White House Finalizes Long-awaited Build America, Buy America (BABA) Guidance

By Squire Patton Boggs on Posted in supply chain, Uncategorized

On November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act (IIJA) (P.L. 117-58), which includes the Build America, Buy America Act (BABA) requiring infrastructure projects receiving IIJA funding and other federal financial assistance to utilize certain domestically produced materials, including iron or steel products, manufactured products, and construction materials.  On August 23, 2023, the Office of Management and Budget (OMB) published final guidance to federal awarding agencies on BABA’s requirements in the Federal Register.  Squire recently wrote an article about the final guidance, which you can read here.  

Michigan Supreme Court Upholds UCC Statute of Frauds Rule Requiring Quantity Terms To Be In Writing

By Sarah Rathke and Alexis Chandler on Posted in supply chain

The Michigan Supreme Court issued an Opinion on July 11, 2023 in MSSC, Inc. v. Airboss Flexible Products Co., reversing a Court of Appeals opinion holding that blanket purchase orders were enforceable under the UCC Statute of Frauds.

In short, the Michigan Supreme Court upheld the longstanding Statute of Frauds rule that contracts must contain a written quantity term to be binding, including its conclusions that:

  1. The parties’ blanket purchase order, terms and conditions, and other writings lacked a written quantity term.
  2. The term, “blanket,” does not constitute a quantity term within the meaning of the Statute of Frauds, overturning Great Northern Packaging, 154 Mich App 777; 399 NW 2d 408 (1986), “to the extent that it conflicts with the holding.”
  3. Since there was not a quantity term in the MSSC and Airboss documents at issue, the parties’ agreement did not comply with the UCC Statute of Frauds, which requires a quantity term to be included in the written contract to be enforceable, and therefore, it was error for the lower courts to use parol evidence to determine the intent of the parties.
  4. Without a quantity term, and without being a requirements contract under MCL 440.2306(1), the parties entered into a “release-by-release” contract that was binding against the supplier only to the extent of releases issued by the buyer and accepted by the supplier.

As a reminder, in MSSC, the parties, both automotive suppliers, entered into a contract whereby the defendant — a tier two automotive supplier of rubber products — would supply components to the plaintiff, a tier one supplier, for ultimate use in the plaintiff’s contract with an OEM. The parties’ contract was set forth in a blanket purchase order, which stated, “[i]f this order is identified as a ‘blanket order’, [MSSC] shall issue a ‘Vendor Release and Shipping Schedule’ to [Airboss] for specific part revisions, quantities, and delivery dates for Products. . . .”   As a result, the plaintiff would place orders through periodic releases.  Of note, the releases each were “firm orders”—or orders that could not be changed.

In mid-2019, however, Airboss began experiencing losses, totaling over $1 million, on 6 of the 42 parts it produced for MSSC, and sent a letter to MSSC in December 2019 stating that it would cease taking further orders from MSSC.

In response, MSSC sued Airboss in Oakland County Circuit Court for anticipatory breach of contract and sought specific performance on the contract as written.  Both parties moved for summary disposition.  The trial court granted MSSC’s motion for summary disposition, finding that the blanket purchase order contained a valid “quantity term” as required by the UCC Statute of Frauds because the purchase order was identified as a “blanket” purchase order and included the statement that “annual volume is an estimate based on the forecast of MSSC’s customers and cannot be guaranteed.”  The trial court also found that the parties’ prior interactions indicated an intent to enter into a requirements contract. The Court of Appeals affirmed the trial court’s decision holding that the “use of blanket order” was sufficient to create a requirements contract that satisfied the UCC Statute of Frauds.

On Tuesday, July 11, 2023, the Michigan Supreme Court reversed the lower courts’ decisions, holding that the writings between MSSC and Airboss did not contain a written quantity term, and therefore did not satisfy the UCC Statute of Frauds.   Rather, the blanket purchase order stated only that MSSC would issue releases; it made no reference to a fixed quantity. The Michigan Supreme Court reasoned that, while the releases contained a firm quantity, they bound the supplier only to the extent of each individual release if Airboss accepted—not a promise to fulfill all future releases.  The court further reasoned that while parol evidence could be used to establish the meaning of an imprecise quantity term in a UCC contract, it could not be used to determine the existence of a quantity term itself.

