UK Businesses Step Up Supply Chain Due Diligence Due to Impending Xinjiang Restrictions

Following a package of measures meant to flush out ties between United Kingdom businesses and forced labor practices in China's Xinjiang region, compliance efforts have ramped up to ensure that supply chains are free of any association with the practice imposed on the region's Uighur Muslim population. In October 2020 and January of this year, U.K. Foreign Secretary Dominic Raab announced a suite of four policies meant to eliminate forced labor from supply chains (see 2101120056). The policies include business guidance to U.K. companies with links to Xinjiang; strengthening the Modern Slavery Act (MSA), that includes levying fines for non-compliance; transparency requirements for government procurement; and a review of export controls to Xinjiang.

Aside from the business guidance, none of the announced policies has yet taken effect in English law, yet some U.K. companies have begun serious evaluations of their supply chains, Alexandra Melia of Steptoe & Johnson told Export Compliance Daily. “There is an increased focus on this, and in part, that reflects more generally an increased focus on business and human rights issues and making sure they’re taken into consideration both by organizations for their own part but also making sure they’re not inadvertently engaging in supply chains that are problematic,” Melia said. “It’s fair to say that for the last six months to a year, there’s been an increased focus on these issues.”

The primary way businesses have begun to comply with the new measures despite the lack of specificity issued from the government has been increased due diligence into supply chains. Melia pointed out how practices such as supply chain audits, raw material origin identification and identification of references to internment terminology have become a few of the many Xinjiang-specific practices used to assess forced labor concerns. Other, less-used due diligence methods including traceability distance to confirm geographic product origins are also being employed by companies to ensure the lack of forced labor in their supply chains.

A key cog in the U.K.'s Xinjiang crackdown legislative package is the enhancement of the MSA's transparency in supply chains provision -- a proactive reporting requirement that passed in 2015 for large businesses on the work they do to ensure modern slavery and human trafficking aren't part of their supply chains. “As it currently stands, there’s guidance on how to comply with the MSA, but it’s non-prescriptive, so it addresses a whole raft of areas that companies may wish to consider or cover in their statements. However, that there isn’t any outright requirement that certain areas are covered every year by a company that is required to make a statement, so for that change to come through, legislative amendments to the MSA will be needed,” Melia said. For many companies, MSA compliance may continue, but it remains hobbled by the fact that the specifics of the government's proposed enhancements have yet to be released.

One glaring question looming over the impending export control review leg of the changes is where the burden of proof will be for exporters shipping goods to China. Under the new export control regime, will it be on exporters to prove their goods are free of any involvement in forced labor or will it be on regulators to prove that any goods they block were to be used for nefarious purposes? Melia believes the former is more likely. “With the export control measures that have been touted but not brought to bear, I suspect that there probably will be an emphasis on having to demonstrate how you comply or don’t violate those export control restrictions,” she said. “Obviously, we haven’t yet seen what the focus of those restrictions will be, so that’s speculative at this stage, but I expect that may be the approach taken in that phase.”

Other U.K. law firms, such as Norton Rose, have published alerts or guidance on the new measures in the U.K., detailing the nature of the discussed changes and indicating increased focus on compliance with human rights requirements.