Updated Xinjiang Business Advisory Has Sterner Tone
The new Xinjiang Supply Chain Business Advisory tells businesses that may have operations, supply chains or laborers from China's Xinjiang region that they "should be aware of the significant reputational, economic, and legal risks of involvement with entities or individuals in or linked to Xinjiang that engage in human rights abuses, including but not limited to forced labor and intrusive surveillance." The interagency advisory says that businesses that do not exit Xinjiang connections "could run a high risk of violating U.S. law. Potential legal risks include: violation of statutes criminalizing forced labor including knowingly benefitting from participation in a venture, while knowing or in reckless disregard of the fact that the venture has engaged in forced labor; sanctions violations if dealing with designated persons; export control violations; and violation of the prohibition of importations of goods produced in whole or in part with forced labor or convict labor."
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Sidley Austin's Ted Murphy homed in on the "high risk of violating U.S. law" language. "Given the tone of this document, it is reasonable to expect the [government] to take further action against products/companies with ties to Xinjiang in the near future -- whether that be increased enforcement of existing measures (e.g., the WRO on cotton from Xinjiang or products containing cotton from Xinjiang) or imposing new measures on additional products," the lawyer wrote in an alert to clients.
And not buying from Xinjiang is not enough to clear your business, the advisory noted. "Raw and refined materials, commodities, intermediate goods, byproducts, and recycled materials may all have connections to forced labor and human rights violations in Xinjiang, regardless of the final product and region of origin or export," it said.
A year ago, the advisory was softer, saying that businesses with supply chain exposure to Xinjiang forced labor should implement due diligence. But it added: "Businesses and other organizations undertaking due diligence practices should be aware of reports of auditors being detained, threatened, harassed, and subjected to constant surveillance related to this ongoing issue."
A year ago, the advisory said: "While due diligence practices will vary based on the size and nature of the business, well-documented and implemented due diligence policies and procedures may potentially be considered as mitigating factors by U.S. authorities, in the event businesses inadvertently engage in sanctionable activity or activity that violates domestic law."
The updated advisory said that third-party audits are not sufficient due diligence, since auditors have been harassed and threatened, and since workers' fear prevents them from speaking honestly with auditors. Many audit companies are refusing to conduct audits in the region, both advisories said.
The new advisory recommends a Department of Labor app as a due diligence resource. It also says, "The recent actions of the U.S. government and multilateral partners have shown that the cost of companies performing increased due diligence is less than that of economic and reputational impacts of economic sanctions."
While Xinjiang cotton was prominent in the 2020 advisory, solar panels and inputs for those panels made their first appearance in the new advisory. It says, "The PRC dominates global solar supply chains, and mounting evidence indicates that solar products and inputs at nearly every step of the production process, from raw silicon material mining to final solar module assembly, are linked to known or probable forced labor programs."