What is the Uyghur Forced Labor Prevention Act?
The Uyghur Forced Labor Prevention Act (UFLPA) took effect in the United States on June 21, 2022 to prohibit importation of goods into the United States that were produced by forced labor in the Xinjiang Uyghur Autonomous Region (XUAR) of China. In Xinjiang, human rights organizations allege that over one million Uyghurs and other Muslim minority groups have been subjected to forced labor and genocide. To prevent the potential importation of goods produced by forced labor, the entire region is included in the act, and companies are responsible for ensuring that their entire supply chain is in compliance.
[WEBINAR | UFLPA: One Year in and Looking Ahead]
On the surface, total imports from the XUAR make up a small percentage of direct imports to the United States. But the XUAR region supplies a significant amount of raw materials that are integrated into Chinese products or transshipped through other countries. These raw materials are then integrated into parts and components across critical infrastructure, like the Defense Industrial Base, and the private sector. This means that the volume of goods and materials covered by the UFLPA is staggering and will impact many industries, especially apparel.
The World Relies on Xinjiang for Cotton
- 20% of the world’s cotton is produced in China
- 86% of that cotton is produced in the Xinjiang region
- 52% of China’s exported cotton is shipped to intermediary manufacturers in other countries and then supplied to 103 well-known global brands
UFLPA: The Rebuttable Presumption
The rebuttal presumption is indicated in Section 3 of the UFLPA. It states that all goods produced, even in part, in the Xinjiang Uyghur Autonomous Region (XUAR) are assumed to be made with convict labor and that CBP cannot allow these imports to enter the United States. The CBP was previously allowed to issue withhold release orders (WROs) on items that were produced by forced labor, but the rebuttal presumption now expands this power to all goods coming from China’s Xinjiang Uyghur Autonomous Region.
“The downstream impact is deliberately and potentially vast. The rebuttable presumption included in the UFLPA means that almost any goods coming from China that are comprised of cotton, refined metals, circuits, and polysilicon are reasonably subject to inspection and due diligence,” Exiger CEO Brandon Daniels explained. “This has the potential to be just as sweeping and impactful as the Bank Secrecy Act, anti-money laundering and counter terrorist financing (BSA/AML/CFT) changes after 9/11.” As Daniels stated in a recent Fortune article detailing potential UFLPA supply chain disruptions, the effects of the act will be felt by consumers.
“If you’re wearing a shirt that’s made in China, or have a computer [with parts] made in China… you may see these goods inspected and seized in the near future.”Brandon Daniels, Exiger CEO
UFLPA: Cotton, Polysilicon and Tomato Products Are High-Priority
In accordance with the UFLPA, the Forced Labor Enforcement Task Force must create a list of entities that engage in forced labor in XUAR. Sanctions already dictated by the act include cotton, polysilicon, and tomato products from the region. DOL data suggests that the XUAR region produces about half of the world’s polysilicon, as well as vehicle components, machinery parts, and electrical components in the form of raw materials.
Such goods are intricate in nature, meaning it can be difficult to fully articulate the types of materials coming from the XUAR region. Nonetheless, it is necessary to visualize your reliance on components or raw materials from the XUAR region through robust due diligence and end-to-end supply chain visibility.
The UFLPA is also having an impact on the auto industry, particularly with electric-vehicle batteries and other car parts made in China. The CBP has started monitoring lithium-ion batteries, tires and other auto parts shipments for UFLPA compliance in recent months, according to a Reuters report.
“If you’re a car manufacturer and you have not started mapping your supply chains for the critical minerals and the parts of the sub-assemblies that are going through China and where they are getting their goods from, you are running a real peril as we go into the back half of the year,” Exiger CEO Brandon Daniels told Reuters.
These and other products will see additional scrutiny upon entry to the U.S. and require comprehensive supply chain documentation to rebut UFLPA presumptions.
UFLPA: Enforcement Plan
In order to ensure goods from the high-priority sectors are kept from entering the country, the act includes an enforcement strategy. The Forced Labor Enforcement Task Force (FLETF) was created to comply with Section 741 of the United States-Mexico-Canada Agreement Implementation Act. It is the governing body created to ensure the United States does not import goods produced by forced labor. To enforce the UFLPA, the Forced Labor Enforcement Task Force must create an enforcement strategy for each high-priority sector. Each sector must have its own plan.
