More Chinese Sanctions, Entity Listings Likely as US Election Draws Closer, Law Firm Says

The upcoming U.S. presidential election and the increasing government focus on China will likely “exacerbate risk” for companies with supply chains in China’s Xinjiang region, law firm Covington said. The region has come under scrutiny for human rights abuses and has been a recent focal point of U.S. sanctions.

Although U.S. lawmakers have passed and authorized sanctions against China for human rights violations of the country’s Uighur population (see 2006170064), more legislation may be passed as both political parties try to bolster their track records of being tough on China, the firm said in a July 8 alert. This could include more sanctions as well as more aggressive CBP enforcement of imports from Xinjiang.

The recently issued U.S. guidance on supply chain risks in the region (see 2007010040) highlighted the administration’s heightened focus on Chinese human rights abuses. While the guidance does “not have the force of law,” it “provides a significant steer on good business practice with respect to managing risks” in Xinjiang, the alert said. Although it would be “unusual” for Congress to pass two bills “addressing the same subject matter” in the same term, public scrutiny of China could lead to more sanctions actions against Chinese officials, the law firm said.

Covington added that the Commerce Department is likely to add more Chinese agencies to its Entity List in the “near term” for involvement in human rights abuses against Uighurs. The law firm said it is a “crucial time” for companies to review their operations in the region and mitigate any potential associations with Chinese entities that may be involved in Xinjiang. Companies should review their export control compliance programs, revisit their supply chain mapping, consider measures to “increase traceability of materials in a company’s Chinese supply chain,” and design and implement robust human rights mitigation steps.

Companies should also be prepared for Chinese retaliation (see 2005180032) if they end their business with Chinese entities, especially agreements involving critical technologies. U.S. businesses could be placed on China’s so-called unreliable entity list, which has yet to be formally released, or blacklisted on China’s “Corporate Social Credit System,” which could lead to tax audits, customs inspections and other restrictions, the alert said.