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How a human rights law targeting forced labor in Xinjiang is shaking up the U.S.-China supply chain

The new trade restrictions are being greeted as a win for human rights, but some companies are daunted by the law’s requirements.

Last summer, customs agents began impounding shipments of solar panels at U.S. ports because the panels were made using forced labor in China’s Xinjiang region. Companies either had to prove otherwise or send their panels elsewhere. Now, under a sweeping new law that went into effect this week, a wide assortment of other products are banned from entry to the U.S. for the same reason. American companies are scrambling to comply — to prove that their goods were not made in Xinjiang, to reroute their supply chains, or to just understand whether their products are impacted by the new restrictions.

The law has been celebrated as an important step forward for human rights, but it has faced backlash from some companies for what they say is a lack of clarity in terms of enforcement and because of what they see as an onerous burden of proof. Members of the U.S.-China Business Council see “headaches, costs, potential reputation damage and further snarled supply chains,” said Doug Barry, senior director of communications at the council.

It’s a classic debate — and at stake is commerce valued in the billions of dollars, as well as U.S. companies’ human rights record in Xinjiang.

U.S.-Xinjiang links: commerce worth billions

But there is also a less direct flow of raw materials and products from Xinjiang to the U.S. that is much greater — and this, too, will be affected. Billions of dollars of goods and raw materials are shipped annually from Xinjiang to other parts of China and neighboring countries — Kazakhstan, Kyrgyzstan and Tajikistan — and in many instances, these goods wind up in the U.S. after further refining or manufacturing.

Cutting ties with Xinjiang

Some firms operating in these sectors say they have already stopped sourcing from Xinjiang, both as a result of the prior restrictions and in preparation for the new law.

For human rights advocates, all these cases add up to a hopeful sign: The U.S. approach is working.

When the Xinjiang supply chain is murky

One example involves an array of products that fall under the category of “silica-based goods,” which is now listed as a high-priority sector. This category includes not just solar panels but also a long list of gadgets associated with Silicon Valley: phones, laptops, printers and other electronics. And as noted above, the auto industry is vulnerable as well given that battery and aluminum suppliers have been found to use Xinjiang forced labor.

Many executives may not even know that their companies’ imports have a Xinjiang connection. Supply chain experts told Grid that companies often know only their immediate suppliers, not the full list. In the months preceding the new law’s implementation, some companies began the daunting process of investigating the intricate details of their supply chains for the first time.

“The issue that I deal with on a daily basis is, for companies — especially those that have not been scrutinized like the apparel companies and the solar companies — for example, the electronics companies who have hundreds of suppliers, thousands, but have not been in the eye of the storm, you know, where do we start?” said Richard Mojica, a lawyer at Miller & Chevalier.

Importers with a vast web of suppliers will have to take a “risk-based approach,” he said. That entails mapping out full supply chains and, at a minimum, screening for any high-risk suppliers of raw materials with clear connections to Xinjiang. The idea: find those links before customs agents expose the connections for them.

Even in the solar sector, which has promoted its compliance on Xinjiang forced labor, some companies still may not know the origin of raw materials used at the very beginning of the production process. The “supply chain is very opaque,” said Pol Lezcano, lead North America solar analyst for Bloomberg New Energy Finance, so solar firms may not know the source of their metallurgical grade silicon, the precursor ingredient to polysilicon. The ingredient is produced in Xinjiang — but it’s also produced in other parts of the world, and given that it’s so far up the solar supply chain, tracing its origin is more difficult.

Grid reached out to 10 of the largest solar energy companies in the U.S. to ascertain whether they are sourcing fully outside of Xinjiang but received no responses prior to publication.

Proving a negative

If companies do not reroute their supply chains before customs catches an import from Xinjiang, they have one remaining option to clear their product for entry: They can try to prove the product wasn’t made using forced labor.

On this experts say, effectively, good luck.

Proving an absence of forced labor “is possible in theory, but likely impossible in practice,” said Mojica. Among other requirements, the new DHS strategy document states that companies may be requested to provide employment records for every worker in the Xinjiang factory in question. Beyond the obvious practical difficulty of doing so, there is another hurdle: Chinese law. For Chinese companies, cooperating with U.S. customers to provide such information comes with its own legal risk: Citizens can be punished for complying with U.S. sanctions.

For these reasons, Mojica said, companies are unlikely to even try to disprove a forced labor charge. “The chances of success are likely very low, and the effort that would be required to overcome this is huge.”

A step forward for human rights?

Ultimately, the new law’s impact on U.S. businesses and the Xinjiang economy will depend largely on how strictly it is enforced.

For some sectors, finding non-Xinjiang sources of raw materials may prove relatively straightforward. To take one example, there is enough polysilicon outside of Xinjiang to source U.S. solar companies. Lezcano told Grid that this means changing suppliers hasn’t been a big hit to solar companies’ bottom lines.

But for other businesses, finding new sources will prove more challenging. “Rejiggering supply chains within China is difficult because of regional specialization,” said Barry. He added that “moving out of China may not be feasible, because of the scale and labor expertise available in the country.”

Despite the challenges these companies face, the new law’s message is clear. “Customs and Border Protection, and many arms of the U.S. government, want companies to reduce their exposure to China and to Xinjiang more broadly,” said Stone Fish. “And so this wasn’t a law intended to make things easier for companies. But the reverse.”

Ultimately, for Laura Murphy, a professor of human rights at Sheffield Hallam University who has researched forced labor issues in Xinjiang, the law represents a critical step forward for human rights in China. It has already forced many American companies to more fully understand the human costs of their supply chains — and in some cases, it’s moved companies to change course. “What we have to remember is that even if the Chinese government doesn’t change their policies in the Uyghur Region — really, especially if they don’t,” she said, “the importance of this legislation is that it protects U.S. consumers from being complicit in those crimes against humanity.”

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