The law, which went into effect on Tuesday, bans products from entering the United States if they have any ties to Xinjiang, the far western region where Chinese authorities have carried out widespread repression of Uighur Muslims and other ethnic minorities. This could affect a wide range of products, including those that use any raw materials from Xinjiang or are linked to the type of Chinese labor and poverty control programs that the US government has deemed necessary – even if the final product used a small amount material from Xinjiang somewhere during his journey. The law presupposes that all these goods are made by forced labor and stops them at the US border, until importers can provide evidence that their supply chains do not touch Xinjiang or include slavery or coercion practices. Evan Smith, chief executive of supply chain technology company Altana AI, said his company estimated that about one million companies worldwide would be fully enforced by the law, out of about 10 million companies worldwide that buy. sale or manufacture of natural objects. “This does not look like the problem of ‘picking straw needles,’” he said. “It accounts for a significant proportion of all the world’s everyday goods.” The Biden government has said it intends to enforce the law fully, which could lead the US authorities to seize or reject a significant number of imported products. Such a scenario is likely to cause headaches for companies and cause further disruptions in the supply chain. It could also fuel inflation, which is already at a four-decade high, if companies are forced to look for more expensive alternatives or consumers start competing for rare products.
Understand the supply chain crisis
Failure to fully enforce the law is likely to provoke outrage from Congress, which is responsible for oversight. “The public is not prepared for what is going to happen,” said Alan Bersin, a former US Customs and Border Protection commissioner who is now the executive chairman of Altana AI. “Its impact on the world economy, and on the US economy, is measured in billions of dollars, not millions of dollars.” The links between Xinjiang and some industries, such as clothing and solar, are already well established. The clothing industry was trying to find new suppliers and solar companies were forced to suspend many projects in the US while researching their supply chains. However, trade experts say the links between the region and global supply chains are much more expansive than these industries. According to Kharon, a data and analysis company, Xinjiang produces more than 40 percent of the world’s polysilicon, a quarter of the world’s tomato pulp and one-fifth of the world’s cotton. It is also responsible for 15 percent of the world’s hops and about one-tenth of the world’s nuts, peppers and raisins. It holds 9% of the world’s beryllium reserves and is home to China’s largest wind turbine maker, which accounts for 13% of world production. Direct exports to the United States from the Xinjiang region – where Chinese authorities have held more than a million ethnic minorities and sent many more to government-sponsored job transfer programs – have plummeted in recent years. However, a wide range of raw materials and components are currently making their way to factories in China or other countries and then to the United States, say trade experts. In a statement issued Tuesday, Commerce Minister Gina Raimondo described the passage of the law as “a clear message to China and the rest of the world community that the United States will take decisive action against entities involved in the abhorrent use of forced labor.” The Chinese government denies the presence of forced labor in Xinjiang, saying all employment is voluntary. And it has sought to mitigate the impact of foreign pressure to stop abuses in Xinjiang by passing its own anti-sanctions law, which bans any company or individual from helping to impose foreign measures deemed discriminatory against China. Although the implications of US law remain to be seen, it could end up transforming global supply chains. Some companies, for example in the clothing sector, are rapidly severing ties with Xinjiang. Garment manufacturers are trying to develop other sources of organic cotton, including South America, to replace these stocks. However, other companies, and in particular large multinationals, have estimated that the Chinese market is too valuable to leave, say business executives and business groups. Some have begun to exclude Chinese and American businesses, continuing to use Xinjiang materials to market in China or to partner with entities operating there. It’s a strategy that Richard Mojica, Miller & Chevalier Chartered’s lawyer, said “should be enough” as US customs jurisdiction extends only to imports, although Canada, the United Kingdom, Europe and Australia are considering their own measures. Instead of relocating out of China, some multinationals are investing in alternative sources of supply and making new investments in mapping their supply chains.
