June 28, 2021

Forced Labor Enforcement: Xinjiang-Based Solar Panel Materials Become the Latest Regulatory Target

In an anticipated move, the Biden administration escalated its forced labor enforcement efforts on June 24 by announcing the issuance of a new withhold/release order (WRO) that blocks the import of certain polysilicon-based products. These polysilicon-based products are core materials used to make solar panels, electronics and other goods that have been linked to forced labor in China’s Xinjiang Uyghur Autonomous Region (XUAR). Related enforcement measures were also announced at the U.S. Departments of Commerce and Labor.

Background

Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by forced or indentured labor. Since 2016, U.S. Customs and Border Protection (CBP) has ramped up its enforcement of Section 307. In particular, CBP has issued WROs when information “reasonably but not conclusively” indicates to CBP that goods are made, in whole or in part, using forced labor.

CBP has specifically targeted Xinjiang with WROs, issuing more than a dozen since August 2020. However, CBP’s most sweeping action to date came on January 13, 2021, when CBP issued a WRO requiring the detention of all cotton and tomato products grown or produced by any entities operating in Xinjiang. Recent CBP enforcement actions have also targeted goods originating from Malaysia, including a finding on disposable gloves intended for use as personal protective equipment (PPE).

June 24 WRO

Per the newly-announced WRO, personnel at all U.S. ports of entry have been instructed to immediately detain all “silica-based products” made by Xinjiang-based company Hoshine Silicon Industry Co., Ltd., and its subsidiaries, along with “materials and goods derived from or produced using those silica-based products.” According to CBP, the WRO is based on information “reasonably indicating that Hoshine used forced labor to manufacture silica-based products[,]” including evidence of “intimidation and threats” and “restriction of movement.”

In the related announcement issued by the White House, the administration pointed to this month’s Group of Seven (G7) summit, which resulted in a collective pledge to combat forced labor in global supply chains, including in “the agricultural, solar, and garment sectors.” The White House declared that the latest enforcement measures “demonstrate[] our commitment to imposing additional costs” on China for its forced labor practices and “ensuring that Beijing plays by the rules of fair trade as part of the rules-based international order.”

As to the potential scope of the WRO, CBP estimates that over the last two-and-a-half years, roughly $6 million worth of materials were imported into the U.S. directly from Hoshine, and more than $150 million worth of downstream products containing Hoshine materials were imported into the U.S. during that same period. Although CBP did not identify the downstream products that could potentially be implicated, an agency official noted at a press conference that CBP is continuing to review the scope of imported products that may contain Hoshine inputs.

Based on CBP’s actions prior to issuing the WRO on Xinjiang-connected cotton products, which included the issuance of questionnaires to textile importers, we believe CBP may utilize questionnaires, requests for information, and importer-specific trade data in its investigation for suppliers of downstream products.

Related Announcements From the U.S. Departments of Commerce and Labor

In conjunction with the June 24 WRO, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) also announced that it has added Hoshine and four other Chinese companies to its “Entity List,” including Xinjiang Daqo New Energy, Xinjiang East Hope Nonferrous Metals, Xinjiang GCL New Energy Material Technology, and XPCC. These companies, according to the White House, were added “for participating in the practice of, accepting, or utilizing forced labor in Xinjiang and contributing to human rights abuses against Uyghurs and other minority groups in Xinjiang.” Some of these entities, in particular, XPCC have already been designated as Specially Designated Nationals by the Department of Treasury’s Office of Foreign Assets Control (OFAC).

As a result of these entities’ listing on the Entity List, transactions involving items subject to the Export Administration Regulations (EAR) are now prohibited without a license. For these designated entities, license applications will be subject to a “presumption of denial,” meaning that the application is likely to be denied unless a strong case can be made as to why a transaction with a listed entity will not harm or impair U.S. national security.

Additionally, on June 23, the Department of Labor (DOL) published a Federal Register Notice updating its “List of Goods Produced by Child Labor or Forced Labor,” to include polysilicon produced with forced labor in China. Aside from polysilicon products, the list also includes other products linked to forced labor in Xinjiang, including cotton, garments, footwear, electronics, gloves, textiles, thread and tomato products.

What’s Next?

As highlighted in our client alert published on March 26, 2021, the momentum for expanding the scope of forced labor enforcement — particularly in relation to polysilicon — has been building for months. Most recently on Capitol Hill on June 10, Democrats on the House Ways and Means Committee sent a letter to CBP Acting Commissioner Troy Miller criticizing the agency for perceived inaction over Chinese-origin imports of polysilicon products and demanding “strong action.”

Some have speculated that the source of this perceived inaction on polysilicon imports stemmed from the underlying tension between the Biden administration’s human rights and environmental agendas. Notably, estimates show that Xinjiang provides 45 percent of the world’s solar-grade polysilicon supply. Per the WRO announcement, however, the White House indicated that increasing domestic production of solar-grade polysilicon production is a top national priority. This national priority is consistent with the administration’s report following its 100-day interagency supply chain review.

Importers should take steps to manage and monitor their supply chains carefully where CBP has issued a WRO and ensure that internal controls, supply chain agreements and monitoring are implemented to address this responsible sourcing mandate from CBP and the administration.

For More Information

The increasing U.S. (and global) focus on forced labor practices continues to underscore the need for both U.S. importers and exporters to carefully review and potentially reassess their supply chains. Faegre Drinker has assisted clients at all stages of government trade inquiries and assessments, from responding to questionnaires to successfully implementing strategies to protect supply chains and ensure regulatory compliance.

If you have any questions about these matters, please contact any member of Faegre Drinker’s Customs and International Trade team for further details.

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