Introduction
The UK, US, and Canadian governments have recently announced a range of new measures in relation to human rights violations alleged to be taking place in Xinjiang, China. The new measures include enhanced due diligence requirements for companies with links to the region in order to identify and remove the use of forced labor from their supply chains. The move further underlines the importance of effective supply-chain risk management for companies with complex global supply chains. See below for further details on recently adopted measures in each jurisdiction.
United Kingdom
On January 12, 2021, UK Foreign Secretary Dominic Raab announced new measures to ensure that UK companies are neither complicit in, nor profit from, alleged human rights violations in Xinjiang. The UK government has acted recently to further strengthen the operation of the UK Modern Slavery Act 2015 (“UK Modern Slavery Act”), which requires certain businesses with a turnover of £36 million or more to produce annual modern slavery statements setting out the steps that they have taken to tackle modern slavery in their operations and supply chains. The Home Secretary is expected to introduce legislation in due course that sets out concrete fines for businesses that fail to publish an annual modern slavery statement. If enacted, such legislation would enforce corporate transparency obligations under the UK Modern Slavery Act and provide a strong financial incentive for companies to address forced labor in their supply chains in addition to the ethical and reputational drivers to do so.
The UK government will also provide guidance and support for UK public bodies on public procurement rules to ensure suppliers are excluded from tenders where there is sufficient evidence of human rights violations associated with their supply chains (including via third party supplier relationships). Compliance will be mandatory for central government, non-departmental bodies, and executive agencies. This follows the UK government’s announcement on September 22, 2020 that the transparency requirements that apply to UK businesses under the UK Modern Slavery Act would be extended to the public sector, reinforcing the UK government’s continued commitment to addressing modern slavery in supply chains through the UK Modern Slavery Act (see here). Companies should ensure compliance with their related reporting and due diligence obligations under the UK Modern Slavery Act and be aware of the increased focus on supply chain transparency from the UK government more broadly.
Under the new measures, the UK government has also issued guidance on the specific risks and due diligence obligations for companies with supply-chain links to Xinjiang, including those providing goods and services to authorities in Xinjiang, either directly or indirectly (see here). The guidance contains a firm recommendation for companies to undertake careful and robust due diligence to ensure their business operations do not contribute, directly or indirectly, to potential human rights violations. There will be a Minister-led campaign of business engagement to reinforce the need for UK businesses to take action to address the risk.
Finally, the UK government will conduct a review of export controls as they apply specifically to Xinjiang in order to prevent exports of goods that potentially contribute, either directly or indirectly, to alleged human rights abuses in the region. This review will determine specific items that will become subject to controls in the future.
The UK government’s press release regarding the UK Modern Slavery Act and other measures can be found here, and the Foreign Secretary’s statement to Parliament regarding the alleged human rights violations in Xinjiang and the UK government’s response can be found here.
United States
In recent months, various arms of the US government have taken action related to allegations of forced labor in Xinjiang, adding to the compliance risks and expectations for companies doing business in Xinjiang and in China more broadly. This includes the latest Withhold Release Order (“WRO”) issued on January 13, 2021 by US Customs and Border Protection (“CBP”) against “cotton, tomatoes and downstream products” from the Xinjiang region. This WRO “applies to cotton and tomatoes grown in [the Xinjiang region] and to all products made in whole or in part using this cotton or these tomatoes, regardless of where the downstream products are produced.” Goods subject to the WRO include “apparel, textiles, tomato seeds, canned tomatoes, tomato sauce, and other goods made with cotton and tomatoes.” Under this WRO, all US ports are now directed to detain any shipments that have goods within the scope of the WRO. In order to obtain release of the shipments, importers must essentially show proof that the products were not made with forced labor. On February 12, 2021, CBP issued FAQs related to the aforementioned WRO, including its scope, the required proof of admissibility, and suggested due diligence steps.
The Uyghur Forced Labor Prevention Act, which passed the US House of Representatives and was pending in the US Senate in the last Congress, was reintroduced in the US Senate on January 27, 2021. Among other things, if passed into law, the Uyghur Forced Labor Prevention Act would establish a rebuttable presumption that all labor in Xinjiang is forced labor It would also impose various US Securities and Exchange Commission (“SEC”) disclosure requirements. Another potential legislation to monitor is the Uyghur Forced Labor Disclosure Act, which also passed the US House of Representatives in the last Congress. If passed into law, the Uyghur Forced Labor Disclosure Act would require the SEC to engage in a rule-making process and issue detailed rules requiring issuers to disclose a range of activities relating to the Xinjiang region (among other things).
