Companies are hampered by the impact of the new compulsory labor law

WASHINGTON – A major new law aimed at suppressing Chinese forced labor could make significant – and unexpected – changes for US companies and consumers.

The law, which went into effect on Tuesday, barred products from entering the United States if they had any links to the remote western region of Xinjiang by Chinese authorities. A comprehensive repression On Uyghur Muslims and other ethnic minorities.

The U.S. government considers it compelling to use any raw materials from Xinjiang or in line with Chinese labor and poverty alleviation programs – even if the finished product uses a small amount of material it can affect a wide range of products. Somewhere on its journey from Xinjiang.

The law considers all of these products to be made by forced labor, and restricts them to the U.S. border until importers create evidence that their supply chains do not touch Xinjiang or involve slavery or forced practices.

Evan Smith, CEO of Altana AI, a supply chain technology company, estimates that about one million companies worldwide that buy about 10 million businesses worldwide will be subject to enforcement action under the full letter of the law. Selling or manufacturing of body parts.

“This is not a problem like picking needles from a straw,” he said. “It touches the meaningful percentage of all everyday objects in the world.”

The Biden administration has said it wants to fully enforce legislation that would allow U.S. officials to detain or recover substantial numbers of imported goods. Such a situation is likely to cause headaches for companies and further sow the seeds of supply chain disruption. It can also trigger already running inflation At the height of four decadesIf companies are forced to look for more expensive alternatives or start to compete for consumer-deficient products.

Failure to fully implement the law will trigger a outcry from the Congress in charge of oversight.

“The public is not ready for what’s going to happen,” said Alan Persin, the former U.S. director of customs and border security, who is also the executive chairman of Altana AI. “Its impact on the world economy and the US economy is measured in billions of dollars, not millions of dollars.”

Relationships between Xinjiang and some industries, such as clothing and sunlight, are already well-recognized. The apparel industry is eager to find new suppliers, and many US projects have had to be put on hold as solar companies explore their supply chains. But trade experts say the links between the region and global distribution chains are far more comprehensive than those industries.

According to To CoronA data and analysis company, Xinjiang produces more than 40 percent of the world PolysiliconA quarter of the world Tomato paste And one-fifth Global cotton. It is responsible for 15 percent of the world’s hops and one-tenth of the world’s walnuts, peppers and raisins. It has 9 percent of the world’s reserves BerylliumAnd is home to China’s largest windmill producer, which accounts for 13 percent of global production.

Direct exports to the United States from the Xinjiang region have fallen sharply over the past few years, with Chinese authorities detaining more than a million ethnic minorities and sending many more into government-organized labor exchange programs. But trade experts say the vast majority of raw materials and components currently go to factories in China or other countries, and then to the United States.

In a statement on Tuesday, Commerce Secretary Gina Raymondo said the enactment of the law was “a clear message to China and the rest of the world community that the United States will take decisive action against companies that participate in forced abusive practices.”

The Chinese government denies the existence of forced labor in Xinjiang, saying all jobs are voluntary. Sought to blunt the impact of foreign pressure to stop abuses in Xinjiang by enacting legislation against its own sanctions that prohibit any organization or individual from assisting in the implementation of foreign actions that are considered discriminatory against China.

While the implications of US law are yet to be seen, it will change the global distribution chains. Some companies, In costumes for example, Are rapidly severing ties with Xinjiang. Garment makers, including South America, are eager to convert those stocks to create other sources of organic cotton.

But other companies, i.e. large multinationals, have calculated that it is too valuable to leave the Chinese market. Say corporate executives and business groups. Some have begun to block their Chinese and US operations, continue to use Xinjiang products for the Chinese market, or maintain partnerships with companies operating there.

Richard Mojica, a lawyer for Miller & Chevalier Charter, said it was “a strategy that should be sufficient”. This is because Canada, the United Kingdom, Europe and Australia are considering their own actions. Instead of moving their operations outside of China, some multinationals are investing in alternative supply sources and making new investments in mapping their supply chains.

At the heart of the problem is the complexity and opacity of the supply chains that run through China, the world’s largest manufacturing hub. When moving from fields, mines and factories to the warehouse or store closet, products often cross multiple layers of companies.

Most companies are familiar with direct suppliers for parts or products. But they may be less aware of the vendors who do their primary supplier business. Some supply chains have multiple layers of specialized suppliers, some of whom may contract their work to other factories.

Take the car maker who has to buy thousands of parts like semiconductors, aluminum, glass, engines and seat fabric. The average carmaker has about 250 tier-one suppliers, but its entire distribution chain has exposure to 18,000 other companies. Research by McKinsey & CompanyConsulting firm.

Adding to the problem is the reluctance of Chinese officials and some companies to cooperate with external inquiries about their supply chains. China tightly restricts access to Xinjiang, especially since the onset of the corona virus infection, making it impossible for external researchers to monitor ground conditions. In practice, it may be very difficult for US importers to maintain any relationship with Xinjiang because they cannot verify that the businesses there are free of labor violations.

Companies with goods detained on the U.S. border will be given 30 days to provide the government with “clear and conclusive evidence” that their products do not violate the law. Mr. Persin said it would take years for customs officials to develop a comprehensive enforcement system.

However, the government has already begun to increase its capacity to inspect and intercept foreign goods.

John M., partner in the International Trade and Training Group at Kelly Dry and Warren. Food said the U.S. Customs and Border Protection, which is responsible for inspecting and detaining goods at ports, is expanding its staff.

It spent $ 5.6 million this year hiring 65 new people for forced labor enforcement and set aside $ 10 million for overtime pay to handle detention at its ports. The White House has asked for $ 70 million to create 300 more full-time positions, including customs officers, import experts and trade analysts, by 2023.

He said the sums were more or less in competition with other government enforcement agencies, such as the Foreign Assets Control Office, which manages U.S. sanctions, and the Bureau of Industry and Security, which oversees export controls. Wrote in a note to Food customers.

Any company with a supply chain operating through China should consider the risk that its products may face inspection or detention, and he wrote, “The United States is not really ready for this type of implementation at present.”

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