On July 9th, the Department of Homeland Security (“DHS”), on behalf of the Forced Labor Enforcement Task Force (“FLETF”), released its 2024 Updates to the Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China (the “Update”), as required by the Uyghur Forced Labor Prevention Act (“UFLPA”). Notably, the FLETF added three new high-priority sectors for enforcement: polyvinyl chloride (“PVC”), aluminum, and seafood. The Update noted that the FLETF will prioritize review of potential entities within these sectors for inclusion in the UFLPA Entity List – now including 68 entities – and the federal agencies will also target entities within these sectors for relevant enforcement.

The Update also shed light on the process for identifying high-priority sectors for enforcement. It stated that any “member agency may submit a recommendation to the FLETF to add a new high-priority sector” based on the following (non-exhaustive) criteria: (1) credible evidence, including from civil society, media, or academic reporting, of multiple entities in the sector having a high risk of utilizing or facilitating forced labor; (2) the sector was designated by the People’s Republic of China (“PRC”), the Xinjiang Uyghur Autonomous Region (“XUAR”), the Xinjiang Production and Construction Corps, and/or provincial or municipal governments as a target for investment and expansion in the XUAR based on government directives; and (3) XUAR-based production of goods in that sector represent 15 percent or more of total production in the PRC or 10 percent more of global production.

The FLETF encouraged importers of high-priority sector goods to heavily scrutinize their supply chains to ensure any such goods are not made with forced labor. FLETF agencies will closely monitor developments in the high-priority sectors and, in addition to prioritizing addition of entities from these sectors to the UFLPA Entity List, will “review information and developments in these sectors in order to deploy their respective tools and authorities, including economic sanctions, visa restrictions, and export control measures, as appropriate.”

Two of the high-priority sector additions were foreshadowed by the FLETF’s announcement on June 11, 2024, in which it added three new entities – one each from the seafood, aluminum, and footwear industries – to the UFLPA Entity List. The companies in the seafood and aluminum sectors, Shandong Meijia Group Co., Ltd. and Xinjiang Shenhuo Coal and Electricity Co., Ltd., respectively, were the subject of significant forced labor allegations in recent years:

Shandong Meijia Group Co., Ltd. (“Meijia Group”) is based in Shandong Province and sells frozen seafood products, vegetables, quick frozen convenience food, and other aquatic foods. In May 2023, the Outlaw Ocean Project reported on an email that stated that Meijia Group, which does business in the U.S., received labor transfers from the XUAR. Following reports of Uyghur and other forced labor in seafood markets, the Natural Resources Committee wrote a letter in October 2023 urging U.S. Customs and Border Protection (“CBP”) to investigate these reports and enforce any UFLPA violations. That same month, the Congressional-Executive Commission on China (“CECC”) held a hearing on how forced labor in China taints America’s seafood supply chain. In November 2023, a SkyNews article on the Outlaw Ocean investigation on Uyghur forced labor found nine seafood entities connected to UK seafood suppliers, including the Mejia Group. In January 2024, the Outlaw Ocean Project formally filed a recommendation to implement Global Magnitsky sanctions against connected Chinese entities. Additionally, the Southern Shrimp Alliance sent a letter on January 2024 to the FLETF asking it to add Meijia Group, among other companies, to the UFLPA Entity List and “identify seafood as a high-priority sector” for enforcement. In February 2024, the Ways and Means Committee sent a letter to the U.S. Trade Representative (“USTR”), Department of State (“DOS”), and CBP urging them to investigate the allegations of forced labor in seafood supply chains associated with China, including Meijia Group. In March 2024, the CECC asked the Biden Administration to quickly act and address issues of forced labor in the seafood industry.

Xinjiang Shenhuo Coal and Electricity Co., Ltd. (“Xinjiang Shenhuo”) is a state-owned enterprise based in XUAR that produces electrolytic aluminum, graphite carbon, and prebaked anodes. In April 2022, Horizon Advisory wrote a report that named Xinjiang Shenhuo as one of eight major aluminum companies associated with government-led forced labor transfer programs. The report indicated that Xinjiang Shenhuo is involved in labor transfers and organizes transfer of labor programming in concert with the local government and other companies. For example, Xinjiang Shenhuo partnered with other companies in March 2017 to hold a “special job fair” that targeted migrant workers. Xinjiang Shenhuo utilizes “real-time monitoring,” which is considered an indicator of forced labor. In December 2022, a Sheffield Hallam University report on automotive supply chains and forced labor in XUAR stated that Xinjiang Shenhuo’s participation in the labor transfer program is “alive and well . . . and may have even accelerated,” despite the publication of Horizon Advisory’s report. The enterprise produced approximately half of its aluminum – 800 tons of its 1.7 million ton capacity– in XUAR in 2021.

