European companies with business ties to China will need to ramp up their compliance efforts, and not just because of increasing EU sanctions and supply chain compliance requirements. If active in the US, European companies should also consider recent US legislation in relation to the Xinjiang Uyghur Autonomous Region ("XUAR").

Combatting forced labor

On 23 December 2021, US President Biden signed the Uyghur Forced Labor Prevention Act ("UFLPA") into law. The UFLPA strengthens the existing prohibition of importation of goods manufactured by forced labor (Sec. 307 Tariff Act 1930) by introducing a rebuttable presumption that all goods "mined, produced, or manufactured wholly or in part" in XUAR, or produced by certain yet-to-be-identified entities, are made with forced labor and, therefore, are automatically prohibited from importation into the United States effective 21 June 2022. This comes after US Customs and Border Protection ("CBP") issued a withhold release order ("WRO") to ban cotton and tomato products from XUAR in January 2021. The UFLPA now essentially shifts the burden of proof from the government to individual importers and businesses. Additionally, the Act strengthens the US President's authority to sanction foreign persons responsible for serious human rights abuses related to forced labor.

To rebut the presumption, importers must (i) fully comply with guidance and regulations by the Forced Labor Enforcement Task Force pursuant to the Act, (ii) completely and substantively respond to all CBP inquiries, and (iii) provide "clear and convincing" – usually interpreted as "highly probable" – evidence showing that the goods were not produced under forced labor.

European companies should closely analyze how they will be affected by the UFLPA, directly or indirectly, and eventually prepare themselves to ensure compliance with the legislation. If they import goods into the US originating from the XUAR, they will need to be in a position to demonstrate the absence of supply chain ties, or to fully identify the nature of their supply chains, connected to the XUAR. To achieve that degree of transparency, internal documentation

The UFLPA now essentially shifts the burden of proof from the government to individual importers and businesses.

systems collecting "clear and convincing evidence" should be adjusted to the high standards of the UFLPA.

Compliance and diligence

Initially, companies should comply with guidance already issued by CBP regarding the evidence needed from importers to obtain the release of goods confined by certain WROs. CBP expects a certificate of origin and documentation to support the origin of the product, such as, inter alia, affidavits from the product provider, transportation documents, manufacturing process reports and evidence regarding the importer's anti-forced labor compliance program. Furthermore, companies should take into consideration the Xinjiang Supply Chain Business Advisory of 13 July 2021, issued by six US government agencies, which provides, inter alia, a list of goods produced by child and forced labor. Even if this does not eliminate all the difficulties connected to conducting due diligence in XUAR, companies should enhance their due diligence procedures to enable effective supply chain tracing monitoring and auditing according to recognized international standards.

With regard to the US President's authority to sanction foreign persons and to the existing designations under EU, UK and US sanctions regimes, companies are advised to screen sanctions lists thoroughly and to conduct appropriate due diligence to ensure they are not dealing with any entity owned or controlled by a listed party.

To be complete, the import of goods from Xinjiang to the EU also requires European companies to take increasing regulatory requirements into account. Combatting forced labor and other forms of human rights violation is a priority for the EU – the EU Commission has published guidance on due diligence to address forced labor. Moreover, regarding Xinjiang, the EU has already imposed sanctions against 11 individuals and four companies from China prohibiting European companies, inter alia, to provide funds or economic resources (i.e., make payments or submit goods) to those listed individuals or companies. It remains open whether this list will be extended in the future or if the EU will impose an import ban similar to UFLPA; the EU Commission's position was blurry in the past. Perhaps, the shortly expected sustainable governance legislation proposal comprising compulsory supply chain due diligence requirements will provide some clarity.

Co-Authored by Ioulia-Aikaterini Vouleli, who contributed to the drafting of this article

Originally Published by Export Compliance Manager

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved