U.S. Uyghur Act Aims to Bridge Supply Chain and Human Rights Challenges

Uyghur Forced Labor Prevention Act Enforcement to Impact U.S. Businesses and Consumers

In June 2022, the United States Customs and Border Protection (USCBP) began to enforce the Uyghur Forced Labor Prevention Act (UFLPA) which prohibits the import of goods made in the Xinjiang Uyghur Autonomous Region of China (XUAR) into the United States.

This action is an important component of the U.S. response to alleged human rights violations in the region. Two key economic questions for U.S. businesses and consumers to consider are:

• How will this affect the already disrupted global supply chain?
• What impact will this have on individual businesses and industries?

This article considers what a U.S. ban on goods from a populous region within the world’s second largest economy means for business leaders and consumers. It also explores what effects this ban will have on the already disrupted global supply chain, and how business leaders and consumers can balance supply chain problems with human rights issues.

How UFLPA Enforcement Will Affect U.S. Industries and Imported Products

The enforcement of UFPLA will largely impact electronics, manufacturing and textile/apparel companies in the U.S., but it could have a ripple effect to other industries and organizations.

Estimates show that roughly 20 percent of the world’s cotton originates from the XUAR region which means that the ban on cotton from this region is likely to create clothing, agriculture and other retail product supply delays, backlog and scarcity in the U.S. and elsewhere.

The XUAR region also accounts for 45 percent of global polysilicon production the primary material used for solar panel manufacturing, which means the global solar panel industry, including product development and distribution, will be impacted. The U.S. solar industry is starting to experience new disruptions as several Chinese solar-panel suppliers have had shipments to the U.S. detained or sent back.

In the coming months, more export products from the XUAR will likely be affected as UFPLA enforcement settles in, including machine and clothing products, footwear, agriculture and chemical and textile products, among others. Figure 1 contains a list of leading exports from the XUAR, commonly referred to as the Xinjiang region or Xinjiang, that face disruption as a result of UFLPA enforcement.

Figure 1 – Top Export Products From Xinjiang in 2019

The U.S. Department of Homeland Security also provides an evolving list of products and entities related to forced labor in the XUAR.

It’s critical that companies have cutting-edge compliance tools that can not only manage the complex aspects of a company’s supply chain, but also track the data, analytics and evidence of actions taken that support supply chain management.

That’s because the USCBP is tasked with detaining and sometimes seizing shipments, including products and materials on the UFLPA’s list of goods. For USCBP to grant exceptions or release seized imports, companies must be prepared to share proof from due diligence systems, supply chain management, tracing systems or other evidence that imported goods were not produced in any way in the XUAR.

Global Legislation Improves Supply Chain and Human Rights Reporting

Supply chains are under severe stress from a variety of global issues, including pandemic, geopolitical, cyber and climate-related disruptions. The UFLPA is the latest example of laws aimed at improving transparency around how companies address human rights abuses and unlawful labor practices within supply chain networks. Here are others:

• The United Kingdom requires larger companies to include information and data on supply chain transparency as a result of the 2015 Modern Slavery Act. Companies must publicly share the following: a human trafficking statement, due diligence processes highlighting how they manage and mitigate human rights risks, risk assessments across the organization and in supply chains, KPIs to provide data on improvements and preventions and information on modern slavery and human trafficking training for staff and management.
• In the European Union, the European Financial Reporting Advisory Group (EFRAG) is in the process of drafting the European Sustainability Reporting Standards (ESRS). One of the EFRAG’s drafts includes a section on workforce issues in the supply chain. The current proposal draft would require most companies located or listed in the E.U. to provide information on company strategy for addressing and managing material impacts on workers across the supply chain including working conditions, wages, health and safety, working hours, discrimination, work-life balance, worker freedom of association, collective bargaining rights, child labor, modern slavery, and more.
• Australia enacted a Modern Slavery Act in 2018. Companies with revenues of more than $100 million must file a comprehensive Modern Slavery Statement to the Australian Minister for Home Affairs.

In some countries, supply chain operations are supported by unlawful, unethical and discriminatory human rights violations, and there is very little global oversight to stem this behavior.

Companies should determine if the countries in which they operate have short or long-term legislative and enforcement plans for increased human rights and modern slavery reporting expectations.

Preparing for Future Global Supply Chain and Human Rights Regulations

Supply chain management can be daunting; many companies struggle to grasp the complex web of available suppliers and vendors and their policies and treatment of labor workers. Proper supply chain management includes not only managing an organization’s own supply chain, but also being aware of the supply chains of third-party suppliers and vendors.

Companies can act now to prepare for potential future supply chain and human rights reporting regulations in the U.S. and abroad by taking the following steps:

• Supplier Policies and Compliance Programs: Consider revisiting your company’s Code of Conduct and/or Supplier Code of Conduct to align with internationally accepted standards for human rights. For example, align policy with the International Labor Organization Declaration on Fundamental Principles and Rights at Work to explicitly prohibit suppliers from using any form of forced, involuntary, child or trafficked labor.
• Conduct Supply Chain Human Rights Risk Assessments: Preparing for more robust supplier risk disclosures might also require companies to employ customized metrics and analysis to evaluate supplier risk. Addressing supplier practices in human rights risks, labor rights, inclusion and diversity, product quality, anti-crime and corruption and occupational health and safety will provide a clearer picture of risks your company faces. Supplier data can either be derived from supplier engagement or third-party data providers. For example, do your suppliers state a commitment to a fair or living wage for all employees? Do they disclose information on efforts to address the risks of human trafficking and slavery?
• Conduct Supply Chain Monitoring Audits and Assessments to Identify Supplier Risk: Companies should ensure that supply chain monitoring and review systems are accurately measuring all levels and identifying gaps where the company and its suppliers might be falling short on globally accepted human rights standards. This is also an opportunity for company leadership to begin engaging suppliers in conversations around human rights policies and practices. Focusing on gaining more understanding of current suppliers’ human rights practices is a natural first step.
• Prepare for Reporting Requirements: As mentioned previously, several countries are or will be placing stricter regulations on how companies report and disclose human and workforce rights. Strategic planning should include steps to begin reporting on these areas.
• Assess Your Supply Chain Visibility and Understanding: Supply chain transparency is important as it mitigates risk, but you can only be transparent about what you know. Therefore, it’s important that organizations map out their transparency and where gaps lie in order to identify and manage risk.

Aon’s ESG advisory services has the expertise to help your company make timely decisions around supply chain risk and offers custom supplier risk assessment services. Please contact us at humancapital@aon.com with any questions or if you’d like to speak with one of our experts.