By Mark S. Nelson, J.D.
The Senate passed a compromise version of the Uyghur Forced Labor Prevention Act (H.R. 6256) (See, Congressional Record, December 14, 2021, at H7804-H7806), which places the onus on U.S. companies to establish that their goods originating in the Xinjiang Uyghur Autonomous Region (XUAR) in China, where it is alleged that Uyghurs, Kazakhs, Kyrgyz, and members of other Muslim minority groups are subjected to human rights abuses by the Chinese government, are not the result of such forced labor. The compromise version, however, dropped a securities disclosure requirement that appeared in the original House version of the bill and resets the effective date for the rebuttable presumption that is at the heart of the legislation to a time frame between the original House and Senate versions of the bill. Even without the securities disclosure provision, the bill emphasizes the social component of environmental, social, and governance (ESG) investing, and public companies may still need to make disclosures if they otherwise would be material to their business. The House passed the bill by voice vote ahead of the Senate’s action and the bill now goes to the president’s desk.
Rebuttable presumption. The most recent version of the Uyghur Forced Labor Prevention Act imposes a rebuttable presumption that certain goods produced in the XUAR are banned from U.S. markets. The presumption, however, could be overcome if the Commissioner of U.S. Customs and Border Protection determines: (1) that the importer of record fully complied with applicable guidance and regulations and has completely and substantively responded to all inquiries for information submitted by the commissioner to ascertain whether the goods were mined, produced, or manufactured with forced labor; and (2) by clear and convincing evidence, that the good, ware, article, or merchandise was not mined, produced, or manufactured wholly or in part by forced labor. Upon determining to lift the ban, the commissioner must submit a report to Congress identifying the good and the evidence considered.
The compromise version largely tracks the original Senate version of the bill (S. 65) that was sponsored by Sen. Marco Rubio (R-Fla). The earlier House version (H.R. 1155), sponsored by Rep. Jim McGovern (D-Mass), provided for a rebuttable presumption but under slightly different terms. With respect to the timing of the implementation of the ban, the original House version of the bill provided for an effective date 120 days after enactment, while the Senate version provided for an effective date 300 days after enactment. The compromise version of the bill provides for an effective date 180 days after enactment.
The Uyghur Forced Labor Prevention Act’s rebuttable presumption would, like other bills addressing human rights issues (e.g., conflict minerals disclosures under securities regulations), provide for a sunset date. The compromise version of the bill provides for termination of the rebuttable presumption and of other provisions in the bill on the earlier of eight years after enactment or the date the President of the U.S. submits to Congress a determination that the Chinese government has ended mass internment, forced labor, and any other gross violations of human rights experienced by Uyghurs, Kazakhs, Kyrgyz, Tibetans, and members of other persecuted groups in the XUAR. By comparison, the conflict minerals provision contained in Dodd-Frank Act Section 1502 strips the president of such discretion for an initial period of five years (i.e., “on the date on which the President determines and certifies to the appropriate congressional committees, but in no case earlier than the date that is one day after the end of the five-year period beginning on the date of the enactment” (emphasis added)).
Other general provisions in the Uyghur Forced Labor Prevention Act would provide for: (1) the development of an enforcement strategy; (2) the development of a related diplomatic strategy, and (3) for the imposition of sanctions. However, the compromise version of the bill and the original Senate bill do not include the original House provision requiring a determination by the Secretary of State on whether Chinese actions in the XUAR constitute crimes against humanity or genocide.
Getting the bill passed. Senate action on the Uyghur Forced Labor Prevention Act was briefly delayed when Democrats threatened to object to allowing votes on the bill unless the Senate voted on three high level Biden Administration nominees who are perceived to be key to implementing the bill. Specifically, Sen. Chris Murphy (D-Conn) asked Sen. Rubio to agree to proceed with the nominations of R. Nicholas Burns to be Ambassador to China, Ramin Toloui to be an Assistant Secretary of State (Economic and Business Affairs), and Rashad Hussain to be Ambassador at Large for International Religious Freedom. Senator Rubio did not object to the request and all three nominees were later confirmed by the Senate by significant margins on December 16, 2021 (Burns; Toloui; Hussain).
