factory closures China Archives

Earlier this month, the US Government updated its ongoing response to what the Department of Commerce (“Commerce”) described as “Beijing’s campaign of repression, mass detention, and high-technology surveillance against Uyghurs, Kazakhs, and members of other Muslim minority groups in the Xinjiang Uyghur Autonomous Regions of China (“XUAR”), where the [People’s Republic of China] continues to commit genocide and crimes against humanity.”

Commerce’s Bureau of Industry and Security (“BIS”) added twenty-four (24) China-based entities to the Entity List on July 12th, thereby prohibiting the export, re-export, or in-country transfer of commodities, software, and technology subject to the Export Administration Regulations (“EAR”) to those entities without a license. Then, on July 13th, a group of agencies including Commerce, the Office of the U.S. Trade Representative (“USTR”), and the Departments of Homeland Security, Labor, State, and Treasury updated its Xinjiang Supply Chain Business Advisory (the “Advisory”) to highlight the increasing legal and reputational risks to companies who maintain supply chains with links to Xinjiang.

BIS specifically linked fourteen (14) of the twenty-four (24) total China-based entity designations to their connection to the ongoing repression of Muslim minority groups in Xinjiang. In addition to companies within China, foreign affiliates of Suzhou Keda Technology Co., Ltd. in the Netherlands, Pakistan, Singapore, South Korea, and Turkey, as well as the foreign affiliate of China Academy of Electronics and Information Technology in the United Kingdom, were also targeted.

These worldwide additions confirm the importance of screening both customers and supply chain participants wherever they are located. The July 12 BIS Entity List additions also included thirteen (13) Entity List designations of companies and persons located in China and Russia as a result of their use of items for military programs or transfer to sanctioned Office of Foreign Assets Control (“OFAC”) Specially Designated Nationals (“SDNs”). BIS also added one (1) Russian company to the Military End User (“MEU”) list, which restricts the export or reexports of certain items to companies meeting the definition of an MEU.

Besides direct services to prison camps and authorities in Xinjiang, the inter-agency Advisory highlights activities that carry a heightened risk of a nexus to the intrusive surveillance system implemented by China in Xinjiang, which include:

-Venture capital investment in Chinese companies contributing to surveillance in Xinjiang;

-Selling items such as cameras, tracking technology, and biometric devices into China;

-Certain research joint ventures and research partnerships in surveillance-related areas with Chinese firms;

-Exporting, reexporting, or transferring (in-country) EAR-regulated items to companies on the Entity List;

-Trading in the securities of certain Chinese firms listed on the Non-Specially Designated Nationals Chinese Military-Industrial Complex Companies List (“NS-CMIC List”).

The Advisory puts the industry on notice that rigorous due diligence is necessary to mitigate risks in the areas of anti-money laundering (“AML”), potential surveillance assistance, forced labor use by customers or supply chain participants, and the provision of construction materials to Xinjiang authorities, and that the US government will use all agencies, laws, and federal contract clauses available to it to hold companies accountable. The European Union also released its own “Guidance on Due Diligence for EU Businesses to Address the Risk of Forced Labour in Their Operations and Supply Chains” on July 12th.

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

With reports that the U.S. military is preparing for a global coronavirus pandemic, companies dependent on China-based production are highly vulnerable to the adverse impacts on the modes of the supply chain, namely in commercial aviation, maritime shipping and overland transport, according to an industry analysis.

“The outbreak has already disrupted some commercial maritime operations and is set to have a much greater impact as international concerns over the virus intensifies,” states Hong Kong-based A2 Global Risk, which supplies its client businesses with a complete picture of global politics, security and trade.

“As large sections of China’s economy grinds to a halt and regional supply-chain mobility becomes tightly restricted, the macro-economic outlook becomes increasingly dire,” A2 Global Risk adds. “More factory closures are a near certainty as the Chinese government tries to control the spread of the disease. Foreign companies heavily reliant on China’s manufacturing sector will be forced to either weather the storm or shift their supply chains to less risky markets.”

TT Club, a UK-based insurance provider, is warning freight forwarders, logistics service providers and other intermediaries of potential unforeseen exposures that may also accrue. “Restrictions due to labor shortages at ports and cancellations of inland transport links within China, constraints in the supply of goods due to factory closures and reduced schedules of air, ocean and rail carriers may expose forwarders to claims arising from delivery delays and cargo deterioration,” states a TT Club briefing that was compiled with the assistance of specialist international lawyers.

“Up-to-date status reports on their cargo’s progress, or lack of it, are vital to shippers,” emphasizes TT Club’s Risk Management Director Peregrine Storrs-Fox. “Forwarders and logistics operators will certainly prove their mettle if they can consistently make customers aware of the ongoing attempts to problem-solve. Careful recording of communication trails detailing such actions will also help in any disputes in the future.”

Global e-retailer Alibaba Group has responded to the coronavirus threat by continuously sending medical supplies, including masks and protective suits, to medical personnel in Wuhan, Wenzhou and Hangzhou, which are at the center of the outbreak and in the most need.

“We are grateful. And we need more help,” states Alibaba, which launched a global sourcing platform for suppliers and distributors of medical goods across the world to join in the campaign.

U.S. Adds Chinese Entities to BIS Entity List and Updates Xinjiang Supply Chain Business Advisory

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