A group of 35 legislators from Australia, Canada, India, the European Union and the United Kingdom is urging their governments to draw up “blacklists,” similar to the United States’ Entity List, to block investors from financing companies involved in “perpetrating atrocities” against persecuted Muslim ethnic minorities in the Xinjiang Uyghur Autonomous Region of China.
The parliamentarians, all members of the Inter-Parliamentary Alliance on China (IPAC), an international cross-party organization, made the calls following reports that London-headquartered HSBC held 2.2 million pounds ($3 million) worth of shares in Xinjiang Tianye, a plastic manufacturer owned by the Xinjiang Production and Construction Corps, a state-run paramilitary organization sanctioned by the United States over its role in alleged human-rights abuses in the territory, including forced labor, torture, sexual abuse and extrajudicial detention.
“We cannot ignore the role that big banks play in financing the abuses taking place in Xinjiang,” Reinhard Bütikofer, a German Green Member of the European Parliament (MEP) and co-chair of IPAC, said in a statement. “If they are knowingly investing in firms perpetrating forced labor and other human rights abuses, then it is right that they should be held to account.”
In the United States, the Commerce Department’s Entity List essentially bars companies that Washington deems a threat to American national security or foreign policy interests from buying American technology and components without a waiver. In October, President Biden issued an executive order blocking Americans from investing in businesses linked to China’s military or engaged in selling surveillance technology used against Uyghurs and dissidents.
HSBC has denied investing in Xinjiang Tianye, saying that it’s acting in a custodial role that doesn’t flout any laws. But Republican Senator Marco Rubio and Representative Young Kim, both members of the IPAC, have asked that HSBC be investigated for potential violations of U.S. sanctions on the XPCC. British lawmakers are also demanding that Boris Johnson’s government meet with senior HSBC executives to discuss whether trading with Xinjiang Tianye goes against its own modern slavery statement, as required under the Modern Slavery Act.
“HSBC’s investments in Xinjiang Tianye demonstrate the deep ties between international finance and the Uyghur region,” said Siobhain McDonagh, a U.K. Labour Member of Parliament and a member of the Treasury Select Committee said. “It is completely unacceptable that banks like HSBC, which are headquartered and registered in the U.K., should invest in groups perpetrating industrial-scale human-rights abuses against the Uyghurs. The U.K. government must act to stop British firms from bankrolling modern slavery in the Uyghur region and elsewhere.”
An ‘EU approach’ to forced labor
Meanwhile, the European Commission is still hashing out what a potential ban on forced labor in the 27-country bloc could look like. Since Commission president Ursula von der Leyen announced plans in September for a law that would place a “ban on products in our market that have been made by forced labor,” there has been little agreement on the form it should take, including whether it should stand on its own or be rolled into mandatory due-diligence legislation due in the first half of the year.
At a hearing on Monday, Sabine Weyand, director-general of the European Commission’s department of trade, said that the agency has been exploring different modes of implementation, whether product-based, origin-based or, as the United States has done, a combination of the two that involves a “rebuttable presumption” that the target goods are made from forced labor unless clear and convincing evidence proves otherwise.
But the American approach has a few drawbacks, Weyand said, including the fact that it involves only imports, which can be seen as discriminatory if there are similar problems involved in a country’s domestic production. The same tack leads to products being diverted to other destinations, which “does nothing to address the root causes of forced labor.” There is also a “heavy burden” on companies to refute a Withhold Release Order, which could risk disengagement from developing nations.
“Which is why we’ve been looking at a fourth option as an alternative, which is to oblige companies to implement due-diligence procedures to identify, prevent, mitigate and account for the risk of human-rights violations in their value chain,” Weyand said. “This can then be linked, through different means, with a prohibition to place goods on the market when due diligence has not been followed.”
The benefit of such a solution is that it’s applicable to the global operations of companies, not just for products designed for the EU market, allowing them to “have a structural engagement with regions where there may be issues but where they can make an impact through that engagement,” she said, adding that the welding of due diligence and marketing prohibitions is a “tried and tested” EU approach.
“Enforcing due diligence strengthens the requirement for companies to ensure that their operations and value chains are free from adverse impacts on human rights and the environment,” Weyand added. “So we need to weigh up these different options in the light of their impact. We also need to ensure the consistency of our various existing and forthcoming proposals. We have to avoid a situation where companies would have to comply with different but overlapping sets of due-diligence obligations.”
Comment period for Uyghur bill opens
On Monday, the Department of Homeland Security opened the public comment period for the implementation of the Uyghur Forced Labor Prevention Act (UFLPA), which President Biden signed into law in December, allowing importers to weigh in on the federal Forced Labor Enforcement Task Force’s strategy, including the due-diligence standards that will be required and the “clear and convincing” evidence that must be submitted to prove that products are free of modern slavery.
“The comment period will provide U.S. companies with the opportunity to provide the government with feedback regarding the supply chain diligence challenges companies face, including the lack of transparency in their deep and complicated supply chains,” Angela Santos, a partner who leads ArentFox Schiff’s task force on forced-labor risks in the supply chain, told Sourcing Journal. “The inherent nature of the fashion industry supply chain will make it more difficult to comply with any broad forced-labor guidelines or diligence requirements imposed holistically across all industries.”
After the comment period closes on March 10, the Task Force will conduct a public hearing and create a strategy for enforcement of the UFLPA. The rebuttable presumption goes into effect on June 21, after which Customs and Border Protection is expected to ramp up its detention of problematic shipments at the border.
None of this will be easy, Santos said. Navigating the bill’s requirements will be “extremely difficult” and “likely not attainable within six months.” While companies “want to do the right thing and do not want to produce goods using forced labor or support entities that commit human rights violations,” juggling U.S. laws that require supplier diligence and documentation with China’s blocking statutes, meant to retaliate against foreign sanctions, has been challenging.
“The forced labor issue is particularly delicate in cases where U.S. companies are completely reliant on their Chinese supply chain,” she added. Still, Santos believes that it’s vital for firms to participate in the comment process “to emphasize the need for the government to take a pragmatic approach in formulating the UFLPA enforcement strategy.”
“Many companies are concerned about participating in the comment process and publicly disclosing the challenges to supply chain due diligence and compliance with the UFLPA,” she said. “But if companies do not participate, the government will not know the challenges companies face or understand what would help companies comply with this new law.”