The Uyghur Forced Labor Prevention Act is an excellent concept with possibly very harmful consequences for U.S. companies, according to an analyst on U.S. Customs subjects.

The UFLPA was signed into law by President Joe Biden on Dec. 23, 2021.

The UFLPA states that the importation of any goods, wares, articles and merchandise mined, produced or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China, or produced by certain entities, is prohibited by Section 307 of the Tariff Act of 1930 and that such goods, wares, articles and merchandise are not entitled to entry to the United States.

John M. Foote, a partner at Kelley Drye & Warren in Washington, D.C. | Kelley Drye & Warren

John M. Foote, a partner at Kelley Drye & Warren in Washington, D.C. and publisher of a Substack newsletter called "Forced Labor Trade," discussed it on the Center for Strategic and International Studies podcast "The Trade Guys" with hosts William Alan “Bill” Reinsch and Scott Miller.

Reinsch said Foote is a leading expert on forced labor issues and the UFLPA, which is why The Trade Guys wanted to hear from him.

“I particularly wanted to do this because my sense is this is going to be a much bigger deal in the trade landscape than people thought originally,” Reinsch said. “People thought, well, forced labor, OK, it’s going to be really important for a handful of companies or a handful of industries that are engaged in Xinjiang province. End of story.

“As we’re discovering, because of where they're enforcing it, looking at cotton, looking at textiles in apparel, looking at polysilicon, which means chips and solar panels, and a lot more supply chains than people think. This may end up being a much more significant part of our overall trade policy than people anticipated.”

Foote said the United States has banned forced labor since 1930. It was part of the Smoot-Hawley Tariff Act, which he described as “the infamous tariff bill that had the effect of prolonging the Great Depression.”

“One provision within that bill was Section 307, and it was a forced labor import ban," he said. "It made it illegal to import any products in the United States that was made wholly or in part with forced labor.” While the law did have periods of enforcement in the 1950s and ‘60s and then again a little bit in the ‘80s and against the Soviet Union in the ‘80s, a little bit against China in the early ‘90s, it really had not been enforced at all since about 1994-95. And, substantially, that was attributed to this clause that was present in law. That clause was removed by the Trade Facilitation Trade Enforcement Act, which was an update to the trade volume.”

He said when the Uyghur issue “reared its head and the world took note of the systematic oppression of Uyghur individuals,” Congress was looking for some way to address this concern.

“Basically, what that law does is it makes a presumption that any good that’s produced in Xinjiang has been made with forced labor, and that any good that is produced by an entity anywhere in China that has taken a transfer of Uyghur labor is also presumed to have been made with forced labor, and therefore it falls subject to this forced labor import ban,” Foote said.

“The law is enormously powerful because of a particular clause in it that says wholly or in part, and this little four-word phrase is interpreted by customs to bring the entirety of a supply chain in scope,” he added. “The law bans the importation of goods made wholly or in part with forced labor, which means that if you have deep-in-the-supply-chain commodities that were made with forced labor, then the finished product could be banned from importation, prohibited from importation.”

This has had enormous consequences, Foote said.

“And it doesn’t matter sort of where the goods go after they are touched from the problematic region or one of these problematic entities. If the goods go to a third country, Vietnam, Indonesia, Malaysia, it doesn’t matter,” he said. “The finished goods are subject to the provisions of the UFLPA and then Congress decided to go ahead and fund its enforcement at just an absolutely unprecedented level. They’ve put tens of millions of dollars to customs. Already, customs got an earmark of close to $30 million just for the enforcement of the UFLPA. The budgetary request for the next fiscal year is north of $70 million.”

Foote said U.S. Customs is looking to bring on 300 full-time personnel for the enforcement of the UFLPA. That could deeply impact companies, who could struggle to track the origin of every part of a product.

