Accused of not doing enough about the Communist Chinese government’s exploitation of slave labor until recently, the Biden Administration has surprised its critics by taking strong measures against the practice, including threatening American companies with serious legal consequences of doing business with the Chinese industries charged with involvement in the practice.
Both the Biden and Trump Administrations had previously targeted companies operating in the Xinjiang Uyghur Autonomous Region, where the Chinese Communist government is accused of confining members of the Moslem Uyghur minority in forced labor camps and subjecting them to other serious abuses. As a result, textiles and other imports from that region have been banned from import into this country.
The human rights violations also have ignited a war of words between the two countries since the early days of Biden’s presidency that are now being backed up by actions.
The most recent of these is The Xinjiang Supply Chain Business Advisory was issued on July 13 by the Departments of State, Treasury, Commerce, Homeland Security and Labor along with the Office of the U.S. Trade Representative. It minces no words: “The People’s Republic of China (PRC) government continues to carry out genocide and crimes against humanity against Uyghurs and members of other ethnic and religious minority groups in the Xinjiang Uyghur Autonomous Region.”
It says the Chinese government’s crimes against humanity “include imprisonment, torture, rape, forced sterilization, and persecution, including through forced labor and the imposition of draconian restrictions on freedom of religion or belief, freedom of expression, and freedom of movement.”
Since 2017, the PRC government in Xinjiang has been accused of unjustly imprisoning more than one million Uyghurs, ethnic Kazakhs, ethnic Kyrgyz, and members of other ethnic and Muslim minority groups for indefinite periods in internment camps.
Among the abuses cited are a laundry list of horrors said to include extreme overcrowding, sleep and food deprivation, medical neglect, physical and psychological abuse, torture, forced labor, forced ingestion of unidentified drugs, forced sterilizations and abortions, sexual abuse, forced renunciation of religion, denial of prayer and other religious practices (including pressure to consume pork or alcohol), denial of the use of their native languages, and being forced to study and recite Chinese Communist Party propaganda.
Although the authors of the July 13 advisory characterize it as being only explanatory without the force of law, it contains strongly worded warnings to American firms doing business in the region. It warns businesses, individuals and other persons, including investors, consultants, labor brokers, academic institutions, and research service providers who have potential exposure to or connection with operations, supply chains or laborers from the Xinjiang-region that they could find themselves in trouble in the future.
The advisory stresses that people involved in these activities should be aware of the significant reputational, economic and legal risks of being involved with “entities or individuals in or linked to Xinjiang that engage in human rights abuses, including but not limited to forced labor and intrusive surveillance.”
To put a finer point on their advice, they state that given the severity and extent of these abuses in Xinjiang, “businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law.”
Figuring Your Exposure
The advisory discusses in detail four primary types of potential supply chain exposure for Americans to entities engaged in human rights abuses:
1) Assisting or investing in the development of surveillance tools for the PRC government in Xinjiang, including tools related to genetic collection and analysis.
2) Sourcing labor or goods from Xinjiang, or from entities elsewhere in China connected to the use of forced labor of individuals from Xinjiang, or from entities outside of China that source inputs from Xinjiang.
3) Supplying U.S.-origin commodities, software and technology to entities engaged in such surveillance and forced labor practices.
4) Aiding in the construction and operation of internment facilities used to detain Uyghurs and members of other Muslim minority groups, and/or in the construction and operation of manufacturing facilities that are in close proximity to camps and reportedly operated by businesses accepting subsidies from the PRC government to subject minority groups to forced labor.
Among the potential legal risks facing American businesses are violation of statutes criminalizing forced labor, including knowingly benefitting from participation in a venture, while knowing or in reckless disregard of the fact that it has engaged in forced labor. Other sanctions can arise from violations if dealing with designated persons; export control violations; and violation of the prohibition of importations of goods that are produced with forced or prison labor.
The new advisory was issued shortly after the U.S. government announced that it had taken action restricting the import of silica-based products from Xinjiang called polysilicon that are used in this country to manufacture half of all solar energy panels produced. The government said it imposed the import ban because it has evidence that forced labor was involved in creating the exported products.
As of 2020, China controlled an estimated 70% of the global supply for solar-grade polysilicon and China also dominated manufacturing in other downstream solar photovoltaic components, including ingots, wafers and cells that are assembled into solar modules. An estimated 95% of solar PV modules rely on solar-grade polysilicon.
Also, in 2020, five of the top six solar-grade polysilicon companies, by capacity, were headquartered in China, with 45% of the world’s supply of solar-grade polysilicon coming from four producers with operations in Xinjiang.
Criminal penalties for violation of this ban can include up to 20 years in prison and up to $1 million in fines, or both. Administrative monetary penalties also can amount to $308,901 per violation or twice the value of the transaction. Unlicensed transactions can result in a company’s debarment from U.S. government contract opportunities and result in potential bans on exports.
At some point in the future, the actions targeting Xinjiang businesses could be expanded to elsewhere in China, the July 13 advisory suggests. The authors note that there are credible reports indicating that labor transfers of ethnic minorities in Xinjiang to other regions and provinces of China “are part of a state-sponsored coercive relocation and forced labor program aiming to force assimilation and reduce their population density.”
