Recent developments in the US and EU related to the regulation of products considered to be made with forced labor indicate a global shift towards improved and even mandatory disclosure in the supply chain, which is supported because of the hard work of human rights.
On June 21, 2022, the US Government enacted the Uyghur Forced Labor Prevention Act (UFLPA), which creates a rebuttable presumption that goods are mined, produced, or manufactured, in whole or in part, in Xinjiang China’s Uyghur Autonomous Region (Xinjiang), or by Chinese entities identified as being involved in forced labor, are prohibited from importation into the US under Section 307 of the Tariff Act of 1930. The Tariff Act empowers US Customs and Border Protection to -issuance of Withhold Release Orders (WROs) and make findings that prevent items found to have been produced in whole or in part in a foreign jurisdiction using forced labor from entering the US.
On 14 September 2022, the European Commission published a proposal (US Proposal) for a regulation that, if passed, would equally ban any products deemed to be produced using forced labor from entering EU Member States.
Overall, it is expected that the impact of these regulations on global trade will be significant – in 2020, it is estimated that together, the US and the EU will account for approximately 29% of global import trade. The UFLPA places the responsibility on companies looking to import goods from Xinjiang and other regions of China into the US to conduct extensive human rights due diligence on all of their ingredients. supply chain to verify that the goods they import are not manufactured forcibly. work. On the contrary, the EU Proposal will place the responsibility on the EU Member States’ national authorities to prove that the goods were produced using forced labor in violation of the rules, and the same applies to imports, exports and products that marketed within the EU.
Forced labor in Xinjiang is a reason for the import ban
The UFLPA and proposed EU regulations were developed in response to widespread and credible reports of systematic persecution of the Uyghur population in Xinjiang, including significant use of forced labor. Recently, the United Nations Office of the High Commissioner for Human Rights released a report concluding that ‘serious human rights violations’ have occurred in Xinjiang, potentially amounting to crimes against humanity.
The UN Special Rapporteur on Contemporary Forms of Slavery similarly observed in a report to the UN Human Rights Council in September this year that ‘it is reasonable to conclude that the forced labor of Uighurs, Kazakhs and other ethnic minorities in sectors such as in agriculture and manufacturing is happening in China’s Xinjiang Uighur Autonomous Region’.
The widespread use of forced labor in Xinjiang is a major concern for businesses around the world, as Xinjiang is China’s growing manufacturing power.
The region is one of the largest producers of cotton, tomatoes and polysilicon in the world’s supply chains, accounting for 20% of global cotton, 18% of global tomatoes, and 45% of global production and processing. polysilicon (an important component of solar. panels). Particularly problematic is China’s dominance of the global supply chain for the manufacture of solar panels and systems, which produces 83% of solar cells and 74% of solar modules worldwide.
Implications of UFLPA and EU Proposal for global trade
The rebuttable presumption introduced under the UFLPA covers raw materials mined in Xinjiang and processed in other regions of China or components manufactured in Xinjiang for products manufactured in other regions, or any products which are sent to third party countries. Items mined, produced or manufactured by entities identified in the UFLPA Entity List are also prima facie prohibited from importation.
To rebut the presumption that goods imported to or from Xinjiang are considered to have been produced using forced labor and therefore prohibited from entering the US market, importers must produce ‘clear and convincing evidence’ ‘ which is the opposite. This evidence can take the form of detailed descriptions of the supply chain, work records and controls designed to ensure that workers are recruited voluntarily, and the origin of each component of the goods, including raw materials. materials and other inputs.
Due to the limited access companies have to conduct audits and due to the human rights due diligence of suppliers and operations within Xinjiang, and within China more broadly, this legislation is likely to have an impact on prohibiting the importation of any goods from or through Xinjiang. Any Chinese entities credibly involved in forced labor are likely to face similar consequences.
The proposed EU regulation, if passed, will have a wider reach than the UFLPA, which will prevent any products made with forced labor from being sold or imported into EU Member States (not just the one from Xinjiang, China). However, the national authorities of the EU Member States will be responsible for the implementation and enforcement of the ban at their borders, and the responsibility is on the Member States to prove that the goods violate the regulation.
The EU Proposal is currently being considered by the European Parliament and the Council of the European Union and, if passed, will enter into operation 24 months after its entry into force. The EU Proposal is one of several recent regulatory developments in the EU aimed at improving human rights protection and supply chain transparency. (For more information, see our previous article discussing the EU’s proposed Corporate Sustainability Due Diligence Directive).
Australian developments on the horizon
In April 2022, the Australian Government ratified the International Labor Organization’s Protocol of 2014 to the Forced Labor Convention 1930, which imposes legal obligations on states to prevent and address forced labor.
The Australian Labor Party’s election platform suggests that a Labor Government could consider introducing a rebuttable presumption, similar to that under the UFLPA, which would require businesses to import products, or import from jurisdictions, which are identified as high risk of forced labor to prove that those goods are not made with forced labor.
A statutory review of Australia’s Modern Slavery Act review is also underway and will consider whether the Act should be amended to explicitly require reporting entities to undertake human rights due diligence on their operations and supply chain. , and whether enforcement measures such as civil penalty provisions should be introduced. The Review will end in March 2023 and a report summarizing the findings of the Review will be tabled in Parliament shortly afterwards.
Implications of the UFPLA and EU Proposal for Australian businesses
The import restrictions imposed by the US Tariff Act and UFLPA, and the proposed EU regulations, apply to the goods rather than the jurisdiction where the importer resides. As such, any Australian business that exports goods to the US or the EU, or whose goods form part of the supply chain of another importer serving those jurisdictions, will be subject to the new laws.
Falling import restrictions can have significant financial and possibly reputational consequences for businesses. To keep up with the changing regulatory landscape at home and abroad, Australian businesses need to develop, implement and improve their human rights, supply chain mapping and policies and risk management process.
Australian businesses should also anticipate and be prepared to comply with more onerous contractual obligations in their supply arrangements with trading partners operating in the EU and US. At a minimum, Australian businesses that are part of the supply chains of regulated entities must document, and be prepared to provide, supply chain and labor information to final importers to help them respond. the evidentiary burden imposed under the UFLPA.
Forced labor in supply chains is a global and widespread issue, and Australian businesses need to recognize that it is not a matter of ‘if’ but ‘where’ forced labor occurs in their supply chain . Businesses must also be aware of the significant financial and logistical barriers to conducting human rights due diligence with suppliers, particularly those located outside Australia or invisible at lower levels of their supply chains. .
Implementing sophisticated human rights due diligence programs and supply chain management takes time. Australian businesses should not underestimate the impact of US and EU laws and the global shift to enhanced and even mandatory supply chain disclosure, backed by due diligence on human rights.
A useful starting point is to identify what management measures and processes are in place in your business today, identify gaps in processes, implementation and skills, and take steps to address them. the gaps.