But proceedings had been further delayed when, shortly after Sen. Rubio agreed to Sen. Murphy’s request, Sen. Ron Wyden (D-Ore) objected to bringing the bill up for a vote until the Senate acts to extend the soon-to-expire child tax credit. A day later however, the Senate was able to move forward and pass the Uyghur Forced Labor Prevention Act.
In anticipation of passage, Sen. Rubio appeared to dispel concerns that companies would be caught off-guard by the ban on the importation of certain goods from the XUAR. “Many companies have already taken steps to clean up their supply chains, and, frankly, they should have no concerns about this law. Yet for those that have not done that, they will no longer be able to continue to make Americans—every one of us, frankly—unwitting accomplices in the atrocities and genocide that are being committed by the Chinese Communist Party.”
When the bill was debated in the Senate earlier in the week, Senator Rubio remarked on the supply chain aspect of the problem of slave labor as detailed by a New York Times report. Said Sen. Rubio: “I think it is also appalling that it reveals the level of dependence this country has and the need we have to rebuild our industrial base in this country and in allied nations. It is appalling because it is a fact that we are so dependent on China in our supply chain, that many have asked us to look the other way, to not complain about this, to not pass a bill about this because it would disrupt supply chains, when what they really mean is it would disrupt the bottom line, their profits.”
Likewise, Sen. Jeff Merkley (D-Ore) reached a similar conclusion: “Behind those fancy performances in the opening ceremonies [referring to the upcoming Olympic Winter Games to be held in China and for which the Biden administration has issued a diplomatic boycott], there is a very, very ugly truth. That ugly truth is that the Chinese Government is committing genocide against the Uighur population. More than a million Uighurs are enslaved, and they are enslaved to produce products for the world for the profit of China.” Senator Merkley then explained the purpose of the legislation. “And I don’t think anyone in America wants us to be complicit in genocide by buying these products. That is what this bill is all about,” said Sen. Merkley.
Earlier version had SEC disclosure provision. The original House version of the Uyghur Forced Labor Prevention Act contained a securities disclosure provision that resembled the existing Iran sanctions notice disclosure provision contained in Exchange Act Section 13(r). Specifically, the bill would have required a company subject to SEC reporting requirements to disclose in an annual or quarterly report certain information if it knowingly engaged in an activity with an entity or the entity’s affiliate that, in turn, had engaged in specified activities, including the provision of technical assistance for mass population surveillance in the XUAR or the building and running of detention facilities in the XUAR. A company that engaged with such entities would then have had to disclose a detailed description of: (1) the nature and extent of the activity; (2) gross revenues and net profits attributable to the activity; and (3) whether the company intended to continue the activity. Exceptions to the disclosure requirement existed for the importation of certain manufactured goods that originated in the XUAR (i.e., electronics, food products, textiles, shoes, and teas) and for manufactured goods that contain materials originated or sourced in the XUAR.
A company that made the required disclosure report also would have had to separately file a notice with the SEC that the disclosure had been made, similar to the Iran notice companies already file on EDGAR. The SEC then would have transmitted the report to the president and Congress and make the information in the disclosure and notice publicly available on the SEC’s website. The president would then have had to determine if an investigation for possible imposition of sanctions is appropriate or whether a criminal investigation is warranted.
A policy statement in the House version of the bill provided that it is U.S. policy to protect American investors regarding the presence in U.S. markets of Chinese and other companies that are complicit in gross violations of human rights. A findings section in the House bill stated that, since 2017, China has arbitrarily detained up to 1.8 million Uyghurs, Kazakhs, Kyrgyz, and members of other Muslim minority groups in internment camps where these persons are subjected to forced labor and other human rights abuses.