Lawyers Expect More Detentions Under UFLPA Than Under WROs

No one involved with importing is saying, "Thank God this guidance came out, now it's all clear to me," said Ted Murphy, a partner at Sidley Austin. "It doesn’t tell you what sort of weight they’re going to give certification from a Vietnamese supplier who says: No, this doesn’t come from Xinjiang."

Murphy said that the latest document is consistent with the message CBP has been sending for a while now -- it is increasing enforcement of the ban on importing goods made with forced labor.

"People should be taking it very seriously," he said in a phone interview. "People who think they’re not going to have product detained or people who think they’re not going to have to prove out the origin of the raw materials, I think they're in for a rude awakening."

Brenda Smith, who now works for a freight forwarder after a career in trade at CBP, said during a podcast before the document was released that the next few months "are going to be a bit of a shakedown cruise, and the trade community will begin to understand what CBP is really looking for, and CBP will be a lot better about articulating what the key documents are." The standard of proof to show that goods made in Xinjiang are not made with forced labor is nearly impossible, but it could be possible to prove that the goods do not contain any inputs from Xinjiang.

Smith noted that usually when there's a new policy as significant as this one "there's a period called informed compliance, and what it really means is the government is continuing to educate, and the trade community's getting used to those expectations. There is no informed compliance period. Congress didn't build it into the law and specifically said, nope, you got six months, which they felt was a sufficient period of time. But I don't think what we're going to see are a thousand shipments detained on day one. But I think they're going to ramp up, and we should be prepared for that."

Murphy said the big picture importers should take away is that if you have Chinese inputs, not just Xinjiang inputs, "this is going to be really really hard for you to comply."

He sees it as an extension of the policy that began with Section 301 tariffs, that the government is encouraging companies to stop importing from China.

Referring to CBP, he said, "They don’t know what has Xinjiang content, and frankly, neither do a lot of companies."

Murphy said CBP could stop a shipment of refrigerators from South Korea, and ask the importer how do they know the refrigerator has no Xinjiang components. If some of the electronics in the fridge are from China, "you're at risk," he said.

But whether that happens depends on how much the past pattern of withhold release orders continues. For instance, CBP says there's evidence that polysilicon from Xinjiang is made with forced labor, but it has targeted that material only as it appears in solar panels, not in semiconductor chips. (More polysilicon goes into solar panels than into chips, by a very wide margin).

Murphy said with polysilicon again listed as a priority area, he's going to be watching to see if CBP detains a good containing polysilicon other than solar panels or cells.

"If you call me in two months and they haven’t done it, I’ll be scratching my head," he said. "I think two months from now, we’ll be saying, See, they’re detaining a lot of other stuff."

Nazak Nikakhtar, from Wiley, disagrees. While she thinks there will be more detentions than there have been in the last year from WROs related to Xinjiang, she thinks the strategy document signals that the government doesn't care about forced labor in supply chains.

She complained during a Zoom interview that hundreds and hundreds of known Xinjiang companies were not on the Entity List, and that means the administration "has willfully ignored application of this law."

CBP often says -- and Smith said during the podcast -- that companies change names and move when they are listed as bad actors, and so they don't like to rely on these sorts of lists.

Nikakhtar said, "I am offended by anybody issuing these intellectually thin explanations thinking that the rest of the world is going to be duped."

Still, even if enforcement mostly tends to cluster around goods identified by outside researchers, UFLPA can affect significant amounts of imports.

Murphy said, "I don’t believe they are stopping every shipment of cotton-blended shipments from China," even though there is no segregation of Xinjiang cotton from other cotton in the supply chain. But he said the agency has stopped shipments from major apparel brands to the extent that it's changing how companies operate. Some companies decide to not make sweaters with cotton. A different company continues production of cotton sweaters, but makes sure the cotton is from India, he said. "You only need to lose one shipment to be like, Holy cow! I can’t lose another one, that’s really expensive," he said.

"Up until the WRO you had no commercial reason to know the origin of the cotton," he said. "The market will adjust. We’re seeing that already."

"Even Chinese suppliers are figuring out if they can show good chain-of-custody documentation, they will get more business from customers," he said.

The same researchers who identified Xinjiang cotton and the solar panel supply chain just put out a new report saying that a majority of luxury vinyl tile has PVC content from Xinjiang made from forced labor.

Murphy said, "Luxury vinyl tile is now a riskier product, and I would be 100% sure I make sure where the PVC in my product comes from." Murphy said if he was an importer, and his supplier said, "Mind your own business, we’re not going to tell you," he'd start looking for other suppliers.

"We’re in this sort of bumpy transition period," he said, "it takes years for it to shake out. But that’s the period we're in."