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Companies Brace for Impact of New Forced Labor Law

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Washington — A drastic new law aimed at cracking down on forced labor in China could have serious and unexpected consequences for American businesses and consumers.

A law that came into force on Tuesday prohibits products from entering the United States if there is a link with the Xinjiang Uygur Autonomous Region, where Chinese authorities have made extensive crackdowns on Uighur Muslims and other ethnic minorities. ..

This could affect a wide range of products, including products made from Xinjiang Uygur Autonomous Region raw materials and products related to the types of labor and poverty alleviation programs in China that the US government considers compulsory. From Xinjiang somewhere on that journey.

The law assumes that all of these goods are made by forced labor, and importers can provide evidence that the supply chain is not in contact with the Xinjiang Uygur Autonomous Region, or that it involves slavery or forced practice. Until, stop them at the border with the United States.

Evan Smith, CEO of supply chain technology company Altana AI, said that out of about 10 million companies buying around the world, about 1 million are enforced under the full letter of law. He said he calculated that he would be subject to measures. Sale or manufacture of physical things.

“This is not like the problem of’picking a needle from a haystack’,” he said. “This touches on a meaningful proportion of all everyday items in the world.”

The Biden administration intends to fully enforce the law, which could lead US authorities to detain or reject a significant number of imported products. Such scenarios can cause headaches for businesses and further disrupt the supply chain. And if companies are forced to look for more expensive alternatives or consumers start competing for rare products, they could drive inflation already running at 40 years. I have.

Failure to fully enforce the law can lead to protests from the parliament in charge of oversight.

“People aren’t ready for what will happen,” said Alambasin, a former member of the US Customs and Border Protection, who is now the executive chairman of Altana AI. “The impact this has on the global and US economies is measured at billions of dollars, not millions.”

The relationship between Xinjiang Uygur Autonomous Region and several industries such as apparel and solar is already well recognized. The apparel industry scrambled to find new suppliers, and solar companies had to suspend many US projects while exploring the supply chain. However, trade experts say that the connections between the region and the world’s supply chains are much broader than these industries alone.

according to To KaronXinjiang Uygur Autonomous Region, a data and analysis company, produces more than 40% of the world’s polysilicon, one-quarter of the world’s tomato paste, and one-fifth of the world’s cotton. It also accounts for 15% of the world’s hops and about one-tenth of the world’s walnuts, peppers and rayon. It accounts for 9% of the world’s beryllium reserves and is home to China’s largest wind turbine manufacturer, which accounts for 13% of the world’s production.

Direct exports from the Xinjiang Uygur Autonomous Region to the United States, where Chinese authorities have detained more than one million ethnic minorities and sent more to government-affiliated labor transfer programs, have declined significantly over the past few years. However, according to trade experts, various raw materials and parts are now being brought to factories in China and other countries, and to the United States.

In a statement on Tuesday, Secretary of Commerce Gina Raimondo said the legislation was “clarified to China and other world societies that the United States would take decisive action against entities participating in the abominable use of forced labor. Message. ” Labor. “

The Chinese government has challenged the existence of forced labor in the Xinjiang Uygur Autonomous Region, stating that all employment is voluntary. It also has its own sanctions that prohibit businesses and individuals from supporting the implementation of foreign measures deemed to discriminate against China in order to mitigate the effects of foreign pressure to stop abuse in the Xinjiang Uygur Autonomous Region. The prevention law has been passed.

The impact of US law is not yet known, but it could ultimately transform the global supply chain. For example, some companies in the apparel industry are rapidly breaking ties with the Xinjiang Uygur Autonomous Region. Apparel makers are struggling to replace their inventories by developing sources of other organic cotton, including South America.

However, other companies, large multinationals, have calculated that the Chinese market is too valuable to leave, executives and trade associations say. Some companies have begun to disrupt their operations in China and the United States, continue to use Xinjiang Uygur Autonomous Region materials for the Chinese market, and maintain partnerships with the entities doing business there.

Richard Mojica, a lawyer at Miller & Chevalier Chartered, said the strategy was “sufficient” because Canada, the United Kingdom, Europe and Australia are considering their own measures, but U.S. Customs has jurisdiction over imports. .. Instead of relocating their businesses from China, some multinationals are investing in alternative sources and making new investments in supply chain mapping.

At the heart of the problem is the complexity and opacity of the supply chain through China, the world’s largest manufacturing hub. Goods often go through many layers of a company as they move from fields, mines, factories to warehouses and store shelves.

Most companies are familiar with direct suppliers of parts and materials. However, they may not be very familiar with the vendors with which their major suppliers are trading. Some supply chains have multiple layers of specialized suppliers, some of which outsource work to other factories.

Take, for example, an automobile manufacturer that needs to procure thousands of components such as semiconductors, aluminum, glass, engines, and seat fabrics. According to the average car manufacturer, there are about 250 Tier 1 suppliers, but the entire supply chain is exposed to 18,000 other companies. Survey by McKinsey & CompanyConsultant company.

Adding to the complexity is that Chinese authorities and some companies are hesitant to cooperate with external supply chain investigations. China has tightly controlled access to Xinjiang, making it impossible for outside researchers to monitor ground conditions, especially since the coronavirus pandemic began. In reality, it can be very difficult for US importers to maintain a relationship with the Xinjiang Uygur Autonomous Region. Because they cannot be sure that the business there is free of labor violations.

Companies whose goods are detained on the border with the United States have 30 days to provide government with “clear and compelling evidence” that their goods do not violate the law. Bersin said it is likely that it will take several years for customs officers to build a comprehensive enforcement system.

Nevertheless, the government has already begun to strengthen its ability to check and detain foreign products.

John M. Foote, a partner in Kelley Dryeand Warren’s International Trade and Practice Group, said the U.S. Customs and Border Protection personnel responsible for inspecting and detaining goods at ports have increased significantly.

This year, we spent $ 5.6 million on new hires for 65 people to execute forced labor and secured an additional $ 10 million in overtime to handle detention at the port. In 2023, the White House demanded $ 70 million to create an additional 300 full-time positions, including customs officers, import specialists, and trade analysts.

These amounts are comparable to or exceed other government enforcement agencies, such as the Office of Foreign Assets Control, which controls US sanctions, and the Industrial Security Agency, which oversees export control, Foot said to customers. I am writing in a memo.

Companies with supply chains that go through China must consider the risks that their products may face scrutiny or detention, he wrote.

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