FLT Winter 2024 News Roundup

A UFLPA Hearing; Sayari's Investment; Ninestar Litigation; A Uyghur Status Update

Happy new year from FLT! Another year, another quarter . . . time for another FLT news roundup.

I’m using the inaugural post of 2024 to (1) recap an uncommonly illuminating congressional hearing on the Uyghur Forced Labor Prevention Act, (2) report on money movements in the UFLPA software service market, (3) update on the Ninestar litigation, and (4) check-in on China’s treatment of Uyghur community.

January 11, 2024 UFLPA Hearing

On Thursday, January 11, 2024, the House Subcommittee on Oversight, Investigations, and Accountability held a hearing on “Improving Enforcement in Countering Uyghur Forced Labor”. UFLPA-related hearings have been pretty hit-or-miss in terms of shedding light on the actual achievements and shortcomings of UFLPA enforcement to date. But this hearing punched above its weight, primarily because the witness list included three government officials with actual involvement in day-to-day enforcement.

Remember that in the United States, two government authorities are actively involved in forced labor trade enforcement—U.S. Customs and Border Protection (CBP), and the Forced Labor Enforcement Task Force (FLETF). This hearing, unusually, had witnesses from each. Testifying for CBP was Mr. Eric Choy, Executive Director of CBP’s Trade Remedy Law Enforcement Directorate (which houses CBP’s “forced labor division”). Testifying on behalf of FLETF were representatives of two of the Task Force’s seven member agencies: Ms. Thea Lee, a Deputy Undersecretary with the Bureau of International Labor Affairs (ILAB), and Ms. Christa Brzozowski, an Acting Assistant Secretary within the Department of Homeland Security (DHS).

Our forced labor trade team at Kelley Drye watched (and transcribed) the hearing so you don’t have to. If you’d like a copy of the write up, please send me an email. Here are 4 highlights from the testimony.

On the Evolution of the UFLPA Entity List

Ms. Brzozowski noted that DHS has established a team solely devoted to the development and administration of the Entity List, and has sought out experts to “better understand the Chinese corporate landscape”. She also testified that DHS is conducting a strategic review of every aspect of the entity listing process, and is working to develop “a transparent, consistent, scalable process for significantly expanding the number of entities listed.”

In response to a question about the specific factors that are considered before adding an entity to the UFLPA Entity List, Ms. Brozozowski replied that while DHS won’t share specific criteria, they “consider recommendations received from member agencies and NGOs, supply chain mapping and other types of research on the good or the corporate structure of entities involved.”

Mr. Bishop, chair of the committee, asked about the size of the UFLPA Entity List, which he said “does not make any sense”. He asked why there are so few entities on the UFLPA Entity List, and asked if there shouldn’t be hundreds or thousands. Ms. Brozozowski answered that they want to expand the list, noted the broad array of expertise from across member agencies that is being drawn on to inform the listing process, and said “you’re right that the number might not reflect the totality of the work that’s being done.” In his opening remarks, Ranking Member Ivey opined that seven member agencies for FLETF “might be too many cooks in the kitchen”.

On Advances in Developing CBP’s Shadow List

A little over a year ago, this newsletter coined term “UFLPA Shadow List” to refer to the list of companies that CBP targets for detention activity. While FLTEF publishes a UFLPA Entity List, and CBP enforces the law against that list of companies, CBP also has its own list of targets for enforcement which is most definitely not published. While the “shadow list” term sadly did not make an appearance at the hearing, it was a topic of discussion nonetheless.

Mr. Choy testified that the “advanced trade analytic platform” (ATAP) that CBP has been developing is used to help select targets for enforcement (i.e., to develop the UFLPA shadow list). He described the ATAP as having “operationalized analytic models that identify entities operating in the XUAR, their affiliates, entities with whom they share traits or characteristics, and indicators of evasion.” Mr. Choy testified that ATAP brings together a significant amount of data, sourced both from the government, and public/open source data, to identify risk within supply chains.

Sounds incredible. Who do I contact to get my login credentials?

On UFLPA Enforcement Against De Minimis Shipments

A lot has been made in recent months about the apparent non-enforcement of the UFLPA against so-called “de minimis” shipments, which enter the United States under expedited procedures without the collection of duty. Asked about this directly, Mr. Choy and Ms. Brzozowski had the same answer: essentially, that de minimis status does not exempt shipments from CBP review for violations of the law, including under the UFLPA, but . . . there are record levels of de minimis shipments, and such shipments contain much less information for CBP to review.

