Administration Issues Guidance on Supply Chain Risks in China's Xinjiang Region

The Trump administration issued an advisory for companies doing business with China’s Xinjiang region, which could expose companies to sanctions, export controls and forced labor risks. In a 19-page guidance issued July 1, the departments of State, Commerce, the Treasury and Homeland Security describe supply chain risks and possible sanctions exposure for companies trading with the region, and includes suggested due diligence practices. The guidance comes less than a month after President Donald Trump authorized sanctions against Chinese officials for human rights violations against the country’s Uighur population in the Xinjiang region (see 2006170064).

The guidance includes “factors that businesses … may consider” when reviewing business partnerships with companies associated with Xinjiang. U.S. companies should avoid selling the Chinese government surveillance tools used in the region and should review whether they are “relying on labor or goods sourced in Xinjiang,” which may stem from forced labor camps. Companies should specifically be cautious when exporting biometric devices, cameras, computers, items with surveillance capabilities, microchips and other related products, which have been known to contribute to abuses of Uighurs, the guidance said.

U.S. industry should look for red flags when dealing with Chinese companies operating in the region, such as the use of shell companies to hide the origin of goods and companies that disclose “high revenue” but have “very few employees paying into the government’s social security insurance program.” Companies should also look for mentions of certain terminology, including “Education Training Centers” or “Legal Education Centers” coupled with “poverty alleviation efforts.” U.S. companies should also be skeptical of entities operating in Xinjiang that receive government incentives as part of “poverty alleviation efforts,” hire workers through government recruiters or have factories “within [or near] the confines of the internment camps.”

The administration said it encourages companies to work with industry groups “to exercise leverage to address and prevent human rights abuses in their supply chains.” Businesses should also examine end-users of their products, especially companies that export construction material to Chinese entities operating in the Xinjiang region, which may be used to build internment camps, the guidance said. If a U.S. company “inadvertently” violates U.S. sanctions or export controls, U.S. authorities may consider these due diligence practices as “mitigating factors,” the administration said.

The same due diligence measures should be taken by U.S. importers, the guidance said, which are subject to import restrictions enforced by CBP for goods benefiting from forced labor. The guidance said CBP will deny entry to goods from Xinjiang if it has “evidence” they were produced “with forced, indentured, or convict labor.” Importers of those goods may be subject to civil penalties.

The guidance lists industries that use forced labor in Xinjiang, including agriculture, cell phones, cleaning supplies, construction, noodles, footwear, toys and cotton. The guidance said 84% of China’s cotton production comes from Xinjiang, and parts of that supply chain use prison laborers. U.S. exporters of cotton to China also face risks if their goods are being used in manufacturing that employs forced labor, the guidance said.

The guidance also focuses on U.S. enforcement and sanctions authorities that target violations related to human rights abuses in Xinjiang. Those authorities include the Bureau of Industry and Security’s export controls and Entity List, CBP withhold release orders stemming from Xinjiang supply chains, and the Office of Foreign Assets Control’s sanctions lists.