By Shibuya Eriko and Sagami Maki
On Dec. 23, the United States enacted the Uyghur Forced Labor Prevention Act that prohibits, in principle, imports from China’s Xinjiang Uyghur Autonomous Region (XUAR) on the grounds of forced labor. Regulations governing the implementation of the legislation will be put in place before the law goes into force in late June 2022. Experts point out that Japanese corporations “should urgently inspect their supply chains and review their procurement sources.” The companies need to approach the issue with caution, however, considering the possibility that China will take retaliatory measures.
Under the new law, U.S. Customs and Border Protection bans goods manufactured in the XUAR in principle by designating them as “having been made using forced labor.” Final products that incorporate parts made in the region are also subject to the import ban. Only cotton products, tomatoes, and solar battery parts have been affected to date, but the enactment of the new law will extend the import ban to all items that contain Xinjiang-manufactured materials.
Japanese corporations must closely inspect their supply chains. “Even tomato cans labelled ‘made in Italy’ may contain tomatoes that can be traced to Xinjiang,” says a lawyer who specializes in human rights issues.
“It requires time and money to investigate second- and third-tier suppliers,” says Fukuhara Ayumi, another lawyer specialized in human rights issues and business. “Corporations should seek advice from risk consultants and lawyers who are familiar with human rights issues.” She added that it is important that companies concentrate their investigations on areas in supply chains in which the risk of human rights violations is high. Companies need to scrutinize those supply chains and keep on-site investigation records, she says. “If the U.S. authorities raise an issue, firms can use the records to support their position.”
What areas and what products and parts should companies focus their attention on? Heike Masahiro, a lawyer whose specialties include trade restrictions, says: “Apparel that contains cotton, solar-power panels, as well as food products that contain tomatoes should be inspected with particular attention.”
“For guidance, firms should refer to the U.S. government advisory issued earlier this year, which described ‘industries in which forced labor is suspected,’” said Heike. The advisory cited a wide range of industries including those involving cellphones; the assembly of electronic parts; coal, the extraction of copper, and other natural resources; toys; and cleaning products.
In addition to the U.S. law, Japanese firms need to consider China’s reaction. Investigating China alone would be viewed by China as “discriminatory targeting” and might trigger backlash from the Chinese government and consumers. In June, China enacted an anti-sanctions law that prohibits Chinese firms from cooperating with discriminatory measures imposed by foreign governments. Violators of this law may become subject to claims for damages.
“[It is best for Japanese corporations to] employ measures that indicate they are investigating the situation in China as part of their global study to ascertain human rights risks,” says Fukuhara.
If a certain product turns out to include raw materials sourced from Xinjiang, it would be extremely difficult for the company to export that product to the United States. The recent U.S. law allows such items to be imported if the exporting company were able to produce “clear and convincing evidence” proving that the item had been produced without forced labor. An international trade lawyer says, however, “That kind of proof is very difficult to obtain.”
Going forward, it is possible that other countries will follow suit and impose restrictions on imports from the XUAR. Several lawyers expect that companies whose main customers are in the United States will need to review all their supply chains at once.