Perhaps most pressingly, trade lawyers are advising their clients that the Uyghur Forced Labor Prevention Act (UFLPA, effective June 2022) is a game changer. The UFLPA shifts the burden of proof away from CBP and onto the companies importing, in whole or in part, from China’s Xinjiang Uyghur Autonomous Region (XUAR, or Xinjiang). The law bans all imports from Xinjiang unless the importer can prove the products are not connected to forced labor or child labor. To be in compliance with UFLPA, companies must provide a comprehensive supply chain mapping, a complete list of all workers at an entity subject to the “rebuttable presumption” that there is a connection to forced labor, and proof that workers were not subject to conditions typical of forced labor practices.
Product importers out of the Xinjiang regions and companies seeking an M&A transaction with them should not be the only ones worried about the surge in CBP activity. On July 29, DHS announced a strategic partnership between the DHS’s Center for Countering Human Trafficking (CCHR) and Liberty Shared, an international NGO, to enhance DHS’s ability to investigate forced labor in supply chains and combat human trafficking. In its announcement CBP stated its commitment to stopping forced labor, estimated to be the predominant form of human trafficking, with victims of forced labor making up an estimated 80% of the twenty-five million people around the world affected. Increased partnerships between DHS and NGOs signals the likelihood of further surges in enforcement activity.
The ESG legal regimes in Europe are even more far-reaching, especially in relation to supply chains. Several nations already require HREDD to prevent, identify, and remedy or mitigate adverse impacts. Under proposed legislation, HREDD will be an obligation of many companies in or doing business in the EU. See European Commission Proposal for a Directive on Corporate Sustainability Due Diligence (Proposed Directive), 2019/1937, COM (2022) 71. Concurrently with the publication on Febrary 23, 2022, of the Proposed Directive, the EU Commission published a Communication on Decent Work Worldwide, COM (2022) 66, outlining plans to ban products made with forced or child labor from the EU market.
The Proposed Directive applies to companies established ouside the EU with either (i) a net turnover in the EU of more than EUR 150 million or (ii) a net worldwide turnover of more than EUR 40 million but a net turnover in the EU of less than EUR 150 million, if at least 50% of the net worldwide turnover was generated in high-risk sectors like textiles, leather, garments, and footwear; agriculture, forestry, fisheries, husbandry, food and beverages; and the extraction and manufacture of mineral and metal products, regardless of where extracted, including crude petroleum, gas, coal, and metal ores. Upon adoption by the European Parliament and the Member States, the EU Directive will work in tandem with the Sustainabile Finance Disclosure, Regulation (SFDR), Regulation (EU) 2019/2088, and the Taxonomy Regulation, Regulation (EU) 2020/852.
M&A lawyers should not miss the upcoming Business Law Essentials program at the Business Law Section Hybrid Annual Meeting in Washington, D.C., and online on Thursday, September 15, 10:00–11:30 AM ET. This program will provide a unique opportunity to hear from top government officials on developing trends shaping U.S. and global sustainability and legal requirements to collect data, disclose, and remediate ESG risks. In addition to covering proposed rules from the SEC and CBP enforcement of the UFLPA, there will be updates on the EU Proposed Directive that will affect most, if not all, international business operations. Speakers include: Erik Gerding, Deputy Director, SEC (Division of Corporate Finance—Legal & Regulatory Policy); Salla Saastamoinen, acting Director-General for Justice and Consumers, European Commission; Eric Choy, Executive Director, U.S. Customs and Border Protection (Trade Remedy Law Enforcement); Professor Claire Bright (Nova University, Lisbon, Portugal); and Professor David Snyder (American University, D.C.).