Uyghur Forced Labor Prevention Act Enters Into Force

On Tuesday, the Uyghur Forced Labor Prevention Act (UFLPA) went into effect in the U.S. The bill was conceived in 2019, approved by the Senate last July, and passed by Congress in December before being signed into law by President Joe Biden later that month. Its survival in the face of polarized politics and hostile business interests demonstrates Washington’s growing resolve to “no longer remain complicit in the Chinese Communist Party’s use of slave labour and egregious crimes against humanity,” as U.S. lawmakers stated last week. Starting now, the onus will be on companies, instead of the U.S. government, to prove that goods imported into the U.S. contain no trace of forced labor from Xinjiang, a requirement that is expected to have a significant impact on global supply chains. The U.S. Customs and Border Protection Agency summarized the essence of the law:

It establishes a rebuttable presumption that the importation of any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China, or produced by certain entities, is prohibited by Section 307 of the Tariff Act of 1930 and that such goods, wares, articles, and merchandise are not entitled to entry to the United States. The presumption applies unless the Commissioner of U.S. Customs and Border Protection (CBP) determines that the importer of record has complied with specified conditions and, by clear and convincing evidence, that the goods, wares, articles, or merchandise were not produced using forced labor. [Source]

Last Friday, the U.S. Department of Homeland Security released its official strategy outlining how it will enforce the UFLPA. Describing this in more detail in his newsletter “Forced Labor and Trade,” John Foote, a partner and head of the customs practice at the law firm Kelley Drye & Warren, showed how the U.S. government has invested unprecedented levels of resources into the implementation of the UFLPA

Longtime readers will recall my update from March 11 of this year, when I sounded the alarm about current FY budget allocations to CBP for forced labor enforcement at the relatively unprecedented funding level of $24.7M. According to the long-awaited UFLPA strategy published last Friday, the Biden Administration is now seeking $70.3 million in funding in the FY 2023 budget so CBP can hire 300 full time personnel to do battle against shipments from China that may be linkable to Xinjiang or to entities listed by the United States for affiliation with forced labor in China.

That might not sound like much, especially against the shock and awe campaign of Section 301 and Section 232 tariffs, which have now netted over $150 billion in import tariffs since July 2018 (over 90% of that is Section 301). But this is an unprecedented level of funding for the enforcement of a single trade law, and augurs a devastating level of supply chain disruption for importers that are ill-prepared.

If approved, this funding level will exceed by some $30M the entire budget of the Office of Foreign Asset Control (OFAC), at the U.S. Department of the Treasury, charged with enforcing U.S. sanctions laws. It is roughly equivalent to the entire budget of the Bureau of Industry and Security (BIS) within the U.S. Department of Commerce, charged with enforcing U.S. export controls laws. [Source]

Human Rights Watch described how it will be virtually impossible for companies sourcing from Xinjiang to evade the law:

If customs officials identify a product as produced in whole or in part in Xinjiang or from an entity listed as linked to forced labor, the law requires importers to provide “clear and convincing evidence” that goods are free from forced labor. The US government’s guidance lists the evidence that importers could rely on, including supply chain mapping indicating the factories or other facilities where the goods were produced; information on the workers at each facility, including on wage payments and recruitment practices; and audits to identify and remediate forced labor.

For companies sourcing from Xinjiang, however, providing “clear and convincing evidence” is a near impossible bar to clear. The extent of Chinese government surveillance and threats to workers and auditors currently prevents companies from meaningfully evaluating the use of forced labor at factories or other facilities in Xinjiang. Even elsewhere in China, the arrests of labor activists, a prohibition on independent trade unions, government surveillance, and the Chinese government’s anti-sanctions laws pose serious obstacles to identifying and remediating the risk of forced labor and other human rights abuses. Companies with operations, suppliers, or sub-suppliers in Xinjiang should instead relocate their facilities or supply chains elsewhere, Human Rights Watch said. [Source]

The UFLPA has sent companies scrambling to adapt to the new import requirements. Business executives claim the law will disrupt supply chains and threaten the $500 billion in annual shipments from China to the U.S. Some complained that a messy implementation of the law would contribute to inflation. As Haley Byrd Wilt reported for The Dispatch, human rights advocates grew exasperated at how unable or unwilling many companies were to contend with the law and the abuses that motivated it, despite having seen years worth of headlines on the increasingly egregious human rights issues in Xinjiang:

In early 2021, [Sophie] Richardson—the China director at Human Rights Watch—began to receive the first of more than 100 calls from banking institutions, manufacturers, companies, and other corporate entities about forced labor in Xinjiang. She was alarmed by how ignorant they were about the genocide—and by their continued unwillingness to leave the region, even after being told how dire the situation was.

[…] “For so long, tougher human rights policies had foundered in the face of U.S. businesses saying, ‘No no no no, we have to be able to trade and engage, and it will all turn out okay in the end, really, we promise,’” Richardson says.

