Renewed Warnings and New Legislation on Forced Labor in Global Supply Chains

15 July 2021 Manufacturing Industry Advisor Blog
Authors: Michael J. Walsh, Jr. Jeffery R. Atkin Vanessa L. Miller Kathleen E. Wegrzyn David W. Simon

On Tuesday, July 13, the Biden administration issued a supply chain advisory on the Xinjiang Uyghur Autonomous Region (XUAR). The advisory renews and refreshes warnings first issued in July 2020 that U.S. companies conducting business in the XUAR “could run a high risk of violating U.S. law” due to allegations of human rights abuses in the region. This 36-page “Xinjiang Supply Chain Advisory” report cautioned domestic businesses that the Chinese government is carrying out “imprisonment, torture, rape, forced sterilization, and persecution” against Uyghur Muslims in the XUAR. We have been tracking the government’s continued efforts to remove forced labor from global supply chains all year, from the multilateral sanctions imposed in March to the recent Withhold Release Order regarding Hoshine Silicon.

The updated advisory identified four areas where U.S. businesses were at risk of working with entities carrying out human rights violations and thereby running afoul of U.S. law: surveillance, sourcing labor or goods from northeastern China, supplying U.S. tech to Xinjiang-based entities, or aiding in Chinese state-led construction projects. The advisory does not carry the force of law, but it continues the U.S. government’s trend to utilize all available tools to keep goods made from forced labor out of global supply chains. The warning follows the U.S. Department of Commerce’s July 9 addition of 23 Chinese companies to the Entity List, which prevents U.S. companies from exporting goods and equipment to those companies. Of the 23 companies added to the list, 14 were named for their role in suspected human rights abuses in Xinjiang province. Congress also continues work on the “Uyghur Forced Labor Prevention Act,” which not only imposes import restrictions on goods produced by forced labor in China but places the responsibility on U.S. businesses to ensure their supply chains are free from forced labor.

Also on July 13, the European Commission and the European External Action Service (EEAS) published a Guidance on due diligence to help companies in the European Union address potential exposure to forced labor in their operations and supply chains. The Guidance is noteworthy for its timing, reinforcing the U.S. government’s commitment to a multilateral approach to eradicating forced labor from global supply chains. U.S. companies – particularly those with European operations – can benefit from reviewing the Guidance and comparing the concrete actions it describes to their own supply chain audit practices.

On July 14, the U.S. Senate passed legislation to ban the import of all products from the XUAR. The bipartisan Uyghur Forced Labor Prevention Act passed by unanimous consent, and the bill’s sponsors urged the U.S. House of Representatives to act quickly so that it could be signed into law. The House approved a similar bill nearly unanimously last year. The legislation creates a “rebuttable presumption” that goods manufactured in the XUAR are made with forced labor and therefore banned under the 1930 Tariff Act. The burden of proving that imported goods were not made with forced labor will rest with the importer. The current rule bans goods if there is reasonable evidence of forced labor. Companies should prepare to audit carefully their supply chains to ensure compliance with this act in the likely event it becomes law.

We expect additional actions in this area. If you would like to discuss the practical ramifications of this warning or discuss trends in supply chain management more generally, please contact Mike Walsh, Jeff Atkin, Vanessa Miller, Kate Wegrzyn, David Simon, or the Foley lawyer with whom you normally consult.

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