How the supply chain crisis unfolded
Card 1 of 9 The pandemic triggered the problem. The extremely complex and interconnected global supply chain is in turmoil. Much of the crisis can be traced to the outbreak of Covid-19, which caused a financial slowdown, mass layoffs and production disruption. Here’s what happened next: Reduction in shipping. With fewer products being produced and fewer wage earners spending at the start of the pandemic, manufacturers and shipping companies assumed demand would fall sharply. But this turned out to be wrong, as demand for some species will increase. Demand for protective equipment has increased. In early 2020, the entire planet suddenly needed surgical masks and robes. Most of these products were made in China. As Chinese factories increased production, cargo ships began to supply equipment around the world. Then there is the lack of containers. Containers were piled up in many parts of the world after being emptied. The result was a shortage of containers in the country that needed them most: China, where factories would start pumping goods in record volumes. Demand for durable goods has increased. The pandemic shifted Americans’ spending from eating out and watching events to office furniture, electronics and kitchen appliances – mostly bought online. Expenditure was also encouraged by government stimulus programs. Stretched supply chains. Factory products quickly flooded US ports. Increased orders further exceeded the availability of containers and the cost of shipping a container from Shanghai to Los Angeles increased tenfold. At the heart of the problem is the complexity and opacity of supply chains that cross China, the world’s largest production hub. Goods often pass through many layers of companies as they pass through fields, mines and factories in a warehouse or store shelf. Most companies are well aware of their direct suppliers of spare parts or materials. But they may be less familiar with the suppliers with which their main supplier works. Some supply chains have multiple layers of specialist suppliers, some of whom may outsource their work to other factories. Take the automotive industry, which may need to supply thousands of components, such as semiconductors, aluminum, glass, motors and seat fabric. The average carmaker has about 250 top-tier suppliers, but has exposure to 18,000 other companies across its supply chain, according to research by McKinsey & Company, a consulting firm. 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 ground conditions, especially since the onset of the coronavirus pandemic. In practice, this could make it very difficult for US importers to maintain ties with Xinjiang, as they will not be able to verify that companies there do not have labor violations. Companies whose products are held at the US border will have 30 days to give the government “clear and convincing evidence” that their products do not break the law. Mr Bersin said it would likely take several years for customs officials to set up a comprehensive enforcement system. However, the government has already begun to strengthen its capacity to control and hold foreign goods. John M. Foote, a partner in the international trade and practice team at Kelley Drye and Warren, said the U.S. Customs and Border Protection, which is responsible for inspecting and freezing goods in ports, is undergoing extensive staffing. It has used $ 5.6 million to hire 65 new people this year for forced labor and has set aside an additional $ 10 million in overtime to handle bookings at its ports. By 2023, the White House has asked for $ 70 million to create another 300 full-time jobs, including customs, specialty imports and trade analysts. These amounts compete with or exceed those of other state enforcement agencies, such as the Office of Foreign Assets Control, which manages US sanctions, and the Bureau of Industry and Security, which oversees export controls, Foote wrote in a note to customers. “Every supply chain company in China has to look at the risk of its products being checked or booked,” he wrote, adding: “There is almost no company in …
title: “Companies Are Preparing For The Impact Of The New Forced Labor Law " ShowToc: true date: “2022-11-06” author: “Leatrice Rubarts”
The law, which went into effect on Tuesday, bans products from entering the United States if they have any ties to Xinjiang, the far western region where Chinese authorities have carried out widespread repression of Uighur Muslims and other ethnic minorities. This could affect a wide range of products, including those that use any raw materials from Xinjiang or are linked to the type of Chinese labor and poverty control programs that the US government has deemed necessary – even if the final product used a small amount material from Xinjiang somewhere during his journey. The law presupposes that all these goods are made by forced labor and stops them at the US border, until importers can provide evidence that their supply chains do not touch Xinjiang or include slavery or coercion practices. Evan Smith, chief executive of supply chain technology company Altana AI, said his company estimated that about one million companies worldwide would be fully enforced by the law, out of about 10 million companies worldwide that buy. sale or manufacture of natural objects. “This does not look like the problem of ‘picking straw needles,’” he said. “It accounts for a significant proportion of all the world’s everyday goods.” The Biden government has said it intends to enforce the law fully, which could lead the US authorities to seize or reject a significant number of imported products. Such a scenario is likely to cause headaches for companies and cause further disruptions in the supply chain. It could also fuel inflation, which is already at a four-decade high, if companies are forced to look for more expensive alternatives or consumers start competing for rare products.
