Pressure is growing for UK and US companies to move supply chains out of Xinjiang following recent measures by both governments to crack down on imports of goods linked to the Chinese region. However, analysts suggest that switching to new suppliers elsewhere in the country, or even in Asia, comes with similar risks.

Amid international outcry over reported human rights abuses – including the alleged sterilisation and use of forced labour on Uighur Muslims and other ethnic minorities in Xinjiang – the US reacted last month by rolling out a wide-ranging import ban on all cotton, tomatoes and related downstream products from the region.

A new report from global risk analytics and advisory company Verisk Maplecroft describes the withhold release order (WRO) as the “most sweeping” US import ban against China to date, given it targets exports from an entire region and not just specific manufacturers.

The analysis says that the WRO has extensive implications for US apparel and food producers.

While non-compliant American firms won’t be hit with financial penalties, the ban allows US Customs to detain any tomato or cotton-based goods from Xinjiang.

Sofia Nazalya, a human rights analyst at Verisk Maplecroft, says this will essentially make it “impossible” to import these products, and thousands of US companies will be impacted.

Pointing to the widespread dependence on Xinjiang cotton – which makes up approximately 20% of the world’s cotton supply – and the fact the US imported an estimated US$10mn-worth of Xinjiang tomatoes last year, she tells GTR thatthe impact on US companies will be significant in terms of scale and implications”.

Such measures look to be only the start, meanwhile, with the US senate shaping up to pass the Uyghur Forced Labor Prevention Act, which would effectively ban the import of all goods from the Xinjiang region.

Supply chains for coal, chemicals, sugar and polysilicon – of which Xinjiang is a major producer – will likely be the most vulnerable to disruption, Verisk Maplecroft’s report says.

Across the Atlantic, the UK in January moved to discourage companies from doing business in the Xinjiang region.

As part of a raft of business measures targeting human rights abuses in Xinjiang, the government emboldened the Modern Slavery Act and introduced financial penalties for companies that fail to publish annual modern slavery statements.

The government also said it had published “new, robust and detailed guidance” to UK businesses, setting out the specific risks faced by companies with links to Xinjiang and underlining the challenges of effective due diligence there.

Verisk Maplecroft states that while the UK’s measures are “comparably weak” to those taken by the US, the threat of fines “give teeth” to the Modern Slavery Act and will likely be sufficiently high to deter companies who flout transparency requirements.


No easy alternative

According to Nazalya, most US and UK companies are likely already in the process of seeking alternative suppliers as a result of government pressure and heightened reputational risk.

“As the global tide is turning against Xinjiang, few companies would want to risk appearing to profit from forced labour in the region,” she notes.

Yet, as firms work to shift supply chains to other parts of China, concerns are growing that companies could inadvertently fall into the same forced labour trap elsewhere.

Referring to its own Forced Labour Index for Q1 2021, the Verisk Maplecroft report says that while Xinjiang records some of the highest levels of forced labour risk in the country, “the situation remains dire elsewhere”.

Such views were echoed in a UK Foreign Affairs Committee meeting earlier this month by chairman Tom Tugendhat, who said that there are “credible accusations that there may be slaves moving around China – exported Uighur Muslim communities moving to factories in the east, for example”.

With forced labour risks abounding across China, businesses in the UK are calling for the government to provide greater assistance to their risk assessment and due diligence efforts in the country.

In the same committee meeting, Andrew Opie, director of food and sustainability at British Retail Consortium, said that the UK government could, for instance, provide intelligence about the movement of forced labour within China to members of the consortium.

Opie added that the government could do more to protect its businesses – which include major high-street brands – who operate in China.

Sourcing products such as cotton from suppliers outside of China represents another option for UK and US businesses wary of funding forced labour in the country, yet analysts suggest that similar risks linger in major cotton hubs elsewhere in Asia.

Other sizeable cotton exporters in the region include India, Pakistan and Uzbekistan, with UN Comtrade data showing that – by total trade value – these countries were respectively the third, fourth and eighth biggest exporters of cotton globally in 2019.

However, Verisk Maplecroft’s Nazalya says that while companies are “likely to turn to other major players in the region, such as India, Pakistan, Uzbekistan or Turkmenistan… this may not necessarily improve their ESG profiles, given that these countries have worrying forced labour records to begin with”.

Companies will also have to be wary of accidentally sourcing products made in countries like India or Vietnam that are potentially tarnished with Xinjiang-farmed cotton.

To counter such risks, UK and US businesses are being warned they’ll have to boost their due diligence methods going forward.

Verisk Maplecroft’s report says that “the ability to account for all sourced products and labour sources is fundamental to successful due diligence. Currently, this is more an aspiration than reality, and will require enhanced methods of monitoring and verification.”