National trade laws of importing and exporting countries are inextricably linked to national security and human rights. Below we look at a range of recent trade policies and laws in the US and the EU and how they promote human rights by restricting trade with products made with forced labor. We then look at the recent laws promulgated by the People’s Republic of China aimed at promoting and strengthening its national security, sovereignty and development interests, and as a direct response to counteract Western countries’ trade laws targeting Chinese regions and Chinese companies.

United States of America (US)

The Uyghur Forced Labor Prevention Act (UFLPA) signed into law on December 23, 2021 (link)

The UFLPA is an amendment to the Tariff Act of 1930. The scope of the UFPLA covers all products made:

(a) specifically in Xinjiang Uyghur Autonomous Region (Xinjiang) of China; or

(b) by a UFLPA “listed entity”.

(a) Xinjiang:

The central provision is section 3a, which creates a rebuttable presumption that all articles (goods, merchandise and wares) from Xinjiang are made with forced labor. The burden of proof, with the second-highest standard under US law (i.e. clear and convincing evidence, more than 50 percent but not beyond reasonable doubt) is on the importer to prove the merchandise is not made with forced labor, otherwise such merchandise is barred from entering the US.

(b) Listed entity:

In accordance with section 2(d)(2)(B), the Forced Labor Enforcement Task Force (established under section 741 of the United States-Mexico-Canada Agreement Implementation Act (19 U.S.C. 4681) must, in consultation with the Secretary of Commerce and the Director of National Intelligence, create a list of entities that collaborate with the Chinese government in the repression of the Uyghurs (UFLPA Entity List). Merchandise from such listed entities, even if not made in Xinjiang, is also subject to the Section 3a rebuttable presumption.

(c) Challenges:

Where the goods are detained, seized or excluded by Customs and Border Protection (CBP) from the US market alleging a violation of the UFLPA, importers can challenge such decision by arguing:

(aa) that the UFLPA is inapplicable – “Outside the Scope” challenge; or

(bb) an “Exception” applies i.e., a rebuttal of the presumption of forced labor element.

(aa) The evidentiary standard in an “Outside the Scope” challenge is lower than that of an “Exception” challenge. The importer must adduce sufficient documentation that “demonstrates” and “substantiates” that the import of such merchandise has no connection to Xinjiang or to an entity on the UFLPA Entity List.

(bb) To obtain the “Exception”, an importer must:

(i) adduce “clear and convincing evidence” that the goods are not made with forced labor,

(ii) “completely and substantively respond to all inquiries” from CBP; and

(iii) generally “fully comply” with CBP guidance and regulations, including proper due diligence, effective supply chain tracing, and supply chain management to ensure no imports were made with forced labor in China.

European Union (EU)

On September 14, 2022, the EU Commission published a Proposed Regulation on prohibiting products made with forced labor on the Union Market (Proposed Regulation - link) with the purpose to empower the EU member states to detain, seize or order the withdrawal of a product from the EU market if it finds that such product was made with forced labor. The prohibition in Article 3 applies in relation to all products made with forced labor regardless of where they were produced and against all EU businesses (including SMEs, although EC guidance is expected to ease the burden on SMEs).

National authorities will have to monitor and identify potential violations by conducting investigations, including in third countries. Investigations will proceed in two stages:

(a) a preliminary investigation (a risk assessment of product information, country risk factors, risks connected with migrant workers and the assessed business’ due diligence process);

(b) a formal investigation where there is a “substantiated concern” (i.e. a well-founded reason, based on objective and verifiable information) to suspect that products were likely made with forced labor.

The national authorities must focus on economic operators within the value chain which are as close as possible to the source of concern, inform them of such investigation and establish whether there is a violation of Article 3 based on all information provided concerning the products, the manufacturer or producer of those products and the product suppliers (however, they may rely on any other available information, if operators fail to cooperate).

If the national authority has established a violation of Article 3, it must adopt a decision and state the findings, identify the products, and set a reasonable time within which the relevant economic operator must remedy the violation. If remedial action is not taken within the deadline, the products are prohibited from entering the EU market or, withdrawn from the EU market if already in circulation, with remaining products being destroyed or rendered inoperable.