In determining this case, the Michigan Supreme Court overturned Great Northern Packaging, Inc v. Gen Tire & Rubber Co, 154 Mich App 777; 399 NW2d 408 (1986), a nearly 40-year-old appellate level decision, holding that the term, “blanket order expresses a quantity term, albeit an imprecise one.”  The Michigan Supreme Court in MSSC noted, that “the Court of Appeals failed to recognize that although the total quantity might be imprecise in a requirements contract . . . the quantity term must be provided in the writing and cannot be provided via parol evidence.” 

In summary, the Michigan Supreme Court applied the long-standing general rule that a quantity must be precise, specific, and in writing for a sale of goods contract to be enforceable.

We have previously blogged about MSSC, Inc. v. Airboss Flexible Products Co. here.

Changes To “De Minimis” Shipping Will Likely Have Effects Beyond China And Russia

By Michael Hawthorne, C. Bradford Ellison and Sarah Rathke on Posted in supply chain

Changes may be coming to the “de minimis” exception under Section 321 of the Tariff Act of 1930, as amended, which allows goods valued less than $800 to enter the United States free of duty and taxes, and generally free from formal review, when shipped to individual consumers.

Senators Sherrod Brown (D-OH) and Marco Rubio (R-FL) and Representatives Neal Dunn (R-FL) and Earl Blumenauer (D-OR) introduced the Import Security and Fairness Act (“the Act”) on June 15, 2023, the most recent of several legislative efforts proposing changes to the “de minimis” threshold. The Act would make goods sourced from perceived adversarial nations ineligible for de minimis treatment under Section 321 of the Tariff Act of 1930, as amended. Specifically, the Act targets countries that are both (i) a nonmarket economy (as defined by the Tariff Act) and (ii) listed on the United States Trade Representative’s (USTR) Priority Watch List. Notably, as of June 2023, only China and Russia meet both criteria. Accordingly, in practice, the Act would require a formal importation process for all small Chinese and Russian goods, likely exacting a heavy toll on top of the existing Uyghur Forced Labor Prevention Act (UFLPA) and U.S. sanctions regimes.

However, the Act would affect all “de minimis” shippers, despite its emphasis on China and Russia. Under section three of the Act, Customs and Border Protection (CBP) would be required to collect information on every de minimis shipment entering the United States, regardless of their country of origin, under new regulations to be promulgated by the Treasury Department. Collected information would include a shipment’s description of goods, transactional value, and the identity of the shipper and importer, among other requirements. The Act would also impose civil penalties ranging from $5,000 to $10,000 for violations of reporting requirements.

Some importers and small and medium-sized enterprises have expressed concern about these proposed changes. At a February 2023 Senate Finance Committee hearing on trade modernization, private sector witnesses defended the existing de minimis exception, and argued that changes to de minimis rules would unduly burden their businesses. 

However, UFLPA and recent congressional rhetoric on China demonstrate considerable momentum and appetite to increase administrative burdens on Chinese imports that may outweigh these concerns. Moreover, since CBP’s April 2023 Trade Facilitation and Cargo Security Summit, which featured several discussions on the potential for illicit goods to enter the United States and data on the uptick in de minimis shipments from China, many lawmakers have grown to perceive de minimis shipping as a necessary and uniquely Chinese loophole to close.

For reference, Congress increased the current de minimis threshold from $200 to $800 under the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA). Following the change, the volume of de minimis shipments increased from approximately 410 million shipments in fiscal year (FY) 2018 to approximately 771 million shipments in FY 2021. De minimis imports from China accounted for the majority of this growth, including more than 446 million shipments in FY 2021 alone.

The Act’s introduction also precedes long-awaited legislative proposals on customs modernization and US-China trade. Anticipated legislation includes the 21st Century Customs Framework and the anticipated China Competition Bill 2.0, led by Senate Majority Leader Chuck Schumer (D-NY) and Senate Democrats. While the China Competition Bill 2.0 is expected to focus on stemming the flow of US advanced technology and investments to China, the legislation is also likely to contain significant provisions on economic and national security competition.

