Xinjiang, China Supply Chain Business Advisory Update

07.30.2021

Under increasing scrutiny by the United States and other countries, China is being held to task for its treatment of the Uyghurs in Xinjiang.  Using terms like “genocide” and “crimes against humanity” the US Government is swiftly ramping up trade pressure on China.  Companies are scrambling to analyze and adjust their supply chains in response. 

The alleged mistreatment of the Uyghurs is detailed in a July 13, 2021 Xinjiang Supply Chain Business Advisory, jointly authored by the US departments of State, Treasury, Commerce, Homeland Security, Labor, and the Office of the United States Trade Representative (updating a prior version published in July 2020) (“Advisory”).  The Advisory succinctly states: 

“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 U.S. law.” 

The Advisory discusses four primary types of potential supply chain exposure for companies: 

  1. Assisting or investing in the development of surveillance tools for the PRC government in Xinjiang;
  2. Sourcing labor or goods from Xinjiang, or from entities elsewhere in China connected to the use of forced labor of individuals from Xinjiang;
  3. Supplying US-origin commodities, software and technology to entities engaged in such surveillance and forced labor practices; and
  4. Aiding in the construction and operation of internment facilities, and manufacturing facilities operated by businesses accepting subsidies from the PRC government to subject minority groups to forced labor. 

It is beyond the purview of this article to describe the industries and products currently impacted by this issue; as this is one of the few issues enjoying overwhelming bipartisan support in Washington it is likely that any list of impacted industries and products could be outdated as soon as it is published.  With additional legislation gaining steam in Congress, and building on recent executive actions by the Biden Administration, it is possible that eventually all products from the Xinjiang Uyghur Autonomous Region (XUAR) (and elsewhere in China using forced labor from XUAR) could be impacted.  Importers in the United States are facing the often daunting task of having to track and prove the origin and processing steps associated with all product inputs from XUAR or in any way tied to the Uyghur situation.  With the PRC government categorically denying all charges and generally preventing any and all XUAR supply chain audits, companies with targeted inputs are scrambling to analyze their exposure. 

Of course, businesses should be generally aware of the civil and criminal penalties associated with participating in or otherwise benefitting from forced labor.  And, both exporters and importers must always be vigilant in assessing any restrictions on their trading partners (using tools like the Commerce Entity List (https://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/entity-list) and the Treasury List of Specially Designated Nationals and Blocked Persons (https://home.treasury.gov/policy-issues/financial-sanctions/specially-designated-nationals-and-blocked-persons-list-sdn-human-readable-lists) ).  Additionally, particularly with respect to XUAR, companies should also pay attention to the following resources: 

Lastly, in the absence of supply chain certainty, companies should also strive to comply with global norms; the Advisory states: “The UN Guiding Principles Regarding Surveillance (the US Department of State also provides guidance on implementing these principles), the OECD Guidelines, the International Labor Organization (ILO) publication, “Combating Forced Labour: A Handbook for Employers and Business,” and the Office of the High Commissioner for Human Rights guide on “The Corporate Responsibility to Respect Human Rights,” (OHCHR guide) provide guidance for heightened due diligence in high-risk and conflict-affected regions and factors to be considered in determining appropriate action, including whether and how to responsibly end relationships when a business lacks the leverage to prevent or mitigate adverse impacts and is unable to increase its leverage.” 

The International Team at Nexsen Pruet is available at any time to assist.

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