An economic operator has the right to request a review of a decision, conditional upon showing new information that was not brought to the attention of the competent authority during the investigation.

In practice, the national customs authorities at EU borders will suspend the release of the relevant products until they obtain instructions from the competent national authorities. The Proposed Regulation establishes a Union Network Against Forced Labor to serve as a platform for national authorities, member states and the European Commission to work in coordination, provide mutual assistance and share intelligence. The Commission is to procure the development of a shared database to collect facts and determine risk areas and adopt implementing acts to streamline the format and content of national decisions.

The Proposed Regulation is currently under review by the EU Parliament and Council. Once agreed upon, it will enter into force upon publication and apply 24 months thereafter. The guidelines are to be made available within 18 months of entry into force of the Proposed Regulation.

China

China has promulgated laws aimed at promoting and strengthening its national security, sovereignty and development interests, and as a direct response to counteract Western countries’ trade laws targeting Chinese regions and Chinese companies. These laws are:

(a) the Provisions on the Unreliable Entity List - promulgated on September 19, 2020 (link) by the Ministry of Commerce (MOFCOM) with immediate effect.

The provisions allow China to take actions to protect national security and the legitimate interests of Chinese enterprises.

If a foreign company interrupts its normal economic activities with a Chinese enterprise, it could be placed on the “Unreliable Entity List” and thus be subject to certain sanctions (including investment restrictions, entry and exit restrictions, fines, etc.).

(b) Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and other Measures - promulgated on January 9, 2021 (link) by the MOFCOM (Blocking Statute), with immediate effect.

The Blocking Statute together with the above Regulation on the Unreliable Entity List both aim to counteract foreign laws and measures with “long-arm” jurisdiction. The Blocking Statute applies where foreign laws prohibit or restrict the citizens, legal persons or other organizations of China (including Chinese subsidiaries of foreign companies) from engaging in normal economic activities with third states or legal persons and organizations (“improper extraterritorial application”). In such a case, the MOFCOM may issue a “prohibition order” to block the Chinese subject from complying with such improper extraterritorial application. The Chinese subject must report if any foreign law or measure prohibits or restricts its normal economic trade and related activities. Failure to do so may incur administrative fines.

(c) Anti-Foreign Sanctions Law - promulgated on June 10, 2021, with immediate effect (see press conference with a representative of the Legal Affairs Commission of June 11, 2021 link)

The law extends to sanctions by Western countries against China and Chinese companies which interfere with Chinese internal affairs. The law imposes a number of corresponding countermeasures against individuals and companies of countries which have issued sanctions against China. If Chinese companies are subject to foreign sanctions, then countermeasures in accordance with this law can be taken. This law complements and strengthens the Blocking Statute and the Regulation on Unreliable Entity List mentioned above.

The law includes making a counter-list of individuals and companies directly or indirectly involved with the implementation of the foreign sanctions against China, Chinese individuals and companies and provides for a number of countermeasures that can be taken against such listed individuals and companies including:

1) a refusal to issue a visa, denial of entry, visa cancellation or deportation;

2) an order to seal, seize and freeze movable and immovable property and other types of assets within the territory of China;

3) prohibiting organizations and individuals within China or restricting them from conducting relevant transactions and cooperating with individuals and companies in the counter-list; and

4) "other necessary measures".

Conclusion

As shown above, the US and the EU have taken different approaches on trade policy and laws aimed at eliminating forced labor. The UFLPA targets the Xinjiang region and certain listed entities and imposes the burden of proof on economic operators. The EU Proposed Regulation places the burden of monitoring and identifying the risk of products being made with forced labor on the competent national authorities. The Chinese response to these laws has resulted in Chinese laws that are burdensome for Chinese companies and which will place foreign companies doing business in China or with Chinese companies in a legal and business dilemma.

The above round-up of selected trade laws is not a comprehensive list of the laws that may apply. Please contact us for specific legal advice.