In prior posts, I have reviewed the challenges to international trade from forced labor practices in a number of countries and actions by the United States in 2021 to increase the focus on forced labor in China’s Xinjiang Uyghur Autonomous Region.
U.S. legislation was signed into law on December 23, 2021, Pub. L 117-78, “To ensure that goods made with forced labor in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China do not enter the United States market, and for other purposes”. The legislation includes working with USMCA partners (Canada and Mexico) and developing a strategy for addressing imports with priority sectors including cotton, tomatoes and polysilicon. As reviewed in a Peterson Institute for International Economics policy paper, “The Xinjiang economy is still peripheral, accounting for only 1.4 percent of China’s gross domestic product. However, it is a major producer of two products, cotton and polysilicon, that are key parts of global supply chains. Xinjiang accounts for nearly 20 percent of global cotton production, with annual production greater than that of the entire United States. Its position in polysilicon—the material from which solar panels are built—is even more dominant, accounting for nearly half of global production. Its position in polysilicon stems not from a dominant position in the raw material (silicon being among the most abundant minerals on Earth) but from the massive amounts of energy used in the refining process and Xinjiang’s low, albeit carbon intensive, energy costs.
“9 See the International Cotton Advisory Committee, https://icac.org/DataPortal/DataPortal? Year=2019/20%20for (https://icac.org/DataPortal/DataPortal?Year=2019/20%20for) (accessed on May 21, 2021). “10 Dan Murtaugh, “Why It’s So Hard for the Solar Industry to Quit Xinjiang,” Bloomberg Green, February 10, 2021, http://www.bloomberg.com/news/articles/2021-02-10/why-it-s-so-hard-for thesolar- (http://www.bloomberg.com/news/articles/2021-02-10/why-it-s-so hard-for-thesolar-) industry-to-quit-xinjiang.”
PIIE Policy Brief, Cullen S. Hendrix and Marcus Noland, 21-14 Assessing Potential Economic Policy Responses to Genocide in Xinjiang at 5 (June 2021), https://www.piie.com/publications/policybriefs/assessing-potential-economic policy-responses-genocide-xinjiang (https://www.piie.com/publications/policy briefs/assessing-potential-economic-policy-responsesgenocide-xinjiang).
The complicating factor for U.S., Canadian, Mexican and other authorities attempting to prohibit imports of products made in part or in whole from forced labor is that multiple countries are involved in many value chains. Thus, while 85% of China’s cotton production comes from the Xinjiang Autonomous Region, China not only uses the cotton internally for producing products (clothing, towels, etc.) but also exports cotton and textile products to many countries for further manufacture and consumption or export.
For example, cotton is covered by Chapter 52 of the Harmonized System of tariff classifications. In 2020, according to data from the UN COMTRADE data base, China exported cotton products classified under HS Chapter 52 to Bangladesh ($1.69 billion), Vietnam ($1.5 billion), Philippines ($846 million), Nigeria ($815 million), Cambodia ($430 million), Hong Kong ($420 million), Pakistan ($369 million) and Indonesia ($298 million) among other countries. See Trend Economy, Annual International Trade Statistics by Country , China, Cotton, https://trendeconomy.com/data/h2/China/52 (https://trendeconomy.com/data/h2/China/52). These countries, as well as China, utilize the cotton products covered by Chapter 52 for producing other interim and finished products covered by other HS Chapters. The products produced are consumed in country or exported. Looking at just one such chapter, Chapter 61, covering some clothing products, and looking at imports in 2021 into the United States of items listed as containing cotton in that Chapter, shows the following dollar values potentially involved (in large part for China and for some parts for other countries).
The same problems exist for polysilicon and solar products made from polysilicon. Indeed, actions were taken last summer in the U.S. banning such products from a particular company in China. See, e.g., New York Times, U.S. Bans Imports of Some Chinese Solar Materials Tied to Forced Labor, June 24, 2021 updated August 2, 2021, https://www.nytimes.com/2021/06/24/business/economy/china-forced laborsolar.html (https://www.nytimes.com/2021/06/24/business/economy/china-forced-labor-solar.html) (“The White House announced steps on Thursday to crack down on forced labor in the supply chain for solar panels in the Chinese region of Xinjiang, including a ban on imports from a silicon producer there.”).
For both product groups, banning imports will present administrative challenges and will also pose challenges for purchasers looking for alternative sources of supply. It is critical for there to be adequate resources to implement the ban as well focus by purchasers on identifying alterative sources of supply.
The U.S.’s and other countries’ concerns with the Chinese practices involving the Uyghurs and other minorities in Xinjiang Autonomous Region are serious as the claims of genocide make clear. The increased use of Section 307 of the Tariff Act of 1930 by the U.S. Administration and efforts at coordination with trading partners are important steps to accompany increased diplomatic engagement to address the human rights challenges in China that have now been well documented.
While human rights violations don’t always carry with them trade implications, that is not the case where forced labor is the issue and the labor is engaged in producing products or services. While China’s actions against the Uyghurs and other minorities are the focus of the recent legislation, forced labor is a much broader trade problem in fact as recognized in the U.S., in Europe and elsewhere.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.