Bloomberg Law
Nov. 14, 2022, 2:00 AM

ANALYSIS: How the US Is Using Trade Rules for Non-Trade Reasons

Louann Troutman
Legal Content Specialist

The US government is developing new rules and enforcing existing ones that further its environmental protection, human rights, and national security objectives by regulating the trade in goods.

While using trade rules to address non-trade issues isn’t new, the US government increased its use of these measures in 2022. Both import and export requirements are being used to pressure Russia and Belarus to end the war in Ukraine, and to address human rights violations in China.

2023 will see enhanced use of such measures to target not only Russia and China, but also countries that boycott Israel. The Biden administration has indicated that it will also use trade rules to address deforestation. These measures will impact both the importation and exportation of a wide range of goods.

Import Restrictions

In response to alleged Chinese government human rights violations, Congress passed the Uyghur Forced Labor Prevention Act in 2021 nearly unanimously. President Biden signed the bill into law Dec. 23, 2021, and it took effect June 21, 2022.

The law expands on Section 307 of the Tariff Act of 1930 to cover goods made in the Xinjiang Uyghur Autonomous Region of China and those made by entities on the UFLPA Entities List. It requires Customs and Border Protection personnel to determine that UFLPA deems, as a rebuttable presumption, that covered imported goods are made with forced labor and, as such, are denied entry into the US.

In June, Customs and Border Protection issued guidance placing the onus on the importer to show compliance with UFLPA and requiring the importer to demonstrate by “clear and convincing evidence” that the goods were not made with forced labor. This is a very high standard and one that will be nearly impossible for Xinjiang-origin goods to meet.

In FY 2022, approximately $500 million in shipments were detained by the CBP under UFLPA. This total accounts for almost half of the year’s 3,000 detained shipments, even though the law was only in effect for the last quarter of the fiscal year. The CBP estimates that 11.5 million shipments per year may be subject to UFLPA, with an increase of petitions to over 20,000 a year. The CBP FY 2023 budget adds $70 million and 300 positions for UFLPA enforcement to the current base of $10.6 million and 29 positions, which indicates that the issue is a priority for the agency.

The CBP is also updating its Automated Commercial Environment (ACE) to enhance UFLPA enforcement. ACE is the online system importers use to provide the information that the CBP relies upon to determine whether a shipment is permitted to enter the US. In November, the CBP established a working group to discuss adding an UFLPA Region Alert to ACE entries. The ACE updates would require importers to enter a postal code for all imports from China when making an Entry or Manufacturer Identification Code. Importers who enter a postal code from within the XUAR will receive a warning message indicating that the shipment may be subject to UFLPA.

Imports can be used as leverage in pursuits outside of geopolitics as well. For example, President Biden’s April 22 executive order targets international deforestation as a priority issue. The State Department, working with numerous government departments and agencies, is required to issue a report in 2023 with “options, including recommendations for proposed legislation, for a whole-of-government approach to combating international deforestation.” This approach may include restricting or prohibiting the importation of commodities produced on deforested land and requiring traceability of those commodities. The EO also calls for including deforestation and land conversion in both new and existing trade agreements.

Export Restrictions

The Biden administration envisions a larger role for export compliance to advance US policies on military actions and human rights abuses.

A report released in October by the Commerce Department’s Bureau of Industry and Security stated that “export controls have never been a better fit for addressing [national security] challenges than they are today.” The report emphasized changes to strengthen enforcement and compliance with export controls and anti-boycott requirements. These changes include a greater focus on public disclosure, an increase in fines, and a requirement that companies publicly admit to facts as part of pre-trial settlements. The report also encouraged companies to comply with export controls and anti-boycott requirements rather than treat fines as a cost of business.

Commerce Under Secretary Alan Estevez testified before a House committee in July that existing US export controls on Russia provide a “great framework” to combat Chinese human rights abuses.

On Oct. 13, the BIS announced an interim final rule that amends the Export Administration Regulations to impose significant export controls on certain IT products, including integrated circuits and items used to manufacture semiconductors. This rule is intended to limit China’s ability to develop advanced computing technology. According to an Oct. 20 Bloomberg News report, the Biden administration is considering expanding these new controls to cover quantum computing and artificial intelligence as well.

Anti-boycott laws are a particular type of export restriction that discourages or prohibits American businesses from participating in unsanctioned boycotts. First adopted in the 1970s, primarily in response to the Arab League’s boycott of Israel, anti-boycott actions are traditionally limited in scope. Historically, fines have been relatively small, with most fines coming in under $1 million and many under $100,000. Businesses have not had to make any admissions of wrongdoing to obtain a settlement.

The BIS issued a regulation in October announcing “enhanced enforcement” of anti-boycott laws in 2023 to target serious violators. Much like the new enforcement policies for export controls, the new policy will increase fines and require companies found to be violating the anti-boycott rules to admit misconduct. The new policy also focuses on more serious anti-boycott violations and on foreign subsidiaries of US companies.

Access additional analyses from our Bloomberg Law 2023 series here, covering trends in Litigation, Transactional, ESG & Employment, Technology, and the Future of the Legal Industry.

Bloomberg Law subscribers can find related content on our Transactional Practical Guidance page.

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