For our most recent blog post on the US government’s actions in relation to Xinjiang, please see here.
Canada
On January 12, 2021, the Canadian government announced that it is adopting certain measures related to the alleged human rights issues in Xinjiang in order to address the risk that goods entering the Canadian supply chain from any country may be produced using forced labor.
Canada’s Customs Tariff was recently amended to prohibit the import of goods from any country that are produced wholly or in part by forced labor. While this amendment was made in furtherance of the labor obligations that Canada agreed to under the Canada-Unites States-Mexico Agreement, this prohibition could now be used to prevent the importation of goods into Canada that are believed to be produced using forced labor in Xinjiang.
In addition, the Canadian government will now require Canadian companies that are sourcing directly or indirectly from Xinjiang or from entities relying on Uyghur labor established in Xinjiang, or seeking to engage in the Xinjiang market, to sign a declaration with the Trade Commissioner Service (“TCS”) prior to receiving services and support from the TCS (apart from receiving a briefing of the risks of doing business in Xinjiang). The declaration (see here) requires companies to acknowledge that they are aware of the alleged human rights situation in Xinjiang, declare that they have not knowingly sourced any products or services from a supplier implicated in forced labor or human rights violations, and declare that they understand that they are to operate in a manner that respects human rights in accordance with all applicable laws and relevant international standards.
The Canadian government has further stated that it will deny export permits for goods or technologies subject to export control under the Export and Import Permits Act (“EIPA”) if it determines that there is a substantial risk that the export would result in a serious violation of human rights or international human rights laws. The government further commented that particular scrutiny may apply to exports of advanced Canadian technology and services that could be misused or diverted towards government surveillance, repression, arbitrary detention or forced labor.
The Canadian government has also taken steps to ensure that the industry is aware of issues related to forced labor. Such steps include:
•Publishing a business advisory on the risks of supply chain exposure to entities that engage in human rights abuses (see here);
•Creating new internal guidelines that allow the TCS to provide enhanced advice on due diligence and risk mitigation related to supply chains and forced labor;
•Initiating discussions with businesses and non-governmental organizations to raise awareness about the alleged risks of doing business in Xinjiang; and
• Seeking a comprehensive third-party analysis of areas of exposure to forced labor involving Uyghur Muslims.
We note that in October 2020, the Canadian Senate introduced Bill S-216, An Act to enact the Modern Slavery Act and to amend the Customs Tariff (“Bill S-216”) (see here). Bill S-216 is the third attempt to introduce modern slavery disclosure legislation.
Bill S-216 proposes to amend the Customs Tariff to prohibit the importation of goods that are mined, manufactured or produced wholly or in part by child labor. It would also create certain mandatory reporting obligations on businesses that meet prescribed criteria (e.g., (i) entities listed on a stock exchange in Canada; (ii) entities that have a place of business in Canada, do business in Canada or have assets in Canada and meet prescribed financial thresholds, or (iii) entities that are otherwise subject to the legislation’s disclosure obligations). The mandatory reporting obligations would include preparing an annual report that sets out the steps the entity has taken during the applicable year to prevent and reduce the risk that forced labor or child labor is used at any step of the production of goods in Canada or elsewhere by the entity or of goods imported into Canada by the entity. Bill S-216 further outlines additional information that would be included in the annual report (e.g., the entity’s policies in relation to forced labor and child labor and measures taken by the entity to remediate any forced labor or child labor).
See a press release from the Canadian government regarding measures relating to Xinjiang here.
Takeaways
All companies, including those with business links to Xinjiang, should continue to audit and monitor their supply chains to ensure compliance with developing regulatory regimes across multiple jurisdictions in the context of heightened scrutiny around forced labor and other human rights concerns globally.
Companies should ensure proper implementation of robust and effective due diligence practices, including adopting adequate systems, controls, and training in line with best practice requirements, international due diligence standards, and regulator expectations. Companies should act swiftly and take meaningful steps to address forced labor issues, human rights violations and other compliance concerns in their supply chains once they have been identified in order to mitigate potential reputational, economic, and legal risks.
These particular measures are focused on Xinjiang but form part of a wider trend related to mandatory due diligence and transparency surrounding human rights issues. For example, the European Commission proposes to introduce legislation in this regard – see our alert here. Further, the UN Working Group on Business and Human Rights is expected to set a roadmap for the next decade in 2021 that builds on the UN Guiding Principles for Business, starting with a report to the Human Rights Council in June 2021 to provide a baseline, vision and ambition for more robust policy action for transformational change towards 2030 and beyond.
