While many have focused in recent months on the US enforcement of the forced labor import ban (19 U.S.C. 1307) and the Uyghur Forced Labor Prevention Act (UFLPA) (Public Law No. 117-78), the EU is working on its own set of regulations prohibiting products made with forced labor from entering the EU market.
As Yemen’s Houthi rebels have increased attacks against vessels sailing through the Red Sea and the Gulf of Aden, global trade stakeholders have responded. It has been announced in the media that oil majors and large global shipping lines are suspending shipping operations in the Red Sea.
In light of the current geopolitical climate, the Federal Maritime Commission (FMC) announced that it will hold an informal public hearing on February 7, 2024, to examine how conditions in the Red Sea and Gulf of Aden regions are impacting commercial shipping and global supply chains. The hearing will allow stakeholders in the supply chain to communicate with the FMC on how operations have been disrupted by attacks on commercial shipping emanating from Yemen, steps taken in response to these events, and the resulting effects.
November 27, 2023 marked the inaugural meeting of the White House Council on Supply Chain Resilience, a cabinet-level council focused on building and advancing the success of America’s critical supply chains. The meeting commenced the Biden-Harris Administration’s initiative to provide American citizens with domestic access to medicine and vaccines that have previously been inconsistently available.
Boosting the success of national supply chains and manufacturing will advance both U.S. economic and national security, as well as the U.S. economy. Further, as a result, the United States will be able to mitigate domestic drug shortages and increase the production of essential medicines in the United States, limiting reliance on higher-risk foreign suppliers for essential medicine and vaccines.
As part of nearly thirty actions unveiled to strengthen domestic supply chains, the President will issue a Presidential Determination to broaden the Department of Health and Human Services’ (HHS) authority under Title III of the Defense Production Act. In doing so, the United States will have additional investment opportunities for manufacturing essential medicines and medical countermeasures—critical to national defense.
Once the Presidential Determination has been issued, HHS will be able to ensure the United States has the tools and resources necessary to meet domestic needs for medicine and respond to other public health emergencies. To do so, HHS will appoint a coordinator for Supply Chain Resilience and Shortage and allocate $35 million to developing domestic manufacturing of the materials essential to making critical medicines. It is anticipated that by December 31, 2024, the first quadrennial supply chain review will be complete, and key products and sectors of U.S. economic security will be identified.
The purpose of this Act is to implement Canada’s international commitment to fighting forced and child labor through reporting obligations on (a) government institutions producing, purchasing, or distributing goods in Canada or elsewhere; and (b) entities producing goods in Canada or elsewhere or importing goods produced outside of Canada.
The Act sets forth reporting obligations for government institutions and other entities, both of which must submit their first report to the Minister (defined below) by May 31, 2024.
The Act requires each entity and government institution to, on or before May 31 of each year, report to the Minister of Public Safety and Emergency Preparedness (“Minister”) the steps it has taken during the previous financial year to prevent and reduce the risk that forced or child labor is: (i) for each entity, used at any step of production, or (ii) for government institutions, used at any step of the production of goods produced, purchased, or distributed by the government institution.
The entity’s or government institution’s report must include the following information:
(a) its structure, activities, and supply chains;
(b) its policies and due diligence processes in relation to forced and child labor;
(c) the parts of its activities and supply chains that carry a risk of forced or child labor and the steps taken to assess and manage that risk;
(d) any measures taken to remediate any forced or child labor;
(e) any measures taken to remediate the loss of income to the most vulnerable families resulting from any measures taken to eliminate forced or child labor in its activities and supply chains;
(f) the training provided to employees on forced and child labor; and
(g) how the entity or government institution assesses its effectiveness in ensuring that forced and child labor are not being used in its activities and supply chains.
Each entity and government institution must make its report available to the public by publishing it in a prominent place on the entity’s or government institution’s website.
Similarly, the Minister must maintain an electronic registry containing a copy of every report provided to the Minister and the registry must be made available to the public on the Department of Public Safety and Emergency Preparedness website.
Additionally, any entity incorporated under the Canada Business Corporations Act or any other Act of Parliament must provide the report or revised report to each shareholder, along with its annual financial statements. For each entity, its report must be approved by its governing body.
Every person or entity that fails to comply with the Act’s reporting, posting, or remedial requirements, is guilty of an offense punishable on summary conviction and a fine of not more than $250,000. Additionally, every person or entity that knowingly makes any false or misleading statement or knowingly provides false or misleading information to the Minister or a person designated under Section 14 of the Act is guilty of an offense punishable on summary conviction and liable to a fine of not more than $250,000.
Canada is not the only country implementing a law to safeguard human rights; the US and Germany have similar laws as well.