[…] “You guys are fucked,” [Nury Turkel, a Uyghur advocate and member of the U.S. Commission on International Religious Freedom,] told two D.C. lawyers representing American businesses in China. “China is kicking your ass on the one side and on the other, U.S. consumers all over the place are waking up to what is happening, and this is the one issue that unites Congress.”

“Cut the crap. Either pull the plug, or use your influence to change the Chinese behavior and say, ‘No, not in my name.’ Tell China, ‘You need my business and what you are forcing me to do is illegal, and I am under pressure at home.’” [Source]

The pervasiveness of Uyghur forced labor in China and America’s reliance on China for a variety of important products add to the potential for a broad application of the UFLPA. Earlier this month, Adrian Zenz provided new evidence on the evolution of labor transfer programs that have consigned tens of thousands of Uyghurs to forced labor in factories in Xinjiang and across other provinces. Last week, researchers at Sheffield Hallam University released a report detailing the increased use of Uyghur forced labor in the manufacturing of polyvinyl chloride (PVC) in Xinjiang. It also noted that the plurality, 10 percent, of the world’s PVC comes from Xinjiang, and that over 25 percent of all flooring sold in the U.S. contains PVC from China. Reporting on one Xinjiang-based metals company that employs forced labor, Ana Swanson and Chris Buckley from The New York Times described how much of the global supply chain for certain critical materials is tainted by Uyghur forced labor, and how the products of their labor wind up in foreign markets

To understand how reliant the battery industry is on China, consider the country’s role in producing the materials that are critical to the technology. While many of the metals used in batteries today are mined elsewhere, almost all of the processing required to turn those materials into batteries takes place in China. The country processes 50 to 100 percent of the world’s lithium, nickel, cobalt, manganese and graphite, and makes 80 percent of the cells that power lithium ion batteries, according to Benchmark Mineral Intelligence, a research firm.

[…] The materials Xinjiang Nonferrous has produced — including a dizzying array of valuable minerals, like zinc, beryllium, cobalt, vanadium, lead, copper, gold, platinum and palladium — have gone into a wide variety of consumer products, including pharmaceuticals, jewelry, building materials and electronics. The company also claims to be one of China’s largest producers of lithium metal, and its second-largest producer of nickel cathode, which can be used to make batteries, stainless steel and other goods.

[…] The raw materials that these laborers produce disappear into complex and secretive supply chains, often passing through multiple companies as they are turned into auto parts, electronics and other goods. While that makes them difficult to trace, records show that Xinjiang Nonferrous has developed multiple potential channels to the United States. Many more of the company’s materials are likely transformed in Chinese factories into other products before they are sent abroad. [Source]

Stringent and broad enforcement of the UFLPA would likely accelerate the decoupling of American and Chinese economies by forcing companies to source their materials from outside of China. There is also a risk that until other countries, such as those in the EU, adopt similar laws banning forced-labor-produced goods from Xinjiang, they will serve as a dumping ground for these products. This phenomenon is already borne out by recent data: in 2021, while Xinjiang’s trade with the U.S. decreased by 60 percent, its trade with the EU increased by 13 percent. While the EU Parliament recently passed a resolution calling for an EU-wide instrument banning products made by forced labor, concrete proposals by the European Commission are unlikely to materialize before September

Ji Siqi, Luna Sun, He Huifeng, and Kandy Wong reported for the South China Morning Post that the UFLPA could potentially cripple China’s textile industry:

“In the textile and apparel export industry, the European and American markets bring considerable profits. If orders from Europe and the American market continue to contract, it means that China’s textile and apparel export enterprises will no longer be profitable,” [said Liu Kaiming, a supply-chain specialist and founder of the Institute of Contemporary Observation, a think tank and action group dedicated to labour development and corporate social responsibility in China]. “It will just result in a growing number of Chinese enterprises reducing their production capacity or even shutting down.

[…] And while downstream manufacturers have been trying to adapt to the shift – such as by refining the raw-material procurement processes by using Xinjiang cotton entirely for domestic demand, and imported cotton for export orders – it is unlikely that the Chinese domestic market will be able to absorb all of the excess capacity from Xinjiang, industry insiders said.

“The domestic market can consume only about 3 million tonnes [of cotton] each year, at most,” the Xinjiang cotton mill owner said.

That total is a little over half of the annual output of the region, and it’s nearly the same amount of unsold cotton taking up inventory space at Xinjiang cotton mills by the end of May – 3.3 million tonnes, according to figures from Beijing Cotton Outlook. [Source]

Meanwhile, Uyghur groups are still seeking justice for crimes against humanity committed in Xinjiang. On Monday, lawyers filed new evidence at the International Criminal Court in another attempt to convince ICC prosecutors to open an investigation into abuses against ethnic groups in Xinjiang. While China is not an ICC member, the lawyers argue that the Chinese government’s transnational repression against Uyghurs has occurred in states, such as Tajikistan, that are ICC members. The lawyers aim to use the precedent of the ICC’s case against Myanmar, which was allowed to proceed on the grounds that the persecuted Rohingya minority were forced to flee to Bangladesh (an ICC member), even though Myanmar is not an ICC member.

 

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