US Signals Aggressive Approach on Forced Labor and New Risks for Companies

Amidst daily reports of human rights atrocities occurring in the Xinjiang Uyghur Autonomous Region (XUAR) of the People’s Republic of China (PRC), the Biden Administration is making good on its G7 commitment to remove forced labor from global supply chains. In the last few weeks alone, the US government has taken action against forced labor by passing the Uyghur Forced Labor Prevention Act in the Senate; issuing an updated Xinjiang Supply Chain Business Advisory to highlight the heightened risk of doing business in XUAR; issuing a Withhold Release Order (WRO) on silica produced by Hoshine Silicon Industry Co., Ltd. which may impact a wide range of electronics, cell phones, and solar products; and adding additional entities to the Department of Commerce Entities List.

These actions go beyond restrictions on cotton products and silica; they create supply chain risks for any company with a nexus to XUAR, whether they know it or not.  Many other products, such as cell phones, electronics, footwear, and food (a detailed list is of products is outlined below) are produced in XUAR and may soon be prohibited from entering the US. These actions underscore the immediate need for companies to conduct supply chain due diligence to identify forced labor risks and take action before goods are stopped at the border.

US Senate Unanimously Passes Uyghur Forced Labor Prevention Act (UFLPA; S. 65)

On July 14, 2021, the US Senate unanimously passed the UFLPA, which effectively bans US imports of products manufactured in whole or part in the XUAR or by Uyghurs and other persecuted groups subjected to state-organized forced labor across the PRC. This legislation would create a “rebuttable presumption” that goods manufactured in XUAR or by laborers forcibly moved from that region are made with forced labor, and thus banned unless the importer can affirmatively prove the goods are not produced with forced labor. This bill requires notice and comment as well as hearings on how to enforce these prohibitions, develop lists of implicated entities, identify tools that US Customs and Border Protection can use to trace goods made in XUAR, and provide guidance for importers to conduct due diligence and prove goods are not produced with forced labor.

The bill must also pass the House of Representatives before it can be sent to the White House for President Joe Biden to sign. A timeline for passage in the House is unclear, but there are strong indications that the bill will pass, as forced labor legislation has bi-partisan support.

Updated Xinjiang Business Advisory Elevates Warnings Against Doing Business in XUAR

Just one day before the UFLPA was passed, on July 13, 2021, the US State Department, in conjunction with other government agencies, issued an updated Xinjiang Business Advisory  that firmly warns businesses against doing business in XUAR:

Given the severity and extent of these abuses, including widespread, state-sponsored forced labor and intrusive surveillance taking place amid ongoing genocide and crimes against humanity in Xinjiang, businesses, and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating US law.

This document provides an update regarding government actions in connection with XUAR forced labor, including the new WROs and entity list additions. This may serve as a warning to companies that all products from XUAR may soon be banned from the US.

Industries At Risk for Forced Labor

Significantly, in Annex 2, the Advisory identifies industries in XUAR which reportedly use forced labor. Any company with potential exposure to, or connection with the following industries in XUAR should evaluate their supply chains, as these products may be the subject of future WROs or prohibitions under the UFLPA.

• Agriculture (including such products as raw cotton, hami melons, korla pears, tomato products, and garlic);
• Cell Phones;
• Cleaning Supplies;
• Construction;
• Cotton, Cotton Yarn, Cotton Fabric, Ginning, Spinning Mills, and Cotton Products;
• Electronics Assembly;
• Extractives (including coal, copper, hydrocarbons, oil, uranium, and zinc);
• Fake hair and human hair wigs, hair accessories;
• Food processing factories;
• Footwear;
• Gloves;
• Hospitality Services;
• Metallurgical grade silicon;
• Noodles;
• Printing Products;
• Renewable Energy (polysilicon, ingots, wafers, crystalline silicon solar cells, crystalline silicon solar photovoltaic modules);
• Stevia;
• Sugar;
• Textiles (including such products as apparel, bedding, carpets, wool, viscose); and
• Toys.

Highest Value US Imports from Xinjiang in 2021: By Harmonized Tariff Schedule of the United States (“HTSUS”) Chapter Code

We also used 2021 XUAR trade data to identify other products produced in the region that may be at risk for government action. We have identified the highest value groups of products, based on HTSUS chapter codes, that are imported into the United States from XUAR. While cotton and silica have received the most press, other products such as lamps, chemicals, polymers/plastics, food, furniture, etc. account for the highest import value from this region. Companies that import these products should be aware of the risk to their supply chains.

What Do These Developments Mean for US Companies

The recent US government action demonstrates escalated enforcement against forced labor. These actions may prevent US companies from fulfilling contracts, stocking shelves, or obtaining critical manufacturing materials. US companies must act proactively by implementing internal forced labor controls, mapping their supply chains to identify forced labor, and taking any necessary action before further government action puts supply chains at risk. Companies should confirm whether their products are exported from the XUAR region- we have obtained trade data to assist with this exercise.

About Arent Fox’s Forced Labor Task Force

Arent Fox formed a Forced Labor Task Force to provide companies with information regarding forced labor developments that may impact their operations. Our team assists companies to set up Forced Labor codes of conduct and procedures and conduct supply chain due diligence to reduce the risk of forced labor in their supply chains. We also help companies respond to Customs inquiries, detentions, and exclusions of goods suspected of being produced using forced labor.