The Long Arm of the UFLPA
U.S. import law grows a sanctions regime, and goes for broke on extraterritoriality.
[NOTE: A version of this newsletter update was originally published on Jan. 21, 2022]
Happy 2022 to you all! Writing with another installment of my (intermittent) newsletter on the state of play of the U.S. forced labor import ban, Section 307 of the Tariff Act of 1930. Hoping to write a bit more consistently in 2022 (at least quarterly, or as the spirit moves).
At long last, the Uyghur Forced Labor Prevention Act (the “UFLPA”) is now law (Pub. L. 117-78). If you don’t have a good working understanding of the legislation, allow me to shamelessly plug our client advisory on the topic.
We tried to lay out the key moving pieces of the legislation as logically as possible. There has been a lot of reporting and a lot of advisories issued about the UFLPA, and some of it has been accurate. For purposes of this update, I’m combining an ultra-abbreviated synopsis with some candor on what I actually find significant about the bill.
The UFLPA is a deceptively simple piece of legislation. It’s designed to make it presumptively illegal to import any good into the U.S. which is linked to China’s oppression of Uyghurs in and outside of Xinjiang. The UFLPA ultimately enshrines a political determination as a matter of U.S. statutory law. It literally codifies the U.S. view of the human rights crisis in Xinjiang: namely, that there is forced labor occurring throughout the northeast Chinese province of Xinjiang, and that China’s systemic persecution of Uyghurs and other ethnic minorities implicates companies throughout China in the practice of forced labor.
To say that this is a political determination, is not to disagree with it on the merits. It’s just to say that, in China (obviously) the situation is viewed quite differently. But the UFLPA manifests the dominant bi-partisan U.S. political view of the topic, from at least the last couple of years. That political view is now U.S. law.
Under the UFLPA, it is now presumed that any good produced in Xinjiang, whether wholly or in part, was made with forced labor. Is that fair? Is it true? Is it likely to be over-inclusive? Whatever it is, it is now, also, U.S. federal law.
Similarly, the UFLPA also establishes a presumption that just about any Chinese entity that is linkable to Uyghur oppression—directly or tangentially—is implicated in forced labor. The UFLPA tasks the U.S. government with compiling four lists of Chinese entities that bear links to Xinjiang or to the social programs of concern. If any such Chinese entity happens to be involved anywhere in a supply chain producing goods destined for the U.S. market, such goods will now be presumptively inadmissible.
Much of the reporting on the UFLPA to date has focused on the prohibition with respect to the region of Xinjiang. (Similarly, a lot of reporting emphasizes the rebuttable nature of the presumption. In my view, the presumption is rebuttable in name only. A humble prognostication: the presumption of the UFLPA will seldom, if ever, be rebutted.) But my hot take is that the compilation of a list of entities outside of Xinjiang, that will be presumptively barred from U.S.-bound supply chains, is the sleeper part of the UFLPA, and arguably the most legally significant development.
A compiled list of entities with whom it is deemed illegal to conduct specified business dealings is . . . a sanctions list. The UFLPA creates, for the first time, a de facto sanctions regime in the context of import law.
While it remains to be seen how many Chinese entities will ultimately be listed (tens?), there is little doubt that there are hundreds—and more likely thousands—of Chinese entities that fit one or more of the descriptions of the various lists. The lists can be hard to parse (they’re not exactly neat, mutually exclusive categories), but I’ve broken the language down prescribing the lists into an annotated deck as a digestive aid. If you’d like a copy of that, just shoot me a note.
I have a lot of questions (and a few speculations) about how we ended up with the first ever import sanctions regime. When the UFLPA was first introduced in Congress in March 2020 (passing the House 406-3), the presumption imposed was a lot more abstract. But however we got here, the law governing the importation of goods into the United States just underwent a pretty fundamental evolution.
A quick compare-and-contrast with other U.S. sanctions law sheds light. Unlike sanctions administered by the Office of Foreign Asset Control (OFAC) at the U.S. Department of Treasury, this sanctions list is not backed up by wildly high penalties for violations calculated on a transaction-by-transaction basis. CBP may impose civil penalties for UFLPA violations, but any such penalties will be far smaller than the statutory authorizations for OFAC administered sanctions.
But what the UFLPA lacks in monetary penalties, it makes up for in extra-territoriality. Whereas most U.S. sanctions regimes restrict specified transactions involving U.S. persons, the restrictions of the UFLPA don’t depend on the identity or nationality of the party engaged in the transaction. A transaction involving a listed entity might involve no U.S. person whatsoever. It might be many supply chain “tiers” and commercial transactions removed from the U.S., buried in an impossibly remote branch of a global supply chain. The link to U.S. jurisdiction is created if and when a physical product is produced which enters the customs territory of the United States.
How is this accomplished? With four words from the original Tariff Act of 1930: “wholly or in part”. This is the phrase, found in Section 307, that has been interpreted by CBP to bring in scope the entirety of the modern global supply chain, all the way back to raw material as a legitimate target for a border-enforced forced labor import ban. That is the phrase onto which the UFLPA grafts its rebuttable presumption. That is the phrase that Congress has relied upon to create the first ever import sanctions regime, with an essentially boundless extra-territorial scope.