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Companies braced for chaos as Xinjiang import ban starts in US

Manufacturers and retailers brace for chaos as US Customs begins to enforce a ban on imports from China’s Xinjiang region from June 21 in response to reports of forced labor.

Companies are trying to gauge how the new rules could affect their businesses and supply chains, with Asian clothing suppliers, international retail chains, US solar panel manufacturers and Chinese floor tile manufacturers among dozens of groups that could potentially see seized goods shipped to the US.

The ban is increasing pressure on Beijing over allegations of widespread human rights violations — including torture, arbitrary detention and forced labor — against Muslim Uyghurs and other minorities in the country’s far western Xinjiang region. China has denied the allegations and has warned against retaliation.

The Uyghur Forced Labor Prevention Act, signed by President Joe Biden late last year, assumes that all imports to Xinjiang, from cotton and tomatoes to materials for floor tiles and solar panels, are made with forced labor and brands. them as “high priority” for seizure.

More than 900 shipments from the region were seized by US authorities under previous trade restrictions in the last quarter of 2021.

But trade and business groups said the vague wording of the new legislation threatened to jeopardize most of China’s $500 billion in annual shipments to the US.

“The way the law is written could be interpreted as applying to other types of goods from other parts of China that allegedly involve forced labor at some point in the supply chain,” said Doug Barry, US senior director. -China Business Council, Nikkei told Asia in an email.

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This article belongs to Nikkei Asia, a global publication offering a uniquely Asian perspective on politics, economics, business and international affairs. Our own correspondents and external commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the largest and fastest-growing publicly traded companies from 11 economies outside of Japan.

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There are reports of detainees being transferred from Xinjiang to work in other parts of the country, while components manufactured in the region have been traced to US exports shipped from elsewhere in China.

Barry warned that the law could put even more pressure on pandemic-stricken supply chains and fuel US inflation, which is already at a 40-year high.

Businesses are still waiting for clear instructions from U.S. Customs and Border Protection, Barry said.

“They have released little information upfront and companies won’t know a lot of details about what they have to comply with until the date when they are due,” he said. “We expect the execution to be messy.”

US-based Mission Solar promised to follow the new rules, but the equipment supplier said it’s “hard to know what effect it will have at this point.”

Lever Style, manager of the clothing supply chain in Hong Kong, whose clients include Fila, Hugo Boss and Theory, said before the ban it was all about fabric made with Indian cotton for US customers.

“We still buy the majority of our cotton fabrics in mainland China, but we can quickly switch to buying fabrics elsewhere,” said Stanley Szeto, the company’s president.

Xinjiang has a thriving industrial, mining and agricultural sector. Everything from peppers and walnuts to electrical equipment and polysilicon, an important material for making solar panels, is shipped from the region to the US. It also accounts for 20 percent of the world’s cotton and 80 percent of China’s domestic production.

In the week before the ban, U.S. Customs issued an operations manual for companies looking to prove their products were not made using forced labor, including supply chain maps and purchase orders.

A new list published on June 17 does not include items produced by or containing material parts of more than 20 companies, including Baoding LYSZD Trade and Business, Changji Esquel Textile and Hotan Haolin Hair Accessories.

US Customs said it would strictly enforce the rules, which threatens to exacerbate already tense relations between Washington and Beijing.

State-owned Chinese company Global Times reported that US shoe company Skechers launched an independent inquiry into its supply chain after goods made in China were seized by US customs. Companies, including Nike and H&M, have previously been asked questions about Xinjiang cotton used in their products.

“If implemented, the law will seriously disrupt normal China-US cooperation and global industrial and manufacturing chains,” said Zhao Lijian, spokesman for China’s foreign ministry, a week before the ban. “If the US insists on doing this, China will take robust measures to defend its own rights and interests, as well as its dignity.”

There is also concern that US agencies do not have the resources to properly monitor imports and enforce the new law. But authorities say they will take a multi-layered approach by extracting information from massive systems.

“We don’t stop shipments just based on rumor or a piece of information,” JoAnne Colonnello, center director at Customs and Border Protection, told a business briefing. “We’re looking at the situation in total, and all of the evidence involved, to make sure we have efficient and effective targeting.”

Britain’s Sheffield Hallam University released a report in mid-June documenting the use of forced labor in Xinjiang to produce polyvinyl chloride, a core component in floor tiles. Academics and media organizations have published reports of the systematic use of forced labor among Uyghurs held in what critics describe as internment camps.

China, which initially denied the existence of such facilities, later said they were vocational training centers designed to counter the rise of religious and separatist extremism in the region.

Violent repression in Xinjiang in recent years has suppressed cultural and religious practices and led to charges of forced sterilization and arbitrary detention — conditions that some Western governments believe amount to genocide.

Rights groups have been pushing for years that companies and brands associated with shirts, pants and other Xinjiang-made goods be held accountable for working conditions in the region.

“If governments require companies and corporations to conduct meaningful due diligence – which is not an easy thing to do in China – before operating, I think we would welcome that,” said Alkan Akad, China researcher at Amnesty. International.

But some major companies, including Apple and Coca-Cola, lobbied against the Biden administration’s import ban, saying they had found no evidence of forced labor in Xinjiang’s manufacturing or supply chains.

Japanese retailers Muji and Uniqlo say they expect little impact on their operations.

“We do not export products made in the Xinjiang Uyghur Autonomous Region to the United States,” said a spokesman for Muji owner Ryohin Keikaku, referring to the region’s official name. “In our business activities, we comply with the laws and regulations of each country and region and are committed to respecting human rights and managing labor standards.”

Additional reporting by Rurika Imahashi, Peggy Ye and Jack Stone Truitt

A version of this article was first published by Nikkei Asia on June 20, 2022. ©2022 Nikkei Inc. All rights reserved.

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