The US enacted the Uyghur Forced Labor Prevention Act, which went into effect on June 21, 2022 to address human rights issues that may impact goods imported into the US. The Uyghur Forced Labor Prevention Act creates a rebuttable presumption that “any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China” (or by an entity included on a list required by the Uyghur Forced Labor Prevention) are prohibited from importation into the US under 19 U.S.C. §1307. Unlike Canada’s Act, the Uyghur Forced Labor Prevention Act does not require government institutions or entities to proactively report about its supply chain.
Similarly, on January 1, 2023 Germany’s Act on Corporate Due Diligence Obligations in Supply Chains took effect. Germany’s Act on Corporate Due Diligence Obligations in Supply Chains is limited to companies that employ at least 3,000 employees, however, companies that employ at least 1,000 employees will be required to comply starting January 1, 2024. The German Act obliges companies to observe human rights and environmental due diligence obligations, which include the following: (1) the establishment of a risk management system, (2) the internal designation of responsibilities, e.g. appointing a human rights officer, (3) the performance of regular risk analyses, (4) the adoption and communication of human rights policies, (5) the establishment of preventive measures in its own business area and vis-à-vis direct suppliers, (6) taking remedial action in the event of a violation of a protected legal position, (7) the establishment of a complaints procedure, (8) the implementation of due diligence measures with regard to risks at indirect suppliers, and (9) documentation and reporting to the authorities.
 Per the Act, “government institution” has the same meaning as in section 3 of the Access to Information Act, which defines “government institution” as: (a) any department or ministry of state of the Government of Canada, or any body or office, listed in Schedule I of the Access to Information Act, and (b) any parent Crown corporation, and any wholly-owned subsidiary of such a corporation, within the meaning of section 83 of the Financial Administration Act.
 Per the Act, “entity” means a corporation or a trust, partnership or other unincorporated organization that: (a) is listed on a stock exchange in Canada; (b) has a place of business in Canada, does business in Canada or has assets in Canada and that, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years: (i) it has at least $20 million in assets, (ii) it has generated at least $40 million in revenue, and (iii) it employs an average of at least 250 employees; or (c) is prescribed by regulations.
On June 29, 2023, the European Parliament and Council formally adopted the EUDR. The EUDR goes into effect on December 30, 2024 for large companies (operators and traders) and June 30, 2025 for micro and small exporters.
The EUDR seeks to ensure that products brought into or exported from the EU market are deforestation-free. Thus, seven commodities including cattle, cocoa, coffee, palm oil, rubber, soy and wood items will be banned from the EU market if they are found to be grown on land that was deforested after December 31, 2020.
Companies importing any of these seven commodities into the EU will need to provide “conclusive and verifiable information” proving that the product did not originate from recently deforested land or contribute to forest degradation. Operators and traders will need to identify the plot of land where the product came from and prove that no forests have been cleared on that site since 2020.
The law requires EU national authorities to check nine percent of shipments coming from countries it considers to have a high risk of deforestation, three percent for nations it labels standard risk and one percent from low risk nations.
Operators or traders failing to meet the new rules face fines of up to four percent of the operator’s or trader’s total “annual Union-wide turnover in the financial year preceding the fining decision.”
The purpose of the EUDR is to reduce deforestation and forest degradation, which contribute to global warming and biodiversity loss. Trees absorb carbon dioxide, and forest loss and damage is estimated to have caused around 10 percent of global warming, according to nonprofit World Wildlife Fund.
Thus, the new Regulation aims to:
prevent Europeans from buying, using, or consuming products that contribute to deforestation and forest degradation,
reduce carbon emissions caused by EU consumption and production by at least 32 million metric tons per year, and
decrease deforestation driven by agricultural expansion.
EUDR critics are concerned that the EUDR will disproportionately hurt small farmers in Southeast Asia due to the high costs associated with monitoring and tracing these products. For example, Malaysia’s rubber and palm oil farmers have asserted that the EUDR will exclude smallholders from the European market and worsen rural poverty. As a result, they have already filed a petition to the EU protesting the “unilateral and unrealistic” demands set forth in the EUDR.
Rubber farmers in Vietnam are also grappling with the compliance hurdles presented by the EUDR since almost all Vietnamese rubber is mixed with rubber from Cambodia and Laos, making traceability “almost impossible,” according to research by Forest Trends.
 Per the Regulation, “operator” means any natural or legal person who, in the course of a commercial activity, places relevant products on the market or exports them, and “trader” means any person in the supply chain other than the operator who, in the course of a commercial activity, makes relevant products available on the market.
 Per the Regulation, “micro, small and medium-sized enterprises” or “SMEs” means micro, small and medium-sized undertakings as defined in Article 3 of Directive 2013/34/EU of the European Parliament and of the Council.
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.
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:
The parties’ blanket purchase order, terms and conditions, and other writings lacked a written quantity term.
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.”
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.
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 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.
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.
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.