Implications for businesses go beyond a potential increase in duties on imports from de minimis shipments. As noted above, data collection from importers writ large will likely increase, increasing overall record keeping and compliance costs. Further, utilization of limited U.S. Customs Service resources to collect data on small imports could lead to greater systemic inefficiencies overall. Finally, Congressional interest to stem imports from China and Russia is likely to continue, raising the possibility of additional burdens or restrictions placed on imports from these nations in the future.   

Upcoming Webinar: Predicting and Managing the Risks of Doing Business in China

By Squire Patton Boggs on Posted in supply chain

Please join us on Wednesday, July 12 at 12PM EDT for a webinar on Predicting and Managing the Risks of Doing Business in China.

As tensions between the US and China continue to build, what does this mean for US companies operating in China? Partners George Grammas and Ed Newberry will discuss the current political landscape, as well as provide insight on where things are headed and what you can do to mitigate risks and protect your relationships going forward. The discussion will help senior leaders and decision makers evaluate their current activities in China and determine whether they should continue business and expand in China – or if they should close up shop.

Topics to be covered will include:

  • US trade policy toward China – recent developments in legislation and oversight
  • Developments in US export controls – China’s semiconductor industry
  • Developments in US sanctions – China’s diversion to Russia and Iran
  • Chinese companies on US blacklists – what does that mean?
  • Role of policy in protecting relationships with Chinese businesses

If you have questions regarding this event, please contact Caitlin Murphy.

Register here.

CBP Targets Battery Tech for UFLPA Enforcement

By Alexis Chandler and Ludmilla Kasulke on Posted in supply chain

Customs and Border Protection (CBP) recently indicated potential increased scrutiny of battery technology under the Uyghur Forced Labor Prevention Act (“UFLPA,” or the “Act”). Although the Act covers essentially all trade touching China’s Xinjiang region, it specifically lists cotton, polysilicon, and tomatoes as high-priority sectors for enforcement. Recent CBP actions indicate battery technologies are also in CBP’s sights, reflecting UFLPA’s broad scope and increased Congressional scrutiny of these supply chains.

In December 2022 Senate Finance Committee Chair Ron Wyden (D-Oregon) launched an investigation into eight automakers’ potential links to China’s Xinjiang region (allegedly to source parts, including batteries, wiring and wheels). In March 2023, Senator Wyden sent follow-up letters to eight leading automakers, which echoed recent calls from Biden Administration officials that importers ensure their entire supply chains – from raw materials to finished goods – are free from forced labor.

Congress’s attention on batteries and the automotive industry follows a 2022 report by Sheffield Hallam University, which highlighted that “China processes most of the world’s iron into steel, bauxite into aluminum, and lithium and cobalt into battery grade materials.” Additionally, the U.S. Department of Labor added lithium-ion batteries to its most recent list of goods produced by child or forced labor in September 2022:

“[The Bureau of International Labor Affairs] has reason to believe that lithium-ion batteries manufactured in China are produced with an input produced with child labor, specifically cobalt ore mined in the Democratic Republic of the Congo (DRC). . . . Cobalt is used in the production of nearly all lithium-ion batteries. The DRC produces the majority of the world’s cobalt. Most cobalt-producing mines in the DRC are owned or financed by Chinese companies.”

Shipments of electronics, apparel, industrial and manufacturing materials, and agriculture industries – which include UFLPA’s current high priority sectors of cotton, polysilicon, and tomatoes – have seen the most detentions under UFLPA to date. Collectively these industries account for $687 million worth of shipments denied or under review by CBP since UFLPA came into force in June 2022. According to reports, CBP recently updated its standard detention notice form to include the kinds of documents that should be submitted as part of an effort to release a battery-related shipment – indicating that it has already set its sights on this sector as well.

Notably, CBP reported UFLPA detentions in the “automotive and aerospace” industry for the first time in the second quarter of 2023, which may reflect the increase in congressional concern in the preceding quarter. We cannot confirm whether the twenty-two actions reported to-date in the automotive and aerospace sector are limited to car batteries. But CBP may well be motivated to exhibit its willingness and capacity to act on automotive batteries to leverage lawmakers’ combined concerns on China and supply chains during the tight appropriations season. Yet, CBP’s enforcement zeal may be tapered by some interagency officials to ensure there are no significant impacts to domestic clean energy supply chains.

