The CECC Has Some UFLPA Questions
And FLT Has Some UFLPA Answers!
I’ve been thinking a lot about this WSJ article from a couple weeks ago, about new polling showing that Americans’ interest in patriotism, religion, having children and being involved in their communities has plummeted over the last 25 years. This is not just a post-pandemic “new normal”, nor is it strictly disillusionment following the Trump years, though it is surely related to each. There seems to have been a generational shift in what we esteem, probably for many reasons.
Of these four values, the most precipitous drop has been in patriotism. 70% of respondents deemed it very important in 1998, and only 39% regarded it the same way in 2023. Thinking about that figure, I realized that I never got the memo that patriotism is passé. It also has had me reflecting on my own experience of the 1990’s, and I have to say. I was a patriotic kid!
I remember following national politics as a fifth grader. I perfected the lilt of H. Ross Perot as a party trick. Summer vacations to Washington DC included trips to Mount Vernon, the National Archives, and my personal favorite, the Bureau of Printing and Engraving. You can watch them print dollar bills, and buy a pouch of shredded misprints in the gift shop!
It was perhaps fitting that a high point of my high school career was competing in a mock-congressional hearing competition called We The People. Our team came to DC for the national finals my senior year, which I recall crushing. We had a meet-and-greet with our U.S. representative. I was living my teenage best life.
I share all that personal context to help relay my experience reading this April 11 letter, sent by Chair, Co-Chair and Ranking Members of the Congressional Executive Commission on China (CECC), Rep. Christopher Smith, Sen. Jeff Merkley, Rep. James McGovern and Sen. Marco Rubio, to Under Secretary for Strategy, Policy, and Plans at the U.S. Department of Homeland Security, Robert P. Silvers.
The CECC Letter sets out an array of questions and concerns about the Uyghur Forced Labor Prevention Act (UFLPA). It’s a highly enlightening read, because the UFLPA originally emerged from the CECC. Have you ever wondered what the creators of the marquis trade and human rights legislation think about the law they crafted? Have you ever wondered what they wonder about what they turned loose in the world? Is what they really intended? This letter holds the answers.
You can think of trade law as the UFLPA’s side hustle. Its day job is as a human rights law. That is why it was drafted by the legislative reps to the CECC, a commission formed in 2000 with a statutory mandate to monitor human rights and the development of the rule of law in China.
Longtime subscribers of FLT will know that I am genetically obliged to explain all things related to forced labor and trade. But now you also know that I have been training to serve my country by answering the questions of highly esteemed elected representatives since I was a teenager. An open letter from the members of Congress who wrote the UFLPA, asking for help to better understand how the forced labor trade law they created actually functions? I am here for it.
The members of Congress ask five major questions. For two of them, I’m as curious as they are. For the other three questions, I would like to offer some suggestions, a point of order, and an explanation. I’ve re-ordered their questions as follows:
They ask for a status update on Canadian and Mexican implementation of their own respective forced labor import bans, which each country is obligated to adopt pursuant to commitments made in the USMCA.
They ask about how exactly CBP plans to enforce the UFLPA against so-called de-minimis shipments, individual packages valued under $800 that enter the U.S. via expedited means, without the payment of customs duties, and with limited oversight.
They ask about when and how the Forced Labor Enforcement Task Force (FLETF) will begin in earnest the process of adding Chinese entities to the UFLPA entity list.
They ask about how CBP is going to handle instances of what it calls “transshipment” in the context of UFLPA enforcement.
And last but not least, is the question they actually lead with: CBP not enforcing the UFLPA the way the drafters of the UFLPA expected. Why not?
I’ll address each in this order.
Some Very Good Questions: USMCA & de minimis
The first two questions are important. I’m glad to see them being asked.
The USMCA made world trade history by being the first trade agreement in which multiple countries agreed to ban the importation of goods made wholly or in part with forced labor. And yet, as readers of FLT well know, banning trade in goods made with forced labor is much easier said than done.
As I’ve written previously, there is not yet even consensus on what a forced labor import ban is, let alone how to administer one effectively. I wrote last month about U.S. customs officials espousing the view that the purpose of the law can’t really be to distinguish between goods that are and are not made with forced labor. To me, as a trade attorney, this is nuts. If the U.S. still hasn’t been able to resolve these difficulties, I’m sure Canadian and Mexican officials are just as baffled by the challenge. But it would be good to get a better read on it, and whether those officials are being honest about the enormity and difficulty of their task.