Notably, Mejia Group and Xinjiang Shenhuo were explicitly mentioned in the Update in explaining the FLETF’s addition of seafood and aluminum as high-priority sectors.

Key Takeaways

The announcement of these three new high-priority sectors for enforcement increases the likelihood of detentions in those sectors: Any imports that “wholly or in part” contain inputs linked to PRC forced labor in the PVC, aluminum, and seafood sectors are now at heightened risk of UFLPA enforcement. The FLETF underscores in the Update that it will prioritize the addition to the UFLPA Entity List of entities from these three sectors. Such Entity List additions increase the likelihood of an identified supply chain connection, and thus a detention, for businesses operating in these sectors.

Effective due diligence is key: It is always better to catch a potential problem before you are subject to a detention or investigation. The Update highlights the importance of examining your supply chains in detail, especially in high-priority sectors. Indeed, business with PRC links operating in the PVC, aluminum, and seafood sectors are now on notice of the necessity of effective supply chain due diligence. As we have noted previously – and as the FLETF emphasizes in the Update – effective due diligence and supply chain mapping is the most effective tool to identify forced labor risks in the PRC. Companies that rely on social compliance audits conducted in the PRC – including, but not limited to, the XUAR – should not presume the accuracy of such audits as a factual matter, much less that they accurately identify forced labor trade enforcement risks under the UFLPA and related laws.

Paying close attention to public reporting and FLETF actions can highlight risks: There are millions of business entities in China. Although funding for UFLPA enforcement has been significant, only a tiny fraction of those entities will ever be investigated thoroughly enough to be placed on the Entity List. The Update highlights the importance of credible evidence from civil society, media, or academic reporting. As demonstrated by the recent addition of the seafood and aluminum industries as high-priority sectors, it is important to stay up to date on forced labor reporting and UFLPA Entity List additions. Both industries recently had entities added to the UFLPA Entity List. Both industries, especially the seafood industry, have been subject to extensive reporting, and even congressional hearings, over the past few years. Sectors under intense public scrutiny are much more likely to be added as high-priority enforcement sectors.

Please reach out to a Kelley Drye attorney if you have concerns about your supply chain and how your company could be impacted.

On May 16, 2024, the U.S. government’s Forced Labor Enforcement Task Force (“FLETF”) announced the addition of 26 new entities to the Uyghur Forced Labor Prevention Act (“UFLPA”) Entity List. The announcement was published on the Department of Homeland Security (“DHS”) website and can be found here. The draft Federal Register notice can be found here and will be published on May 17th. This brings the total number of entities to the list, available here, to 65.[1]

The Additions

All of the entities were added to the section 2(d)(2)(B)(v) list of the UFLPA, which identifies entities that source material from Xinjiang, participate in “poverty alleviation” programs, or facilitate other government programs connected to forced labor. According to Appendix 1 of the Federal Register notice, the 26 entities are “cotton traders or warehouse facilities” which FLETF has found to source cotton from the Xinjiang region. Of the 26 entities, 21 were found to have marketed cotton sourced from Xinjiang on an online wholesale platform, which Kelley Drye has identified as likely being Mcotway. The remaining five were identified as sourcing cotton from Xinjiang through “corporate documents, websites, or media reports.” The majority of the 26 entities are located outside of Xinjiang.

The Takeaways

The addition of 26 new entities is a significant increase to the Entity List and the largest that FLETF has undertaken since the UFLPA was passed. This suggests that FLEFT is responding to the calls from activists and Congress to further expand the Entity List.[2] It also suggests that FLETF is using a number of different tools to ease the burden of examining individual entities on its own, potentially including information received by CBP in connection with previous UFLPA detentions. There is significant overlap between the companies listed now by FLETF and companies which have made appearances in reports on forced labor from Sheffield Hallam University (including 17 out of this batch of 26), a reminder of the importance of paying attention to activist reporting in this space.

