Supply Chain Tracing for Forced Labor Compliance May Hit Obstacles in China

Many companies may not have insight into where their raw materials come from, said Wiley lawyers while speaking on a webinar about preparing for the enforcement of the Uyghur Forced Labor Prevention Act. But doing the best they can to eradicate any links to the Xinjiang province in China is needed to lower the risk that goods could be detained under suspicion of forced labor, given that imports with links to Xinjiang will be assumed to be made with forced labor, starting in June.

And, Nazak Nikakhtar, former acting director of the Bureau of Industry and Security, said that if companies don't have visibility in their supply chains past certain vendors, there is a lot of data that can fill in the gaps. "Folks who have been living, eating and breathing this for decades can find extensive data about goods, sources and trade flows for your sector, which could be adequate to establish there isn’t a link to Xinjiang," said Nikakhtar, now a partner at Wiley.

She said that although the law requires the government to give guidance to importers on effective supply chain tracing, "given that supply chains are highly specific to individual companies …it is not going to be specific enough for companies to essentially have a road map on what to do."

Partner Maureen Thorson said, "CBP has moved beyond focused withhold release orders that are aimed at one specific company or one specific product. The new law really builds on this trend. This is a really broad-based law with potential effects that ripple across industry."

Partner Timothy Brightbill said the solar industry has already been significantly affected by a withhold release order on metallurgical grade silicon produced by Hoshine, a company in Xinjiang. He said that industry analysts have said that the solar grade silicon manufacturers were unable to provide the level of traceability needed for CBP. "The solar industry has been trying to rapidly implement traceability practices, to show even if polysilicon is coming from China, it is not from Xinjiang," he said during the Jan.13 webinar.

He noted that since the Uyghur Forced Labor Prevention Act makes it even more necessary that importers avoid ties to Xinjiang, solar industry observers are asking: Will Chinese companies cooperate with traceability requests, particularly given the Chinese laws that prohibit them from doing so?

"I think companies have to assume their suppliers in China may not cooperate with these enforcement efforts and may have to plan accordingly," Brightbill said. He said that companies should submit comments to the government during the public comment process about how the law should be implemented, "but they should prepare for the worst."

Thorson said companies whose goods are stopped under a WRO now often reexport the goods rather than challenge the detention. "Obviously, proving a negative is inherently difficult," she said. Few companies have been able to convince CBP that their goods did not contain any inputs tainted by forced labor. Under the new law, importers will be able to rebut the presumption that goods linked to Xinjiang were made with forced labor through "clear and convincing evidence."

"Clear and convincing evidence, that’s a very high threshold for an importer to show," Thorson said. "Unless you have a good basis to show that your products are not in fact made with supplies made with forced labor, you could dig yourself into a hole by trying to make the showing, it could backfire on you."

She said the "billions of dollars question" is: How will the law be enforced? "That’s sort of an open question," she said. The administration will have to put together a list of factories that employ Uyghurs who were transferred there under poverty alleviation programs and other coercive labor arrangements. "It’s highly likely, I think, that Customs is going to capitalize on that list when it comes to enforcing the law. But you also shouldn’t assume that’s going to be the end of it," she said.

Brightbill said to prepare for the effective date of the law, coming in June, companies should not only do a thorough supply chain review, they should also read their contracts to see who carries the risk in terms of bonds, or letters of credit. He advised that compliance officers should "gather whatever contemporaneous documents there are demonstrating compliance in sourcing."

Nikakhtar said, "Even if you don’t think your supply chain is going to link to China, somebody could allege it and you’re going to be on the hook to prove it, so you should trace your supply chain, and keep the documentation." Thorson said that trying to trace back your supply chain may seem daunting. "If you have to eat an elephant, do it one bite at a time," she said.

She said in this process, you might find that your suppliers are linked to a supplier who uses Uyghur workers who were transferred to the factory under a coercive program. "If there was forced labor in your supply chain and it escaped your compliance efforts, that’s a reason to redouble your compliance efforts," she said. Ultimately, Brightbill said, he thinks companies should "think about and assess their ability to make supply chains more domestic and certainly more regional where they can."