Articles Posted in China

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Key Takeaways:

  • The Uyghur Forced Labor Prevention Act (UFLPA) went into effect on June 21, 2022, and requires the U.S. Customs and Border Protection (CBP) to presume that all goods manufactured wholly or in part in the XUAR, or by the entities identified by the U.S. government on June 17, 2022, are made with forced labor and banned from import to the United States, unless the importer demonstrates otherwise (a “rebuttable presumption”).
  • Guidance and Reports published in the week leading up to June 21 identify key information for companies seeking to comply with the law, maintain U.S. imports, and understand the supply chain information that may be required by U.S. Customs and Border Protection (CBP).
  • Where the presumption of forced labor applies, rebutting it will require an importer to overcome a high bar by providing “clear and convincing” evidence; however, this same high standard will not necessarily apply to demonstrating that imports have no connection with the XUAR.

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On June 12, 2022, a bipartisan group of Senate and House lawmakers announced agreement on a new draft of the National Critical Capabilities Defense Act of 2022 (NCCDA), which would establish an expansive outbound review mechanism for investments and other transactions in specified countries of concern, including China. The draft is based on a bill introduced in the Senate last year that ultimately was not included in the US Innovation and Competition Act (USICA), which passed, while the House included a similar measure in its America COMPETES Act, which also passed, and the two bills are now in conference.

If enacted, the NCCDA would establish a new interagency panel to review and potentially prohibit outbound transactions on national security grounds. The Committee on National Critical Capabilities (CNCC) would function in a manner similar to the Committee on Foreign Investment in the US (CFIUS), which reviews inbound foreign investment. Both US persons and foreign entities that engage in or plan to engage in a “covered activity” would be required to submit a mandatory written notification 45 days before engaging in the activity.  It is not clear how the requirement would apply to a foreign entity that does not have a connection with the United States.

“Covered activities” include an extraordinarily wide range of transactions including any activity by a US person or a foreign entity or their affiliates that:

  • Builds, develops, produces, manufactures, fabricates, refurbishes, expands, shifts, services, manages, operates, utilizes, sells, or relocates a national critical capability to or in a country of concern;
  • Shares, discloses, contributes, transfers, or licenses to an entity of concern any design, technology, intellectual property, or knowhow, including through open-source technology platforms or research and development, that supports, contributes to, or enables a national critical capability by an entity of concern or in a country of concern; or
  • Invests in, provides capital to, or consults for, or gives any guidance, related to enhancing the capabilities or facilitating access to financial resources for a national critical capability for an entity of concern or a country of concern.”

Covered activities would also include transactions by certain entities that receive financial assistance pursuant to the Bipartisan Innovation Act (the presumed name of the legislation that emerges from conference), as well as activities by entities that benefit from government contracts over a certain amount (to-be-determined) with a US national security agency with respect to an entity of concern or a country of concern.

In addition to China, “countries of concern’ include Russia, Iran, North Korea, Cuba, and Venezuela. The term “entity of concern” is broadly and vaguely defined to include entities “affiliated with” or “influenced by” a country of concern. Covered activities would not include de minimis value transactions, as well as “ordinary business transactions,” which generally include transactions involving the sale or license of a finished product.

“National critical capabilities” are defined as those identified necessary for supply chains identified pursuant to the supply chain review mandated by Executive Order 14017, including:

  • semiconductor manufacturing materials,
  • large capacity batteries,
  • critical minerals and materials,
  • pharmaceuticals and active pharmaceutical ingredients, and
  • “critical and emerging technologies,” such as artificial intelligence, bioeconomy, and quantum information science and technology.

Once a notification is submitted, the CNCC would undertake a review to determine if the activity is likely to result in “an unacceptable risk to one or more national critical capabilities.” If it determines such a risk exists, it will make a recommendation to the President to address the risk, including imposing mitigation measures, potentially including disinvestment. The Committee would also have the authority to initiate investigation of a covered activity if a notification is not submitted.

Although the lawmakers announcing the agreement characterized the bill as a “refined proposal,” it is still extremely broad. Key terms and concepts are vague and ill-defined or left to regulators to fill in the blanks, and industry groups including the US China Business Council and the US Chamber are raising their voices in opposition.

 

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On January 24, 2022, the U.S. Department of Homeland Security (DHS) on behalf of the Forced Labor Enforcement Task Force (FLETF) issued a Notice Seeking Public Comments on Methods to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China, especially in the Xinjiang Uyghur Autonomous Region, into the United States (RFC). The notice is available here. Comments are due by March 10, 2022.

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As part of its continuing efforts to protect US communications networks from communications equipment and services that pose a national security risk, the Federal Communications Commission (FCC) on June 17, 2021, released a Notice of Proposed Rulemaking and Notice of Inquiry (NPRM/NOI) seeking comments on its proposal to prohibit the authorization (and revoke existing authorizations) of any communications equipment on the list of equipment and services that the Commission maintains pursuant to the Secure and Trusted Communications Networks Act of 2019 (referred to as the Covered List).  The NPRM/NOI also proposes to require entities participating in competitive bidding for FCC licenses to certify that its bids do not rely on financial support from any entity the FCC has designated as a national security threat to the integrity of communications networks or the communications supply chain. Continue reading →

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On January 13, 2021, U.S. Customs and Border Protection (CBP) issued a withhold-release order (WRO) on all cotton and tomato products from China’s Xinjiang Uyghur Autonomous Region (XUAR) based on information that reasonably indicated that such products used forced labor. This action comes after CBP’s December 2020 WRO on cotton and cotton products produced by Xinjiang Production and Construction Corporation (XPCC). Continue reading →

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On January 19, 2021, the Commerce Department issued an interim final rule to implement the Executive Order on Securing the Information and Communications Technology and Services Supply Chain (E.O. 13873), which was issued on May 15, 2019. The interim rule comes after the November 2019 proposed rule implementing E.O. 13873.

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On December 21, the Bureau of Industry and Security (BIS) published a Military End User (MEU) list to further implement the military end user/end use (MEU) rule defined in Section 744.21 of the Export Administration Regulations (EAR). An EAR license is required to export or reexport to the listed entities a broad range of items subject to U.S. jurisdiction.

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On December 2, 2020, U.S. Customs and Border Protection (CBP) issued an import detention or Withhold Release Order (WRO) against cotton produced by Xinjiang Production and Construction Corps (XPCC) based on information that reasonably indicated XPCC used forced labor within its cotton supply chains. This action comes after CBP issued five WROs in September 2020 on products found to be reliant on state-sponsored forced labor in Xinjiang. The U.S. government has expressed ongoing concern about human rights abuses of the Uyghur minority in this part of China.

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On November 12, 2020, President Trump issued an Executive Order (E.O.) prohibiting U.S. persons from engaging in any transaction (defined as a “purchase for value”) of publicly traded securities, or transacting in financial products that are derivative of, or provide investment exposure to, securities of designated Communist Chinese military companies (“Chinese Military Companies”).

The prohibition will enter into effect on January 11, 2021 at 9:30 a.m. Eastern time and currently applies to 31 entities that have been identified on a list of Chinese Military Companies published by the U.S. Department of Defense (DoD).  U.S. investors will have until November 11, 2021 at 11:59 p.m. Eastern time to fully divest from any shares or funds involving these 31 companies. Continue reading →