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How much does it cost to oppose Xinjiang forced labor?

How much does it cost to oppose Xinjiang forced labor?

The United States has approved a law in the name of the fight against forced labor that prohibits the importation of goods whose production chain is linked to Xinjiang, but are they really ready for such a step? Here's what the New York Times writes

A new law that aims to crack down on Chinese forced labor could have significant – and unintended – consequences for American businesses and consumers. The law, which went into effect on Tuesday, bans entry into the United States for products that have any ties to Xinjiang, the far-western region where Chinese authorities have implemented extensive repression of Uyghur Muslims and other ethnic minorities. The New York Times writes.

This could affect a wide range of products, including those that use raw materials sourced from Xinjiang or that have a link to the kind of Chinese labor and poverty reduction programs that the US government has deemed coercive – even if the finished product he used only a small amount of material from Xinjiang on his journey.

The law assumes that all these goods are produced by forced labor and blocks them at the border with the United States, until importers can prove that their supply chains do not touch Xinjiang, nor do they involve slavery or coercive practices.

Evan Smith, chief executive of supply chain technology company Altana AI, said his company calculated that around one million companies globally would be subject to enforcement action under the law, out of around 10 million companies. around the world who buy, sell or produce physical items.

This is not a problem of "picking needles from a haystack," he said. "This is a significant percentage of all everyday goods in the world."

The Biden administration has said it wants to fully enforce the law, which could lead US authorities to withhold or reject a significant number of imported products. Such a scenario could cause business headaches and create further repercussions in the supply chain. It could also fuel inflation, already at its highest in four decades, if companies were forced to look for more expensive alternatives or if consumers started competing due to scarce quantities of products.

Failure to fully enforce the law could lead to a protest from Congress, which is tasked with overseeing the situation.

"The public is not prepared for what is about to happen," said Alan Bersin, former commissioner of US Customs and Border Protection and now executive president of Altana AI. "The impact of this phenomenon on the global and US economies is measured in many billions of dollars, not millions of dollars."

The links between Xinjiang and certain sectors, such as clothing and solar energy, are already well known. The apparel industry has been scrambling to find new suppliers, and solar companies have had to put a lot of US projects on hold while investigating their supply chains. But trade experts say the connections between the region and global supplier chains are far more extensive than these sectors.

According to Kharon, an analytics and data company, Xinjiang produces more than 40 percent of the world's polysilicon, a quarter of the world's tomato paste and a fifth of global cotton. It is also responsible for 15% of the world's hops and about one-tenth of the global nuts, peppers and rayon. It has 9% of the world's beryllium reserves and is home to China's largest wind turbine producer, responsible for 13% of global production.

Direct exports to the United States from the Xinjiang region – where Chinese authorities have detained more than a million ethnic minorities and sent many more to government-organized labor transfer programs – have dropped dramatically in recent years. However, according to trade experts, a wide range of raw materials and components are currently being transported to factories in China or other countries and then arriving in the United States.

In a statement on Tuesday, Gina Raimondo, Secretary of Commerce, called the passage of the law "a clear message to China and the rest of the global community that the United States will take decisive action against the realities that use forced labor."

The Chinese government disputes the presence of forced labor in Xinjiang, stating that all jobs are voluntary. In addition, it sought to dampen the impact of foreign pressure to stop abuses in Xinjiang by passing its own anti-sanctions law, which prohibits any company or individual from contributing to the application of foreign measures deemed discriminatory against China.

While the implications of US law are yet to be seen, it could end up transforming global supply chains. Some industries, for example in the clothing sector, quickly severed ties with Xinjiang. Garment manufacturers have been quick to develop other sources of organic cotton, including in South America, to replace stocks.

But other companies, particularly large multinationals, have calculated that the Chinese market is too valuable to abandon, corporate executives and trade groups say. Some have begun to make a barrier between their operations in China and the United States, continuing to use Xinjiang materials for the Chinese market or to maintain partnerships with entities operating in that country.

It's a strategy that, according to Richard Mojica, a Miller & Chevalier Chartered attorney, "should be enough", since US customs jurisdiction extends only to imports, even though Canada, the UK, Europe and Australia are evaluating their own. measures. Instead of moving their businesses out of China, some multinationals are investing in alternative sources of supply and mapping their supply chains.

The heart of the problem is the complexity and opacity of the supply chains that cross China, the largest manufacturing hub in the world. Goods often pass through many layers of businesses as they move from fields, mines and factories to warehouses or store shelves.

Most companies are familiar with their direct suppliers of parts or materials. But they may be less familiar with the vendors their main supplier does business with. Some supply chains have many levels of specialized suppliers, some of whom may outsource their work to other factories.

Take car manufacturers, for example, which may need to procure thousands of components, such as semiconductors, aluminum, glass, motors and seat fabrics. According to research by consulting firm McKinsey & Company, an average automaker has around 250 tier one suppliers, but is exposed to 18,000 other companies along the entire supply chain.

Adding to the complexity is the reluctance of Chinese authorities and some companies to cooperate with external investigations into their supply chains. China tightly controls access to Xinjiang, making it impossible for outside researchers to monitor conditions there, especially since the start of the pandemic. In practice, this could make it too difficult for US importers to maintain ties to Xinjiang, as they will not be able to verify that local companies are free from labor violations.

Companies whose goods are held at the US border will have 30 days to provide the government with "clear and compelling evidence" that their products do not violate the law. Bersin said customs officials will likely take several years to build a complete enforcement system. However, the government has already begun to increase its ability to control and hold foreign goods.

John M. Foote, partner of Kelley Drye and Warren's international trade and practices group, said US Customs and Border Protection, responsible for the inspection and retention of cargo in ports, is undertaking an extensive staff expansion .

This year, it used $ 5.6 million to hire 65 new people to control forced labor and allocated an additional $ 10 million in overtime payments to manage detention in ports. For 2023, the White House has requested $ 70 million to create another 300 full-time positions, including customs officers, import specialists and trade analysts.

These amounts rival or exceed those of other government law enforcement offices, such as the Office of Foreign Assets Control, which administers U.S. sanctions, and the Bureau of Industry and Security, which oversees export controls, Foote wrote. in a note to customers.

All companies with a supply chain passing through China must consider the risk that their products may be subjected to controls or detention, Foote wrote, adding, “There is hardly any company in the United States currently truly prepared to this type of application ".

(Extract from the foreign press review by eprcomunicazione )

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/quanto-costa-opporsi-al-lavoro-forzato-dello-xinjiang/ on Sat, 25 Jun 2022 06:15:07 +0000.