“What if you want to argue that the UFLPA does not apply, and that actually is where most companies are sitting," he said. "They want to argue that a particular import that gets detained by customs provisionally. They want to be able to argue, no, the UFLPA does not apply … So let my shipment go free. How much proof do you have to present to U.S. Customs in order to demonstrate that the UFLPA does not apply? That statute doesn’t resolve those other very tricky and enormously consequential evidentiary questions.”

Foote said it is difficult to ascertain how China's decision affects U.S. businesses and consumers.

“This is something that is certainly, first and foremost, experienced by the business community,” he said. “If enforcement does, in fact, ramp up in the way that it seems like it is going to, based on the funding, based on the personnel that CBP wants to staff, and if, in fact, solar imports are in fact as linked to Xinjiang as they are reported to be, there could definitely be a decrease in the availability of solar equipment.

“How many of the average American consumers are looking to buy solar panels and have them installed in their homes? It’s a small percentage, I think, of the average American population, but it’s present," Foote said. "But I think the bigger impacts are on the geopolitical relationship. Obviously, China does not like this law, resists and resents its enforcement and very much disagrees with some of the underlying characterizations. And it has a very significant impact on businesses, which have complex global supply chains and a lot of reliance on manufacturing in China, all of which is sort of at risk under the UFLPA.”

Reinsch sarcastically called the law “a wonderful gift from the Congress who probably thought they were doing something really smart and really effective here. But compliance looks horrific.”

He said he dealt with something like this when the Lacey Act, a very old ban on endangered animals, was extended to any endangered plant species.

“But they forgot totally about the compliance side in this case," Reinsch said. "So one of the first calls was from the Japan auto manufacturers who said, ‘By the way, in every car we send to the United States, there is an owner’s manual made of paper, which is a plant product. Is that covered?’ And nobody had an answer. The company I worked for bought rayon. Rayon is made from wood pulp and I’ll take you to a rayon factory and look at that tray of pulp that it starts out with and you tell me if endangered species are in there.”

Foote said the intent of the UFLPA was to force U.S. companies out of Xinjiang while reducing competition with products produced by union workers.

“The reality of global supply chains is that they’re vast, they’re enormously complex,” he said. “And I think that over the course of the last couple of years, companies that knew that they were sourcing, for example, from direct supplier in Xinjiang, many of them, I would argue, have ended those relationships.

“The question now is much more, ‘Are there deep in the supply chain linkages to Xinjiang,' where, it’s not you’re buying a good from Xinjiang, but the company that you’re buying goods from is buying a component from another company that is buying a raw material that may have originated in Xinjiang,” Foote added. “And as an importer, you may not have knowledge of that.”

The UFLPA is predicated on an arcane statute written in the 1920s and enacted in 1930. It has not evolved to deal with complex evidentiary issues, he said.

“And that presents a risk that there is a significant amount of merchandise that does, in fact, have no link to Xinjiang, but could nevertheless get caught up in enforcement,” Foote said. “And that’s where there are much more legitimate concerns, I think, on the part of the importing community. Nobody needs to preserve their access to Xinjiang for production, setting aside arguably the solar industry, which seems pretty inextricably linked to it, at least for the time being. And nobody needs to be sourcing from a factory in China that is benefiting from forced labor. No one has an interest in that.”

Another issue is the lack of a forced labor ban in Europe. It’s been discussed but nothing has happened.

“At this point, Europe is sort of all talk and no action,” Reinsch said. “Maybe too harsh on our European friends, but they’re not doing anything yet. That means Europe’s buying all those products that can’t come to the United States.”

That, Foote said, is a fundamental issue.

“There are definitely connections to commerce, but the largest consumer market in the world cannot on its own, effectively stop the problem,” he said. “In fact, built right into Section 307 and the UFLPA is the notion that this is just a U.S. trade law, which means that if you have a shipment that is detained and is linked to Xinjiang or linked to a listed entity, companies have the option of exporting those goods and sending them to another market that doesn’t have a similar sort of provision.

“A forced labor import ban is only effective if at least a plurality of the major consumer markets of the world are aligned and agree to have a similar style approach,” Foote said. “And we’re definitely not at that stage now.”