Multiple U.S. Agencies Issue Business Advisory to Caution Businesses about Supply Chain Links to Uyghur Human Rights Abuses

On July 1, 2020, the U.S. Department of State, along with the U.S. Department of the Treasury, the U.S. Department of Commerce, and the U.S. Department of Homeland Security, issued a Xinjiang Supply Chain Business Advisory (Business Advisory) to caution businesses about the risks of supply chain links to Chinese entities that engage in human rights abuses, including forced labor, in the Xinjiang Uyghur Autonomous Region (Xinjiang) and elsewhere in China.¹

The Business Advisory stops short of purporting to ban U.S. companies from including Xinjiang entities or personnel in their supply chains but includes repeated warnings that doing business in Xinjiang carries "reputational, economic, and legal risks."² It highlights the importance of performing human rights due diligence in the region, while noting at the same time that due diligence is made extremely difficult because of Chinese Government conduct, including the detention and harassment of third-party auditors, requirements for auditors to use government translators, and the limited reliability of auditor interviews with workers.

The issuance of the Business Advisory follows on several other recent Administration actions relating to Xinjiang, including three Orders by U.S. Customs and Border Protection (CBP) in recent months to prevent certain products from entering the United States from Xinjiang. These actions, on October 1, 2019,³ May 1, 2020,⁴ and June 17, 2020,⁵ were taken under the U.S. law that makes it illegal to import goods into the U.S if they are made wholly or in part by forced labor, which includes convict labor, indentured labor, and forced or indentured child labor. We described this law, as well as recent developments in the enforcement of the prohibition on forced labor imports, in a recent Arnold & Porter Advisory.⁶

The Administration has also used other laws and initiatives to seek to address the situation in Xinjiang. On October 8, 2019, the U.S. Department of State announced visa restrictions on the People's Republic of China (PRC) government and Chinese Communist Party officials believed to be responsible for, or complicit in, the detention or abuse of Uyghurs, ethnic Kazakhs, or other members of Muslim minority groups in Xinjiang.⁷  On October 9, 2019, and later on June 5, 2020, citing the situation in Xinjiang, the U.S. Department of Commerce added a number of governmental entities and private companies to the U.S. Government's Entity List, which results in these parties facing restrictions on access to U.S. goods and technology.⁸ Relatedly, the Department of State also issued draft "U.S. Government Guidance for the Export of Hardware, Software and Technology with Surveillance Capabilities"⁹ on September 4, 2019, focusing on human rights concerns connected with the use of these products.

Details of the Xinjiang Supply Chain Business Advisory:

• The Business Advisory opens with a broad warning about the importance of due diligence in operations related to Xinjiang: "Businesses with potential exposure in their supply chain to the Xinjiang Uyghur Autonomous Region (Xinjiang) or to facilities outside Xinjiang that use labor or goods from Xinjiang should be aware of the reputational, economic, and legal risks of involvement with entities that engage in human rights abuses, including but not limited to forced labor in the manufacture of goods intended for domestic and international distribution."¹⁰
• It urges companies to address risks of business activities connected with the region: "In order to mitigate reputational, economic, legal, and other risks, businesses should apply industry human rights due diligence policies and procedures to address risks."¹¹
• At the same time, the Business Advisory notes the difficulties of due diligence in the region, including: "Businesses and other organizations undertaking due diligence practices should be aware of reports of auditors being detained, threatened, harassed, and subjected to constant surveillance related to this ongoing issue."¹²
• The Business Advisory highlights what it characterizes as three primary types of supply chain exposure that it states are relevant to human rights issues in Xinjiang:

(1) providing goods, services, and technology with a nexus to Xinjiang surveillance tools for the PRC government in Xinjiang, including providing surveillance equipment or technology, involvement in joint ventures with PRC government officials and departments or Chinese companies who are aiding the development and deployment of a surveillance system used arbitrarily against members of minority groups, or providing services to internment camps or training of Xinjiang authorities, police, or PRC government officials;

(2) relying on labor or goods sourced in Xinjiang, or from factories elsewhere in China implicated in the forced labor of individuals from Xinjiang in their supply chains, given the prevalence of forced labor and other labor abuses in the region; and

(3) aiding in the construction of internment facilities used to detain Uyghurs and members of other Muslim minority groups, and/or in the construction of manufacturing facilities that are in close proximity to camps operated by businesses accepting subsidies from the PRC government to subject minority groups to forced labor.¹³

The Business Advisory also identifies several discrete types of legal risks it suggests are associated with the region and with labor or goods from Xinjiang that are transferred to factories across China. In each case, it describes the laws generally and leaves it to the private sector to evaluate risks, stating the private sector "should be aware of potential consequences of certain types of engagement with entities that have been involved with human rights abuses."¹⁴ Among the laws and regulations mentioned are: (i) The Entity List (restricting certain exports from going to designated entities), (ii) Section 307 of the Tariff Act of 1930 (prohibition of imports of goods made with forced labor), (iii) the Federal Acquisition Regulations (requiring certain compliance steps by U.S. government contractors to address human trafficking), (iv) the Trafficking Victims Protection Act (criminalizing certain conduct relating to trafficking), (v) the Uyghur Human Rights Policy Act of 2020 (permitting sanctions designation of foreign persons involved in certain human rights abuses specific to ethnic Muslim minority groups), (vi) the Global Magnitsky Human Rights Accountability Act (permitting sanctions designations of foreign persons involved in certain human rights abuses); and (vii) U.S. financial systems programs requiring a risk-based approach to anti-money laundering, countering terrorist financing, and countering proliferation financing programs to identify, assess, and mitigate money laundering and terrorist financing risks.

The interagency issuance of a Xinjiang Supply Chain Business Advisory follows a series of other actions and statements by the U.S. government, including both the Executive Branch and Congress, to increase U.S. business focus on these issues. While the Business Advisory stops short of imposing a ban on business interactions with the region, it is a further signal to all companies to assess whether and how their supply chains touch the Xinjiang region and to manage reputational, economic, and legal risks.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.