I am also sympathetic with the criticisms of UFLPA enforcement in the de minimis context. It seems colossally foolish to saddle responsible U.S. businesses with hefty compliance costs, simply because they engage in large scale commercial importation, while simultaneously excusing from compliance obligations any foreign business that carpet-bombs the U.S. with tiny mailed packages. I’ll be interested to hear what ideas come forth.
Carefully Considering UFLPA Entity Listing
Before the UFLPA took effect, I wrote that expect the UFLPA Entity List to be the defining legacy of the UFLPA. That remains my view. By requiring the creation of a list of entities that are presumptively banned from having any role in a U.S.-bound supply chain, Congress created the first ever de facto sanctions regime in the context of import regulation. An impressive achievement for a law that is not a trade law.
I understand why some in industry wanted to have a UFLPA Entity List, and even lobbied for it to be included in the UFLPA. It’s far easier to decide who not to do business with if the government will just tell you who the problematic actors are. This is a key premise of sanctions law! But if you read the criteria that for UFLPA Entity Listing closely, you’ll see at least two dozen possible hooks that could qualify a company to be listed.
In and of itself, it’s not terribly problematic to identify numerous bases for listing Chinese firms. The problem is that this feature of the UFLPA Entity List, combines with many others to create an enormously high-stakes and error-prone environment. It is high-stakes because, once listed, a Chinese company is effectively foreclosed not just from exporting to the U.S. directly, but from participating in any supply chain destined for the United States. It is error-prone, because the current structure suffers from lack of formal guidance regarding what will be considered actionable.
The following factors drive the high-stakes and error-prone environment:
The UFLPA provides no guidance on the definition of a “firm” for listing purposes. How will related corporate entities be handled? Parent companies and subsidiaries? Off-shore subsidiaries?
The UFLPA provides no guidance on what level of detail is needed for an allegation to be considered actionable, or how current such information need to be. What if a company had investments in Xinjiang in 2013? What if it sold those investments? What if there is just reason to think it might have transacted with entities in Xinjiang but the proof is scanty? All of the foregoing would be enough for a private actor to level allegations.
The rebuttable presumption of the UFLPA is not actually a rebuttable presumption at all. It is, for all intents and purposes, a ban, because the threshold for clearing a shipment was dialed all the way up to eleven. If a company is listed, there is no credible way to expect release of shipments produced wholly or in part by that listed entity.
Now, I can almost hear the heads nodding in satisfaction. And I get it. What the Chinese Communist Party has done is barbaric. We need to make an example of someone. But allow me to appeal to patriotism.
Regardless of your politics, or your foreign policy, one of the indisputably great contributions of the United States to the global economic order has been the creation of a rules-based system governing international trade. The UFLPA should take its place within that rules-based system. In doing so, it will be an iconic American contribution to the rule of law, and to the advancement of human rights. It should not function as a rogue, demagogic law, ruthlessly unconcerned with precision, accuracy or truth. The world has enough politicians and political regimes who function that way already.
It isn’t necessary to create an extensive bureaucratic structure. A few guiding principles would be enough. Here are some modest proposals:
UFLPA Entity Listing should prioritize listing firms that are “engaged in the state-sponsored labor transfer program”. That language is lifted directly from the CECC letter, and would be a good guiding principle in regulations that should be published to govern the UFLPA Entity Listing process. (Yes, we need regulations.)
UFLPA Entity Listing should be limited to the business entity directly involved in participating in the state-sponsored labor transfer program. To the extent that FLETF or CBP has concerns about related companies (parent companies, companies with a common parent, subsidiaries, offshore subsidiaries, etc.) those companies should be probed for exposure through targeted detention activity, rather than overly aggressive listing, given the very high stakes associated with doing so.
Evidence of such participation should be “reasonably current” and confirmed via two or more original sources of information. It would difficult—and probably unnecessary—to be more prescriptive than that. But this doesn’t seem an undue burden.
I am confident that even the nongovernmental organizations and activists would agree, there are more than enough targets that fit these reasonable, rule-of-law style constraints. Firms that do not meet these criteria should not be UFLPA Entity Listed.
A Point of Order About Transshipment
The drafters of the letter note that they “agree with CBP that addressing transshipment from third countries is a major challenge in implementation of the law”, and ask about how CBP “intends to address this challenge of transshipment of XUAR-related goods.”
A quote comes to mind:
You keep using that word. I do not think it means what you think it means.
