The Uyghur Forced Labor Prevention Act, a year in.
The Uyghur Forced Labor Prevention Act (UFLPA) entered into force in June 2022. In slightly less than a year, it has led to the detention of 4,269 shipments worth nearly $1.4bn.[1] As we will explore, the range of goods detained, and thus the companies impacted, is broad.
With detentions periods exceeding six months, and many shipments ultimately being denied entry to the US, the UFLPA should be high on the risk register of every company importing to the country.
US Custom’s and Border Protection forced labour enforcement budget has been tripled to $101m for FY 2023 and we expect a substantial increase in enforcement.[1]
Shipments detained on forced labour grounds increase 38,000% in five years.
The import of goods made by forced labour to the United States has been prohibited since 1930. Goods can be detained and denied entry, and importers fined. However, this rule was barely enforced for eight decades. In the last five years, enforcement has radically improved and the number shipments detained grew from twelve in FY 2019 to 967 in FY 2021.
The UFLPA has turbocharged this trend. The UFLPA requires US Customs and Border Protection (CBP) to assume that all goods made in, or containing materials from, China’s Xinjiang region are the product of forced labour, and therefore subject to the import ban. For further information, see our article here.
In the first half of FY 2023 Customs and Border Protection (CBP) detained 2,293 shipments on forced labour grounds, 86% of them under the UFLPA. We predict that the total number of shipments detained in FY 2023 will exceed 4,500, the majority under the UFLPA. This is likely an underestimate as it does not take into account the significant increase in the enforcement budget.
It's not all about China.
The UFLPA targets goods made in China’s Xinjiang region and by Uyghurs in other parts of the country. It is striking therefore that 90% of goods detained thus far under the UFLPA were not, directly, shipped from China.
There are two reasons for this, firstly goods may be shipped from China via a third country or countries to the US. Such transhipment maybe for legitimate commercial reasons but could also be a deliberate attempt to obscure the country of origin. Secondly, the CBP is rapidly developing its capability to identify goods that contain materials from Xinjiang.
The data serves as a reminder that companies should undertake due diligence of their global supply chains, and not simply focus on only one country.
And its certainly not all about cotton.
Xinjiang grows 20% of the world’s cotton and multiple, credible investigations have indicated the widespread use of forced labour in the province’s industry. Historically the CBP has therefore focused on detaining goods containing Xinjiang cotton.
The CBP is still targeting Xinjiang cotton and has detained 753 shipments in the apparel, footwear and textiles category under the UFLPA thus far.
However, the category only represents 17% of goods detained. Indeed, CBP are detaining goods from across the industrial spectrum, in categories ranging from aerospace to agriculture.
Xinjiang has a large and diverse economy and it is logical that a wide variety of goods are being detained. Many of the materials it produces are used in a vast number of other goods. For example, Xinjiang produces 10% of the world’s primary aluminium [3] and PVC [4]. We anticipate that the CBP will further expand the range of goods that it detains in the future.
What happens to all those detained goods?
Once detained, the CBP will conduct an investigation. The investigation process can be long, and a decision is still pending on 45% of goods detained in 2022 and 47% of goods detained in 2023. Our analysis suggests that a shipment will be detained on average for at least six months. A detention can therefore have a substantive impact on a company’s cash flow and operations, even if the shipment is eventually released.
When the importer can demonstrate that the shipment does not contain material from Xinjiang, CBP will release the shipment. Alternatively, the importer can try to demonstrate that while the goods do come - or contain material from - Xinjiang, no forced labour has been used in their production. To date, only a handful importers have done so.
When the CBP determines that a detained shipment does come from Xinjiang, it will ‘deny’ the shipment. The importer must then remove the goods from the US or they will be destroyed. Fines may also be levied.
Action.
Companies need to conduct due diligence of their supply chains for human rights risk, consistent with the CBP’s guidelines. This should include assessment and monitoring of suppliers.
There is a notable lack of awareness of the UFLPA among European brands doing business in the US, many of which are importing Chinese made goods.
The UFLPA is already impacting on a very wide range of businesses. We expect detentions to increase significantly as the CBP learns from its experiences, implements new technology and puts to use its larger enforcement budget.
[1] https://www.cbp.gov/newsroom/stats/trade/uyghur-forced-labor-prevention-act-statistics
[3] https://www.horizonadvisory.org/backtobasics
