In the wake of rising international condemnation over the treatment of Uyghur Muslims in China’s Xinjiang Uyghur Autonomous Region (Xinjiang), the US government is ramping up its forced labor enforcement actions, most recently by issuing a new withhold release order (WRO) on June 23 that will impact the solar industry and by adding five new companies with ties to Xinjiang on the Department of Commerce’s (DOC) Entity List.
These actions follow US Customs and Border Protection’s (Customs or CBP) escalating enforcement efforts against forced labor in the People’s Republic of China (PRC), specifically in the Xinjiang region. Earlier this year, CBP issued an expansive region-wide WRO against all cotton and tomato products produced in Xinjiang. In May 2021, CBP reported that in FY 2021 the agency had targeted $765 million of goods and detained 623 shipments suspected of forced labor concerns. Reports indicate that CBP is now detaining approximately 100 shipments a week, and that number is expected to rise. Increased enforcement is aligned with President Biden’s recent commitment with other G7 leaders to take action against forced labor in global supply chains.
The June 24 action is DOC’s fourth final rule adding companies to the Entity List for reasons related to human rights abuses in Xinjiang. Previously, in October 2019, May 2020, and July 2020, DOC added numerous Chinese companies to the Entity List, now totaling over 50 Xinjiang-related designations, 15 of which are directly related to forced labor. The Entity List designation severely restricts exports and reexports of items controlled under the Export Administration Regulations (EAR), and in the case of the Xinjiang-related designations, this covers all EAR-controlled items including those classified as EAR99.
What Is Now Restricted From US Importation?
On June 23, 2021, CBP issued a WRO on silica-based products made by Hoshine Silicon Industry Co., Ltd. (Hoshine) and its subsidiaries. Based on this WRO, personnel at all US ports of entry are authorized to immediately begin detaining shipments that contain silica-based products made by Hoshine, or materials and goods derived from or produced using those silica-based products. Certain polysilicon and solar panel producers have been directly linked to Hoshine, and we expect shipments made by those companies to be the initial subject of CBP detentions.
CBP issued this WRO after numerous reports of forced labor used in the production of polysilicon products and their inputs, some of which specifically identified Hoshine, and much speculation of an impending WRO. Legislators and the public have been lobbying CBP for months to issue a WRO covering polysilicon. Hoshine is one of the largest silica producers, and CBP estimates that US imports valued at least at $250 million in the last 2.5 years are produced with Hoshine materials. However, this value is likely underestimated- solar products have a deep and often opaque supply chain, and it may be difficult for companies in this industry to untangle their supply chains to determine whether silica produced by Hoshine is used in their products.
CBP will continue to investigate forced labor allegations in the polysilicon industry and it is possible that this is a precursor to a region-wide WRO on polysilicon or polysilicon materials.
What Is Now Restricted From US Exportation?
With the June 24 final rule, the DOC’s Bureau of Industry and Security (BIS), the agency that oversees the EAR and Entity List, has now added 53 companies to the Entity List in relation to human rights abuses, including forced labor, in the Xinjiang region. The five new companies added include Hoshine and Xinjiang Production and Construction Corps (XPCC), a paramilitary organization in the Xinjiang region that is related to the Chinese Communist Party and already the target of sanctions implemented by the Department of Treasury’s Office of Foreign Assets Control and the subject of its own WRO.
The Entity List designation severely restricts the export and reexport of items subject to the EAR, including those classified as EAR99, to the designated Chinese entities unless a license is obtained from BIS. The licensing policy is a case-by-case review for certain Export Control Classification Numbers (1A004.c, 1A004.d, 1A995, 1A999.a, 1D003, 2A983, 2D983, and 2E983) and certain EAR99 items for protection against chemical or biological agents that are consumer goods, packaged for retail sale or personal use, or medical products. BIS also has a case-by-case review policy for items subject to the EAR that are necessary to detect, identify, and treat infectious diseases. All other items are subject to a policy of license denial.
Other Forced Labor Developments
The Department of Labor (DOL) also took steps to ensure that goods made with forced labor are not tolerated in the global supply chain.
DOL recently published a Federal Register Notice updating its “List of Goods Produced by Child Labor or Forced Labor,” to include polysilicon produced with forced labor in the PRC. Every two years, the Department of Labor publishes an updated list of goods produced by child labor or forced labor in violation of international standards. This update is the first time a good has been added outside of that two-year cycle, highlighting its strong response to the severity of the ongoing human rights abuses against Uyghurs and other minority groups in Xinjiang. The report currently includes other products from the PRC that have links to forced labor in Xinjiang or by Uyghur workers transferred to other parts of the PRC, including cotton, garments, footwear, electronics, gloves, hair products, textiles, thread/yarn, and tomato products. This report serves as a guide of products that may be the target of future WROs.
What Does It Mean for Solar Product Importers and US Companies?
The Hoshine WRO may indicate that a broader Xinjiang region-wide WRO on polysilicon or polysilicon materials is forthcoming. This would parallel CBPs approach in issuing a WRO on cotton products produced by Xinjiang Production and Construction Corps (XPCC) a few months before issuing a Xinjiang region-wide WRO on all cotton and downstream products.
Companies in the solar industry need to take concrete actions to assess exposure to risk, develop internal control and policies to prohibit using of forced labor. This review should include an assessment of the entire supply chain to determine whether there is any nexus to Hoshine or the Xinjiang region. Companies should also ensure that they have documentation prepared to evidence that forced labor was not used in order to secure the release of detained goods.
US Companies, even those operating outside the solar industry, should review the Department of Labor “List of Goods Produced by Child Labor or Forced Labor,” and CBP WRO lists to assess whether any imported goods are at risk for forced labor, and take necessary action if risks are identified.
In addition, US Companies should ensure compliance with recent DOC designations of Chinese companies operating in the Xinjiang region.
About Arent Fox’s Forced Labor Task Force
Arent Fox formed a Forced Labor Task Force to provide companies with information regarding forced labor developments that may impact their operations. Our team assists companies to set up Forced Labor codes of conduct and procedures and conduct supply chain due diligence to reduce the risk of forced labor in their supply chains. We also help companies respond to Customs inquiries, detentions, and exclusions of goods suspected of being produced using forced labor.