U.S. Customs and Border Protection (CBP) released UFLPA operational guidance in June 2022 to explain how it will identify Xinjiang goods and enforce the UFLPA:
- CBP must apply a presumption that imports of all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (Xinjiang) of the People’s Republic of China (PRC), or by entities identified by the U.S. government on the UFLPA Entity List, are presumed to be made with forced labor and are prohibited from entry into the United States.
- The presumption also applies to goods made in, or shipped through, the PRC and other countries that include inputs made in Xinjiang.
- The presumption is rebuttable, and, to overcome it, importers must, among other requirements in the UFLPA, respond to all CBP requests for information about merchandise under CBP review and demonstrate by clear and convincing evidence that the good, ware, article, or merchandise was not mined, produced, or manufactured wholly or in part by forced labor.
- The UFLPA also requires that importers demonstrate due diligence, effective supply chain tracing, and supply chain management measures to ensure that they do not import any goods made, in whole or in part, by forced labor, especially from the Xinjiang Region. This requirement extends throughout the entire supply chain, to include goods that may be shipped from elsewhere in the PRC and to third countries for further processing.
According to CBP operational guidance, CBP will enforce the UFLPA by taking specific enforcement actions, including identifying, detaining, and/or excluding, or seizing shipments subject to the UFLPA’s rebuttable presumption, depending upon the specific facts involved in each importation. CBP will review each shipment for UFLPA applicability, and appropriate action to be taken, on a case-by-case basis.
CBP will provide importers with notice, in accordance with the customs laws, when enforcement actions are taken on their shipments. In response to a detention notice, exclusion notice, or notice of seizure, an importer may provide information to CBP to request an exception to the UFLPA’s rebuttable presumption.
To grant an exception, CBP may require importers to provide documentation from these categories:
- Due diligence system information
- Supply chain tracing information
- Information on supply chain management measures
- Evidence goods were not mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region
Importers may also identify additional shipments that have identical supply chains to those that have been reviewed previously and determined to be admissible by CBP, to facilitate the faster release of identical shipments.
One solution that can help is Exiger’s purpose-built technology that brings even greater supply chain visibility and granularity. Our PAC and SDX solutions can illuminate your entire raw materials ecosystem for a deep understanding of sourcing.
[WEBINAR | UFLPA: One Year in and Looking Ahead]
Complying with the UFLPA
In order to comply with the UFLPA, companies must evaluate their supply chains and take any necessary action. “It’s no longer a competitive advantage, even though it can be,” said Exiger CEO Brandon Daniels. “But most importantly, it’s a critical aspect of complying with the law. So knowing that you’re not sourcing goods from this region is so critical.”
Review these steps to learn what your company needs to do for UFLPA compliance.
Drill Down to the Raw Materials
A common misunderstanding is that supply chain visibility ends at the part or component. Companies should instead prioritize visibility to see where raw materials are sourced, whether it is the second or the fifth tier. Statistics show that only about 2% of supply chain executives can see beyond the second tier, and very few companies have true visibility into how materials flow at the fifth tier.
Fortune 100 companies and federal agencies leverage Exiger’s supply chain management solutions to audit raw material flows. In addition to illuminating the deepest layers of the supply chain, we help organizations apply due diligence and supply chain risk management to their own supply chain flow.
Assess Supply Chain Links to XUAR
Review your list of vendors and vendor partners to see links to the XUAR. While you could manually check the U.S. Department of Homeland Security (DHS) UFLPA Entity List to see if any of your partners or vendors are linked to the area, this will not provide a full picture of their partners’ and vendors’ activities. This lack of transparency poses a risk to ensuring your supply chain is in compliance with the UFLPA.
This type of software replaces manual review of volumes of disparate data sources. It also provides visibility into each tier of a company’s supply chain, allowing risk management analysts to identify where points in a supply chain may be linked to the XUAR. SCRM software can comb through billions of records related to an entity to surface where your suppliers and their suppliers may harbor potential risks. If any of your suppliers are linked to the XUAR area, they pose a risk to your supply chain’s UFLPA compliance, and you will need to conduct thorough due diligence and potentially, remediation.
