United States signals aggressive approach on forced labour, creating new risks for companies

Introduction
Senate unanimously passes UFLPA
Updated Xinjiang business advisory elevates warnings against doing business in XUAR
Industries at risk for forced labour
Highest value US imports from Xinjiang in 2021: HTSUS chapter code
What do these developments mean for US companies?

Introduction

The passage of the Uyghur Forced Labor Prevention Act (UFLPA), the issuance of the updated Xinjiang Supply Chain Business Advisory and other recent government actions may indicate that all products produced in whole or partially in the Xinjiang Uyghur Autonomous Region (XUAR) may soon be banned in the United States. Companies should be aware that this may impact on their ability to fulfil contracts, stock shelves and source materials for manufacturing.

Amid daily reports of human rights atrocities occurring in the XUAR of China, the Biden administration is fulfilling its G7 commitment to remove forced labour from global supply chains. The US government has recently taken action against forced labour by:

• passing the UFLPA in the Senate;
• issuing an updated Xinjiang Supply Chain Business Advisory to highlight the heightened risk of doing business in the XUAR;
• issuing a withhold release order (WRO) on silica produced by Hoshine Silicon Industry Co Ltd,⁽¹⁾ which may impact on a wide range of electronics, mobile phones and solar products; and
• adding additional entities to the Department of Commerce's entities list.

These actions go beyond restrictions on cotton products and silica; they create supply chain risks for any company with a nexus to the XUAR. Many other products, which are outlined below, are produced in the XUAR and may soon be prohibited from entering the United States. These actions underscore the immediate need for companies to conduct supply chain due diligence to identify forced labour risks and occur before goods are stopped at the border.

Senate unanimously passes UFLPA

On 14 July 2021 the Senate unanimously passed the UFLPA (UFLPA; S 65), which effectively bans US imports of products manufactured in whole or partially in the XUAR or by Uyghurs or other persecuted groups subjected to state-organised forced labour across China. This legislation would create a "rebuttable presumption" that goods manufactured in the XUAR or by labourers forcibly removed from that region are made with forced labour. Thus, they are banned unless the importer can affirmatively prove that the goods were not produced with forced labour. 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 the XUAR; and
• provide guidance for importers on how to conduct due diligence and prove that goods are not produced with forced labour.

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

Updated Xinjiang business advisory elevates warnings against doing business in XUAR

On 13 July 2021, just one day before the UFLPA was passed, the US State Department, in conjunction with other government agencies, issued an updated Xinjiang Business Advisory that firmly warns businesses against doing business in the 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 forced labour in the XUAR, including the new WROs and entity list additions. This may serve as a warning to companies that all products from the XUAR may soon be banned in the United States.

Industries at risk for forced labour

Annex 2 of the updated Xinjiang Business Advisory identifies industries in the XUAR that reportedly use forced labour. Any company with potential exposure to or connection with the following industries in the XUAR should evaluate their supply chains as these products may be the subject of future WROs or prohibitions under the UFLPA:

• agriculture (eg, raw cotton, hami melons, korla pears, tomato products and garlic);
• cleaning supplies;
• construction;
• cotton (this includes cotton yarn, cotton fabric, ginning, spinning mills and cotton products);
• electronics assembly;
• extractives (eg, coal, copper, hydrocarbons, oil, uranium and zinc);
• fake hair, human-hair wigs and hair accessories;
• food-processing factories;
• footwear;
• gloves;
• hospitality services;
• metallurgical-grade silicon;
• mobile phones;
• noodles;
• printing products;
• renewable energy (eg, polysilicon, ingots, wafers, crystalline silicon solar cells and crystalline silicon solar photovoltaic modules);
• stevia;
• sugar;
• textiles (eg, apparel, bedding, carpets, wool and viscose); and
• toys.

Highest value US imports from Xinjiang in 2021: HTSUS chapter code

Using 2021 XUAR trade data, it is possible to identify other products produced in the region that may be at risk of government action. The highest value groups of products, based on Harmonized Tariff Schedule of the United States (HTSUS) chapter codes, that are imported into the United States from the XUAR have been identified below. While cotton and silica have received the most press, other products such as lamps, chemicals, polymers and plastics, food and furniture 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 actions demonstrate escalated enforcement against forced labour. 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 labour controls, mapping their supply chains to identify forced labour and taking any necessary steps before further government action puts supply chains at risk. Companies should confirm whether their products are exported from the XUAR.

For further information on this topic please contact Angela Santos or Christine Hintze at Arent Fox LLP by telephone (+1 212 484 3900) or email ([email protected] or [email protected]). The Arent Fox LLP website can be accessed at www.arentfox.com.

Endnotes

(1) For more details please see here.