CBP's UFLPA Enforcement Sets 'Nearly Impossible' Requirements for Small Businesses, Lawyer Says

SMEs lack the leverage needed to secure documentation from their suppliers, as well as the resources needed to perform the due diligence specified in CBP guidance, said Robert Kossick of law firm Harris Bricken. They also lack the “financial muscle to pursue a China + 1, nearshoring, or similar operational engineering strategy,” as well as the opportunity to procure goods “essential to their operational viability” from alternative suppliers, Kossick said.

Recent developments highlight the “chilling effect” on U.S. economic engagement with China, especially as it relates to SMEs, which account for about 40% of all Chinese imports into the U.S., Kossick said. Forced labor detentions are up 124% so far in 2023, in a per month comparison to 2022, and detentions are up from 39 per month to 98 per month, a 151% increase, he said, adding that the uptick could “reflect the growing number of human resources CBP is now deploying in connection with forced labor issues.”

And more forced labor scrutiny is expected, especially after recent attention in the form of a letter from Congress to CBP on UFLPA implementation (see 2304110034), Kossick said. And there seems to be little interest from either CBP or Congress in helping SMEs, as evidenced by CBP’s reticence on the matter of making available information that the trade community could use to better comply with UFLPA, he said.

“Notwithstanding the detailed nature of official forced labor guidance and strategy documents, CBP’s unwillingness to furnish information that might ‘show its hand’ (and, consequently, enable better UFLPA compliance), ends up working to the detriment of those importers with the scarcest resources available for conducting forced labor due diligence -- i.e., SMEs,” the blog post said. The agency declines to publish tariff schedule subheadings or other detailed information on the products it targets, nor does it regularly update its UFLPA Entity List or release shipment data or Xinjiang postal codes that could be used by SMEs “to map their supply chains, avoid forced labor bad actors, and respond more effectively to UFLPA detentions,” Kossick said.

“The simple truth is that each of these inputs could be made available to U.S. importers, and doing so would uphold the worthy objectives of the UFLPA in a way that avoided causing unnecessary collateral damage to resource-restricted SMEs,” Kossick said. “But, at the end of the day, CBP chooses not to. And SMEs are now at a greater risk of being thrown under the bus.”

The lack of information provided by CBP, “considered in conjunction with the fact that an estimated 45% of U.S. supply chain managers do not have visibility beyond their tier one suppliers/manufacturers, ... [is] significant,” Kossick said, citing a McKinsey study.

The situation is compounded by the reluctance or inability of Chinese suppliers to cooperate with U.S. importers in providing supply chain information, Kossick said. Poor record-keeping practices may mean a supplier doesn’t know who is in its supply chain, and agreements to provide information can be signed “with no real intent of being honored.” Even where a Chinese supplier wants to comply, it may be prevented from doing so by China’s anti-foreign sanctions and blocking laws, he said.

“The forced labor burden placed on U.S. business, generally, and SMEs, particularly, is substantial and growing,” Kossick said. “Information is imperfect, the stakes are high, there is no silver bullet, and expectations are stringent.”

In the post, Kossick included a lengthy list of “practice pointers” that can be used by importers “to navigate the diverse considerations that go into the “business judgments” which the UFLPA almost invariably requires.”

“We have reached the point where import transactions must be structured with forced labor in mind,” Kossick said. Agreements must be reached and documents sourced at the front end of a transaction, including forced labor questionnaires and agreements and bills of material. “Importers stand their best chance of securing this level of cooperation while deals are coming together. Once agreements are in place and merchandise is being produced/shipped, Chinese suppliers/manufacturers have a diminished incentive to cooperate,” he said. Nonetheless, importers should not “over-rely” on documents from their suppliers.

If a supplier wants to cooperate but has concerns about the confidentiality of “potentially sensitive or proprietary information,” importers can ask the supplier to transmit the documentation directly to CBP through the relevant Center of Excellence and Expertise, or arrange to have the sensitive information sent to a secure portal maintained by a “trusted attorney,” Kossick said.

And as a “qualified hedge against the uncertainty associated with the forced labor scrutiny CBP will afford an unvetted product, importers should adopt an import strategy that involves testing the waters by entering a number of smaller value shipments before moving to shipments involving larger quantities and values,” Kossick said. “Though past performance is never a guarantee of future results, this approach can help importers incrementally evaluate the forced labor scrutiny their products will receive and, by extension, avoid potentially expensive surprises.”