Companies face compliance challenges under US forced labor law targeting China
Companies must take a multi-pronged approach to stay on the safe side of a tough new US law aimed at tackling forced labor in China, compliance experts have said, with steps such as sourcing products from other countries and visiting Chinese suppliers for spot checks.
The Uyghur Forced Labor Prevention Act, which went into effect last month, gives US Customs and Border Protection the power to block the import of goods linked to Xinjiang, the minority’s home region. Uyghur from China, as these goods are presumed to be forcefully made. work. Companies can in theory rebut this presumption, but the burden is heavy.
Compliance experts and companies, especially those dealing with cotton, tomatoes and the solar panel ingredient polysilicon – exports from Xinjiang explicitly flagged as enforcement targets in the law – are scrambling to understand how the law will applied in practice. They expect a painful adjustment period.
“A lot of companies are down to earth right now,” said Brandon Daniels, managing director of Exiger LLC, a risk and compliance software company. “I don’t think they prepared properly and properly.”
Mr. Daniels said he was starting to see customers considering switching to suppliers in other countries, such as Vietnam, or even in some cases acquiring their China-based suppliers so they could exert a direct control. Raw materials commonly associated with China can also be found elsewhere, he said, adding that India now has vast reserves of rare earth materials now sourced from China.
“We think we need to diversify the offer,” he said. “There are buying opportunities in allied countries that offset the risk.”
Technology offers solutions. Mr. Daniels said the Exiger software can scour a database of trade documents with the aim of determining the ultimate source of the goods, for example, whether a hypothetically uncontaminated Brazil-based supplier actually received goods from Xinjiang.
Some large companies have been proactive in complying with the law, Daniels said. One client, a global technology company, in February identified a problematic supplier linked to Xinjiang and severed the relationship, he said.
For companies with relationships with Chinese suppliers, there are practical difficulties.
Even if trade relations between the United States and China were cordial, Xinjiang’s remoteness would make it a difficult region to oversee business operations for even the most sophisticated multinational corporations and their compliance teams. The region is closer to the capitals of Central Asia than to China’s populated east coast, with its largest city, Urumqi, located about 2,500 miles from Shanghai.
Chinese authorities have strongly criticized the US law. In December, the Chinese government called allegations about the use of forced labor “vicious lies concocted by anti-China forces”, saying the US actions “totally violate market principles and business ethics”.
China-based suppliers are under intense pressure not to cooperate with their U.S. customers’ efforts to conduct supply chain due diligence, said Judith Alison Lee, co-chair of the firm’s international trade practice group. lawyers Gibson Dunn & Crutcher LLP.
“It’s extremely difficult,” Ms Lee said. “There is no easy answer. It’s really a very difficult time for us.
His advice to companies is to carefully consider the language they use in requests to suppliers, avoiding “hot” terms like directly quoting the US forced labor law and instead making more neutral requests about where they are. source inputs.
Ms. Lee said she expects enforcement to be tough because of the scrutiny Congress has given the issue. US Customs, for example, must report directly to Congress any Xinjiang-related products it allows to enter the United States, along with the agency’s reasons.
Companies would likely need ‘almost courtroom evidence’ on the provenance of goods to succeed, she said, adding that she recommends companies use investigative firms, third-party resources and tactics such as live or teleconference visits to verify vendors.
Dan Feldman, partner at law firm Covington & Burling LLP, said while no solution can provide 100% comfort to a business, making a significant effort to know its supply chains can demonstrate a commitment to good faith towards compliance.
US Customs currently has limited resources and, at least initially, will likely seek to focus enforcement efforts on the “worst performers” in high-profile sectors, including cotton, apparel, tomatoes and silica-based products, Feldman said.
Everyone is in “uncharted territory”, he said. “The government recognizes this and will hopefully work together with the business community to address this issue effectively and pragmatically.”
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