Fair labor practices are a critical component of responsible sourcing and supply chain risk mitigation. As of 2020, an estimated 1.8 million people (primarily Uyghurs and other Muslim minorities) have been detained by the People’s Republic of China in “re-education” internment camps in the western Xinjiang Uyghur Autonomous Region.
Forced labor is a key part of the government’s “education” strategy-with significant implications for global supply chains. Among other key markets, Xinjiang produces 85 percent of China’s cotton and a staggering one-fifth of global production. Companies with supply chains linked to China have a duty to ensure their products do not have ties to forced labor.
To address these concerns, the U.S. government recently passed the Uyghur Forced Labor Prevention Act (UFLPA). This legislation has far-reaching impacts on corporate compliance, due diligence, and sourcing standards for U.S. companies and their suppliers.
Here’s what you need to know.
What Is the UFLPA?
The Uyghur Forced Labor Prevention Act was signed into law in December 2021 and went into effect in June 2022. Managed by U.S. Customs & Border Protection, the UFLPA aims to prevent any goods made by forced labor in the Xinjiang region from entering the U.S. market.
The U.S. has banned all goods made with forced labor since 1930. However, products were only banned if there was “reasonable evidence” of forced labor in their creation, which is often difficult to prove. Due to the evidence of widespread forced labor across the Xingjiang region, the UFLPA adopted a new policy of rebuttable presumption.
This means all imports from the Xinjiang region are automatically assumed to be a result of forced labor and, therefore, cannot be imported into the U.S. unless the commissioner of U.S. Customs and Border Protection certifies otherwise. This “presumption of guilt” is rebuttable by the importer only with clear and convincing evidence-putting the burden of proof on the importer.
In other words, companies with suppliers in that region will need to provide due diligence to show that either none of the products or their parts are sourced from Xinjiang or, if they are, that forced labor wasn’t used in their production. Otherwise, they risk having their products indefinitely detained at customs-disrupting the flow of goods and potentially impacting both customer and supplier relationships.
What You Need to Do
To avoid costly delays at customs and any potential violations, U.S. companies will need to implement a robust compliance strategy that includes:
- Updating the corporate code of ethics: A corporate code of ethics outlines a company’s code of conduct, policies regarding employee behavior, and guiding organizational values. In light of the UFLPA, companies should review and update their code of ethics to clearly define the company’s commitment to fair labor practices and compliance efforts.
Pro Tip: Make it clear that these provisions are for ensuring compliance with the UFLPA and are not corporate actions against the government of China to avoid insulting Chinese-based suppliers.
- Updating the supplier code of ethics: A supplier code of ethics outlines the company’s expectations for its suppliers and their employees or contractors. It may also include commitments to the suppliers on how the company plans to work with them and the steps it will take to ensure compliance on its end. Companies will need to review and update their code of ethics based on the requirements and standards of the UFLPA.
- Creating a due diligence package specific to the UFLPA: A due diligence document summarizes the company’s sourcing practices, risks, and due diligence with respect to the UFLPA. This should include details on your suppliers, product types, any high-risk suppliers you work with, and audit requirements in place to address those risks. The document should demonstrate the fair labor practices you adhere to, providing the evidence needed to satisfy customs, suppliers, and other partners.
In order to do comprehensive due diligence and/or know if your company may be impacted by the UFLPA, you need insight into your suppliers beyond Tier 1. For instance, even if your direct suppliers have been vetted regarding their labor practices, if they source any of their product materials from China, that could put you at risk. So proper due diligence will include mapping your n-tier suppliers, conducting a risk evaluation on each supplier, and categorizing them by level of risk.
This process can take a significant amount of time as you comb through multiple levels of suppliers and review not only their labor practices but their material sourcing for compliance.
Minerals & Industries Impacted by the UFLPA
Part of UFLPA compliance is ensuring that specific materials-and the industries that produce them-are vetted.
For example, four high-risk commodities are cotton, tomatoes, gold, and polysilicon. One of the biggest challenges is managing high-risk minerals like gold because gold can be found in a variety of products, including electronics, which will impact every major supply chain. And with gold and copper smelters located in the Xinjiang region, it is so easy for materials to get mixed together.
Make sure you have increased due diligence summaries and information available if your supply chain includes complex electronics, as your n-tier suppliers may be sourcing gold and copper from these regions. Pay attention to the following smelters and suppliers located in the Xinjiang region that are impacted by the UFLPA:
Gold Refinery of Zijin Mining Group, Luoyang Zijin Yinhui
Zijin Mining is a multinational mining group that develops gold, copper, zinc, and lithium. Zijin Mining owns two mines in the Xinjiang region:
- Sawaya’erdun gold mine (currently in development)
- Ashele copper mine
An important note is that copper mines in Xinjiang can actually be a source of gold in your supply chain. The copper refining process results in a leftover byproduct called copper anode slime, which contains small traces of gold. Refineries then take that byproduct and purify it to produce gold bars. So when you are auditing suppliers and tracing gold materials to their source, be sure to include a wider net for copper mines in addition to gold smelters.
A supplier intelligence platform that has Ultimate Beneficial Ownership (UBO) insights can show you the corporate group structure of parent companies and subsidiaries in a tree-like structure to help you map the supplier network more clearly.
Shandong Gold is one of the largest gold companies in China. If you’re sourcing a product from China with gold in it, there’s a good chance Shandong gold is attached to that product.
Shandong currently has two major operations in Xinjiang:
- Gold Mountain Mine
- Hengxing Gold Holdings Ltd.
Because they are located in Xinjiang, this puts Shandong in the high-risk supplier category.
Daye Non-Ferrous Metals Mining Ltd.
Day Non-Ferrous Metals has several operations in China, with one copper mine located in Xinjiang. So, in addition to copper, they also produce gold sourced from their Sareke copper mine (refined from copper anode slime).
Lingbao Gold Co., Ltd.
Lingbao Gold specializes in gold mining, smelting, and refining. It owns and operates several gold mines in Xinjiang, including:
- Xinjiang Duolanasayi Gold Mine
- Duolanasayi Gold Mine
- Xinjiang Tuokuzibayi Gold Mine
Use the Right Tools for Compliance and Risk Prevention
Although due diligence takes time, all the business information detailed above comes directly from the companies’ public information (through website maps, annual reports, etc).
A supplier intelligence platform can do the heavy lifting for you to collect and analyze supplier data and reveal if your supply chain is impacted. Your supplier intelligence platform should have n-tier mapping capabilities as well as UBO capabilities to uncover parent companies or subsidiaries that come from that region.
As UFLPA enforcement solidifies, next year and beyond may include more stringent requirements and audits. Be prepared by doing your due diligence now and putting the tools in place to monitor and update your risk assessments over time.