News & Insights

Tuesday, July 13, 2021

U.S. Government Agencies Update Xinjiang Supply Chain Business Advisory

On July 13, 2021, the U.S. Departments of State, Treasury, Commerce, Homeland Security, Labor and USTR updated their “Xinjiang Supply Chain Business Advisory”—the original Xinjiang Supply Chain Business Advisory was published in July 2020. The updated advisory urges businesses, individuals, investors, consultants, labor brokers, academic institutions, and research service providers to be aware of the significant reputational, economic, and legal risks of their involvement with operations, supply chains, or laborers from the Xinjiang-region or elsewhere. It also encourages companies to undertake heightened human rights due diligence to identify potential supply chain links to entities operating in Xinjiang, linked to Xinjiang, or utilizing Uyghur or other ethnic minority laborers from Xinjiang. Businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law. The following provides a summary of the updated advisory.

1. The Situation in Xingjian, Tibet and Inner Mongolia

As noted in the updated Xingjian Supply Chain Business Advisory, since at least March 2017, the Chinese government has carried out genocide and crimes against humanity against more than one million Uyghurs, Kazakhs, Kyrgyz and members of other ethnic and religious minority groups in the Xinjiang Uyghur Autonomous Region (Xinjiang), China. The updated advisory notes that the PRC’s crimes against humanity include imprisonment, torture, rape, forced sterilization, and persecution, including through forced labor and the imposition of draconian restrictions on freedom of religion or belief, freedom of expression, and freedom of movement. Businesses and individuals are advised to be aware of these atrocities, as well as credible reports indicating that labor transfers of ethnic minorities in Xinjiang to other regions and provinces of China are part of a state-sponsored coercive relocation and forced labor program aiming to force assimilation and reduce their population density. The advisory also acknowledges that the U.S. government is aware of the expansion of internment camps to Tibet and Inner Mongolia to arbitrarily detain other ethnic and religious minorities and documenting the use of forced labor beyond Xinjiang such as in the fishing industry.

2. Four Primary Types of Potential Supply Chain Exposure

The updated advisory identifies four (4) types of potential supply chain exposure for business and individuals, as follows—

  • Assisting or investing in the development of surveillance tools for the PRC government in Xinjiang, including tools related to genetic collection and analysis;
  • Sourcing labor or goods from Xinjiang, or from entities elsewhere in China connected to the use of forced labor of individuals from Xinjiang, or from entities outside of China that source inputs from Xinjiang;
  • Supplying U.S.-origin commodities, software, and technology to entities engaged in such surveillance and forced labor practices; and
  • Aiding in the construction and operation of internment facilities used to detain Uyghurs and members of other Muslim minority groups, and/or in the construction and operation of manufacturing facilities that are in close proximity to camps and reportedly operated by businesses accepting subsidies from the PRC government to subject minority groups to forced labor.

The updated advisory notes that there is evidence of forced labor obtained using threats, force, detention, debt bondage, and other abusive practices occurring in the internment camps, large industrial parks, PRC companies outside Xinjiang, and among the non-detained rural residents of Southern Xinjiang where the majority of Uyghurs live. In addition, the Chinese government is providing subsidies to companies from other areas in China to establish satellite factories in Xinjian in conjunction with the internment camps. Industries in which the U.S. government is aware of human rights abuses in connection with Xinjiang include:

  • Agriculture (raw cotton, hami melons, korla pears, tomato products, and garlic)
  • Cell Phones
  • Cleaning Supplies
  • Construction
  • Cotton, Cotton Yarn, Cotton Fabric, Ginning, Spinning Mills, and Cotton Products
  • Electronics Assembly Extractives (including coal, copper, hydrocarbons, oil, uranium, and zinc)
  • Fake hair and human hair wigs, hair accessories
  • Food processing factories
  • Footwear
  • Gloves
  • Hospitality Services
  • Metallurgical grade silicon
  • Noodles
  • Printing Products
  • Renewable Energy (polysilicon, ingots, wafers, crystalline silicon solar cells, crystalline silicon solar photovoltaic modules)
  • Stevia
  • Sugar
  • Textiles (including such products as apparel, bedding, carpets, wool, viscose)
  • Toys

 

3. Warning Signs of Forced Labor in in Xinjiang

The updated advisory identifies the following warning signs of forced labor Xinjiang :

