Since Covington’s last global update in June 2021, there have been several legal and policy developments affecting the business and human rights landscape that will impact companies in 2022. This update provides an overview of key legal and policy developments.
I. Forced Labor Import Bans
A. United States
1. Uyghur Forced Labor Prevention Act
The Uyghur Forced Labor Prevention Act (“UFLPA”) was signed into law by President Biden on December 23, 2021. Prior Withhold Release Orders (“WROs”) have targeted specific suppliers and products from the Xinjiang Uyghur Autonomous Region (“XUAR”). In a significant policy change, the UFLPA will more broadly restrict the importation of all goods produced in the XUAR or using workers transferred from the XUAR to other parts of China under certain circumstances. Notably, the UFLPA introduces a rebuttable presumption, subject to a “clear and convincing” evidence standard, that goods produced in the XUAR or using workers transferred from the XUAR were made with forced labor and are prohibited from entering the United States. This rebuttable presumption is slated to go into effect on June 21, 2022, following a 180-day period in which an inter-agency Forced Labor Enforcement Task Force will solicit public comments, hold a hearing, and develop a strategy for enforcing the law. See our recent alert for more details on the legislation.
2. CBP Enforcement
U.S. Customs and Border Protection (“CBP”) has continued to issue and enforce a range of WROs, which authorize the detention at U.S. ports of goods suspected to have been made with forced labor. Since our last update, CBP has issued six new WROs, including three focused on Malaysian producers of disposable gloves, one focused on a Fijian fishing vessel, one focused on a Chinese producer of silica-based products, and one focused on a tomato farm in Mexico. Beyond WRO enforcement, we have seen increasing scrutiny of importers’ forced labor compliance efforts through requests from CBP for information, surveys, and audits.
CBP’s forced labor enforcement efforts are likely to intensify over the course of the coming year—both in relation to enforcement of the UFLPA’s rebuttable presumption and more broadly. CBP’s Forced Labor Division recently appointed two new branch chiefs responsible for investigations and has signaled an intent to expand the geographic scope of its enforcement efforts. The Biden Administration also has highlighted the importance of trade tools in combatting forced labor, including in its December 2021 National Action Plan to Combat Human Trafficking. In July 2021, the Forced Labor Enforcement Task Force, which is responsible for monitoring U.S. enforcement of the prohibition on importing goods produced with forced labor, issued a report to Congress establishing timelines for CBP to respond to forced labor petitions and summarizing other aspects of CBP’s investigative and enforcement practices, including the possibility for individuals who report violations to receive compensation of up to 25% of any fine, penalty, or forfeiture, up to a maximum value of $250,000.
B. Implementation of USMCA Obligations
The labor provisions in the United States-Mexico-Canada Agreement (“USMCA”), which came into force in July 2020, include a requirement to take measures to prohibit the importation of goods produced by forced labor. On January 13, 2022, during the first meeting of Deputies under the USMCA, the United States, Mexico, and Canada reaffirmed their commitments to “fully implement the shared obligations to prohibit the importation of goods produced by forced labor” and agreed to report concrete and measurable outcomes at the 2022 meeting of the USMCA Free Trade Commission, scheduled for later this year.
Canada implemented a legal mechanism to prohibit the importation of goods produced by forced labor in July 2020 through an amendment to its Customs Tariff. While enforcement of the prohibition has been relatively limited, the Canadian Border Service Agency has reportedly begun to enforce the prohibition, including through a seizure of a shipment of clothing from China in late 2021 and reported investigations into Malaysia’s palm oil and rubber glove sectors.
Mexico does not yet appear to have implemented a legal mechanism to enforce the prohibition.
C. European Union
In her September 2021 State of the European Union (“EU”) address, European Commission President Ursula von der Leyen announced that the Commission would propose a law to ban the importation of goods produced with forced labor. The form and timing of a potential EU import prohibition, however, remain unclear. There has been disagreement within the EU institutions regarding how to implement the proposed ban, with some stakeholders favoring a standalone regulation incorporating a ban into the EU’s trade and customs rules and others advocating for the issue to be addressed as part of the Commission’s anticipated proposal on mandatory human rights due diligence (see below). In late December 2021, EU Executive Vice-President for Trade Valdis Dombrovskis warned that prohibitions targeting non-EU imports risk being challenged by the EU’s trade partners as discriminatory and signaled that the European Commission will not rush into proposing a forced labor law.
