The chief development over the past year in the legal landscape regarding modern slavery and social compliance was the passing of the Uyghur Forced Labor Prevention Act (UFLP). The UFLP requires companies to avoid importing goods to the US that were made with the forced labor of Uyghurs and other persons or groups in China's Xinjiang Uyghur Autonomous Region (XUAR).

The UFLP follows a number of other US executive actions targeting alleged abuses in the XUAR. Since 2019, US Customs and Border Protection (CBP) has issued several Withhold Release Orders (WROs) against certain goods produced by specific companies in the region and, in January 2021, went as far as issuing a WRO against all cotton and tomato products from the region.

The UFLP also follows other state and federal regulations that have generally sought to restrict supply chain abuses. For example, the California Transparency in Supply Chains Act (CTSCA) of 2010 requires certain large retailers and manufacturers to publicly disclose any efforts they are taking to identify and eliminate the use of human trafficking and forced labor in their product supply chains.  Additionally, earlier this year the Securities and Exchange Commission created a Climate and Environmental, Social, and Governance Task Force aimed at identifying any material gaps or misstatements in corporate disclosures.  The task force will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.

The UFLP is much broader than these prior efforts. The UFLP potentially clouds the import of all products that are derived from goods or services in the XUAR, and requires companies to take significant affirmative steps to overcome that presumption. The UFLP will require many companies to first determine their supply chain links to XUAR and then, if such links exist, to prepare to reassure regulators that such links are not affected by forced labor.

State governments are also stepping in to fill the void left by the federal government.  The legislatures of both New York and Washington are considering laws which would require any company operating within an apparel retail supply chain to disclose and map out the entire supply chain for its products.  If passed, New York’s Fashion Sustainability and Social Accountability Act will require fashion companies (including manufacturers and retailers) to use “good faith efforts” to map a minimum of 50% of their supply chain, from farm to storefront—theoretically encompassing all suppliers of raw and other materials used for products.  Washington’s law mirrors the New York Act.  Of significant concern is that both proposed laws include private attorney general provisions that permit any citizen to sue for violations.

We are not aware of any significant enforcement action regarding these provisions, and litigation seeking to use these laws as avenues for claims have been unsuccessful to date.

Although the federal government has little “hard law” regarding human trafficking, investor and customer focus on corporate social responsibility has resulted in a proliferation of public-facing sustainability plans and human trafficking prohibitions and codes of conduct. This may also be due in significant part to multi-national corporations aligning their policies and procedures with the hard law requirements of the other jurisdictions in which they operate, as state governments have begun to step into the breach left by the federal government.

Congress’s increased focus on expansion of XUAR sanctions may provide an opening for broader disclosure legislation, but at this point, we are not aware of comprehensive or sustained efforts at the federal level.  The federal government appears largely content to regulate these types of issues through financial rules applicable to publicly-traded companies, traditional labor laws, and narrow, targeted measures.  However, in other ESG-adjacent areas lacking strong federal mandates, we have seen state governments step up and drive regulation—frequently copying each other.  We will not be surprised if New York and Washington’s ESG disclosure and due diligence laws trigger a number of other states to consider and enact copycat legislation. 

Will Troutman
+1 213 892 9208
William.Troutman@nortonrosefulbright.com