We have learned, while interacting with CBP on UFLPA matters, it is best for importers to proactively implement systems that (i) align compliance standards across tiers of their supply chains and (ii) collect materials CBP typically requests from importers to overcome UFLPA’s rebuttable presumption that imports touching Xinjiang, or an entity on the UFLPA Entity List, are prohibited from entering the United States.

For our previous blog entries on the UFLPA and its implementation, see posts here.

DHS Adds Two Entities, Eight Subsidiaries to UFLPA Entity List

By Alexis Chandler and Ludmilla Kasulke on Posted in supply chain

On June 12, 2023, the Department of Homeland Security (DHS), on behalf of the Forced Labor Enforcement Task Force (FLETF), published a Notice adding two entities and eight subsidiaries to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List, for allegedly working with the government of the People’s Republic of China’s Xinjiang Province to recruit, transport, transfer, harbor or receive forced labor or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of Xinjiang.  The updated UFLPA Entity List is published as an appendix to the Notice.  Companies should make sure to regularly review updates to the UFLPA Entity List against their supply chains.

UFLPA requires the Commissioner of U.S. Customs and Border Protection (CBP) to apply a rebuttable presumption that goods mined, produced, or manufactured by entities on the UFLPA Entity List are made with forced labor, and therefore, prohibited from importation into the United States under 19 U.S.C. 1307. UFLPA requires the FLETF to identify and publish the following four lists:

(1) a list of entities in Xinjiang that mine, produce, or manufacture wholly or in part any goods, wares, articles, and merchandise with forced labor;

(2) a list of entities working with the government of Xinjiang to recruit, transport, transfer, harbor or receive forced labor or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of Xinjiang;

(3) a list of entities that exported products made by entities in lists 1 and 2 from the PRC into the United States; and

(4) a list of facilities and entities, including the Xinjiang Production and Construction Corps, that source material from Xinjiang or from persons working with the government of Xinjiang 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.

Indeed, the June 2023 notice issued by the DHS reflects the first updates announced by the FLETF since the UFLFPA Entity List was first released in June 2022.

The two entities and eight subsidiaries that were added to the UFLPA Entity List include:

  • Xinjiang Zhongtai Chemical Co. Ltd.; and
  • Ninestar Corporation and its eight Zhuhai-based subsidiaries, which include Zhuhai Ninestar Information Technology Co. Ltd., Zhuhai Pantum Electronics Co. Ltd., Zhuhai Apex Microelectronics Co., Ltd., Geehy Semiconductor Co., Ltd., Zhuhai Pu-Tech Industrial Co., Ltd., Zhuhai G&G Digital Technology Co., Ltd., Zhuhai Seine Printing Technology Co., Ltd., and Zhuhai Ninestar Management Co., Ltd.

According to DHS’ notice, the UFLPA Entity List should not be interpreted as an exhaustive list of entities engaged in the practices described under the UFLPA.  The FLETF will continue to consider future additions to the UFLPA Entity List based on the criteria described in the law.

The notice also details procedures for requesting removal from the UFLPA Entity List.  Any listed entity may submit a request for removal, together with supporting information, to the FLETF Chair at FLETF.UFLPA.EntityList@hq.dhs.gov.  As part of that request, the entity should provide information that demonstrates that the entity no longer meets or does not meet the criteria described in the applicable UFLPA clause.

The FLETF Chair will then refer all removal requests and supporting information to FLETF member agencies, and they (or their designated representative) may contact the entity with questions or to request additional information.  Following review by the FLETF member agencies, the decision to remove an entity from the UFLPA Entity List will be made by majority vote of the FLETF member agencies.  Notably, this requirement differs from the vote to remove entities from the Department of Commerce’s Bureau of Industry and Security’s Entity List, which requires a unanimous vote by participating agencies.

CBP could issue further guidance as we approach June 21, 2023, which will mark one year since UFLPA’s rebuttable presumption entered into force.  Companies should be ready to update their internal compliance programs accordingly.

Improving The International Supply Chain Through IPEF

By Ayah Ighneim, Janine Little and Sarah Rathke on Posted in supply chain

How IPEF Builds On Prior Trade Relationships Negotiated By The Biden Administration:

In May 2023, the Biden Administration announced the Indo-Pacific Economic Framework for Prosperity (IPEF), a commitment to improving supply chains between the U.S., and the Indo-Pacific nations of Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam.

