Six Best Practices For Excising Xinjiang Forced Labor From Supply Chains – Corporate/Commercial Law

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In recent years, the US government has stepped up controls on products imported into the United States to combat the use of forced labor and other human rights abuses in the Xinjiang Uyghur Autonomous Region (Xinjiang). Following a series of U.S. Customs and Border Protection (CBP) Withhold Release Orders (WROs) and related arrests of goods potentially related to Xinjiang, proposed laws that would further expand such CBP enforcement and an updated Xinjiang Supply Chain Business Advisory (Advisory), It is more important than ever for US importers to clearly document every step in a supply chain.

Currently, under Section 307 of the Customs Act of 1930, WROs subject the importation of certain hair and silica-based products, as well as all cotton and tomato products related to Xinjiang on the border. However, if a bill called the Uyghur Forced Labor Prevention Act were passed, it would create a “rebuttable presumption” that all goods produced, mined, or manufactured in Xinjiang are ineligible for entry into the US unless the importer can confirm that these goods are not the result of forced labor.

The recently updated advisory lists a wide range of industries and products in which the US government has identified forced labor and therefore may focus enforcement under a future Uighur Forced Labor Prevention Act or new WROs, including: 1

• Clothing and textiles including bedding, carpets, wool and cotton products;
• Electronics, including electronic assemblies and cell phones;
• Solar energy, including “almost every step of the production process, from the extraction of silicon raw materials to the final assembly of the solar modules”; Automobile;
• Agriculture, especially cotton and tomatoes; and
• Mining of coal, uranium and asbestos.

However, the advisory continues to warn that all “[r]aw and refined materials, raw materials, intermediates, by-products and recycled materials “can have links to forced labor and human rights abuses in Xinjiang,” regardless of the end product and the region of origin or export “- incredibly broad.

Review of supply chains for forced labor

Given the increasing control of forced labor in Xinjiang, it is particularly important for companies to clearly identify and document every step of the supply chain in order to be able to prove to CBP that a product does not contain any items that have been manufactured using prohibited forced labor. Although CBP has not issued a single resource that provides clear instructions on how companies should demonstrate that their products are free of forced labor in Xinjiang, the following six best practices will help companies document key steps in the supply chain, such as the one in the Advisory, CBP decisions and guidance documents as well as resources of the United Nations, the OECD and the ILO.

1. Check suppliers for Xinjiang Forced Labor “Warning Labels”.

The advisory lists numerous warning signs specific to forced labor in Xinjiang. These include:

• Operating within or near detention centers, prisons, or industrial parks involved in the Chinese government’s poverty alleviation efforts;
• Mention of an education center in connection with poverty reduction efforts, ethnic minority graduates, or retraining or retraining;
• Xinjiang companies with high revenues but few employees contributing to the state social security program; or
• a Xinjiang-based company with “non-standard hiring practices,” such as government recruitment agencies.

2. Follow US Sanctions, Export Controls, CBP, and Department of Labor requirements and guidelines.

The US government has sanctioned numerous specific companies and products based in Xinjiang and associated them with forced labor. These include US sanctions and export controls against companies in the Xinjiang Production and Construction Corps (XPCC) and other companies on the US Treasury Department’s Specially Designated Nationals and Blocked Persons List, industries that are on the Department of Labor’s TVPRA list Companies listed in the US Department of Commerce Entity List and Companies and Products listed under CBP WROs.

3. Document the origin and production method of each step in the supply chain.

For goods that are withheld under a WRO, CBP suggests that companies “[s]Supply chain maps showing the locations of manufacturers, factories, farms, [and]
Processing Centers “and, in the context of the Xinjiang Cotton and Tomato WROs, instructs companies to provide supporting documentation tracing the supply chain” from origin “to” goods imported into the United States “.

CBP expects a high level of detail from such documentation, as emerged from a CBP appeal judgment from May 2021, in which Uniqlo was unable to prove that its products were not manufactured by forced labor in connection with the XPCC. In the decision, CBP found that it was insufficient “to provide evidence to prove that the raw cotton used to manufacture the cotton garments in question came from companies outside of China” in Australia, the US and Brazil. Instead, CBP identified the following information gaps, which proved fatal to Uniqlo’s appeal, among others: (i) invoices and other documents relating to the finished garments did not show a percentage of the fabric composition; (ii) Uniqlo has not provided any records that reflect actual cotton yarn production, weaving and dyeing; (iii) Uniqlo has not provided a record of the cutting and sewing of the cotton fabric into a finished garment; and (iv) Uniqlo has not demonstrated 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 previous employee IDs.

Documenting that employees and supply chain participants are not workers from Xinjiang can help overcome the presumption of forced labor for imprisoned goods. For example, in the March 2021 CBP decision that Dandong Huayang Textiles failed to overcome a presumption in CAATSA paragraph 321 (b) that its detained goods were manufactured using North Korean forced labor, it was found that: (i) the filing failed consistently reflect the same total number of employees; (ii) fewer IDs were submitted than current employees, and IDs submitted did not include employees who left within the last 12 months; and (iii) the majority of the identification documents were not clear enough to determine the authenticity of the identification.

5. Establish explicit measures against forced labor and monitor implementation.

CBP notes that “[c]Guidelines and evidence of their implementation “are helpful in showing how companies have dealt with forced labor. CBP strongly suggests that a company code of conduct is distributed to all suppliers in the global supply chain and that it contains specific language on minimum labor standards. Companies should ensure.” that these guidelines are up to date – another warning that CBP identified in its Uniqlo decision.

6. Do extensive external audits, but know your limits.

CBP includes “[c]Opie’s recent unannounced third party audits “on his list of helpful documentation showing how companies have dealt with forced labor. CBP’s decision in Dandong Huayang Textiles underscores the importance of accounting for all employees in the audit review process and points out That the company failed to demonstrate this as a reason that the detained goods were not made using forced labor was because the auditors did not interview all employees, which undermined the conclusion of an audit report that all employees were Chinese and not North Koreans.

While recognizing that due diligence best practices typically include site visits and audits, the Advisory, in the context of Xinjiang, notes that third party audits alone are not an adequate due diligence program “and may not be a credible source of information for Labor indicators “are abuse in the region.”

Conclusion

The advisory acknowledges that all China-related companies “are likely to encounter obstacles in performing reasonable due diligence to fully identify and avoid complicity in human rights abuses related to Xinjiang.” Amongst other things, “[g]State controls, the lack of transparency by governments and companies, the threat of detention of auditors and workers, and a police-state atmosphere in Xinjiang make the reliability of reviews of working conditions and the respect for human rights very difficult. The Foreign Sanctions Act makes it difficult for companies to impose labor-related supply chain requirements in Xinjiang.

Given this complexity, the breadth of resources available, and the unique aspects of each industry and supply chain, there is no one-size-fits-all formula to ensure products are free from forced labor in Xinjiang. As the US increases controls and pressures on imports related to Xinjiang, companies should take steps now, including by seeking professional legal advice, to ensure their products and supply chains are free from forced labor in Xinjiang to ensure compliance and imports to avoid disruption

footnote

1 Further information can be found in Appendices 2-4 of the Advisory.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.