Importers Should Seek Supply Chain Docs, Not Certifications, for UFLPA Compliance, Lawyers Say

Importers doing due diligence on their Chinese suppliers to make sure they don’t run afoul of forced labor prohibitions need to stick with the “nuts and bolts” of supply chain information, rather than explaining why it’s needed or asking for certifications that the suppliers comply with U.S. law, both of which could be illegal under Chinese law, Virginia Newman of Miller & Chevalier said during a recent webinar.

“There’s a lot of companies” that “have the knee-jerk reaction” of asking their Chinese suppliers to certify they’re not sourcing from Xinjiang, or that they comply with the Uyghur Forced Labor Prevention Act. But “that’s not something that’s very valuable to Customs,” she said. If you’re dealing with a detention, “it’s not going to help you.”

Doing so could put employees at risk under China’s Anti-Foreign Sanctions Law, she said. Standard operating procedure for many U.S. companies seeking to comply with the UFLPA has become to not reference Xinjiang, forced labor transfers, Uyghurs or especially the UFLPA itself, Newman said. Companies should stick with requests for specific documents and supply chain information, she said.

Recent revisions to China’s Anti-Espionage law also could affect UFLPA compliance efforts by U.S. companies, said Dan Solomon, also of Miller & Chevalier, during the webinar. The changes restrict the types of information that foreign firms can gather and access, creating a “dynamic situation” for “consulting and due diligence firms on the ground in China,” Solomon said, noting a “string of investigations just recently in the last number of months.”

The changes expand the definition of espionage, giving the Chinese government “very, very broad discretion” to decide what’s considered espionage. While there had been some firms willing to look into forced labor issues on the ground in China, “I think we will not see so much of that anymore,” Solomon said. “There will be increased focus on remote due diligence,” he said, but at the same time, there has also been some “clamping down on the remote due diligence activities, as well as the accessibility of Chinese corporate registry information,” Solomon said. “So I think it'll be really interesting to see how that plays out.”

Given how much is currently “in flux and subject to change,” Newman suggested hiring a local Chinese lawyer “to be able to tell you if there are updates on the ground, because the U.S.-China geopolitical situation is so dynamic right now.” Based on events “from the last month or so, it’s very difficult to predict what enforcement could look like in China,” she said.

The webinar, held last week, focused on UFLPA compliance for the auto sector. Despite recent rumblings of CBP turning its sights on auto parts, in particular due to the presence of Uyghur forced labor in aluminum and steel supply chains, there have not yet been widespread detentions under the law. That could be set to change, Solomon said.

When CBP targets a commodity under UFLPA, “it seems like there's like an initial round of enforcement, an initial issuance of detention notices, and then you see a sort of flood of detention notices,” Solomon said. “Even if it's one particular company, first you get one or two and then suddenly, there's detention notices issued on all of your products from that same supply line,” he said. “So I wouldn't be surprised if we saw that sort of jump in the next quarter or two.”

That could create a “difficult situation” for automakers and suppliers, “similar to what happened in solar but perhaps more complicated given the number of parts going into such a complex vehicle,” Solomon said. “It’s very difficult to shift supply chains” in the auto industry should problems arise, he said. From a “regulatory, safety and quality” perspective, any changes in suppliers take time, he said.

The auto sector does benefit from increased readiness to implement the enhanced supply chain tracing required by UFLPA, Leonardo Bonanni of Sourcemap said. “We don’t see quite as many of the suppliers upstream that don’t have any inventory management or traceability systems,” because those systems are already in place for quality control reasons, Bonanni said. Suppliers are “much more ready” than in other industries from “both a tracking and accounting” point of view “to provide that kind of data, he said. “They’ve been doing it for decades.”

But compliance will be complicated by changes in the automotive supply chain as the industry continues its shift to electric vehicles, which has changed the supply chain “immensely,” Solomon said. Though companies are moving from having to trace “2,000 or so parts” in an internal combustion engine to “20 or so” components in an electric car, those “components are often difficult to procure” and involve rare earths, some of which have been tied to UFLPA issues, he said.