XUAR 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.

On January 13, 2021 U.S. Customs and Border Protection (CBP) issued a Withhold Release Order regarding cotton products and tomato products produced in China’s Xinjiang Uyghur Autonomous Region (XUAR) effective February 13, 2021. The agency stated that: “CBP issued a Withhold Release Order (WRO) against cotton products and tomato products produced in Xinjiang based on information that reasonably indicates the use of detainee or prison labor and situations of forced labor.” CBP identified the following International Labor Organization forced labor indicators as a result of its investigation: “debt bondage, restriction of movement, isolation, intimidation and threats, withholding of wages, and abusive living and working conditions.”

This finding effectively shifts the burden to an importer to prove that a product produced in the XUAR containing cotton or tomato goods was not produced using any forced labor indicators. Moreover, CBP’s WRO makes clear that products are covered if they use such cotton or tomato inputs “in whole or in part,” with no de minimis exception provided. By placing the burden on the importer to prove that the product it is importing is not produced in whole or in part from such XUAR merchandise, CBP is creating a major hurdle. Detailed information will be required, in our experience, to meet CBP internal evidentiary standards. The Frequently Asked Questions (FAQ) provided by CBP provide some useful examples of the level of detail required in any response:

For cotton products: Affidavit from yarn producer and the source of raw cotton that identifies where the raw cotton was sourced. Purchase Order, Invoice, and Proof of Payment for the yarn and raw cotton. List of production steps and production record for the yarn, including records that identify the cotton and cotton producer of the raw cotton. Transportation documents from cotton grower to yarn maker. Supporting documents related to employee’s that picked the cotton, time cards or the like, wage payment receipts, and daily process reports that relate to the raw cotton sold to the yarn producer.

For tomato products: Provide supply chain traceability documents pointing to the point of origin of the tomato seeds, tomatoes, or tomato products. Affidavit from the tomato processing facility that identifies both the parent company and the estate that sourced the tomato seeds and or tomatoes. Purchase Order, Invoice, and Proof of Payment for the tomato seeds, tomatoes, or tomato products, from the processing facility and the estate that sourced the raw materials. All production records for the tomato seeds, tomatoes, and/or tomato products that identify all steps, from seed to finished product, from the farm to shipping to the United States.

The above requirements will be difficult to meet, particularly since they may require importers to go back to supplying companies and upstream vendors for information on inputs, when the importer has no relationship with such upstream suppliers. There likely will be great difficulty in obtaining an adequate response from those companies.

While the current WRO applies only to the cotton and tomato sectors, it is also possible that similar WROs could be extended to other merchandise originating in the XUAR. Furthermore, CBP recommends the following in its FAQs: “To combat the risks of forced labor in supply chains, importers should have a comprehensive and transparent social compliance system in place.”

Importers concerned with this or future WROs should consider their options regarding traceability of their products, including implementation of a social compliance system meeting CBP standards. For questions on this or other WROs companies, should consult with their attorneys or consultants specializing in this area.

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Jeffrey Neeley is a Washington-based partner with the law firm Husch Blackwell LLP. He leads the firm’s International Trade Remedies team.

Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.

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

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