There is plenty that could be written about the plight of Uyghurs and other ethnic groups in Xinjiang, most of it negative. And with Xi Jinping declaring his Xinjiang policies “completely correct,” there is pretty much no room for hope things will improve (unless you view the complete sinification of Xinjiang as a desirable end goal).

The purpose of this post, however, is not to decry the abuses taking place in Xinjiang: There are many more qualified voices doing that. Rather, this post is about what foreign companies (especially U.S. companies) doing business in China need to know about the situation in Xinjiang. And to keep things simple, we will not dwell  on the ethical considerations (which should of course be paramount), just the practical ones.

Any company manufacturing in China is at risk of getting entangled in the widespread use of Uyghur forced labor by Chinese companies (NB all references to Uyghurs include other ethnic groups from Xinjiang). To be clear, Uyghur workers are being exploited not only within Xinjiang, but at locations throughout China. According to Uyghurs for Sale, a landmark report on the issue, the Australian Strategic Policy Institute (ASPI) has identified 27 factories in nine Chinese provinces using Uyghur labour transferred from Xinjiang since 2017.

Those factories claim to be part of the supply chain of 82 well-known global brands. Between 2017 and 2019, we estimate that at least 80,000 Uyghurs were transferred out of Xinjiang and assigned to factories through labour transfer programs under a central government policy known as ‘Xinjiang Aid’ (援疆).

It is extremely difficult for Uyghurs to refuse or escape these work assignments, which are enmeshed with the apparatus of detention and political indoctrination both inside and outside of Xinjiang. In addition to constant surveillance, the threat of arbitrary detention hangs over minority citizens who refuse their government-sponsored work assignments.

Meanwhile, according to U.S. federal law (19 U.S.C. § 1307),

All goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions shall not be entitled to entry at any of the ports of the United States, and the importation thereof is hereby prohibited, and the Secretary of the Treasury is authorized and directed to prescribe such regulations as may be necessary for the enforcement of this provision.

‘Forced labor’, as herein used, shall mean all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily. For purposes of this section, the term ‘forced labor or/and indentured labor’ includes forced or indentured child labor.

Simply put, the importation of goods made using forced labor into the United States is prohibited. The question of how the use of convict labor in the United States (expressly allowed by the Thirteenth Amendment of the U.S. Constitution) squares with this import prohibition is an interesting one, but completely irrelevant in this context, certainly from a practical standpoint.

Federal regulations (19 C.F.R. 12.42(e)) provide for the issuance of withhold release orders (WROs) if “information available reasonably but not conclusively indicates that merchandise within the purview of [19 U.S.C. § 1307] is being, or is likely to be, imported.” In addition to not getting their products (and good luck to them getting a refund from their supplier if that happens), importers could also be subject to significant fines. In August, CBP announced it had collected $575,000 in civil penalties from a company that “had imported at least twenty shipments of stevia powder and derivatives produced from stevia leaves that were processed in China with prison labor in violation of U.S. law.” (Breaking Bad fans: Lydia Rodarte-Quayle had it coming even more than we thought.)

There is no indication the stevia case had anything to do with Xinjiang, but it provides a timely reminder that all goods made using forced labor (not just those made using by Uyghurs) are subject to the prohibition of 19 U.S.C. § 1307. This includes goods made using prison labor, which, as we pointed out in Forced Labor in China: Don’t Trust AND Do Verify, is commonplace in China.

This is also a good time to mention that reports suggest Xinjiang-style “labor programs” are now in place in Tibet. Especially given the overall sensitivity of Tibet-related issues, it is probably only a matter of time before the USG’s attention turns to products made by Tibetans. And while Beijing’s suppression of Mongolian culture in the Inner Mongolia Autonomous Region does not appear to include a labor component, it is worth noting the producer in the stevia forced labor case was a company from the region (no “sweet success” for its workers, unfortunately).

No amount of due diligence will completely eliminate the risks associated with forced labor in China, but foreign companies should certainly look for obvious red flags, such as the presence of Uyghur workers (or prisoners, for that matter) at factories. Yes, there could be instances of voluntary Uyghur labor; after all, workers from all over China have flocked to the industrial areas of the country in search of work. However, most foreign businesspersons will be ill-equipped (to put it mildly) to make determinations regarding the voluntariness of Uyghur workers. Coerced laborers do not always look the part.

