Companies brace for chaos as Xinjiang import ban starts in U.S.

Date: Tuesday, June 21, 2022
Source: Nikkei Asia

HONG KONG -- Manufacturers and retailers are bracing for chaos as U.S. Customs prepares to enforce a ban on imports from China's Xinjiang region from Tuesday in response to reports of forced labor.

Companies are scrambling to gauge how the new rules could affect their business and supply chains with Asian clothing suppliers, international retail chains, U.S. solar-panel makers and Chinese floor-tile material makers among scores of groups that could see U.S. bound shipments seized.

The ban intensifies pressure on Beijing over allegations of widespread human rights violations -- including torture, arbitrary detention and forced labor -- against Muslim Uyghur and other minorities in the country's far western Xinjiang region. China denies the claims and has warned of retaliatory measures.

Signed into law by President Joe Biden at the end of last year, the Uyghur Forced Labor Prevention Act presumes that all U.S.-bound imports traced to Xinjiang, from cotton and tomatoes to floor tile and solar panel materials, were made using forced labor and brands them as "high priority" for seizure.

More than 900 shipments from the region were seized in the last quarter of 2021 by American authorities under earlier trade restrictions.

But trade and business groups said the new legislation's vague wording threatens to put the bulk of China's $500 billion in annual shipments bound for the U.S. at risk.

"The way the law is written could be interpreted as applying to other kinds of goods from other parts of China that allegedly involved forced labor at some point along the supply chain," Doug Barry, a senior director at the U.S.-China Business Council, told Nikkei Asia in an email.

There are reports of detainees being moved out of Xinjiang to work in other parts of the country, while components produced in the region have been traced to U.S.-bound exports shipped from elsewhere in China.

Barry warned that the law could heap more pressure on pandemic-hit supply chains and stoke U.S. inflation, already running at 40-year highs.

Companies are still awaiting clear instructions from U.S. Customs and Border Protection, Barry said.

"They have released little information beforehand, and companies won't know many of the details of what they must comply with until the date they must comply," he said. "We are expecting implementation to be messy."

U.S.-based Mission Solar pledged to follow the new rules, but the equipment provider said it was "difficult to know what effect it will have at this point."

Hong Kong apparel supply chain manager Lever Style, whose clients include Fila, Hugo Boss and Theory, said it is pivoting to fabric made with Indian cotton for American customers ahead of the ban.

"We still buy most of our cotton fabric in mainland China, but we can quickly switch to buying fabrics in other places," said Stanley Szeto, the company's executive chairman.

Xinjiang has a booming industrial, mining and agricultural sector. Everything from peppers and walnuts to electrical equipment and polysilicon, a key material for making solar panels, ships to the U.S. from the region. It also accounts for 20% of the world's cotton and 80% of China's domestic production.

U.S. customs last week issued an operations guide for companies looking to prove their products were not made using forced labor, including supply chain maps and purchase orders.

A new list published Friday bars goods that are produced by or contain material parts made by over 20 companies including Baoding LYSZD Trade and Business, Changji Esquel Textile and Hotan Haolin Hair Accessories.

U.S. customs said it would strictly enforce the rules, which threaten to aggravate already tense relations between Washington and Beijing.

China's state-owned Global Times reported last week that American shoe company Skechers organized an independent investigation of its supply chain after goods manufactured in China were seized by U.S. customs. Companies including Nike and H&M previously faced questions about Xinjiang cotton used in their products.

"If the act is implemented, it will severely disrupt normal cooperation between China and the U.S., and global industrial and production chains," Chinese Ministry of Foreign Affairs spokesperson Zhao Lijian said last week. "If the U.S. insists on doing this, China will take robust measures to uphold its own rights and interests as well as its dignity."

Concerns also exist that U.S. agencies lack the resources to properly vet imports and enforce the new law. But authorities say they will use a multilayered approach tapping information from vast systems.

"We don't stop shipments just on hearsay or on one piece of information," JoAnne Colonnello, center director at Customs and Border Protection, told a business briefing last week. "We look in total at the situation, and all of the evidence involved, to ensure that we have efficient and effective targeting."

Britain's Sheffield Hallam University released a report last week documenting the use of forced labor in Xinjiang to manufacture polyvinyl chloride, a core component in floor tiling. Academics and media organizations have published reports detailing systematic use of forced labor among Uyghurs held in what critics describe as internment camps.

China, which initially denied the existence of such facilities, later said they are vocational training centers designed to combat the rise of religious and separatist extremism in the region.

A sweeping crackdown in Xinjiang over the past few years has repressed cultural and religious practices and prompted allegations of forced sterilization and arbitrary imprisonment -- conditions that some Western governments say amount to genocide.

Rights groups have urged for years that companies and brands linked to shirts, pants and other Xinjiang-made goods be held accountable for labor conditions in the region.

"If governments make it mandatory for corporations and companies to conduct meaningful due diligence -- which is not easy to do in China -- before they engage in their activities, I think that is something we would welcome," said Alkan Akad, China researcher at Amnesty International.

But some major corporations including Apple and Coca-Cola lobbied against the Biden administration's import ban, saying they found no evidence of forced labor in Xinjiang's manufacturing or supply chains.

Japanese retailers Muji and Uniqlo say they expect little impact on their operations.

"We do not export any products made in Xinjiang Uyghur Autonomous Region to the United States," said a spokesperson for Muji owner Ryohin Keikaku, referring to the region's official name. "In our business activities, we comply with the laws and regulations of each country and region, and strive to respect human rights and manage labor standards."

 

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