So, bottom line, is the UFLPA being enforced against de minimis shipments, or not? The best answer of the day came from Mr. Choy who said that, currently, “we are looking to enhance targeting [against de minimis shipments] using technical capabilities”, and that “[we are] open to a conversation with Congress in the long run.”

On Importer Re-Export and CBP’s Seizure Authority

One of the most interesting exchanges of the hearing addressed the ability of importers to re-export goods that have been detained under the UFLPA, and the authority of CBP to seize goods for forced labor trade violations. As you may recall, I published an article in October 2022 explaining that, notwithstanding assertions to the contrary from CBP and DHS in published UFLPA guidance, CBP lacks statutory authority to seize goods for violations of the UFLPA. Ranking Member Ivey was particularly focused on this question during the hearing.

In response to questions about whether Congress has given CBP the authority to seize imported materials, Mr. Choy provided a couple of different (vague but correct) answers, before acknowledging that if “Xinjiang inputs are found upstream or routed through third party countries . . . [w]hile a shipment like this will be detained, CBP does not have specific standing to seize the shipment. Any time during that process, the importer may re-export the shipment.”

Mr. Ivey then raised a concern that “allowing importers to re-export forced labor goods strikes me as an insufficient way to sanction forced labor” and asked the panelists to comment. He specifically asked if giving importers “the ability to re-export the shipment allows them to profit from forced labor”, a question Mr. Choy answered with an unequivocal, unqualified “yes”. Ms. Brzozowski noted that FLTEF is focused on creating international partnerships with other countries for this exact purpose, to enhance coordination so that those countries can also deny entry to “forced labor goods”.

There is deeply flawed logic here, which I cannot bear to overlook. It’s top of mind for me, because the same logic is at play in one of the key talking points by the NGO community regarding the proposed EU forced labor import ban, namely, that the EU needs to enact that law in order to prevent the EU from becoming a “dumping ground”
for goods tainted with forced labor, including, for example, when re-exported from the United States.

I regret to inform you that goods denied entry into the United States under the UFLPA are not “forced labor goods”, at least not always, and probably not even usually. With apologies in advance for the cumbersome and convoluted formulation (I blame the law) . . .

Goods denied entry into the United States under the UFLPA include those for which there is a lack of available evidence sufficient to demonstrate the full continuity of the supply chain, and those for which there is a good faith dispute between the importer and CBP as to the sufficiency of evidence that the goods lack a supply chain linkage to a region that is presumed under U.S. law to be implicated in forced labor (including goods that are tested in a lab and shown not to have any Xinjiang origin content, but for which certain paperwork may be deemed lacking), and those for which an importer could not absorb the cost and delay associated with traversing an ill-defined and protracted trade enforcement process, the initiation of which is not justified with reference to any independent, objective source of truth.

That’s what gets reexported following an unsuccessful UFLPA applicability review. Doesn’t quite roll off the tongue like “forced labor goods” does it?

And there’s the rub. So you think you need a rebuttable presumption to enforce a forced labor import ban effectively? Fine. But it can’t be turtles all the way down. A law that is enforced with presumptions stacked one atop the other will lead us to have moral certainty about speculations framed as conclusions. You can’t presume that forced labor is ubiquitous in a region, AND pretend that presumption is rebuttable but actually design it to be irrebuttable, AND presume that imported goods contain content from that region, AND disregard scientific proof that those goods don’t contain content from the region, AND refuse to disclose the reasons of your decision AND then proclaim that the losing party is a slave labor profiteer.

It’s a supposed to be a trade law, not a Monty Python sketch!

Money Movement in the UFLPA Software Scene

Congrats to the good folks over at Sayari for closing a $228 million investment from private-equity firm TPG. The investment in Sayari isn’t the first major investment in a company that provides software of value to the challenges of forced labor trade enforcement, nor will it be the last, but it is the largest (in dollar value) I’m aware of to date.

For a little context, Altana picked up $100 million in Series B funding back on October 2022. Barclays has apparently been a strategic investor in Kharon since September 2020 (though the amount of the stake does not appear to be public). Oritain raised $53 million in Series B funding in July 2023.

Comparing the Sayari deal to these others is a little bit apples and oranges, as the TPG investment in Sayari is described in the WSJ as an “acquisition” by a PE firm, as opposed to the VC funding rounds completed by Altana and Oritain (where the amount raised is linked to a projected valuation that is ostensibly a good deal higher than the nominal value of the investment).