Conduct Due Diligence with FLETF’s Guidance
Dig deeper into your supply chain by performing due diligence and incorporating FLETF and CBP guidance with respect to high-risk commodities. Many companies and government agencies use a third-party risk management solution to conduct due diligence. This type of platform helps your team work efficiently and identify risks more easily.
Publicly Note Any Internal Investigations
If you find areas of concern in your due diligence or the CBP informs you of them, you must provide disclosures. This will let the CBP know what you have found in your research and that you are actively investigating any concerns. This will protect you from further risk and keep officials informed where needed.
The penalties associated with noncompliance are strict and go well beyond fines. If imports are found to be in violation of the UFLPA, the materials and parts will be seized at the border, and your organization will be publicly exposed as benefiting from forced labor.
According to McKinsey, a single prolonged production-only shock could wipe out 30 to 50 percent of a company’s one-year EBITDA. If your materials are seized and your supplier eliminated, your organization is in a vulnerable position with limited negotiating leverage to find a compliant supplier able to deliver replacement materials quickly.
Public attention to a UFLPA violation is equally damaging. For companies doing business with the government, noncompliance may terminate your contracts. For companies that operate in the consumer and B2B space, the damage to brand reputation could have consequences beyond public perception to hurt hiring, retention, pricing and revenue.
In the Media: Exiger’s Expert Take on UFLPA
- U.S. Lawmakers Press Customs on Enforcement of Uyghur Forced Labor Law
- Companies Face Compliance Challenges Under U.S. Forced-Labor Law Targeting China
- Where Does Your Cotton Come From? Dismantling Global Forced Labor Requires Pinpoint Supply Chain Transparency
- Uyghur Forced Labor Protection Act & US Supply Chains
- A Looming Supply Chain Crisis Will Test Just How Far Washington Will Go to Prove it’s Tough on China
Secure Your Supply Chain with Exiger
Knowing your Tier 1 vendors isn’t enough. Modern-slavery issues are three, four, and even six levels down in the supply chain. Anti-modern slavery policies without supply chain diligence and tracing aren’t enough.
Exiger’s Supply Chain Explorer and DDIQ solutions help you monitor, expose, and remediate risks across many different risk verticals. This enables you to monitor risk in real-time, uncover hidden risks based on in-the-moment activities, and forge vendor and supplier relationships based on transparency and risk management—not just cost and availability.
“Exiger is working alongside the Slave-Free Alliance at the frontlines of combating forced labor and modern slavery with advanced machine learning technology that creates supply chain visibility that was never before possible,” said Hope for Justice / Slave-Free Alliance CEO Tim Nelson. “They’ve built the largest forced labor and supply chain data network in the world that our experts will now be able to leverage to help every organization play a part in creating a slave-free future.”
Exiger provides your compliance, procurement and supply chain teams with the technology and subject matter expertise to identify and mitigate risks with the suppliers your business relies upon. We help some of the largest corporations and federal agencies assess their third parties and supply chains to strengthen ESG practices and comply with anti-forced labor regulations.
By the numbers, here is how Exiger technology is flagging modern slavery risks for our customers:
- In the last year, Supply Chain Explorer illuminated over 1,500 human rights violators hidden in supply chains.
- So far in 2023, DDIQ surfaced:
- Over 5,000 entities with human rights violations in new business relationships
- Over 1,000 entities with human rights violations in ongoing business relationships
“Exiger envisioned Supply Chain Explorer to simplify and democratize supplier and supply chain research, however, over the last two years, it became more than that. It was an opportunity to help the U.S. and our allies identify the impact of sanctions on Russia. It helped our clients rally against Uyghur Forced Labor. It has helped Exiger support the COVID-19 effort to safely procure the supplies healthcare workers desperately needed to save lives.”Brandon Daniels, Exiger CEO
Supply Chain Explorer is the world’s first-ever single-click supply chain risk detection SaaS platform. This next-gen tool delivers instantaneous transparency, allowing companies and government agencies to meet the urgent imperative to protect global supply chains from sanctions, ESG, and cyber risk at unprecedented speed and scale.
Learn how we can help identify and manage risk throughout your supply chain.
Related ESG Supply Chain Resources
- Mission Critical: Is China’s Modern Slavery Risk Hiding in Your Supply Chain?
- UFLPA: One Year in and Looking Ahead
- ESG Due Diligence Process
- ESG Supply Chain & Transparency Tech
- The ESG Standards