As CBP continues to receive information regarding use of forced labor at Chinese factories, it is reasonable to expect more WROs will follow, and in fact CBP has indicated this will be the case. Recently, there was speculation a blanket ban on Xinjiang cotton would be imposed, but some in the business community breathed a sigh of relief when, instead, WROs were only issued against five producers. This suggests that, going forward, the U.S. government (USG) approach will be to issue a steady trickle of WROs: enough to let officials and voters feel something is being done, but not enough to really inconvenience big business (or the agencies tasked with enforcement). That said, for the companies that end up getting slapped with half-million dollar fines, the big picture will be of little comfort.

Stepped-up enforcement of import regulations is not the only USG response the situation in Xinjiang. The Treasury Department’s Office of Foreign Assets Control (OFAC) has sanctioned Chinese officials and agencies involved in human rights abuses in Xinjiang. These sanctions

generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution or provision of funds, goods or services from any such person.

One sanctioned entity that presents a unique challenge for foreign companies is the Xinjiang Production and Construction Corps (XPCC), described by the South China Morning Post (SCMP) as a “sprawling conglomerate,” which “functions like a government in running schools, policing and health care facilities across a number of cities in Xinjiang for its employees and their families.” It “reports its revenue as GDP,” and its COVID-19 cases as if it was a separate province. According to the SCMP, the XPCC “is involved in a myriad of industries, from construction and infrastructure to property and farming, has stakes in more than 800,000 companies and groups in 147 countries.”  A report cited by the SCMP notes that some of these companies “reach as far as 34 layers of ownership from the XPCC.”

There is also action being taken in Congress. This week, the House of Representatives approved the Uyghur Forced Labor Disclosure Act (UFLDA), introduced by Rep. Jennifer Wexton (D-VA). The UFLDA “would require all publicly traded companies to report to the Securities and Exchange Commission whether they are involved in Xinjiang.” This comes a week after the House approved the Uyghur Forced Labor Prevention Act (UFLPA), introduced by Rep. Jim McGovern (D-MA), which would, with some exceptions, treat all products made in Xinjiang as if they were made using forced labor. While most Republicans voted against Rep. Wexton’s bill, the UFLPA passed almost unanimously, meaning it stands a better chance of clearing the Senate.

While welcome, the USG’s focus on Xinjiang tiptoes somewhat around the fact the Uyghur forced labor problem extends far beyond the borders of Xinijang. If the USG does not begin to squarely address this reality, all the Xinjiang legislation and WROs will be little more than sops to appease our national conscience, while Uyghurs continue to be trucked out to factories in other provinces.

This all said, companies must not be complacent. It goes without saying that doing business with anyone in Xinjiang is almost certainly a bad idea these days. But wherever they manufacture in China, this is an issue companies must keep on their radars. Now is the time to conduct due diligence into their suppliers’ labor practices … not when CBP comes knocking. And if they see something concerning, they must not rationalize it away. Finally, it is critical to bear in mind this will be an ongoing challenge for companies. Everything might be fine the day their auditors visit a supplier, but the next day they could be paid a visit from local Party officials asking them to do their part to “help” Uyghurs “seek development” outside Xinjiang. And since the supplier’s bosses do not want to end up picking stevia leaves in Inner Mongolia, they will say yes.

Print:
EmailTweetLikeLinkedIn
Photo of Fred Rocafort Fred Rocafort

Fred is a former diplomat who joined Harris Bricken after more than a decade of international legal experience, primarily in China, Vietnam, and Thailand. His wide range of experience includes starting and operating his own business in Asia, working as an in-house counsel…

Fred is a former diplomat who joined Harris Bricken after more than a decade of international legal experience, primarily in China, Vietnam, and Thailand. His wide range of experience includes starting and operating his own business in Asia, working as an in-house counsel for a Hong Kong-based multinational, as well as many years as a State Department official, providing a client-centric perspective to his legal work. Fred co-hosts Harris Bricken’s weekly Global Law and Business podcast, which covers legal and economic developments in locales around the world to decipher global trends in law and business with the help from international guests.

Fred began his career overseas as a U.S. vice-consul in Guangzhou, China, adjudicating thousands of visa applications and advocating for fairer treatment of American companies and citizens in China and for stronger anti-counterfeiting enforcement. After entering the private sector, Fred worked at a Shanghai law firm as a foreign legal advisor and later joined one of the oldest American law firms in China. He also led the legal team at a Hong Kong-based brand protection consultancy, spending most of his time out in the field, protecting clients against counterfeiters and fraudsters from Binh Duong to Buenos Aires.

Fred is an ardent supporter of FC Barcelona—and would be even in the absence of Catalan forebears who immigrated to Puerto Rico in the mid-1800s. An avid explorer of Hong Kong’s countryside, he now spends much of his free time discovering the Pacific Northwest’s natural charms.