Human Rights and Forced Labor Sanctions Announced

Foley & Lardner LLPEarlier this week, the United States, the European Union, Britain, and Canada imposed sanctions on several Chinese officials for human rights abuses against the Uyghur minority in China’s Xinjiang Uyghur Autonomous Region (XUAR). China promptly retaliated. Although the U.S. has sanctioned Chinese companies and individuals in connection with allegations of forced labor and human rights abuses in the past, most notably through the use of the Department of Commerce’s entity list, this is the first instance in which U.S. allies have leveled sanctions of their own simultaneously in a coordinated rollout. This is consistent with President Biden’s early promise to enlist allies to confront China. In this instance, the Treasury Department sanctioned two Chinese officials, one a former Deputy Party Secretary in Xinjiang and the other the Director of the Xinjiang Public Security Bureau. The EU and Britain sanctioned two additional individuals. Canada’s sanctions were the first imposed on China since the 1989 crackdown on protestors in Tiananmen Square. China immediately retaliated by sanctioning ten European individuals and four institutions.

The Department of Commerce’s Bureau of Industry and Security has been preventing U.S. exports to Chinese companies and individuals associated with forced labor and human rights abuses in Xinjiang since the end of 2019, and the Treasury Department’s Office of Foreign Asset Control began sanctioning individuals in Xinjiang under the Global Magnitsky Human Rights Accountability Act in 2020. We expect the U.S. and allies to continue to sanction forced labor and human rights abuses for the foreseeable future, and we expect those sanctions to cover an ever-broadening group of entities and individuals. Similarly, this week’s incidence of tit-for-tat sanctions will likely be repeated and escalated.

This will impact multinational companies doing business in the U.S., Europe, and China. Because China has denounced allegations of human rights abuses in the XUAR as “lies and disinformation,” it is likely that tensions will continue to mount, placing multinational companies in the difficult position of facing U.S., EU, British, and Canadian sanctions related to Chinese operations and Chinese sanctions related to non-Chinese business activities. We expect the impact on supply chains to increase over time, and disruptions will begin to manifest themselves more frequently.

These U.S. sanctions are also consistent with larger U.S. government efforts to protect the integrity of supply chains. Companies should take steps to ensure that they are conducting proper supply chain due diligence and implementing effective compliance programs. In particular, companies should review due diligence best practices and closely reexamine their supply chains with the knowledge that the U.S. and its allies are focused on human rights and forced labor issues in Xinjiang.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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