Companies face compliance challenges under US Forced Labor Laws targeting China

Compliance experts say companies must take a multi-pronged approach to properly comply with new US laws to limit forced labor in China, with steps like sourcing products from other countries and visit Chinese suppliers for on-site inspection.

The Uyghur Forced Labor Prevention Act, which went into effect last month, gives US Customs and Border Protection the power to block imports of goods with ties to Xinjiang, the group’s home region. China’s Uyghur minority, as those goods are believed to be produced by force. labor. In theory, companies could refute that assumption, but the burden is enormous.

Compliance professionals and companies, especially those that process cotton, tomato and polysilicon solar panel components — Xinjiang exports are clearly flagged as enforcement targets in the regulation — scrambling to understand how the law would be enforced in practice. They expect a painful adjustment period.

“A lot of companies are stable now,” said Brandon Daniels, chief executive officer of Exiger LLC, a risk and compliance software company. “I don’t think they were properly and properly prepared.”

Mr. Daniels said he is starting to see customers considering switching to suppliers in other countries, such as Vietnam, or in some cases, even acquiring suppliers based in China. countries so that they can control directly. Raw materials commonly associated with China can also be found elsewhere, he said, adding that India has an abundant supply of rare earth materials now often sourced from China.

“We think we have to diversify our supply,” he said. “There is an opportunity to buy in allied countries to offset the risk.”

Beijing is pushing back against international criticism of its treatment of the Uighurs in Xinjiang by spreading propaganda on Facebook, Twitter and big screens. This is how the campaign against Chinese Western brands is aimed at audiences at home and abroad. Photo: Thomas Peter / Reuters

Technology offers several solutions. Mr. Daniels said the Exiger software can go through a database of commercial paperwork in an attempt to determine the source of the final product, if, for example, a supplier based in Brazil is said to have no inventory. Paint is actually receiving goods from Xinjiang.

Mr. Daniels said some large companies have proactively complied with the law. In February, a customer, a global technology company, identified a problematic Xinjiang-linked supplier and severed the relationship, he said.

For companies maintaining relationships with Chinese suppliers, there are practical difficulties.

Even if trade relations between the US and China are cordial, Xinjiang’s remoteness will make it a difficult area to monitor the business of even the most sophisticated multinationals and their compliance team. The region is closer to the capitals of Central Asia than it is to China’s populous east coast, with the largest city being Urumqi, located about 2,500 miles from Shanghai.

Chinese authorities have strongly criticized the US law. In December, the Chinese government called allegations related to the use of forced labor “evil lies fabricated by anti-China forces”, saying the US actions were “completely complete”. total violation of market principles and commercial ethics”.

Judith Alison Lee, co-chair of the International Trade Practices Group at law firm Gibson Dunn & Crutcher LLP, said China-based suppliers are under great pressure not to cooperate with clients. US efforts to implement supply chain due diligence.

“It was extremely difficult,” Ms. Lee said. “There is no easy answer. It was really a very challenging time for us.”

Her advice to companies is to carefully consider the language they use in requests to suppliers, avoiding “hot button” terms like direct citation of US forced labor laws. and instead make more neutral requirements to find out where they are sourcing inputs.

Ms. Lee said she expected enforcement to be rigorous as Congress has closely monitored the matter. For example, U.S. Customs must report directly to Congress any products tied to Xinjiang that they allow into the United States, along with agency reasons.

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Companies will likely require “nearly courtroom evidence” of the origin of goods to pass the collection, she said, adding that she recommends businesses use investigative firms. , third-party resources, and tactics like face-to-face visits or teleconferences to vet suppliers.

Dan Feldman, a partner at law firm Covington & Burling LLP, says that while there is no single solution that provides 100% comfort for a company, there is a strong effort to know their supply chains. can faithfully demonstrate a commitment to compliance.

U.S. Customs currently has limited resources and, at least at first, is likely to seek to focus enforcement efforts on the “worst actors” in well-known industries including cotton, apparel, and coffee. sours and products made from silica, Mr. Feldman said.

“Everybody is in ‘uncharted territory’,” he said. “The government recognizes that and hopes to work with the business community to tackle this problem in an effective and pragmatic way.”

Write letter for Richard Vanderford at richard.vanderford@wsj.com

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Luke Plunkett

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