In late December, US President Joe Biden signed into law the Uyghur Forced Labor Prevention Act, blocking importers from buying goods with ties to China’s Xinjiang region unless they can prove products were not made with forced labour. Felix Thompson speaks to industry experts about the potential risks facing American companies, as well as the repercussions for those that fail to comply.
Concern has been mounting in the west over the possible supply chain exposure of multinational companies – and by extension consumers – to a range of human rights abuses in China’s Xinjiang region. Various university, NGO and government reports have detailed how Uyghurs, Kazakhs and other predominantly Muslim ethnic minorities have been subject to systematic state-organised mass imprisonment, torture and persecution.
With more than a million Uyghurs estimated to have been interned in recent years, their involvement in forced labour in factories and agricultural work across the region has also been widely documented. The Chinese government denies the claims.
Against this backdrop, the US has sought to stymy the import of products with ties to Xinjiang. The US Customs and Border Protection (CBP) has announced various withhold release orders (WROs) authorising its enforcement officers to seize certain Xinjiang-linked products upon entering the US.
Last year, WROs were issued for any cotton and tomato products produced in the region, as well as any imports from Hoshine Silicon Industry Co Ltd, a Xinjiang-based company that creates silica-based products used in the making of solar panels.
Meanwhile in December, the US Congress went a step further and passed the Uyghur Forced Labour Prevention Act (UFLPA) into law, after two years of legislative wrangling and political back-and-forth.
GTR speaks to Sofia Nazalya, senior human rights analyst at global risk and strategic consulting firm Verisk Maplecroft, as well as Ted Murphy, a Washington DC-based partner at law firm Sidley Austin, about the upcoming piece of legislation and the likely impact it will have on US importers’ day-to-day business.
GTR: How significant is the UFLPA? Does it substantially expand on previous measures introduced by the US targeting Xinjiang-related shipments?
Nazalya: The new legislation establishes region-wide presumption of forced labour in Xinjiang, which has never been done before. Having that rebuttable presumption region-wide makes it the most sweeping measure, and it establishes a very high evidentiary standard for companies.
The UFLPA will also require more active involvement on the part of the companies to be able to provide ‘clear and convincing evidence’. US businesses will need to expand on their supply chain due diligence, where they are not only looking at factory level production, but further abroad, because the UFLPA says a company’s supply chain should not be in anyway linked in Xinjiang. Imagine you’re an apparel company, it may be easier to identify where you produce your products within Xinjiang-based garment factories, but tracking components of the apparel such as cotton to specific Xinjiang agricultural farms; that’s going to be a lot harder.
The apparel industry and the cotton supply chain are both massively complex. Cotton from Xinjiang might be sent to Bangladesh to be milled into textiles, before then being shipped into another country – Vietnam for example – to then be made into actual clothing. It’s going to be very complicated for companies to be able to establish that kind of full visibility throughout their supply chain.
GTR: Which particular sectors do you think will be impacted the most by the UFLPA?
Murphy: I believe this legislation is a potential game changer. Governments don’t trade, what they do is provide incentives to companies that trade: governments can either make trading easier, or they can make it harder. The UFLPA is a clear signal from the US Congress to the trade community in the United States that companies need to take seriously. Congress believes there’s significant risk of the use of force labour in China, and they’re expecting companies to respond accordingly.
Initially, the US Congress was clear in the legislation that it viewed certain agricultural products, cotton and polysilicon as areas of enforcement priority, and those areas are already subject to WROs of varying scopes.
The apparel and the solar industry will still continue to be primarily affected. But, from an enforcement perspective, where does customs go next? Might they expand the scope to consumer electronics that have semiconductors which could be made from silica produced in Xinjiang?
If the government says for an importation of microwaves from Thailand, ‘can you please show that there’s no Xinjiang content in here’, you either have an answer to that, or you don’t – and if the answers is you don’t know, and you’re then subject to the presumption, that’s a very difficult path to be on.
GTR: What do companies that trade need to be aware of in terms of managing their supply chains?
Murphy: With Covid and all the other supply chain disruptions and this legislation, there are all sorts of reasons why companies should have a thorough understanding of their supply chain. If you’re a company buying a sweater from Vietnam, understanding where the fabric comes from, and where the yarn comes from, and where the cotton comes from – there are all sorts of reasons today to understand that extended supply chain and to do the appropriate due diligence.
This legislation will result in a lot of folks adjusting their supply chains. Suppliers who can provide good documentation regarding the origin of the components will attract more business from US companies concerned about the legislation, even if there is a cost associated with that.
GTR: Whether in Xinjiang, or India, how possible is it to do effective due diligence of supply chains?
Nazalya: When we’re looking at social audits of Xinjiang that you can consider to be credible and independent, we wouldn’t say it’s impossible, but it’s incredibly challenging to source reliable information. This is why the UFLPA sets a very high evidentiary standard that most companies will not be able to meet, because you’re not going to be able to access independent reporting on the ground.
Even though there are challenges in terms of getting real-time data on specific locations, it is much easier to conduct that type of due diligence elsewhere – even in jurisdictions that are still considered to be quite repressive, such as Vietnam or Cambodia, which are not exactly the most politically free countries in the world.
GTR: What could the repercussions be for companies that fail to comply with the legislation?
Nazalya: US companies could face seizure of their shipments, or financial penalties – and the reputational kind of backlash would likely be quite prominent. Even though this specifically targets American companies, the significance and the seriousness of the situation in Xinjiang almost comes with an automatic price tag in terms of reputational risk for most companies around the world who have any links at all to Xinjiang.
The companies that are most at risk, reputationally, are the ones that still continue to use Uyghur labour. But it’s also important to highlight that it’s becoming increasingly difficult to focus solely on the Xinjiang region when you’re looking at the issue. You’re getting Uyghur minorities and other Turkic minorities being transferred as part of this system, to places like Guangzhou, or even Beijing and Shanghai, to effectively be under this same system of embedded, structured, forced labour. Companies are going to have to look out for that.
Murphy: For any companies that get caught up in this, it’s really expensive and it is really detrimental to the business, which is why it’s a good thing the government has given businesses six months to prepare.
GTR: What happens next; will companies shift their supply chains out of Xinjiang?
Nazalya: We understand the scope of the current legislation, but in terms of enforcement, we are still yet to understand whether the US government is going to be able to effectively enforce the UFLPA without seizing thousands and thousands of shipments that may not have full supply chain due diligence. The Forced Labour Enforcement Task Force has been mandated to come up with a guidance document that can inform companies on how to conduct supply chain due diligence.
There are still a lot of western firms based in Xinjiang with direct sourcing, and I think it’s difficult to say what their next moves are going to be. It likely depends in large part on the guidance document. A lot of companies are waiting to see exactly what the enforcement means when it says ‘clear and convincing evidence’, as relocating your entire supply chain elsewhere is obviously going to be a very costly affair.