The US continues to trail much of the world in the business human rights space, as there currently are no broad-based federal modern slavery laws similar to the UK or Australia modern slavery acts, nor any proposed federal legislation addressing modern slavery. Similarly, very little has happened at the state level. Historically, the only piece of “hard” law addressing social compliance and supply chains was the California Transparency in Supply Chains Act, which requires large retailers and manufacturers to disclose their efforts at combatting human trafficking in their supply chains. While this is the closest thing to the UK and Australian MSAs, it really has no teeth–no express requirement to update the statement (in contrast to the UK and Australian MSAs); no known enforcement by the California Attorney General or District Attorneys, no private right of action, and courts have been unwilling to use the underlying general disclosures as the basis for liability under other laws, such as California’s Unfair Competition Law. Thus, while retailers and manufacturers hustled to comply with the California law ten years ago, little has happened since. As a result, business human rights in the US has largely been driven by (1) global compliance; (2) brand protection; and (3) targeted sanctions focused on particular nations and individuals (which manifest in the Specially Designated Nationals and Blocked Persons List, administered by the US Office of Foreign Assets Control).
The Uyghur Forced Labor Prevention Act
But the squishiness of US social compliance may be ending with the Uyghur Forced Labor Prevention Act of 2021. The Act creates a “rebuttable presumption” that any materials or products mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the PRC, or by entities connected to forced labor in the XUAR, involve forced labor and are banned from import into the US. The law states that the resumption can be rebutted by either: (1) fully complying with guidance from the government on due diligence, supply chain tracing, and supply chain management; or (2) other not yet defined “clear and convincing” evidence.
Compliance is anyone’s guess
This rebuttable presumption takes effect on June 21, 2022, and to date, the US government has not yet issued the guidance on due diligence strategies or the evidentiary standard to overcome the presumption. The US Forced Labor Enforcement Task Force has undertaken a round of public comments and hearings regarding this guidance and evidentiary standard, including feedback from industry and NGOs. Industry is seeking clear, objective compliance rules, including, among other measures:
- A comprehensive list of entities tied to the XUAR, developed transparently with input from stakeholders
- Clear procedures for responding to US Customs detentions under the Act, including the type of documentation needed to prove the materials or products are not connected to forced labor
- Bright line due diligence standards, including use of accredited third party supply chain auditors to verify traceability (such as supply chain maps) or certifications from other foreign governments attesting to the origin of materials and products
- Requirements that are feasible given the PRC’s position on XUAR forced labor allegations and other Chinese laws that can be used to block access to supply chain information; and
- A trusted trader program, under which companies can comply with stringent recordkeeping and reporting requirements in exchange for accelerated review of issues and enhanced collaboration with Customs
As this guidance is not yet available, it is currently unclear how an importer can comply with the law’s requirements if products are detained. We are hearing that the government guidance will be issued on or around the June 21 date. Ideally it will be accompanied by an enforcement policy that provides importers with an opportunity to come into compliance with the guidance if they are not already.
While the Act still maintains the US approach of targeted measures, directly impacting only those products that could be connected to the Xinjiang Uyghur Autonomous Region of the PRC, the collateral impact is that companies likely have to meaningfully assess their supply chains all the way upstream to raw materials to overcome the “rebuttable presumption.” While we await US guidance, the following remain best practices for supply chain due diligence to mitigate potential connections to the XUAR (or other social compliance concerns in the supply chain):
- Existing policies and procedures addressing compliance with sanctions, prohibiting forced labor and modern slavery in the supply chain, and requiring corrective action plans and imposing concrete penalties when problems are discovered—and ideally, policies and procedures that adopt existing modern slavery frameworks, such as the UN Guiding Principles on Business and Human Rights
- Contracts incorporating these policies and procedures and requiring upstream entities to mandate that their subcontractors, suppliers, etc., follow those same rules
- Use of independent third parties to undertake routine social compliance audits as far upstream as is possible
- Processes in place for routine review of the OFAC SDN or other publications from US Customs on XUAR-connected entities
- Working with suppliers with clean records on business human rights litigation and compliance with existing laws