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U.S. ban on Xinjiang imports to set off supply chain scramble

  • December 18, 2021
  • , Nikkei Asia , 2:56 a.m.
  • English Press

TAISEI HOYAMA and KEIICHI FURUKAWA, Nikkei staff writers

 

WASHINGTON/TOKYO — With a bill that would in effect ban imports from China’s Xinjiang region now awaiting U.S. President Joe Biden’s signature, companies from apparel vendors to solar panel makers are getting ready to rework their supply chains.

 

The legislation, passed by the Senate on Thursday, blocks finished goods and material from the region, citing concerns about forced labor by Uyghurs. Xinjiang supplies 20% of the world’s cotton and 45% of all silicon usable in solar cells.

 

This could hit companies like China’s Longi Green Energy Technology, the world’s largest solar panel maker, which derived 16% of its operating revenue from the Americas in 2020. The ban is set to take effect in 180 days after the bill is signed into law.

 

Xinjiang is a major production center for a wide variety of items, including electronic components, shoes, gloves, noodles, printed material, toys and wigs. Companies that operate in the U.S. will need to look out for forced labor two or three levels down in their supply chains.

 

The curbs allow imports of Xinjiang goods only with “clear and convincing evidence” that they were not made with forced labor — which some experts say is essentially impossible, as Beijing’s tight grip on information makes third-party reviews less reliable. Manufacturers may end up seeking alternatives elsewhere.

 

A worker stacks cotton at a factory in China’s Xinjiang Uyghur Autonomous Region. The new U.S. bill would ban imports from the region.   © Reuters
 

Japan’s Fast Retailing, the company behind the Uniqlo casualwear brand, offers an example of the pitfalls that could lie ahead for importers.

 

A shipment of its cotton shirts was blocked by U.S. customs earlier this year because the possibility that they were made with forced labor could not be ruled out. Fast Retailing argued that the products had no connections to Uyghur labor, but the authorities said the company did not provide enough evidence.

 

Such problems have spurred Fast Retailing to put a system in place to directly check conditions at not only its immediate suppliers, but also all the way to the farmers growing the cotton.

 

Ryohin Keikaku, the operator of Muji home goods stores, has said in the past that it would continue buying cotton from Xinjiang. The company does not sell products made from Xinjiang cotton at American outlets, meaning that the sanctions will have no effect.

 

“We will pay attention to regulatory actions not only in the U.S., but also other countries and regions, and comply with the laws,” Ryohin Keikaku said.

 

Tracing raw materials back to their source can be a challenge for small and midsize enterprises in particular.

 

“The issues surrounding the Uyghurs are for countries to deal with among themselves,” Japanese apparel industry consultant Taku Kawai said. “They shouldn’t be foisted onto private businesses.”

 

The measure comes alongside the Treasury Department barring investment in eight companies accused of involvement in surveillance of Uyghurs and other minority populations, including top drone maker DJI and artificial intelligence company Megvii Technology.

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