Understand the supply chain crisis
Failure to fully enforce the law is likely to provoke outrage from Congress, which is responsible for oversight. “The public is not prepared for what is going to happen,” said Alan Bersin, a former US Customs and Border Protection commissioner who is now the executive chairman of Altana AI. “Its impact on the world economy, and on the US economy, is measured in billions of dollars, not millions of dollars.” The links between Xinjiang and some industries, such as clothing and solar, are already well established. The clothing industry was trying to find new suppliers and solar companies were forced to suspend many projects in the US while researching their supply chains. However, trade experts say the links between the region and global supply chains are much more expansive than these industries. According to Kharon, a data and analysis company, Xinjiang produces more than 40 percent of the world’s polysilicon, a quarter of the world’s tomato pulp and one-fifth of the world’s cotton. It is also responsible for 15 percent of the world’s hops and about one-tenth of the world’s nuts, peppers and raisins. It holds 9% of the world’s beryllium reserves and is home to China’s largest wind turbine maker, which accounts for 13% of world production. Direct exports to the United States from the Xinjiang region – where Chinese authorities have held more than a million ethnic minorities and sent many more to government-sponsored job transfer programs – have plummeted in recent years. However, a wide range of raw materials and components are currently making their way to factories in China or other countries and then to the United States, say trade experts. In a statement issued Tuesday, Commerce Minister Gina Raimondo described the passage of the law as “a clear message to China and the rest of the world community that the United States will take decisive action against entities involved in the abhorrent use of forced labor.” The Chinese government denies the presence of forced labor in Xinjiang, saying all employment is voluntary. And it has sought to mitigate the impact of foreign pressure to stop abuses in Xinjiang by passing its own anti-sanctions law, which bans any company or individual from helping to impose foreign measures deemed discriminatory against China. Although the implications of US law remain to be seen, it could end up transforming global supply chains. Some companies, for example in the clothing sector, are rapidly severing ties with Xinjiang. Garment manufacturers are trying to develop other sources of organic cotton, including South America, to replace these stocks. However, other companies, and in particular large multinationals, have estimated that the Chinese market is too valuable to leave, say business executives and business groups. Some have begun to exclude Chinese and American businesses, continuing to use Xinjiang materials to market in China or to partner with entities operating there. It’s a strategy that Richard Mojica, Miller & Chevalier Chartered’s lawyer, said “should be enough” as US customs jurisdiction extends only to imports, although Canada, the United Kingdom, Europe and Australia are considering their own measures. Instead of relocating out of China, some multinationals are investing in alternative sources of supply and making new investments in mapping their supply chains.
How the supply chain crisis unfolded
Card 1 of 9 The pandemic triggered the problem. The extremely complex and interconnected global supply chain is in turmoil. Much of the crisis can be traced to the outbreak of Covid-19, which caused a financial slowdown, mass layoffs and production disruption. Here’s what happened next: Reduction in shipping. With fewer products being produced and fewer wage earners spending at the start of the pandemic, manufacturers and shipping companies assumed demand would fall sharply. But this turned out to be wrong, as demand for some species will increase. Demand for protective equipment has increased. In early 2020, the entire planet suddenly needed surgical masks and robes. Most of these products were made in China. As Chinese factories increased production, cargo ships began to supply equipment around the world. Then there is the lack of containers. Containers were piled up in many parts of the world after being emptied. The result was a shortage of containers in the country that needed them most: China, where factories would start pumping goods in record volumes. Demand for durable goods has increased. The pandemic shifted Americans’ spending from eating out and watching events to office furniture, electronics and kitchen appliances – mostly bought online. Expenditure was also encouraged by government stimulus programs. Stretched supply chains. Factory products quickly flooded US ports. Increased orders further exceeded the availability of containers and the cost of shipping a container from Shanghai to Los Angeles increased tenfold. At the heart of the problem is the complexity and opacity of supply chains that cross China, the world’s largest production hub. Goods often pass through many layers of companies as they pass through fields, mines and factories in a warehouse or store shelf. Most companies are well aware of their direct suppliers of spare parts or materials. But they may be less familiar with the suppliers with which their main supplier works. Some supply chains have multiple layers of specialist suppliers, some of whom may outsource their work to other factories. Take the automotive industry, which may need to supply thousands of components, such as semiconductors, aluminum, glass, motors and seat fabric. The average carmaker has about 250 top-tier suppliers, but has exposure to 18,000 other companies across its supply chain, according to research by McKinsey & Company, a consulting firm. 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 ground conditions, especially since the onset of the coronavirus pandemic. In practice, this could make it very difficult for US importers to maintain ties with Xinjiang, as they will not be able to verify that companies there do not have labor violations. Companies whose products are held at the US border will have 30 days to give the government “clear and convincing evidence” that their products do not break the law. Mr Bersin said it would likely take several years for customs officials to set up a comprehensive enforcement system. However, the government has already begun to strengthen its capacity to control and hold foreign goods. John M. Foote, a partner in the international trade and practice team at Kelley Drye and Warren, said the U.S. Customs and Border Protection, which is responsible for inspecting and freezing goods in ports, is undergoing extensive staffing. It has used $ 5.6 million to hire 65 new people this year for forced labor and has set aside an additional $ 10 million in overtime to handle bookings at its ports. By 2023, the White House has asked for $ 70 million to create another 300 full-time jobs, including customs, specialty imports and trade analysts. These amounts compete with or exceed those of other state enforcement agencies, such as the Office of Foreign Assets Control, which manages US sanctions, and the Bureau of Industry and Security, which oversees export controls, Foote wrote in a note to customers. “Every supply chain company in China has to look at the risk of its products being checked or booked,” he wrote, adding: “There is almost no company in …