This update is significant not only for the number of companies added to the Entity List, but for the type of companies added. Notably, none of the entities on this list are producers of cotton in Xinjiang, or manufacturers engaged in a value-added process. Rather, these companies are trading and logistics companies, only two of which are located in the Xinjiang region. The consequence of including these companies, which operate in a strictly buy-sell capacity, is that shipments which have no Xinjiang-origin cotton may now be detained and not clearable through CBP custody simply as a result of connection to such traders in their supply chains.

Cotton is one of the high-priority sectors designated for UFLPA enforcement. Should FLETF continue this strategy of adding intermediate buyers and sellers of goods to the Entity List in other high-priority UFLPA enforcement sectors (such as polysilicon, or other sectors that may be added as high-priority sectors in the near future), then ensuring that raw materials are not sourced from Xinjiang (or China) will not necessarily be sufficient to avoid UFLPA detentions, or to successfully navigate such detentions that occur. Supply chains that are compliant today—even supply chains already reviewed and approved by CBP—could become non-compliant overnight, simply because a Chinese party in the supply chain has received shipments from Xinjiang, even if that company is not transacting in Chinese material in the context of that specific supply chain. While isotopic testing and certificates of origin have never been able to secure the release of detentions on their own, this expansion of Entity List scope to include cotton purchasers further underscores that such certification is not sufficient proof of a supply chain devoid of forced labor.

These developments underscore the importance of developing an in-depth understanding of the parties at every level of the supply chain through traceability and risk assessment efforts and providing detailed and thorough vetted traceability packages when a shipment is detained. Should you need assistance with either, Kelley Drye is able to help.

[1] Note that FLETF began counting named subsidiaries individually in December 2023, increasing the Entity List count by nine.

[2] Kelley Drye has been tracking Congressional letters on forced labor and the UFLPA, and this information is available upon request.

The witnesses asserted that supplier audits conducted in the XUAR are unreliable, as the Chinese government obfuscates forced labor practices and criminalizes the investigation of such practices as a matter of policy. The discussion touched on the illustrative example of an audit conducted by Loening GmbH on a Volkswagen joint venture in the XUAR, which found no indication of forced labor at the site, despite the region’s widely-acknowledged state-sponsored forced labor programs. Although several senior staff at Loening disavowed the audit results and resigned, American index provider MSCI Inc. removed Volkswagen’s “red flag” status based on the audit. This underscores the broader concern beyond the unreliable nature of social compliance audits conducted in XUAR and highlights the sustainable sourcing certification agencies and indexing organizations that rely on and legitimize those audits, notwithstanding these deficiencies.

The witnesses emphasized, however, that social compliance audits elsewhere in the PRC – even outside of the XUAR – are still inherently unreliable. They noted the challenges in tracking the destinations of labor transfers outside of the XUAR and that the labor transfer program is expanding. The Uyghur Forced Labor Prevention Act (“UFLPA”) prohibits the importation of goods manufactured wholly or in part with forced labor in the PRC. This includes not only goods manufactured in the XUAR, but also goods manufactured in the PRC outside the XUAR with forced labor, including forced labor facilitated by means of labor transfer programs. Witnesses noted that the lack of independent worker organizations in the PRC makes properly assessing labor conditions more difficult, and that it is typical for managers to prepare facilities for an audit by creating fake time sheets and pressuring workers to provide inaccurate information. The witnesses stressed that off-site worker interviews are essential in reliable social compliance audits, but noted that this is rarely possible in the PRC.

General critiques of social compliance audits are not new, but any attempt to utilize such audits in an environment of state-sponsored forced labor exacerbates the approach’s deficiencies. The International Labor Organization (“ILO”) – along with much of the international community – seems to have acknowledged as much. In the ILO’s February 2024 update to their “Hard to see, harder to count” handbook on identifying forced labor, the organization includes for the first time an entire section on state-sponsored forced labor. In this context, the ILO’s pre-eminent handbook on identifying forced labor now formally recognizes that “large-scale labour transfers frequently involve elements of compulsory labour ‘as a means of political coercion and education’ and compulsory labour ‘as a means of racial, national, social or religious discrimination.’ Much like the evidence gathering that a reliable social compliance audit would seek to incorporate, the ILO notes that “[u]ndertaking research on state-imposed forced labour poses a number of unique practical challenges. As the State itself imposes this category of forced labour, States may have little incentive to collaborate with or facilitate the work of researchers wishing to shed light on it. Information access can be problematic.”

