Section 307 of the U.S. Tariff Act prohibits the importation of products, including raw materials, produced by forced labor. Prohibitions of this nature have been on the books since the nineteenth century, but have taken on renewed relevance in light of evidence of forced labor in the production of high technology materials exported from China. Given the current state of global affairs, Energy and Clean Tech companies should assure their supply chains will be bulletproofed to the greatest practical extent from the risks associated with compliance with forced labor laws, through the thoughtful modification of Risk Management Programs. This alert provides guidance on accomplishing this objective.
Energy and Clean Tech Businesses are caught between the clean energy imperative and the regulatory directive to eliminate forced labor and human trafficking. In recent years, importers, customers, manufacturers, and producers in Energy and Clean Tech have diversified their supply chains in response to disruptions caused by Covid-19 and other factors, as well as “Made in America” incentives. Nonetheless, it is likely that any number of Energy and Clean Tech companies are still unwittingly using raw materials, components, assemblies and finished goods that are directly or indirectly mined, produced, or manufactured wholly or in part by forced labor, including forced or indentured child labor.
Energy and clean tech companies should modify their risk management policies to vet, document and manage their foreign supply chains. Such review is required by Section 307 of the Tariff Act of 1930, as well as the Uyghur Forced Labor Prevention Act (“UFLPA”), which prohibits the import of forced labor products associated with the Xinjiang Uyghur Autonomous Region (the “XUAR”) of the People’s Republic of China. UFLPA applies to all businesses (such as grocery chains, consumer goods companies and auto manufacturers) and prohibits the import of all products of forced labor, including tomatoes, cotton, apparel, hair products, consumer products and chemical products used in cancer and other pharmaceutical components.
For energy and clean technology companies, the industries most impacted by UFLPA include electric vehicles (batteries), wind turbines, electricity networks, and solar power. These industries need computer parts, touch screens, electronics, polysilicon, base metals and critical minerals (aluminum, beryllium, cobalt, graphite, iridium, lithium, magnesium, nickel, niobium, platinum, tin, titanium, tungsten and zinc), all of which are sourced in large part from China and the XUAR either directly or through other countries. For example, China exports more than 90 percent of the world’s polysilicon, and 45 percent of all polysilicon originates from the XUAR. Moreover, Chinese firms account for more than half of the EV battery market and satisfy as much as 90 percent of the demand for some battery materials.
Import of the products of forced labor does not lead only to legal penalties. Such items may also be indefinitely detained by U.S. Customs and Border Patrol (“CBP”), disrupting vital supply chains. To obtain release of the detained goods, the importers must (at a minimum) provide detailed and complete records of transactions including comprehensive information on each step of the supply chain, identifying among other things all entities involved in the manufacture, manipulation, or export of a particular good. For the most recent reporting period, CBP has detained the greatest number of imports from Malaysia, Vietnam, China, Thailand and Mexico (in that order).
Supply Chain Component of Risk Management Programs. All supply chain risk management programs for businesses of any size generally should include the following elements:
- Management Commitment
- Risk Assessment
- Supply Chain (import/export) Verification/Due Diligence/Monitoring
- Reporting Performance and
- Handling violations and taking corrective actions
What Small and Medium Businesses Can Do. Large businesses already have extensive risk management programs in place, including making their anti-slavery policies publicly available, but smaller businesses do not have adequate resources or leverage with their suppliers to do so. However, a small or medium business can
- Make a significant management commitment (Board vote, Management letter, etc.) and add anti-slavery provisions to its code of conduct.
- Maintain periodic slavery risk assessment and be aware of the problematic geographic areas, entities and items. See, for example, the UFLPA Entity List[i], the DOL List of Goods Produced by Child Labor or Forced Labor[ii], the Consolidated Screening Lists[iii], the CBP Dashboard[iv] and the UFLPA Operational Guidance for Importers[v])
- With respect to verification and due diligence,
- include UFLPA representations and warranties and covenants in your agreements with importers,
- obtain a copy of the importers’ UFLPA policies and codes of conduct,
- ask for copies of the importers’ UFLPA documentation, mapping and monitoring – if possible;
- provide for payment to the importer only when the items are delivered to your door;
- further develop multiple sourcing;
- stay current with DOL and CBP developments;
- periodically review the most active Forced Labor NGO websites and publications which influence CBP’s selection of goods on which to focus (e.g. Human Rights Watch, Walk Free, Verite, Responsible Sourcing Tool, Sayari, Human Trafficking Legal Center, and Helena Kennedy Centre for International Justice at the UK’s Sheffield Hallam University) and
- Explore the cost of using external supply chain due diligence experts like Sedex, Source Intelligence, and Sourcemap.
- Maintain records of UFLPA compliance efforts, including supply chain mapping and monitoring to the greatest extent possible.
- Use external training programs or do it in-house.
- Do in-house audits or external audits, if practical
- Consider reporting performance to the board and employees to the extent practical, and
- Prepare in advance for how to handle and remediate possible violations.
This Client Alert is a summary published for the purpose of raising awareness. It is not comprehensive but attempts to simplify complex and detailed subject matter. This Client Alert is not legal advice. If you have questions, please contact C. Russel Hansen, Jr. (email@example.com; 617-456-8036).