Law banning Xinjiang products goes into effect
A law banning the importation of products made in China's Xinjiang region goes into effect today. Complying with it will be a monumental challenge for many U.S. companies.
Why it matters: The Uyghur Forced Labor Prevention Act, if strictly implemented, could reroute certain global supply chains away from China.
- "Everyone is waiting to see how this shakes out in reality," said Jessica Rifkin, a lawyer who leads the customs, trade and litigation practice group at Benjamin L. England & Associates.
- "This has the potential to really cause widespread effects, especially if the law is enforced to a T, completely as written."
- Unsold inventory is already piling up at cotton mills in Xinjiang, according to reporting from the South China Morning Post, as foreign companies have sought to bring their supply chains into compliance with the new U.S. law.
Details: The law, passed in December, creates a "rebuttable presumption" that all products and components coming from Xinjiang are made with forced labor or by people detained in camps.
- A company can request an exclusion if it can prove with "clear and convincing evidence" that an item was not made with forced labor.
- Although the importation of products made through forced labor is already illegal under U.S. law, the new law puts the onus on companies to prove their products don't have inputs from Xinjiang forced labor — rather than relying on the small team at U.S. Customs and Border Protection (CBP), the agency tasked with enforcing import prohibitions, to investigate this on its own.
Though companies have known since the law's passage that they needed to delink their supply chains from Xinjiang inputs, CBP did not release specific implementation guidelines until last week.
- "Companies still feel confused about how this is going to be implemented," Jeff Neeley, a lawyer at Husch Blackwell focusing on trade litigation, told Axios. "What I’ve seen is that companies have taken this very seriously and they are trying to know their supply chain. The problem, as a practical matter, is that’s easier said than done."
- That's because supply chains have become incredibly complex in an age of globalization. A finished item might have components from multiple countries that have traveled across borders numerous times. And Xinjiang products are diffused throughout supply chains in the rest of China.
- "One of the huge challenges is that you simply can’t look at Xinjiang in isolation," said Nicole Morgret, a human rights analyst at C4ADS, a nonprofit research organization. "It’s reasonable to assume that any cotton garment coming out of China is going to have some element of something made in Xinjiang, whether simply the cotton or the textile thread or cloth."
- Common exports from China that have been previously linked to forced labor in Xinjiang include cotton, textiles, tomatoes, polysilicon, vinyl flooring, and car batteries.
The intrigue: Chinese authorities have already blocked some independent labor auditors from carrying out their work, and access to Xinjiang is extremely limited.
- In a statement released after the law was passed, China's Ministry of Foreign Affairs said it "maliciously denigrates the human rights situation in China’s Xinjiang in disregard of facts and truth."
- Blocking components from Xinjiang is a "political decision by the U.S. government," Morgret said. "And the Chinese government is going to try to push back or thwart that to the degree that it can."
- Chinese suppliers themselves may feel reluctant to reveal certain information that U.S. companies request, adding to the difficulties of verification in the Xinjiang region.
- "Companies are relying to a certain extent on what their suppliers are telling them," Rifkin told Axios. "If those representations turn out not to be true, that’s problematic."
What to watch: How strictly the law is enforced, and if CBP scrutinizes shipments not just from China but also other countries where factories often source from China, such as Vietnam or Cambodia.