In the recent flurry of US Government activity related to Xinjiang, one thing is clear: trade compliance risks continue to increase for companies with supply chains that involve Xinjiang. These latest actions add to the expanding list of companies that face import bans, export bans, and sometimes both, in addition to broader measures under consideration in Congress. This blog post summarizes the past month’s developments. Companies with Xinjiang anywhere in their supply chains should be aware of these risks. It is important to ensure that company functions (e.g., trade compliance, supply chain, vendor procurement, ESG, legal department) are communicating with one another to assess and mitigate these risks holistically. In addition to US trade compliance risks, companies should also consider risks on the Chinese side, including the recently enacted Chinese Anti-Foreign Sanctions Law, which can in some cases raise “conflict of law” and similar concerns.
June 24: Actions Targeting the Polysilicon Supply Chain
The White House issued a statement announcing a trio of measures targeting polysilicon supply chains. The White House stated that the United States was “translating” into action commitments made at the recent G7 Summit in Cornwall, United Kingdom to ensure that global supply chains are free from forced labor. Polysilicon is a key component in an estimated 95% of photovoltaic solar panels. It has been reported that as of 2020, five of the top six solar-grade polysilicon companies were headquartered in China, with 45% of the world supply of polysilicon originating from four producers with operations in Xinjiang.[1] The three measures announced on June 24 are:
- US Customs and Border Protection (CBP) issued a Withhold Release Order (WRO) on silica-based products made by Hoshine Silicon Industry Co., Ltd., a company located in Xinjiang, and its subsidiaries. Personnel at all US ports of entry have been instructed to detain shipments that contain silica-based products made by Hoshine or materials and goods derived from or produced using those silica-based products. CBP has issued six WROs in 2021, raising the total to 49 currently-active WROs.
- The Bureau of Industry and Security (“BIS”) in the Department of Commerce added five Chinese entities to the Entity List that were determined to have participated in forced labor and other human rights abuses in Xinjiang. It is prohibited for anyone to export, re-export, or in-country transfer commodities, software, or technology (“items“) subject to the Export Administration Regulations (“EAR“) to parties on the Entity List unless a license is obtained by BIS.
- The Department of Labor updated its “List of Goods Produced by Child Labor or Forced Labor” to include polysilicon produced with forced labor in China. The list identifies goods that the Department of Labor has concluded that it has reason to believe are produced by child labor or forced labor in violation of international standards. Normally, this list is updated every two years. This update is the first time any goods have been added outside of the usual two-year cycle.
July 12: More Entity List Additions
BIS added 34 more entities to the Entity List based on a determination that they had been implicated in human rights violations and abuses in Xinjiang. As noted above, it is prohibited to export, reexport, or transfer items subject to the EAR to these parties without a BIS license.
July 13: US Government Updates Xinjiang Supply Chain Business Advisory
The advisory was first issued in July 1, 2020 by the US Departments of State, Treasury, Commerce, and Homeland Security to caution US businesses about the various compliance risks associated with supply chain links to Xinjiang. Our Sanctions & Export Controls blog published a summary of the advisory in July 2020. The updated advisory was republished by the original four agencies along with the Office of the US Trade Representative and the US Department of Labor. It includes updated information about the US Government’s actions taken in connection with Xinjiang, including a summary of the WROs, Entity List additions, and economic sanctions imposed against parties determined to be involved in allegations of forced labor and other human rights issues in Xinjiang. The updated advisory urges heightened due diligence in line with UN, ILO, and OECD expectations.
Ongoing: Congress Moving on Xinjiang-related Legislation
The Uyghur Forced Labor Prevention Act (S. 65) has been moving through the Senate. After approval by the Senate Foreign Relations Committee in late June, on July 14, the bill was passed by voice vote in the Senate. A companion measure (H.R. 1155) has been moving through the House of Representatives and was approved by the House Foreign Affairs Committee in late April. Among other things, this legislation would establish a rebuttable presumption that all labor in Xinjiang is forced labor, in addition to imposing new US Securities and Exchange Commission (“SEC”) disclosure requirements.
A China policy bill was approved by the House Foreign Affairs Committee on July 15 with further restrictions. The Ensuring American Global Leadership and Engagement (EAGLE) Act (H.R. 3524) contains a provision that would prohibit the importation into the US of goods, wares, articles and merchandise mined, produced or manufactured wholly or in part with forced labor in the Xinjiang region. In addition, if a public company knowingly created or provided technology to create mass population surveillance systems in Xinjiang or built and ran detention facilities in such region, the legislation would require the public company to disclose to the SEC the nature and extent of the activity, the gross revenues and net profits and whether the company intends to continue the activity.
Key Takeaways:
- There has been a flurry of recent US Government activity that continues to increase the trade compliance risks for companies with supply chains that involve Xinjiang.
- Companies with Xinjiang anywhere in their supply chains should ensure that company functions (e.g., trade compliance, supply chain, vendor procurement, ESG, legal department) are communicating with one another to assess and mitigate these risks holistically. They should also consider risks on the Chinese side, including the recently enacted Chinese Anti-Foreign Sanctions Law, which can in some cases raise “conflict of law” and similar concerns.
[1] Xinjiang Supply Chain Business Advisory (July 13, 2021), Annex 4, available at https://www.state.gov/wp-content/uploads/2021/07/Xinjiang-Business-Advistory-13July2021.pdf.
