyhow), be assembling a team of 130 to 160 full time employees to serve as the ‘brains of the operation’ with respect to UFLPA and related forced labor enforcement. They will no doubt: formulate detailed requests for information from importers; develop parameters for shipment detention algorithms; review 3rd party allegations of forced Uyghur labor use by specific Chinese entities; help decide whether to “list” or “delist” particular Chinese entities; review and administratively adjudicate documentary “proof of admissibility”. I doubt this team will actually have a role in detaining goods, or interfacing with importers on individual issues and questions. Remember, CBP has thousands of import specialists and field operations personnel who will no doubt be roped into those ministerial roles. Twenty seven and a half million dollars. Holy smokes.
Within 30 days after enactment of the appropriations bill, CBP has to issue a plan on how it’s going to use these funds. That will be an interesting read because, depending on exactly when the appropriations bill is enacted, the public hearing mandated by the UFLPA might not even be completed yet.
A huge shout out to my friend and colleague Maggie Crosswy who spotted this budget allocation before it was reported publicly.