To paraphrase the late Senator Dirkson, a hundred million in trade enforcement funding here, a few hundred million for software providers there, a couple billion in impacted trade . . . and pretty soon you're talking real money.

Speaking of Sayari, interesting to note only days before the TPG deal was announced, the Bureau of International Labor Affairs (ILAB) announced that it had awarded Sayari a contract for access to inform its work on the Forced Labor Enforcement Task Force. (This is in addition to the September 2022 contract previously awarded to Sayari by CBP.) A couple months ago, some legislators on Capitol Hill wrote a puzzlingly stern letter casting aspersions on ILAB’s role on FLETF, and asking if ILAB even knows anything about Chinese companies. Well, they certainly do now.

I suppose this is as good a time as any to mention that Sayari is an indispensable tool for any company that wants to conduct proper UFLPA due diligence on its supply chain, and one of the critical tools (though not the only tool) in Kelley Drye’s forced labor trade enforcement toolkit. If you want to know where you have UFLPA enforcement exposure in your supply chain, contact us for assistance.

Update on the Ninestar Litigation

On January 18, 2024, the U.S. Court of International Trade held oral argument on the question of whether Ninestar had “exhausted” its administrative remedies prior to filing suit over being added to the UFLPA Entity List, and if not, whether it should be required to do so prior to being able to avail itself of relief in court. This question could be dispositive of the success of Ninestar’s current litigation before the USCIT.

The oral argument included public and private segments. During the public portion, Judge Katzmann indicated that he thought it would be appropriate for the court to require Ninestar to exhaust its administrative remedies (which would likely mean granting the government’s motion to dismiss). In response, Ninestar made compelling arguments both about the likely futility of pursuing administrative relief, and also what it views as the unfairness of the process.

There was a lot of discussion in the hearing about the appropriate standards of review for each phase of the UFLPA Entity Listing process. If it is true that FLETF can list companies on the basis of a “reasonable cause” or “reasonable suspicion” standard, Ninestar argued that it is fundamentally unfair to require the company to prove “beyond a reasonable doubt” that it does not use forced labor, especially because it still doesn’t know what evidence FLETF ultimately considered actionable. No one appears to have made any allusions to 1987’s British troupe comedy during the hearing, but I wasn’t in the courtroom.

One clarification I’d like to make about my last update on the Ninestar litigation. In October, I noted that the government filed an administrative record in the case containing all the information that was found actionable in the Ninestar entity listing. The public version was almost entirely blacked out, and I inferred that Ninestar would have had access to the confidential version (as would commonly be the case in most trade litigation). I was mistaken. As Judge Katzmann helpfully clarified in a November 30 opinion in the case, there are essentially three versions of the record: the fully redacted public version, a slightly less redacted version visible to the parties, and then the fully unredacted version, containing “highly sensitive” information, viewable only to the government and the court. So, even though it got access to a version of the administrative record, it seems that Ninestar is still quite in the dark about what all, exactly, FLETF found to be actionable.

Status Update: China’s Treatment of Uyghurs

Last up for today, I have to commend a podcast. It’s a new year, and as the issue of China’s treatment of the Uyghur population within its borders has now been in the public eye for several straight years, and especially as most of the internment camps have reportedly closed, and transfers of Uyghur workers have expanded significantly, there’s value in taking stock of the present day experience of Uyghurs both within and outside China.

To this end, I’ve been tremendously appreciative of a podcast series published by the Economist. Originally published on the Economist Drum Tower podcast as a two part series July 2023 called “The Cage” (part 1 and part 2), the Economist revisited the topic just recently and published two updates in December 2023 and January 2024.

The January 2024 episode was particularly gripping for me, and if you listen only to one, let me suggest that one. The episode details the experience of two Uyghurs living outside of China—including in the United States—who have been subject to profound emotional and relational blackmail in an effort to silence their voices. I cannot imagine being put into the sort of position these (and other) Uyghurs have been put into.

There’s a point near the end of the episode when the journalist (Alice Su) is just grappling with the weight of that reality, and how difficult it is know how to respond, and she realizes out loud, almost, it seems, in real time, that if a state is intent on rewriting history and extorting people to create an alternative version of reality, what else can you do but keep telling the truth? Telling the truth is its own form of deeply human rebellion in the face of such a brutal and inhumane campaign. It renewed my conviction to keep writing and speaking the truth in these pages.

Thank you for reading.