Introduction
What is now restricted from US import?
What is now restricted from US export?
Other forced labour developments
What does it mean for solar product importers and US companies?
US forced labour enforcement continues to escalate, as the Department of Commerce (DOC) has restricted exports to five additional Chinese companies.
In addition, a withhold release order (WRO) has been issued that will prohibit the import of products produced in whole or partially from silica produced by Hoshine Silicon Industry Co, Ltd and its subsidiaries. The company has been linked to the largest global solar material producers.
In the wake of rising international condemnation over the treatment of Uyghur Muslims in China's Xinjiang Uyghur Autonomous Region (Xinjiang), the US government is ramping up its forced labour enforcement actions, including by:
- issuing a WRO on 23 June 2021 that impacts the solar industry; and
- adding five new companies with ties to Xinjiang to the DOC's entity list.
These actions follow US Customs and Border Protection's (CBP's) escalating enforcement efforts against forced labour in China, specifically in the Xinjiang region. Earlier in 2021, CBP issued an expansive region-wide WRO against all cotton and tomato products produced in Xinjiang (for further details please see "CBP FAQs on Xinjiang forced labour: due diligence requirements for apparel and tomato importers"). In May 2021, CBP reported that in fiscal year 2021, the agency had targeted $765 million of goods and detained 623 shipments suspected of forced labour concerns. Reports indicate that CBP is detaining approximately 100 shipments a week, and that number is expected to rise. Increased enforcement is aligned with President Biden's commitment with other G7 leaders to take action against forced labour in global supply chains.
The decision of 24 June 2021, which added companies to the entity list for reasons relating to human rights abuses in Xinjiang, was the DOC's fourth and final rule. Previously, in October 2019, May 2020 and July 2020, the DOC added numerous Chinese companies to the entity list, which now totals over 50 Xinjiang-related designations, 15 of which are directly related to forced labour. The entity list designation severely restricts exports and re-exports of items controlled under the Export Administration Regulations (EAR) and, in the case of the Xinjiang-related designations, this covers all EAR-controlled items, including those classified as "EAR99".
What is now restricted from US import?
Based on the CBP's 23 June 2021 WRO, personnel at all US ports of entry are authorised to immediately begin detaining shipments that contain silica-based products made by Hoshine, or materials and goods derived from or produced using their silica-based products. Certain polysilicon and solar panel producers have been directly linked to Hoshine and it is expected that shipments made by those companies will be the initial subjects of CBP detentions.
CBP issued this WRO after there were numerous reports of forced labour being used in the production of polysilicon products and their inputs, some of which specifically identified Hoshine, and there had been much speculation of an impending WRO. Lawmakers and the public had been lobbying CBP for months to issue a WRO covering polysilicon. Hoshine is one of the largest silica producers and CBP estimated that at least $250 million worth of US imports in the past two-and-a-half years have been produced with Hoshine materials. However, this value is likely underestimated; solar products have a deep and often opaque supply chain and it may be difficult for companies in this industry to untangle their supply chains to determine whether silica produced by Hoshine has been used in their products.
CBP will continue to investigate forced labour allegations in the polysilicon industry and it is possible that this is a precursor to a region-wide WRO on polysilicon or polysilicon materials.
What is now restricted from US export?
With the final ruling of 24 June 2021, the DOC's Bureau of Industry and Security (BIS) – the agency that oversees the EAR and entity list – has now added 53 companies to the entity list in relation to human rights abuses, including the use of forced labour, in the Xinjiang region. Among the five new companies added are Hoshine and Xinjiang Production and Construction Corps, a paramilitary organisation in the Xinjiang region that is related to the Chinese Communist Party and is already the target of sanctions implemented by the Department of Treasury's Office of Foreign Assets Control and the subject of a separate, specific WRO.
Entity list designation severely restricts the export and re-export of items subject to the EAR, including EAR99s, to designated Chinese entities, unless a licence is obtained from the BIS. The licencing policy is a case-by-case review for certain export control classification numbers (ie, 1A004.c, 1A004.d, 1A995, 1A999.a, 1D003, 2A983, 2D983 and 2E983) and certain EAR99 items that are:
- for protection against chemical or biological agents that are consumer goods;
- packaged for retail sale or personal use; or
- medical products.
BIS also has a case-by-case review policy for items subject to the EAR that are necessary to detect, identify and treat infectious diseases. All other items are subject to the licence denial policy.
Other forced labour developments
The Department of Labor has also taken steps to ensure that goods made with forced labour are not tolerated in the global supply chain.
The department published a Federal Register notice updating its List of Goods Produced by Child Labor or Forced Labor, to include polysilicon produced with forced labour in China. Every two years, the department publishes an updated list of goods produced by child labour or forced labour, in violation of international standards. This update is the first time a good has been added outside of that two-year cycle, highlighting the department's strong response to the severity of the ongoing human rights abuses against Uyghurs and other minority groups in Xinjiang. The report currently includes other products from China that have links to forced labour in Xinjiang or that have been conducted by Uyghur workers transferred to other parts of China, including:
- cotton;
- garments;
- footwear;
- electronics;
- gloves;
- hair products;
- textiles;
- thread and yarn; and
- tomato products.
This report serves as a guide of the products that may be the target of future WROs.
What does it mean for solar product importers and US companies?
The Hoshine WRO may indicate that a broader Xinjiang region-wide WRO on polysilicon or polysilicon materials is forthcoming. This would parallel CBP's approach of issuing a WRO on cotton products produced by Xinjiang Production and Construction Corps a few months before issuing a Xinjiang region-wide WRO on all cotton and downstream products.
Companies in the solar industry need to take concrete actions to assess exposure to risk and develop internal control and policies to prohibit the use of forced labour. This review should include an assessment of the entire supply chain to determine whether there is any nexus to Hoshine or Xinjiang. Companies should also ensure that they have documentation prepared to evidence that forced labour was not used, to secure the release of detained goods.
US companies, even those operating outside the solar industry, should review the Department of Labor child or forced labour list and CBP's WRO lists to assess whether any imported goods are at risk of having been produced through forced labour, and take the necessary actions if risks are identified.
In addition, US companies should ensure compliance with DOC's designations of Chinese companies operating in Xinjiang.
For further information please contact Angela Santos or Yun Gao at Arent Fox LLP's New York office by telephone (+1 212 484 3900) or email ([email protected] or [email protected]). Alternatively, contact Marwa M Hassoun at Arent Fox LLP's Los Angeles office by telephone (+1 213 629 7400) or email ([email protected]). The Arent Fox LLP website can be accessed at www.arentfox.com.