On June 24, 2021, the Biden Administration announced three actions in response to labor practices of companies operating in China’s Xinjiang Uyghur Autonomous Region.
These actions include:
- The issuance of an immediate Withhold Release Order (WRO) by US Customs and Border Protection (CBP) on silica-based products manufactured by Xinjiang-based Hoshine Silicon Industry Co., Ltd. (Hoshine) and its subsidiaries
- The addition of a Hoshine affiliate and four other Xinjiang-based companies to the US Department of Commerce’s list of entities subject to export restrictions on certain commodities, technology and software and
- The addition of polysilicon to the US Department of Labor’s list of goods produced by child labor or forced labor.
Hoshine is one of the world’s largest producers of silicon metal, which is the feedstock for polysilicon used to produce the photovoltaic cells and semiconductors in solar panels and electronics. The substance is also a major input in the production of silicones, which are used to manufacture a wide variety of consumer and industrial products. In addition to silicon metal, Hoshine also produces silicones.
The WRO on silica-based products manufactured by Hoshine
The WRO is the most prominent of the three actions announced last week. Secretary of Homeland Security Alejandro N. Mayorkas announced that CBP had issued a WRO against Hoshine, instructing CBP personnel at all US ports of entry to immediately begin to detain shipments containing silica-based products made by Hoshine and its subsidiaries.
The coverage of the WRO is broad. It “applies to silica-based products made by Hoshine and its subsidiaries as well as to materials and goods (such as polysilicon) derived from or produced using those silica-based products.” Polysilicon is used to produce solar cells, and thus the order appears to cover solar cells and panels made from silica-based inputs produced by Hoshine and its subsidiaries. The Washington Post reported that “CBP officials confirmed at a news briefing that the ban applies to solar panels containing Hoshine materials.” The WRO may also apply to products containing silicones derived from silicon metal produced by Hoshine and its subsidiaries.
Because Hoshine is reportedly the world’s largest producer of silicon metal, the overall impact of the WRO is expected to be widespread. There is therefore a risk that imports of solar panels – or products containing solar panels – could be detained because CBP may suspect they incorporate materials produced by Hoshine or its subsidiaries.
In the event a shipment is detained on the basis of being covered by a WRO, CBP has required the importer to prove the negative. Importers in this situation must demonstrate that the detained merchandise was not made with the use of forced labor; that is, it was not made in, or made from products from, the country and by the entity covered by the WRO. In doing so, CPB has imposed strict evidentiary standards – requiring “clear and convincing evidence” or “probative evidence” that the detained goods were not produced with the use of, or from products made with the use of, forced labor described in the WRO.
Restrictions on exports to Hoshine and other Xinjiang companies
In addition to the WRO, the US Department of Commerce’s Bureau of Industry and Security (BIS) has added Hoshine Silicon Industry (Shanshan), a Hoshine affiliate, and several other Chinese entities to the Entity List of companies subject to export restrictions. The other companies include Xinjiang Daqo New Energy, Xinjiang East Hope Nonferrous Metals, Xinjiang GCL New Energy Material Technology and XPCC, which is also subject to economic sanctions imposed by the US Treasury Department.
These Entity List restrictions prohibit exports, re-exports and transfers of commodities, software and technology subject to the Export Administration Regulations (EAR) to listed entities without a license. License applications will face a high bar: BIS will apply a presumption that they should be denied unless the applicant can demonstrate an exceptional need for the license.
Unlicensed transactions with the listed entities can result in in severe criminal and administrative penalties. Criminal penalties for violation of the EAR may include up to 20 years in prison and up to $1 million in fines, or both. Administrative monetary penalties may amount to $308,901 per violation or twice the value of the transaction, whichever is greater. In addition, unlicensed transactions with listed entities can result in debarment from US government contract opportunities and possible bans on exports.
The addition of polysilicon to the list of goods produced by child labor or forced labor
The US Department of Labor maintains the list of goods produced by child labor or forced labor “primarily to raise public awareness about forced labor and child labor around the world and to promote efforts to combat them.” The list “is not intended to be punitive, but rather to serve as a catalyst for more strategic and focused coordination and collaboration among those working to address these problems.”
The addition of polysilicon to the Department of Labor list could foretell additional WROs specifically covering polysilicon produced in China or elsewhere with the use of forced labor.
Consequences for US companies in the solar, silicon and related industries
Given the broad scope of the WRO on silica-based products manufactured by Hoshine or its subsidiaries, companies that import such products into the US, or rely on them as inputs in their own production for the US market, may want to take steps now to protect themselves against possible future disruptions to their supply chains. Among these steps: asking their suppliers to provide detailed supply-chain documentation showing that imported merchandise is not produced from silica-based products made by Hoshine or its subsidiaries. Companies may also consider amending their commercial arrangements, such as contracts and purchase orders, to guard against the risk that CBP may not allow them to import merchandise from a current supplier and may detain such imports.
Generally, when merchandise is detained, CBP gives the importer the option to re-export the merchandise or to provide proof that the merchandise is admissible (ie, not covered by the WRO). Even if CBP ultimately finds that the merchandise is inadmissible, it will typically allow the importer to re-export the merchandise. CBP, however, has initiated civil penalty actions in connection with importations of goods subject to the WROs in instances where the products were not detected and detained at the time of importation.
The inclusion of major companies in the Chinese silica industry on the BIS Entity List also significantly raises the stakes for companies that export, re-export or transfer US goods, software and technology to China. The reach of US jurisdiction over such items is broad, including not only direct exports from the US to China but also shipments of US-origin items – or foreign-made items containing US-content – from third countries.
This broad jurisdiction and the substantial penalties involved mean that it is prudent to conduct rigorous screening of transactions that may involve such items to identify any entities of concern before a transaction is initiated.