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After a pause in 2022, there has been much talk of the continuation, or resumption, of a wave of retail bankruptcy cases as we begin 2023.  2022 was highlighted by Revlon’s filing (discussed here: Revlon May Signal Another Wave of Retail Bankruptcies | Retail & Consumer Products Law Observer (retailconsumerproductslaw.com)).  Revlon pointed to a number of issues that led to its filing, including most prominently, supply chain issues. Severe impediments in the supply chain – whether the inability to source product or the costs and delays in received goods — have been cited by many debtors since Revlon since as a leading cause of their distress.  And it may get much worse before it gets better, particularly for companies that source, directly or indirectly, from China.

In December 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act (UFLPA) which bans goods made with forced labor located in China’s Xinjiang Uyghur Autonomous Region. Very generally, the law imposes a rebuttable presumption that a product with any nexus to Xinjiang is made with forced labor. Accordingly, an import that is produced in a third country but includes a component from Xinjiang is subject to the prohibition. In order to overcome the presumption, importers must establish by clear and convincing evidence that product was not made using forced labor.  The law took full effect on June 21, 2022.

In order to defeat the law’s presumption, companies that source goods from China will have to engage in a thorough review of their supply chains from the finished product to raw materials to determine whether any goods are made in Xinjiang and, if so, whether they were made with forced labor. This is very difficult, made more challenging by the need to “prove a negative.” Tasked with enforcing the law is U.S. Customs and Border Protection (CBP) which will detain goods if there is a reasonable suspicion that goods are subject to the UFLPA. CBP will make the determination if the supply chain information provided by importers is sufficient to prove their goods falls outside the scope of the UFLPA or if goods manufactured in Xinjiang were made with forced labor. If product is detained, it could reasonably take 8-9 months to obtain and provide the necessary supply chain documents and receive a determination from CBP. 

The effects of the UFLPA are likely to be wide ranging. The categories of goods exported from and around Xinjiang range from apparel, solar products, electronics, tomatoes, automotive parts, and many other consumer and industrial goods. Producers of PVC are aplenty in the region. Indeed, the effects of the law are only beginning to be felt. In 2022, almost $500 million of goods were targeted by the CBF. Just a blip given the magnitude of supply chain issues that faced retailers and others last year. Things may change rapidly in 2023. CBP has recently been allocated more than $100 million for the calendar year to enforce the law and has much improved analytics tools at its disposal. While the distortive effects that enhanced enforcement will have on the supply chain are unknown, this additional hurdle may not be factored into many projections for continued pain in the retail sector.

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Photo of Frederick (Rick) Hyman Frederick (Rick) Hyman

Restructuring and bankruptcy counsel require a broad and deep skill set to guide their clients through difficult times. Whether representing financial institutions, purchasers of distressed assets, or companies facing challenges, Rick applies his 30 years of experience to help clients chart a path…

Restructuring and bankruptcy counsel require a broad and deep skill set to guide their clients through difficult times. Whether representing financial institutions, purchasers of distressed assets, or companies facing challenges, Rick applies his 30 years of experience to help clients chart a path and maximize their outcome. Rick focuses his practice on the representation of domestic and foreign lenders in connection with in-court and out-of-court workouts and restructurings. He regularly advises agents and lenders in large and middle-market credit facilities in connection with the development of strategies to maximize their recoveries. Rick has extensive experience negotiating forbearance agreements and waivers, amendments, and all other elements of out-of-court restructuring and recapitalization.

Photo of Evan Chuck Evan Chuck

Evan Chuck is a partner in the firm’s Los Angeles office and is a member of the firm’s International Trade and Corporate Groups. He leads the firm’s Asia practice and is also a director of the firm’s China office in Shanghai.

Evan has…

Evan Chuck is a partner in the firm’s Los Angeles office and is a member of the firm’s International Trade and Corporate Groups. He leads the firm’s Asia practice and is also a director of the firm’s China office in Shanghai.

Evan has more than 25 years of international trade and cross-border transactional experience. He has been a strategic advisor to Fortune 500 companies in structuring market entry, global supply chain and e-commerce strategies across the Asia-Pacific region. He has in-depth experience in China with cross-border acquisitions/dispositions, government regulatory compliance, and investigations. He advises major multinational companies on navigating the potential conflicts between and among U.S., E.U., and newly emerging Chinese law, including the Anti-foreign Sanctions Law, the PRC “Blocking Statute”, the PRC Export Control Law, Unreliable Entity List, the PRC Cybersecurity Law, and the PRC Data Security Law. He has also been representing a select group of large, multinational Chinese companies with complex U.S. transactional, tax, and regulatory issues. Evan works closely with the firm’s government affairs group and consulting group, Crowell & Moring International, to align global geo-political policy and strategy with cross-border legal advice.

Photo of David Stepp David Stepp

David Stepp is an experienced trade lawyer who provides multinational companies with strategic advice on global customs and international trade compliance matters. David is a partner in the Los Angeles office of Crowell & Moring.

His practice focuses on advising companies on their…

David Stepp is an experienced trade lawyer who provides multinational companies with strategic advice on global customs and international trade compliance matters. David is a partner in the Los Angeles office of Crowell & Moring.

His practice focuses on advising companies on their e-commerce strategies globally, conducting global customs and international trade audits, and assisting clients on improving, benchmarking, and coordinating compliance programs across borders.

David has over 30 years of experience handling international trade regulatory matters, including those related to tariff classification, valuation, country of origin marking, free trade agreements, and Customs-Trade Partnership Against Terrorism (CTPAT).