D. United Kingdom
The UK Government has come under pressure from stakeholders to implement a U.S.-style import ban relating to products manufactured in the XUAR, but the prospects are uncertain. In its November 2021 response to a House of Commons Foreign Affairs Committee report on XUAR-related matters, the Government indicated that it “will continue to keep [its] policy response to goods produced using forced [labor] under close review” but does “not currently have plans to place import controls on goods from China.” We expect that there will be continuing pressure on the Government to strengthen its approach toward import bans, including from NGOs and certain prominent backbench members of the governing Conservative Party.
The Australian Government has come under pressure to introduce a forced labor import ban through two bills currently before Parliament. The Customs Amendment (Banning Goods Produced By Forced Labour) Bill 2021 was passed by the Senate in August 2021 but has reportedly failed to progress due to a lack of Government support. In the meantime, a private member of Parliament has introduced an identical bill (Customs Amendment (Banning Goods Produced By Forced Labour) Bill 2021 [No. 2]) to apply further pressure on the Government. It remains unclear whether the bills will attract Government support.
II. Due Diligence and Transparency Laws
A. European Union
Following several delays, the European Commission’s proposal for a mandatory human rights and environmental due diligence law is currently anticipated in 2022 as part of the European Commission’s Sustainable Corporate Governance initiative. The Commission’s current calendar suggests the proposal may be up for a vote in the College of EU Commissioners and subsequent publication as early as February 15, 2022. The substance of the proposal remains unclear at this stage, including key issues such as the scope of the due diligence obligations that will be imposed, the companies that will be subject to the law, how the law will be enforced, and whether new directors’ duties will form part of the proposal. Once the Commission publishes its legislative proposal, negotiations will commence within and between the European Parliament and the European Council to agree on the final form of the law.
B. European National Laws
In the run-up to the passage of an EU-wide due diligence law, several European states have already passed or are contemplating passing national laws mandating human rights (and in some cases environmental) due diligence.
Human rights due diligence laws passed to date include:
- France’s Duty of Vigilance law, which has been in force since 2017 and may see enforcement bolstered this year by an October 2021 decision by a joint committee of MPs and Senators that the Paris Civil Court has jurisdiction to enforce the law.
- A Child Labor Diligence Law in the Netherlands, which passed in 2019 but has yet to take effect due to delays in the passage of required implementing regulations.
- Norway’s Transparency Act, which passed on June 10, 2021 and will enter into force on July 1, 2022. The Act imposes mandatory human rights due diligence and transparency obligations on all large companies domiciled in Norway, as well as large foreign companies selling products and services in Norway.
- Germany’s Supply Chain Due Diligence Law (see our recent alert), which passed in July 2021 and will begin to go into effect on January 2023, with staggered implementation dates depending on the size of relevant entities. Entities covered by the legislation will be required to assess and mitigate human rights risks and specified environmental risks in their own operations, the first tier of their supply chains, and, in certain circumstances, in lower tiers of their supply chains. The German Government has published guidance on compliance requirements under the law.
- A new law and implementing Ordinance in Switzerland, which entered into force on January 1, 2022, expand non-financial reporting obligations and require certain Swiss companies to conduct supply chain due diligence with respect to conflict minerals and child labor. The reporting rules are largely based on the EU’s Non-Financial Reporting Directive and the diligence rules for conflict minerals generally follow the regulatory approach of the EU Conflict Minerals Regulation. The child labor provisions, which are modeled in part on the Dutch Child Labor Due Diligence Act, require companies to adopt an internal policy, conduct risk assessments, provide grievance mechanisms, establish supply chain traceability systems, and annually report on their due diligence program.
In the face of delays in the publication of the EU due diligence proposal, the Dutch Minister of Foreign Trade and Development announced in December 2021 that the Netherlands will immediately commence work to develop a national binding due diligence law, which will go beyond the existing Child Labor Diligence Law referenced above and require broader human rights and environmental diligence.
Belgium’s Chamber of Representatives is also currently considering a legislative proposal on a mandatory human rights and environmental due diligence framework. The framework was proposed on April 22, 2021, and would apply to all companies registered or operating in Belgium, with enhanced obligations for large companies and small and medium-sized enterprises operating in high-risk sectors and regions. The proposal contemplates a robust liability regime that includes both criminal liability and collective legal redress by victims.
C. Other Jurisdictions
Human rights transparency and due diligence proposals are gaining traction outside of Europe, although the outcome of these efforts remains unclear.
