Lawyers Say Implementing Uyghur Bill Will Be Complex

Importers are concerned that they will face a higher likelihood of goods being detained over the suspicion of forced labor come June without having the benefit of government advice on effective due diligence and supply chain tracing. But even that advice may not be enough of a roadmap for companies to be sure they can escape the rebuttable presumption that the item they are importing that could have inputs linked to Uyghur labor or Xinjiang production should be barred from entry into the United States, said Ted Murphy, a partner at Sidley Austin.

Murphy said if the government gave something definitive, like don't buy any cotton from China, or don't buy any cotton-blend fabric from China, that would be useful. Still, what would be enough to prove you didn't have those inputs? Murphy doesn't believe that a certification from a Chinese producer that they didn't use cotton from Xinjiang would be enough. "Clarity works both ways," Murphy said in a telephone interview. While it helps American importers avoid problems, it also tells what he called "bad guys" how to circumvent the restriction. "Oh, you say you can’t buy fabric from Chinese suppliers? The fabric will be made in Thailand."

"The fundamental issue is -- you're trying to prove a negative. You’re bringing in a sweater and you’re trying to prove the cotton in the sweater is not from Xinjiang. How much proof is enough?"

He said the U.S. buyer will ask the sweater manufacturer where the cotton is from, and the manufacturer will say it doesn't know, but offers the fabric vendor's name. The fabric vendor doesn't know, but offers the yarn seller. The yarn producer says it bought cotton from an exchange, and, Murphy said, that exchange commingles cotton.

"No one is in favor of forced labor," Murphy said, but Customs can't verify a certification from any of these players in the supply chain, because they can't go to China.

"I’m not casting aspersions on anyone -- this is really hard," he said. "I think the government thinks it’s easier than it is. I think Congress thinks it is easier than it is."

In addition to providing guidance to companies in six months, the administration is tasked with identifying all the Chinese companies that accept labor transfers of Muslim minority workers from Xinjiang. Sam Witten, counsel at Arnold and Porter in its international practice group, said that trade lawyers will be following what government officials say about how they will identify those companies. "The XPCC, that is already a huge thing," he said, referring to the Xinjiang Production and Construction Corps, which is subject to a withhold release order and is linked to 53 companies on the U.S. entity list. "And this goes beyond that," he said. "It will be a question of how the executive branch folks kind of pick 'what’s next?'"

Witten, who worked at the State Department for 22 years, said non-governmental organizations that study Uyghur forced labor are likely to be "very influential." But, he said, even if those NGOs "have people on the ground and networks of information," investigators in the administration will still have to figure out how reliable the information is. "The information needs to be accurate, and that can be quite hard to separate the wheat from the chaff," he said. "It requires rigor before you just accept information … enough rigor that it’s a U.S. government decision and not just repeating an NGO allegation."

Most of the withhold release orders on Uyghur-produced goods have been raw materials rather than manufactured components or finished products, Murphy noted, and raw materials are the hardest to identify in imports. Murphy said he thinks it's worked out that way because Chinese manufactured goods' links to Uyghur-produced imports are largely opaque to outsiders. "I think if they could sanction finished products, they would have," he said. "Companies appear and disappear in China."

And even if you know what companies are linked to Uyghur forced labor, if those companies don't sell directly to U.S. firms, sanctioning them is not so effective, Murphy said. "Hoshine may not have a lot of direct dealings with U.S. companies, I suspect," he said. "So sanctioning them is a pyrrhic victory; but if you sanction what they produce, that can screen them."

Murphy said that while Congress and the Labor Department may think identifying Uyghur-tainted goods is straightforward, he believes that Customs has concluded after implementing its Hoshine and cotton WROs that it is hard.

"Companies are submitting hundreds and hundreds of pages of documents [after detentions] and it’s taking Customs months and months to review it," he said. Importers are able to convince CBP that the goods were not made with forced labor some of the time, he said. "My impression is it’s not a lot of the time, because again, people don’t have that sort of visibility down to the raw material. And often times there is no commercial reason to have that sort of visibility. It’s something people are trying to do on the fly."

When companies do not convince CBP that the goods were blocked in error, "they also don’t get told often why they didn’t win," he said. Murphy said in order for the guidance to be workable, the process has to be much faster. As a group of Sidley trade lawyers wrote in a blog, "...Even if the forthcoming enforcement strategy contains a clearly defined evidentiary standard, this alone would not be much help to importers if CBP is not required to respond within a reasonably short period of time (during which time the importer incurs daily storage fees for the detained merchandise)."

He said he would be in favor of a 30-day review. He said one client that was confident it could prove its clothes did not contain Xinjiang cotton still had to export them because the process went on so many months, the clothes were out of season. It used to be, Muirphy said, that "the idea was that U.S. companies could be good people in bad neighborhoods. You’d go to Malaysia or somewhere else and you’d bring your standards. What the U.S. government now is saying [is]: We don’t want good people in bad neighborhoods. We want you out of the neighborhood."

He said that's fine, but it's hard to find a neighborhood that doesn't import any inputs from the bad neighborhood. It won't be enough to just buy from Central American or Mexican factories, he believes. He said he thinks that CBP will do just enough detentions on goods from those countries with Chinese inputs "to be sure people know about it."

He said after the rebuttable presumption begins June 21, there will be more detentions. But even if the U.S. turns its priorities from raw materials to components that are more traceable, he still doesn't think it's likely to be finished goods from China that are identified as linked to forced labor. "I think it’s going to be the intermediate suppliers," he said. "I think it’s shoelaces, not the shoes."

Murphy said that while apparel manufacturers may move out of China to make it less likely they're buying Xinjiang cotton, it may also be that the way that contracts are written may change so that instead of buying a finished sweater, the U.S. company is buying the cotton and then consigning with manufacturers to make yarn or fabric. Or, he said, "they will buy a sweater from somebody that’s going to be able to provide assurances it wasn’t made from Xinjiang cotton. They’ll pay more for that."

Murphy said if the guidance is not commercially workable, he expects that U.S. companies will end up challenging the regulation. "Eventually you’re going to have to get judicial oversight over some of these things," he said.