Businesses Advised to Intensify Efforts to Identify Forced Labor in China Supply Chains
© , Sandler, Travis & Rosenberg, P.A. Originally published in the [07/03/2020] issue of the Sandler, Travis & Rosenberg Trade Report. Reprinted by permission.
U.S. businesses, investors, and others with potential exposure in their supply chains to China’s Xinjiang Uighur Autonomous Region or facilities outside Xinjiang that use labor or goods from Xinjiang are being warned of the economic, legal, and reputational risks of being involved with entities that engage in human rights abuses, including forced labor in the manufacture of goods intended for international distribution.
A July 1 joint advisory from the departments of Homeland Security, Commerce, State, and the Treasury states that elements of the following industries have been identified as using forced labor in Xinjiang (although not all goods produced in these industries in Xinjiang involve forced labor).
– agriculture (e.g., hami melons, korla pears, tomato products, garlic)
– cell phones
– cleaning supplies
– cotton yarn, cotton fabric, ginning, spinning mills, and cotton products
– electronics assembly
– extractives (e.g., coal, copper, hydrocarbons, oil, uranium, zinc)
– fake hair and human hair wigs and hair accessories
– food processing factories
– hospitality services
– printing products
– textiles (e.g., apparel, bedding, carpets, wool)
However, the advisory states that China’s use of forced labor is no longer confined to Xinjiang but is increasingly taking place in factories across China through government-facilitated arrangements with private-sector manufacturers. In addition, there is evidence of forced prison labor in the cotton, apparel, and agriculture sectors.
The advisory encourages businesses to evaluate their exposure to these risks, including by examining the end-users of their products, technology, research, and services to reduce the likelihood they are being used to build, maintain, or support (1) companies that employ forced labor, (2) activities that enable human rights abuses, (3) internment camps, or (4) the broader surveillance apparatus of the Chinese government. The advisory notes that third-party audits alone may not be a credible source of information for indicators of labor abuses and that businesses may consider collaborating with industry groups to share information.
As necessary, the advisory states, businesses should implement due diligence policies, procedures, and internal controls to ensure effective compliance practices across their upstream and downstream supply chains. The advisory notes that well-documented and -implemented due diligence policies and procedures may potentially be considered as mitigating factors by U.S. authorities if businesses inadvertently engage in activities that are sanctionable or violate domestic law.
DHS said it will take increased enforcement action against businesses in the U.S. that violate the law by contributing to human rights abuses in Xinjiang and elsewhere in China. This may include withhold release orders detaining imported goods, civil or criminal investigations, and export controls. In addition, U.S. Customs and Border Protection will continue to issue prohibitions on imports from China of goods produced with forced labor and DHS’ Homeland Security Investigations will continue to actively investigate companies and corporate officials who knowingly benefit from forced labor in Xinjiang.