The stated goal of the IPEF is “to coordinate actions to mitigate and prevent future supply chain disruptions and secure critical sectors and key products for our manufacturers.”

The IPEF also responds to increasing tensions between the U.S. and China that have impacted the U.S. economy. Following the COVID-19 case surge in China at the end of 2022, a shortage of workers for critical supply-chain sectors in China hindered U.S. production. Additionally, since 2022, the U.S. government has placed sanctions on many large Chinese manufacturers that the U.S. suspects participated in “human rights abuse, intellectual property theft, and threatened national security.”

Therefore, IPEF will prevent future supply-chain issues from hindering future manufacturing while also strengthening ties between the U.S. and the Indo-Pacific parties, as a counterbalance to China.

In addition, the launch of the IPEF also comes five years after the United States’ withdrawal from the Trans-Pacific Partnership (TPP). Without IPEF, the region, led by China, lacks clear rules for supply chain functionality between countries. In contrast, the IPEF sets forth “rules-based approach” for critical supply-chain manufacturers in the region.

The Biden Administration also stated that it will continue to put workers and U.S. businesses first through IPEF by “establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts.”

Finally, the United States sent an interagency delegation team to the Third Indo-Pacific Economic Framework (IPEF) Negotiating Round in Singapore from May 8 through May 15, 2023 to negotiate a new trade agreement. Following the negotiation, the parties formulated an agreement to prioritize supply-chain related issues among all members, which includes provisions for increased communication, transparency, and prioritizing workers.

Provisions

The Biden Administration set out four primary “pillars” for economic engagement focusing on trade, supply chain, clean economic practices, and fair economic practices.  In what the White House refers to as the “Resilient Economy” provision, the trade agreement sets out “first-of-their-kind” supply chain commitments, as follows:

  1. Establish Criteria For Critical Sectors And Goods:

Members agree to identify key economic sectors and identify supply chain issues that could materially impact these critical sectors, which include national security, health and safety, and any other sector that could create widespread disruption if interrupted.  As part of this commitment, IPEF members have agreed to identify the “raw material inputs, manufacturing, or processing capabilities, logistics facilitation, and storage needs” of any affected supplies.

  1. Increase Resiliency And Investment In Critical Sectors And Goods

Members agree to address manufacturing industries where there is only one source of supply and expand production of the goods in these industries by:

  • identifying areas within critical supply chains in which a sole source comes from one geographical region and developing options in their supply chains through other regions;
  • strengthening industries by investing in critical sectors; and
  • supporting the advancement of new manufacturing techniques for current and potential manufacturers.
  1. Establish An Information-Sharing And Crisis Response Mechanism

Members agree to create a government-to-government information sharing system. Members also seek to identify mitigation measures, best practices, and improvements to policies or processes to prevent potential supply chain crises.

  1. Strengthen Supply Chain Logistics

Members agree to improve supply chain logistics transportation via air, waterway, maritime, shipping, and port infrastructure by:

  • collecting and utilizing relevant data on supply chain logistics while ensuring business confidentiality;
  • investing in infrastructure; and
  • maintaining border and transport links where supplies are imported and exported.
  1. Enhance The Role Of Workers

Members agree to prioritize the role of workers in manufacturing industries by:

  1. Improve Supply Chain Transparency

Members agree to improve visibility between members into potential supply chain risks by:

What IPEF Means For U.S. Businesses And Workers:

Though the agreement is international in scope, it entails effects for U.S. businesses. U.S. businesses will be able to anticipate supply chain shortages based on IPEF’s information sharing system, enabling them to mitigate negative effects such as price spikes and disruptions in production.

Additionally, U.S. companies that have been identified as producing critical supply chain goods may increase employment to maintain supply chains in the long-term.

Ultimately, IPEF will help American manufacturing be more secure in their supply chain expectations and employ more American workers while also enhancing the diplomatic relationships between the U.S. and other members of IPEF.