In short, companies that rely on social compliance audits conducted in the PRC – including, but not limited to, the XUAR – should not presume the accuracy of such audits as a factual matter, much less that they accurately identify forced labor trade enforcement risks under the UFLPA and related laws. There is certainly a role for both social compliance audits and certifications to help verify supply chains are free of forced labor, but companies should consider a more holistic approach and be cognizant of the challenges posed by state-sponsored forced labor, in particular. Please reach out to a Kelley Drye attorney if you have concerns about your supply chain and how your company could be impacted.

[1] The expert witnesses included: Thea Lee (Undersecretary for International Affairs at the U.S. Department of Labor), Scott Nova (Executive Director of the Worker Rights Consortium), Dr. Adrian Zenz (Senior Fellow and Director in China Studies at the Victims of Communism Memorial Foundation), and Jim Wormington (Senior Research and Advocate on Corporate Accountability at Human Rights Watch).

Among many specific requests for expanded enforcement, the letter makes an unprecedented call expanding the UFLPA Entity List to include companies outside of China (without proposing any revision to the statutory language).

As of January 26, 2024, the UFLPA Entity List is populated by 37 entities,[1] 25 of which are located within the Xinjiang Uyghur Autonomous Region (“XUAR”), and 12 of which are located elsewhere in China. The letter cites an “urgent need to expand the UFLPA Entity List to include numerous companies and entities located outside the XUAR,” which could be justified for Chinese companies that have participated in social programs that the U.S. regards as constituting forced labor.

But the letter also calls for “adding companies outside the PRC that profit from the use of Uyghur forced labor to the UFLPA Entity List.” (Letter at 4, emphasis added.) Later, the letter asks: “Despite nearly two billion dollars’ worth of shipments from third countries being detained for UFLPA violations, why has DHS not listed a single company outside the PRC on the UFLPA Entity List?” (Letter at 7, emphasis added.)

This request is made in the context of a call for U.S. Customs and Border Protection (CBP) to “aggressively step up enforcement of potential UFLPA violations by goods shipped from the PRC and indirectly through third countries.” As the letter notes, a significant volume of UFLPA detentions to date have been directed at goods of Vietnam and Malaysia. Accordingly, the continued aggressive enforcement by CBP of the UFLPA against third country goods would not be new; adding non-Chinese companies to the UFLPA Entity List, on the other hand, would represent a dramatic escalation of UFLPA enforcement.

The text of the UFLPA provides specific criteria for inclusion of an entity on the UFLPA Entity Lists. These include:

• entities within the XUAR that “mine, produce, or manufacture” goods, wholly or in part with forced labor;
• entities that work with the government of the XUAR to “recruit, transport, transfer, harbor or receive” “forced labor, Uyghurs, Kazakhs, Kyrgyz or members of other persecuted groups out of the XUAR”;
• entities that export products from the foregoing entities “from the People’s Republic of China into the United States”; and
• “a list of facilities and entities, including the Xinjiang Production and Construction Corps, that source material from the Xinjiang Uyghur Autonomous Region or from persons working with the government of the Xinjiang Uyghur Autonomous Region or the Xinjiang Production and Construction Corps for purposes of the ‘‘poverty alleviation’ program or the ‘pairing-assistance’ program or any other government labor scheme that uses forced labor.”

While potentially amenable to different interpretations, these categories do not obviously encompass “companies outside the PRC that profit from the use of Uyghur forced labor,” as proposed in the China Select Committee letter. The letter does not cite statutory text to justify this request.

In addition to the foregoing demand, the letter makes numerous additional requests including:

• identifying 29 companies for proposed inclusion on the UFLPA Entity List, all located within China;

• Expanding UFLPA enforcement against de minimis shipments (valued under $800 per person per day);

• expanding product & sectoral focus for UFLPA enforcement to include gold, seafood and critical minerals; and

• increasing site inspections for compliance with the UFLPA and other trade laws in Dominican Republic-Central America Free Trade Agreement (“CAFTA-DR”) and United States-Mexico-Canada Agreement (“USMCA”) countries, echoing a request from the Senate Committee on Finance in November 2023.

This letter is the latest in a long line of congressional correspondence to the Executive Branch calling for different manner of increased enforcement for the UFLPA. Kelley Drye is tracking all congressional correspondence related to the UFLPA and is happy to provide this information to clients upon request.

Should you have any further questions about the trends and developments in UFLPA enforcement, please do not hesitate to contact us.

[1] The letter mistakenly states that there are 41 entities listed. Four entities are listed twice under different categories of the UFLPA Entity List.