  • Lack of transparency in the supplier’s origin of goods, ownership of the companies, written contracts;
  • Companies operating in Xinjiang disclosing high revenue but having very few employees paying into the government’s social security insurance program;
  • Any mention of internment terminology (e.g., Education Training Centers ,, Legal Education Centers) coupled with poverty alleviation efforts (e.g. Xinjiang Aid, Mutual Assistance Programs), ethnic minority graduates, or involvement in reskilling vocational training, or re-education;
  • Companies operating in Xinjiang receiving government development assistance as part of the government’s poverty alleviation efforts or vocational training programs;
  • Companies involved in the mutual pairing assistance program or companies receiving subsidies for energy, transportation, and labor costs;
  • Companies operating in Xinjiang implementing nonstandard hiring practices and/or hiring workers through government recruiters;
  • Any mention of XPCC Affiliates, which are part of the prison labor system;
  • Companies operating in Xinjiang located within or near the internment camps and prisons, or adjacent to industrial parks involved in the government’s poverty alleviation efforts;
  • New factories built near internment camps and prisons;
  • Businesses owned by or contracting with a prison enterprise; and,
  • Goods Included on the U.S. Department of Labor’s List of Goods Produced by Child Labor or Forced Labor (“the TVPRA List”)

 

4. Recommended Human Rights Due Diligence

The updated advisory urges businesses and individual to undertake heightened due diligence to ensure compliance with U.S. law and to identify potential supply chain or other exposure to companies operating in Xinjiang, linked to Xinjiang, or utilizing Uyghur and other Muslim minority laborers from Xinjiang. In the event of identifying linkages to prohibited entities linked to Xinjiang, businesses and individuals are advised to avoid any unlawful activities. Recommended due diligence includes the following—

  • Banking, Financial Institutions, and other Investors should:
    • Assess their illicit finance risk;
    • Implement sanctions compliance and AML programs;
    • Meet existing due diligence program requirements relevant to their institution;
    • Provide training and resources for appropriate personnel;
    • Assess potential exposure to the risk of handling proceeds of forced labor for clients;
    • Implement a mitigation process that aligns with that risk consistent with BSA requirements;
    • Identify customers and monitor activity for unusual or suspicious transactions or activity;
    • Include in their suspicious activity reports (SARs) all relevant indicia of human trafficking; and,
    • Comply with law enforcement processes (e.g., subpoenas) seeking to identify traffickers’ assets.
  • Non-US companies seeking to engage in mergers, acquisitions, takeovers, or non-controlling investments in U.S. businesses should potential risks arising from their commercial activities or other relationships with companies directly and indirectly linked to human rights abuses in Xinjiang.
  • Companies involved in surveillance technologies should examine the end-users of their products, technology, research, collaborations, and services, to reduce the likelihood that their goods or services are used to build, maintain, or support the internment camps, the broader surveillance apparatus of the PRC government, companies that use or benefit from forced labor, or activities that enable human rights abuses (e.g., forced collection of biometric data, abusive genetic analysis schemes, and coercive transfer of members of ethnic minority groups). Investors should consider undertaking responsible divestment in the event that funding or investment that has already occurred or is ongoing implicates companies involved in the surveillance of religious and ethnic minorities or otherwise facilitate repression and serious human rights abuses.
  • Businesses and individuals exporting technology, products, and services with surveillance capabilities (including genetic collection and analysis), or businesses and individuals that are exporting inputs in or supporting the manufacture of surveillance products, are encouraged to undertake due diligence to prevent the misuse of their technology, products, and services in Xinjiang in line with the U.S. Department of State Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities.
  • Given that third-party forced labor audits are not recognized as sufficient due diligence and may not be a credible source of information, businesses and individuals should collaborate with industry groups to share information, develop the capacity to research potential indicators of forced labor or labor abuses linked to Xinjiang in Chinese languages, and build relationships with Chinese suppliers and recipients of U.S. goods and services, to better understand their possible relationships to Xinjiang under PRC programs, including the mutual pairing assistance program.
  • Firms involved in the construction industry should undertake due diligence practices to prevent the possibility that internment camps are the ultimate direct beneficiaries of their business.
Please contact Melissa Proctor (melissa@millerproctorlaw.com) or Peggy Chaplin Louie (peggy@millerproctorlaw.com) should you have any questions about these recent developments or other international trade issues.