Negotiating Supply Chain Agreements Under the New U.S.-China Trade Sanctions

Description

At the end of 2021 and beginning of 2022, the U.S. implemented three new restrictions on trade imports and exports with China. First, President Biden signed into law the Uyghur Forced Labor Prevention Act, which strengthens a prohibition against the importation of goods made with forced labor in China. The legislation creates a rebuttable presumption that "any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People's Republic of China" or produced by an entity on a list of entities operating in the region will be prohibited from entry into the United States. The presumption may be overcome when CBP determines that the importer has undertaken due diligence and responded to inquiries and that "by clear and convincing evidence" the product was not produced with forced labor.

On Dec. 27, 2021, the National Defense Authorization Act (NDAA) went into effect and it included Section 855 requiring a new disclosure for firms performing work in China on U.S. Defense Department contracts of more than $5 million. This measure reflects concern that firms performing work for both the U.S. and Chinese governments could disclose sensitive U.S. national security information or work product to China. NDAA Section 851 modified a looming ban on the use of printed circuit board assemblies made in China for defense contracts.

In early 2022, the Commerce Department's Bureau of Industry and Security (BIS) added 33 parties based in China to the Unverified List (UVL). BIS took this action because it was unable to establish the bona fides--i.e., legitimacy and reliability relating to the end use or end user of items subject to the Export Administration Regulations (EAR)--of these parties for reasons outside of the U.S. Government's control, which may include an inability to contact or locate the party, failure by the party to appropriately demonstrate the disposition of items subject to the EAR, or lack of cooperation by a host government with BIS' conduct of end-use checks. These UVL additions are on top of BIS' updates to the Entity List and Military End-User Rule that impose export restrictions on items that are destined for end-users in China.

In consideration of these developments, counsel negotiating supply chain agreements should carefully address how these restrictions may affect imports and exports. Counsel must be ready to respond and document in order to overcome presumptions of forced labor or documentation that products or parties are not subject to any end-user restrictions under the EAR.

Listen as our expert panel discusses these regulations and what companies with contracts for goods produced in restricted regions can do to overcome the presumption against them, what suppliers of goods subject to the EAR's export controls can do to ensure compliance, and what documentation is needed to reduce the risk of delay in continued international trade between the countries.