Ending Forced Labor in Xinjiang: A New Standard for Importers & Corporate Due Diligence

Overview

On December 23, 2021, President Biden signed into law a landmark piece of legislation that prohibits the importation of goods from an entire region due to the high risk of severe forced labor abuses there. The legislation – the Uyghur Forced Labor Prevention Act (H.R. 6256) – has been a congressional work in progress for several years and comes after multiple iterations failed to advance.

The Act was passed with overwhelming support from both Republicans and Democrats, reflecting a clear consensus in Washington that oppression and forced labor of Uyghur and other Turkic minority communities in Xinjiang are gross human rights violations that require a forceful policy response. In the days before Congress passed the measure, The White House provided a full-throated endorsement of the Act and said it will work closely with Congress to implement it. Additionally, human rights activists, civil society organizations, and apparel associations are hailing the legislation as a historic victory in the campaign to eradicate modern slavery in supply chains.

The Act’s passage comes after the Trump and Biden Administrations declared that the Chinese Government’s policy in the Xinjiang region is genocidal in nature, based on incontrovertible evidence that China’s social programs in Xinjiang include forcing minority communities to renounce their cultural and religious practices, and subjecting them to forced sterilization. Earlier this year, the Biden Administration took the additional step of issuing an Interagency Business Advisory that warned companies of the considerable legal and reputational risks facing companies who source from Xinjiang and/or maintain commercial activities in the region.

Beijing’s mass acculturation strategy also includes the deployment of Xinjiang minorities to factories in China, where they are forced to make goods and products that are often exported across the globe, including the United States. Due to the Chinese Government’s interference, human rights organizations have reported that it is next to impossible for third-party auditors to verify with certainty that working conditions in the facilities conform to the most basic expectations for fundamental worker freedoms as prescribed by internationally-recognized labor standards.

The Legislation’s Core Features

The Uyghur Forced Labor Prevention Act’s key provisions fundamentally change how the U.S. Government restricts imported goods made with forced labor, and will be of major consequence to the design of due diligence programs for companies impacted by the measure.

The Act’s most important elements entail:

(1) Imposing a broad presumption that all goods made in part or in whole in Xinjiang are derived from forced labor inputs and are therefore banned from entry into the United States

(2) Allowing the presumption to be rebutted only if an importer can make an argument based on “clear and convincing” evidence that the goods in question were in fact not made with forced labor

(3) Imposing sanctions on entities that knowingly facilitate forced labor in Xinjiang and/or knowingly aid in the circumvention of the import ban on goods from Xinjiang.

The Act marks the first time that Congress has imposed import prohibitions on all goods whose origins can be traced to a specific geographic region, whereas in the past import bans have targeted a specific commercial sector (such as agriculture, apparel, and electronics in Xinjiang), and as a result specific companies active in that commercial sector.

Large U.S. multinationals succeeded in persuading lawmakers to remove provisions from earlier versions of the Act that would have required companies listed with the U.S. Securities and Exchange Commission (SEC) to publicly disclose details on their activities in Xinjiang. The disclosure requirements could have also exposed companies associated with activities in Xinjiang to sanctions or criminal penalties. Nonetheless, companies could still potentially face sanctions if they contribute to forced labor in the region or aid importers in flouting the import ban.

Preparing for Closer Due Diligence on Forced Labor

The new import ban will see myriad companies across a wide range of industries taking action to reevaluate their supply chain approach and will require more stringent due diligence protocols for multinationals whose activities run a risk of being materially linked to Xinjiang. A March 2020 report by the Australian Strategic Policy Institute, for example, found that the supply chains of 83 global brands involved forced labor by Xinjiang minorities

As a matter of compliance, companies at risk of being impacted by the new legislation will need to ensure their due diligence frameworks are specifically dedicated to forced labor prevention in Xinjiang. At the same time, the Act will also provide guidance to those companies as they consider how to structure their due diligence approach. In particular, the Act establishes new U.S. guidance to importers on appropriate due diligence, supply chain tracing, and supply chain management measures they should take in order to prevent the importation of goods made from forced labor in Xinjiang. In addition, the guidance will more clearly define the “clear and convincing” threshold for contesting import prohibitions, by explaining the “type, nature, and extent of evidence” needed to demonstrate that the imported goods were, in actuality, not from Xinjiang.

The Uyghur Forced Labor Prevention Act is pioneering legislation that could potentially lead to the United States more broadly restricting imports presumed to be made with forced labor by targeting other regions. The lawmakers spearheading the legislation were aware that Chinese authorities are forcing Xinjiang minorities to work at production facilities in not only Xinjiang, but other regions of China as well. The Act appears to address this, notably by establishing that the guidance will provide details on the evidence needed to demonstrate that imported goods do not involve forced labor in any part of China. Beyond China, lawmakers can use the Act as the premise for additional bans on all goods imported from other regions in the world where the risk of forced labor is very high.  Though such an expansion of the import ban is not likely to materialize any time soon, companies should consider its possibility as they plan their long-term human rights strategy.

The Trend Towards Mandatory Due Diligence

The Uyghur Forced Labor Prevention Act is narrowly focused on imports made with forced labor, but the legislation is part of an unfolding paradigm shift away from voluntary standards and towards binding requirements for human rights due diligence in the corporate sector.  Like other measures that have advanced recently, the Act will necessitate more nuanced strategies to identify and prevent corporate contributions to human rights harms.

In March 2021, the E.U. Parliament passed a sweeping measure that paved the way for binding regulations setting a corporate duty of care centered around due diligence and disclosure of a company’s efforts to remedy human rights harms.

And in the United States, the SEC under the Biden Administration recently stated its intent to make SEC-listed companies disclose details on their sustainability efforts and respect for human rights. Eager to make such disclosure law, the House in June 2021 passed legislation that would require an SEC-listed company to disclose such efforts and how they are connected to the company’s long-term objectives.

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