- In Canada, two separate human rights transparency proposals have received their second reading in the Senate and have been referred to committee for further consideration. Both S-216 (An Act to enact the Modern Slavery Act and to amend the Customs Tariff) and S-211 (An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff) would impose certain obligations on covered entities to report on their efforts to monitor human rights and forced labor risks in supply chains. While these proposals have made it further than similar efforts in the past, it is unclear whether either will ultimately become law.
- The Mexico Senate is considering a human rights due diligence proposal known as the General Law of Corporate Responsibility and Corporate Due Diligence.
- Finally, there are indications that Japan may be interested in its own human rights law. Prime Minister Fumio Kishida’s new special advisor on human rights has stated that he believes companies should be required to conduct human rights due diligence, and the Japanese Ministries of Foreign Affairs and Economy, Trade, and Industry recently completed and published a survey of companies regarding their efforts to manage human rights issues in their supply chains. No concrete legislative proposals have been issued at this stage.
III. Policy Developments
1. Multi-Jurisdictional Initiatives
In June 2021, the leaders of the G7 issued a communiqué expressing concern regarding “the use of all forms of forced [labor] in global supply chains” and committing to “continue to work together including through . . . domestic means and multilateral institutions to protect individuals from forced labour and to ensure that global supply chains are free from the use of forced [labor].” That commitment was echoed in an October 2021 Joint Statement of the G7 Trade Ministers.
In December 2021, the United States, Australia, Denmark, and Norway launched the Export Controls and Human Rights Initiative, aiming to prevent the increasing use by authoritarian governments of surveillance tools and other technologies in connection with human rights violations, such as censoring political opposition and tracking dissidents. These founding states have committed to establishing a voluntary, non-binding code of conduct on how to use export control tools to “prevent the proliferation of software and other technologies used to enable serious human rights abuses.” Canada, France, the Netherlands and the UK expressed support for the initiative but did not sign the pledge.
2. UN Legally Binding Instrument on Business and Human Rights
The UN began working on a Legally Binding Instrument on Business and Human Rights (“LBI”) following adoption of a UN Human Rights Council resolution in 2014. On August 17, 2021, the UN Working Group published its Third Revised Draft of the LBI ahead of its seventh session in October 2021. If passed, the LBI is likely to require State Parties to implement various measures applying to businesses, including introducing mandatory human rights due diligence laws. The new draft was designed to further align the treaty’s provisions with existing non-binding standards, such as the UNGPs. Only states can be party to the treaty, so if passed, businesses will only be bound by obligations that have been implemented in national laws.
3. U.S. Cambodia Business Advisory
In July 2021, we described updates to the Xinjiang Supply Chain Business Advisory originally published by multiple U.S. agencies in July 2020. On November 10, 2021, the U.S. Departments of State, Commerce, and Treasury issued a further Business Advisory on “High-Risk Investments and Interactions” in Cambodia. The advisory warns of potentially significant legal risks associated with business activities linked to human rights abuses, corrupt business practices, and other criminal activity in Cambodia, including under existing laws and regulations such as the Bank Secrecy Act, the Federal Acquisition Regulation, and the Trafficking Victims Protection Reauthorization Act (“TVPRA”). Human rights risks highlighted in the advisory include forced and child labor, human trafficking, and land clearing and displacement activities. The advisory recommends that U.S. businesses—including financial institutions—with potential exposure to entities in Cambodia that engage in human rights abuses and other criminal activities conduct due diligence to identify and mitigate legal, reputational, and economic risks. While the new publication does not have the force of law, it may be indicative of upcoming enforcement actions, as has been the case in relation to XUAR-related enforcement.
The rapid evolution of the business and human rights landscape, including mandatory supply chain due diligence requirements, signals that companies should implement human rights-related risk mitigation measures and map existing processes against new laws. We anticipate further legal and policy developments in the coming months as the EU and other countries advance human rights due diligence initiatives and the Biden-Harris Administration continues to implement new policies.
Covington is one of the few international law firms with a dedicated Business & Human Rights team with significant cross-border expertise spanning key jurisdictions and areas including compliance, policy, litigation, labor and employment, and corporate transactions. Our team draws upon attorneys and policy experts across four continents with deep human rights backgrounds. We regularly advise clients on human rights due diligence and related trade regulations, human rights policy developments, modern slavery transparency reporting, emerging best practices for human rights policies and procedures, political risk mitigation, and human rights litigation.