What Needs To Happen For IPEF To Go Into Force:

A successful conclusion to the IPEF trade agreement will require member states to opt into the provisions in which they wish to participate. Because the IPEF is broad in scope and implicates potential geopolitical relationships with China, IPEF members may make their opt-in decisions accordingly. As stated by U.S. Commerce Secretary Gina Raimondo, “We intend for the framework to be flexible and inclusive so that many different countries can participate.”

Practically speaking, the success of the IPEF trade agreement is vested Indo-Pacific in the members with the largest economies, including “major Southeast Asian economies such as Indonesia, Thailand, and Vietnam.” The success of IPEF will ultimately come down to who is willing to participate and how invested those members are.

Supply Chain Webinar: “Drafting Standard Forms for the Purchase of Goods From Suppliers: RFQs, Quotes, Purchase Orders, Long-Term Agreements”

By Squire Patton Boggs on Posted in supply chain

 

SPB’s Alexis Chandler will be participating in a CLE webinar on June 6, 2023 at 1pm EDT to discuss Drafting Standard Forms for the Purchase of Goods From Suppliers.  The webinar will discuss requests for quotations, seller’s quotes, purchase orders, and long-term agreements, and how parties can minimize disputes between buyers and suppliers with carefully drafted terms and conditions of purchase.

As a bonus, you can receive CLE credit for attending.  If you would like to attend, please register here.

UFLPA Enforcement Remains Work in Progress

By Alexis Chandler, Michael Hawthorne, Ludmilla Kasulke and Sarah Rathke on Posted in supply chain

U.S. Customs and Border Protection’s (“CBP”) implementation of the Uyghur Forced Labor Prevention Act (“UFLPA”) remains a work in progress, as importers work to mitigate shipment detentions and respond to UFLPA reviews and enforcement actions. Emerging best practices may guide stakeholders as they navigate these uncertainties.

Develop a Due Diligence System

Due diligence systems allow companies to proactively evaluate forced labor risks within their supply chains through comprehensive information gathering and robust risk assessments, which can mitigate the legal and reputational consequences of forced labor.

To establish a due diligence system, a company should:

  • Continuously collect information on Tier 1 – Tier 3 suppliers, to maintain comprehensive supply chain traceability;
  • Incorporate robust geographic and product-relevant risk assessments;
  • Develop policies that are responsive to the company’s unique risk profile and aligned with international standards; and,
  • Proactively monitor for future risks.

Be Proactive

An effective due diligence system is essential to facilitating imports. An effective due diligence system will:

  • Safeguard against an importer’s suppliers engaging in forced labor;
  • Consist of updated policies and supplier standards to express a zero tolerance for forced labor;
  • Facilitate regular engagement with suppliers to offer training and encourage information sharing that maximizes reliability.

A due diligence system is critical because UFLPA and the original forced labor import ban, under Section 307 of the Tariff Act of 1930, as amended, affirm the United States’ zero tolerance for the import of goods believed to have been made with forced labor.  Both laws prohibit the importation of goods “manufactured wholly or in part” with forced labor. Thus, there is no de minimis standard allowing for entry of goods that have only a small quantity of potentially violative inputs. One bad apple spoils the bunch, costing importers nearly $20 million in denied shipments in 2023 YTD.

In recent months — including at CBP’s 2023 Trade Facilitation and Cargo Summit — CBP and other agency members of the Forced Labor Enforcement Task Force (“FLETF”) have consistently emphasized that importers should “know [their] supply chain,” underscoring the heightened expectation that importers adopt effective due diligence standards. For the importer, this may mean adopting new policies, supplier agreements and trainings that align with emerging best practices. Dedicating supply chain staff, authorized to implement and enforce such updated policies, can signal to CBP an importers’ seriousness regarding forced labor compliance.

Be Organized

As part of an effective due diligence system, importers should have access to information that indicates a product’s evolution from raw materials to a finished good. Indeed, UFLPA’s rebuttable presumption shifts the burden of proof to importers to provide CBP clear and convincing evidence that shipments were not produced using forced labor or that UFLPA does not apply to the shipment. While CBP takes an average of two weeks to review evidence, reviews are frequently delayed because CBP deems evidence incomplete or poorly formatted. While only 500 shipments have been denied under UFLPA to date, over 1,700 shipments are under review. These shipments represent over $540 million in shipment value and innumerable reputational costs from delayed customer deliveries.

