Over the past few years, the US government has increased scrutiny of products imported into the United States in an effort to combat the use of forced labor and other human rights abuses in China's Xinjiang Uyghur Autonomous Region (Xinjiang). Following a number of US Customs and Border Protection (CBP) Withhold Release Orders (WROs) and associated detentions of goods potentially associated with Xinjiang, proposed legislation that would further expand such CBP enforcement, and an updated Xinjiang Supply Chain Business Advisory (Advisory), it is now more important than ever for US importers to clearly document each step in a supply chain.
Currently, WROs under section 307 of the Tariff Act of 1930 subject imports of certain hair and silicabased products and all cotton and tomato products with a nexus to Xinjiang to detention at the border. However, if proposed legislation titled the Uyghur Forced Labor Prevention Act is passed, it would create a "rebuttable presumption" that all goods produced, mined, or manufactured in Xinjiang are not entitled to enter the US, unless the importer can affirmatively show that those goods are not the result of forced labor.
The recently updated Advisory lists a broad range of industries and products in which the US Government has identified forced labor and may therefore focus enforcement under a future Uyghur Forced Labor Prevention Act or new WROs, including:
- apparel and textiles, including bedding, carpets, wool and cotton products;
- electronics, including electronics assembly and cell phones;
- solar energy, including "nearly every step of the production process, from raw silicon material mining to final solar module assembly";
- automotive; agriculture, including specifically cotton and tomatoes; and
- mining of coal, uranium, and asbestos.
The Advisory further cautions, however, that all "[r]aw and refined materials, commodities, intermediate goods, byproducts, and recycled materials" may have connections to forced labor and human rights violations in Xinjiang, "regardless of the final product and region of origin or export." The potential supply chain impact is thus incredibly broad.
Checking Supply Chains for Forced Labor
In light of the increasing scrutiny on Xinjiang forced labor, it is particularly important for companies to clearly identify and document every step of the supply chain in order to be prepared to demonstrate to CBP that a product does not include items made with prohibited forced labor. Although CBP has not issued a single resource providing clear instructions on how companies should demonstrate their products are free of Xinjiang forced labor, the following six best practices will help companies to document key steps in the supply chain, as identified in the Advisory, CBP rulings and guidance documents, and UN, OECD, and ILO resources.
1. Check Suppliers for Xinjiang forced labor "warning signs."
The Advisory lists numerous warning signs specific to Xinjiang forced labor. These include:
- operating within or near internment camps, prisons, or industrial parks involved in the Chinese government's poverty alleviation efforts;
- mention of an Education Training Center, coupled with poverty alleviation efforts, ethnic minority graduates, or reskilling vocational training or re-education;
- companies in Xinjiang with high revenues but with few employees paying into the government's social security insurance program; or
- a Xinjiang-based company with "nonstandard hiring practices," such as hiring workers through government recruiters.
2. Comply with US Sanctions, Export Controls, CBP, and Department of Labor requirements and guidance.
The US government has sanctioned and designated numerous specific Xinjiang-based companies and products as associated with forced labor. These include US sanctions and export controls on Xinjiang Production and Construction Corps (XPCC) entities and other entities on the US Department of the Treasury's Specially Designated Nationals and Blocked Persons List, industries identified on the Department of Labor's TVPRA list, companies designated on the US Department of Commerce's Entity List, and companies and products under CBP WROs.
3. Document the origin and method of production of each step in the supply chain.
For goods subject to detention under a WRO, CBP suggests that companies provide "[s]upply chain maps that specify the locations of manufacturers, factories, farms, [and] processing centers," and, in the context of the Xinjiang Cotton and Tomato WROs, instructs that companies provide supporting documentation that traces the supply chain "from point of origin" to "the merchandise imported into the United States."
CBP expects a high degree of detail in such documentation, as evidenced in a May 2021 CBP appeal ruling, in which Uniqlo failed to demonstrate its products were not produced by forced labor linked to the XPCC. In the decision, CBP noted that it was not enough to provide "evidence to establish that the raw cotton used to produce the subject cotton garments was sourced from entities outside of China" in Australia, the US, and Brazil. Instead, CBP identified the following information gaps, which among other things proved fatal to Uniqlo's appeal: (i) invoices and other documentation regarding the finished garments did not reflect a fabric composition percentage; (ii) Uniqlo did not submit records reflecting actual cotton yarn production, weaving, and dying; (iii) Uniqlo did not submit records reflecting the cutting and sewing of the cotton fabric into a finished garment; and (iv) Uniqlo did not demonstrate that the production of the finished garments was actually completed by the identified non-Xinjiang manufacturer or its employees.
4. Obtain clear copies of current and past employee identification.
Documenting that employees and supply chain participants are not Xinjiang laborers can help to overcome a presumption of forced labor for detained merchandise. For example, CBP's March 2021 decision that Dandong Huayang Textiles had not overcome a CAATSA section 321(b) presumption that its detained merchandise was produced with North Korean forced labor noted that: (i) the documentation submitted did not consistently reflect the same total number of employees; (ii) fewer identification cards were submitted than there were current employees, and the submitted cards did not account for employees who left within the past 12 months; and (iii) the majority of identification cards were not sufficiently clear to determine the cards' authenticity.
5. Institute explicit policies against forced labor and track implementation.
CBP notes that "[c]opies of policies and evidence of their implementation" are helpful to demonstrate how companies have addressed forced labor. CBP specifically suggests that a company code of conduct be shared with all suppliers in the global supply chain, and that it include specific language regarding minimum labor standards. Companies should ensure these policies are current another red flag that CBP identified in its Uniqlo decision.
6. Conduct comprehensive external audits, but know their limits.
CBP includes "[c]opies of recent unannounced third party audits" among its list of helpful documentation demonstrating how companies have addressed forced labor. CBP's Dandong Huayang Textiles decision underscores the importance of accounting for all employees in the audit review, noting that one reason the company failed to establish that its detained merchandise was not produced with forced labor was that auditors had not interviewed all employees, thus undermining an audit report's conclusion that all employees were Chinese and not North Korean.
While recognizing that due diligence best practices typically include onsite visits and audits, in the context of Xinjiang, the Advisory notes that third-party audits alone are not a sufficient due diligence program "and may not be a credible source of information for indicators of labor abuses in the region."
The Advisory acknowledges that all Chinese-linked businesses "are likely to face obstacles to conducting adequate due diligence to fully identify and avoid complicity in human rights abuses linked to Xinjiang." Among other things, "[g]overnment controls, the lack of government and corporate transparency, the threat of detention of auditors and workers, and a police state atmosphere in Xinjiang impose significant obstacles to ensuring the reliability of audits on working conditions and respect for human rights." China's new Anti-Foreign Sanctions Law further complicates the ability of companies to impose Xinjiang labor-related supply chain requirements.
In light of these complexities, the breadth of available resources, and the unique aspects of each industry and supply chain, there is no one-size-fits-all formula for ensuring products are free of Xinjiang forced labor. As the US increases scrutiny and pressure on imports related to Xinjiang, businesses should take steps now, including by seeking professional legal advice, to ensure they can properly document that their products and supply chains are free of Xinjiang forced labor to ensure compliance and avoid import disruption.