United States, China: Recent developments in the United States demonstrate increasing trade compliance risks related to Xinjiang

In the recent wave of US government activity related to Xinjiang, one thing is clear: Trade compliance risks continue to rise for companies whose supply chains involve Xinjiang. These latest actions add to the growing list of companies facing bans on importing, exporting and sometimes both, in addition to the broader measures being considered in Congress. This blog post summarizes the developments of the past month. Companies with Xinjiang anywhere in their supply chains should be aware of these risks. It is important to make sure that the business is functioning (for example, trade compliance, supply chain, supplier sourcing, ESG, legal) communicate with each other to assess and mitigate these risks in a holistic manner. In addition to the risks of trade compliance in the United States, companies should also consider risks on the Chinese side, including the recently enacted Chinese Anti-Foreign Sanctions Law, which in some cases may raise “conflict of laws”. And similar concerns.

June 24: Actions targeting the polysilicon supply chain

The White House issued a declaration announcing a trio of measures targeting polysilicon supply chains. The White House said the United States was “translating” into commitments made at the recent G7 summit in Cornwall, UK, to ensure global supply chains are free from forced labor. Polysilicon is a key component in about 95% of photovoltaic solar panels. It was reported that in 2020, five of the six largest solar-grade polysilicon companies were headquartered in China, with 45% of the global polysilicon supply coming from four producers with operations in Xinjiang.[1] The three measures announced on June 24 are:

  • US Customs and Border Protection (CBP) issued a restraint order (WRO) on silica products manufactured by Hoshine Silicon Industry Co., Ltd., a company located in Xinjiang, and its subsidiaries. Personnel at all ports of entry into the United States have been instructed to detain shipments containing silica products manufactured by Hoshine or materials and goods derived from or manufactured using such silica products. silica. CBP issued six WROs in 2021, bringing the total to 49 currently active WROs.
  • The Bureau of Industry and Security (“BIS”) of the Ministry of Commerce added five Chinese entities to the list of entities who were determined to have participated in forced labor and other human rights violations in Xinjiang. Anyone is prohibited from exporting, re-exporting or transferring into the country any products, software or technology (“elements“) subject to the regulations of the export administration (“EAR“) to the parties appearing on the list of entities, unless a license is obtained by BIS.
  • The Ministry of Labor has updated its “List of goods produced by child labor or forced labor” to include polysilicon produced with forced labor in China. The list identifies goods that the Ministry of Labor has concluded it has reason to believe are produced by child labor or forced labor in violation of international standards. Normally, this list is updated every two years. This update is the first time assets have been added outside of the usual two-year cycle.

July 12: No more additions to the entity list

BIS added 34 more entities to the list of entities based on a determination that they had been involved in human rights violations and abuses in Xinjiang. As noted above, it is prohibited to export, re-export or transfer items subject to EARs to these parties without a BIS license.

July 13: US government updates Xinjiang supply chain trade advisory

The advisory was first released on July 1, 2020 by the United States Departments of State, Treasury, Commerce, and Homeland Security to warn U.S. businesses of the various compliance risks associated with supply chain links to Xinjiang. Our Export Sanctions and Controls Blog released a summary of the notice in July 2020. The updated notice was reposted by the original four agencies with the Office of the U.S. Trade Representative and the U.S. Department of Labor. It includes updated information on actions taken by the US government in connection with Xinjiang, including a summary of the WROs, additions to the entity list and economic sanctions imposed on parties determined to be involved in the allegations. forced labor and other human rights issues in Xinjiang. The updated opinion calls for increased due diligence in line with the expectations of the UN, ILO and OECD.

In progress: Congress Advances Xinjiang Legislation

The Uyghur Law on the Prevention of Forced Labor (Article 65) was adopted by the Senate. After approval by the Senate Foreign Relations Committee at the end of June, on July 14, the bill was adopted by voice vote in the Senate. A complementary measure (HR 1155) was adopted by the House of Representatives and was approved by the House Foreign Affairs Committee at the end of April. Among other things, this legislation would establish a rebuttable presumption that all work in Xinjiang is forced labor, in addition to imposing new disclosure requirements from the United States Securities and Exchange Commission (“SEC”).

A Chinese policy bill was approved by the House Foreign Affairs Committee on July 15 with additional restrictions. The Ensuring American Global Leadership and Engagement (EAGLE) Act (HR 3524) contains a provision that would prohibit the importation into the United States of goods, merchandise, articles and merchandise extracted, produced or manufactured in whole or in part with forced labor in the Xinjiang region. In addition, if a state-owned company knowingly created or provided technology to create systems for mass surveillance of the population in Xinjiang or built and operated detention centers in that region, the law would require the state-owned company to disclose to the SEC the nature and extent of the business, gross revenues and net profits and whether the business intends to continue the business.

Key points to remember:

  • There has been a recent wave of US government activity that continues to increase trade compliance risks for companies whose supply chains involve Xinjiang.
  • Companies with Xinjiang anywhere in their supply chains need to make sure the business is functioning (for example, trade compliance, supply chain, supplier sourcing, ESG, legal) communicate with each other to assess and mitigate these risks in a holistic manner. They should also take into account risks on the Chinese side, including China’s recently enacted anti-foreign sanctions law, which in some cases may raise “conflict of laws” and similar concerns.

[1] Xinjiang Supply Chain Business Advisory (July 13, 2021), Annex 4, available at https://www.state.gov/wp-content/uploads/2021/07/Xinjiang-Business-Advistory-13July2021.pdf.

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