Potential legislative or administrative changes to UFLPA enforcement may further increase seizures or lengthen reviews. In April, U.S. lawmakers on the bipartisan Congressional-Executive Commission on China expressed concern over potential UFLPA enforcement gaps, such as deceptive shipping practices and direct-to-consumer shipments. At the commission’s first hearing on UFLPA’s implementation, House Commission Chair Rep. Chris Smith (R-New Jersey) expressed the sense of Congress:

that UFLPA will prick the consciences of corporate actors and encourage them to scour their supply chains to make sure they are free from the taint of forced labor. For those that are incorrigible and seek to skirt the law, we will seek enforcement action and bring public scrutiny to bear.

Senate Chair Jeff Merkley (D-Oregon) reiterated the same: “Compliance with this law requires a paradigm shift . . . . Companies that resist compliance or look to exploit loopholes need to be held accountable.”

It is essential for importers to take UFLPA seriously by developing a due diligence system and effectively maintaining traceability information to facilitate CBP’s review and protect against future enhanced scrutiny. With readily available and reliable supplier data and clear submission formatting, CBP will be able to easily review all import information, facilitating an importer’s success importing goods.

 

 

Postal Code For Chinese Manufacturers To Be Required By U.S. CBP Beginning This Weekend

By Alexis Chandler, Ludmilla Kasulke, Janine Little and Sarah Rathke on Posted in supply chain

As part of a continued effort to enforce the Uyghur Forced Labor Prevention Act (UFLPA) and to provide early warning to importers and their representatives that goods may have been produced in the Xinjian Uyghur Autonomous Region (XUAR), U.S. Customs and Border Protection (CBP) will require businesses to provide a valid postal code for Chinese manufacturers from which they are importing goods when reporting via the Automated Commercial Environment (ACE) system beginning on March 8, 2023.   The following Q&A will help your business understand the steps it needs to take to comply with the requirement:

Q.   When does this requirement go into effect?

A.     CBP first announced this requirement in its Notional Development & Deployment Schedule for Automated Commercial        Environment with a target deployment date of November 2022.  (CBP Publication No. 2027-1022).  However, on November 1, 2022, CBP announced that deployment was postponed until further notice to address concerns raised by impacted users.  (CBP Bulletin No. 53838846).  On January 26, 2023, CBP announced that the requirement would go into effect on March 18, 2023.

Q.     What is the purpose of the requirement?

A.      As stated by CBP in its January 26, 2023 Uyghur Forced Labor Prevention Act Region Alert, the postal code requirement “will provide an early notification to importers and their representative of goods that may have been produced in the [XUAR] and may be excluded from importation into the United States.”

Q.     What applications in ACE are subject to the postal code requirement?

A.     A postal code is not required for all applications in ACE. Rather, ACE will require postal codes of manufacturers in (1) “Cargo Release” applications if the country of origin is reported as China, and (2) “Manufacturer Identification Code” applications if creating or updating a Manufacturer Identification Code with a city located in China.

Q.     What happens if the provided postal code is invalid?

A.     A user that provides a postal code that is not a valid Chinese postal code will receive an error message.

Q.     What happens if the provided postal code is from the XUAR?

A.     A user that provides a postal code that is from the XUAR will receive a warning message. This will alert the importer that the rebuttable presumption of forced labor established under the UFLPA likely applies to the goods, and that shipments from that manufacturer could be detained.  (For more information regarding the rebuttal presumption under the UFLPA, see our blog post here.)  CBP states that “importers may request an exception to the rebuttable presumption from CBP during a detention, after an exclusion, or during the seizure process” as described on page 9 of the UFLPA Operational Guidance for Importers, which is available here.

Q.     What should your business do to prepare?

A.     CBP will not be providing a list of valid Chinese postal codes or a list of postal codes in the XUAR because “importers have an obligation to conduct due diligence on their supply chain.”  (UFLPA Region Alert and Postal Code Requirements, Frequently Asked Questions, CBP Publication No. 3064-0323).  It is therefore incumbent upon businesses to understand their entire supply chains–including the names and addresses of each of their manufacturers.  Our team is here to assist you with that due diligence.

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