-Inigo Montoya, in The Princess Bride
In international trade, the practice of transshipment refers to the the shipment of goods to an intermediate destination, before being shipped onto a final destination. Most commonly, transshipment is done for the purpose of obscuring the origin of the goods, before reaching the final destination.
If that sounds illegal, that’s because it is! See, e.g., 19 U.S.C. § 1586, setting out specific penalties for specific situations of transshipment.
But what the CECC calls transshipment has a more common and less scandalous name, which is “manufacturing”. They’re thinking about scenarios where a foreign (non-Chinese) manufacturer of goods might use an input produced in Xinjiang. Or, more likely, uses an input that itself contains an input from Xinjiang. Or an input, containing an secondary input, containing an component, containing a widget, containing an material, made from a raw material . . . from Xinjiang.
Now, let’s be clear. This fact pattern is in scope of the UFLPA and Section 307. That’s the power of the four words “wholly or in part”, within Section 307. But it ain’t transshipment!
There is no reason to think that ordinary manufacturing operations are per se transshipment. Transshipment does happen. As does outright customs fraud, in order to circumvent trade laws and bring goods into the U.S. under false pretenses. But right now, the law can’t distinguish between the two—garden variety manufacturing, and deliberate transshipment—and both law enforcement (CBP) and lawmakers are likely to conflate the two.
I raise this as a point of order. Words matter. This isn’t that. But I also raise it to highlight yet another of the many improvements to the law that could be achieved if the U.S. forced labor import ban were to be modernized.
To lawmakers, I would say: imagine a law that could aid in distinguishing bad actors from compliant actors. Imagine a law that gave CBP the legal authority to seize goods made with forced labor—a legal authority it presently lacks. Imagine capping forced labor enforcement with a penalty mechanism that fits, and incentivizes what you want it to incentivize. The law can do all of this, but only if modernized.
Why CBP Is Releasing UFLPA Detentions
About three months into the enforcement of the UFLPA, I wrote an FLT post called “Is The UFLPA Working As Intended”. If you didn’t subscribe to my newsletter in September 2022, bookmark it and go back and give it a read on a Saturday morning.
The point that I made in the essay is that all enforcement of the UFLPA is happening on terms not specified in the law itself. In short, this is because CBP can’t tell which goods coming across the border are made, wholly or in part, with forced Uyghur labor. The best it can do is make an educated guess on what to detain and then examine the documentary proof of the supply chain.
The UFLPA was drafted based on a misconceived premise. The UFLPA presupposes that CBP can definitely tell which goods are made, wholly or in part, in Xinjiang or by a UFLPA Listed Entity. But that isn’t reality. CBP can’t. Sheffield Hallam can’t. Kharon can’t. Altana can’t. The best any of these can do is identify good foreign producers for probabilistic targeting.
So, when CBP stops a shipment, all it can do is examine the facts. And examine it does. A typical traceability file that may be submitted will have between 200 and 1000 pages of documentation. It will contain hundreds of business record identifiers. And if, at the end of that process, can take upwards of 100 hours of work to compile for every shipment, and upwards of 30 hours for CBP to review for every shipment, CBP finds that the shipment in question lacks the requisite link, the shipment is sent on its merry way.
I’ve likened the process to dropping a net at the border into a school of dolphins and sea turtles, trying to catch fish, without regard for how many sea turtles or dolphins you catch or harm in the process.
The CECC letter evinces confusion over why shipments are being released without notification to Congress. To this, I would say two things. One, the law doesn’t require it. The jurisprudence on legislative intent is vast and varied, and so too the debate among legal scholars about when it is appropriate to consider non-statutory expressions of Congressional desire. But on one thing we all agree. There is no circumstance where the legislative text is irrelevant.
I’m a parent to teenagers. It’s my prerogative to holler at them “Forget what I said. you know what I meant!” Congress does not have the same luxury.
Applicability reviews exist because they have to. A successful release following an applicability review does not need to be reported to Congress pursuant to the UFLPA.
Now that said, I think Congress should get what it wants! If members of Congress would like to better understand the detention review and release process, let’s set something up. I suggest blocking a full week, given that the average time to review a single traceability file for an experienced CBP official is in the neighborhood of 30 hours, and we’d need to bake in extra time for the learning curve.
As CBP—and importers—well know, UFLPA applicability reviews are an all-you-can-eat buffet. It doesn’t take a long time to sate the appetite.
As always, whoever you are, and wherever you sit, I hope this is helpful. Thank you for reading.