US ban on Xinjiang imports hits China's supply chain

After finding out that the Chinese products are produced with forced labour, the US imposed a ban on Xinjiang imports, which hit China's supply chain.

In 2021, the Uyghur Forced Labour Prevention Act (UFLPA) was signed into law, under which the US government assumes that anything made even partially, in the Chinese manufacturing hub of Xinjiang is produced with forced labour and therefore, can't be imported into the US unless companies are able to provide "clear and compelling evidence" to the contrary.

Earlier, the US imposed several restrictions in place for imports from Xinjiang, where human rights groups claim Uyghurs and other ethnic minorities continue to face a series of rights abuses, including being placed in mass internment (re-education) camps.

With the US trying to rally its allies to this anti-China law, an opportunity arises for countries like India to step into the vacuum created by imports from Xinjiang.

As per the new law, all goods from Xinjiang (People's Republic of China)are barred from being imported into the US unless it can be proven otherwise. The law makes the case that Chinese authorities have established detention camps for Uyghurs and other Muslim groups in Xinjiang and are using forced labour to produce goods for export requiring a legal route to impact Chinese actions. The US has said that China is committing genocide of the Uyghur population.

The US Customs and Border Protection said it would strictly enforce the rules and is likely to aggravate the already tense relations between the US and China. Zhao Lijian, spokesperson for China's Ministry of Foreign Affairs had warned prior to the coming into force of the new Act that if implemented, "it will severely disrupt normal cooperation between China and the US, and global industrial and production chains." He added that "China will take robust measures to uphold its own rights and interests as well as its dignity."

There is cause for concern within the US and elsewhere, over the new Act targeted at China, as Xinjiang accounts for 20 per cent of the world's cotton and 80 per cent of China's domestic production. Xinjiang has a robust industrial, mining, and agricultural sector and produces everything from peppers and walnuts to electrical equipment and polysilicon, a key material for making solar panels, which is exported to the US. The new law is of particular concern for the global solar industry, which saw about 50 per cent of the world's supply of polysilicon come from the Xinjiang region in 2021.

While Chinese companies and retailers brace for chaos as US Customs begins to enforce a ban on imports from Xinjiang, companies are also trying to understand how the new rules could affect their business and supply chains. Asian clothing suppliers, international retail chains, US solar-panel makers and Chinese floor tile material makers among scores of groups are all looking at the possibility of their US-bound shipments being seized.

Considerable data on forced labour being used by China has been generated by the Xinjiang Papers and the Australian Strategic Policy Institute (ASPI) 2020 report "Uyghurs for Sale". More recently, the UK's Sheffield Hallam University released a report (June 2022) documenting the use of forced labour in Xinjiang to manufacture polyvinyl chloride, a core component in floor tiling.

The report investigates the increased manufacturing of PVC in the Uyghur Region, the manufacturers' use of state-sponsored labour transfers, the environmental damage this is causing, and the routes by which the resulting PVC-based products make their way into international markets.

The report highlights the case of the Zhongtai Group, a Chinese state-owned enterprise, which manufactures 2.33 million tons of PVC annually. It is found that "During the COVID-19 pandemic lockdown, Zhongtai Group reported having received 1,180 transferred employees from Uyghur and other Indigenous communities in the Xinjiang - Uygur Autonomous Region (XUAR) in only two weeks".

Academics and media organisations have published numerous reports detailing the systematic use of forced labour among Uyghurs in what critics describe as internment camps. China, which initially denied the existence of such facilities, later said they were vocational training centres which were designed to combat the rise of religious and separatist extremism.

Pertinently, the Sheffield Hallam Report states that Zhongtai also runs ideological and vocational training schools that have trained thousands of rural farmers to become compliant factory labourers. Information on the supply of forced labour from Xinjiang comes from research produced by Adrian Zenz and the Asian Society Policy Institute (ASPI). There are reports of detainees being moved out of Xinjiang to work in other parts of the country, while components produced in the region have been traced to US-bound exports shipped from elsewhere in China.

President Biden's administration wants global supply chains to be free from forced labour. Therefore, the new American measure will not have a lasting impact unless countries like Canada, Europe, and others involved in procurement, refuse to pull their weight. Consequently, goods will simply be redirected and, the new law will have little impact on the ground.

The Uyghur Act of 2021, brands a 'high priority' for seizure, all US-bound imports traced to Xinjiang, including cotton, tomatoes, floor tiles and solar panel materials. More than 900 shipments from the region were seized in the last quarter of 2021 by US authorities under earlier trade restrictions. But US trade and business groups said the new legislation's vague wording threatened to put the bulk of China's USD 500billion in annual shipments bound for the US at risk.

There is undoubtedly an opportunity for countries like India to capitalise on this opportunity and fill the likely vacuum created by textiles from China. India's textile industry will have to increase its production capacity. Reports indicate that companies have already started expanding their capacity to produce on a large scale. However, the ground reality is that it may take a year or so for units to be ready with more capacity. The expectation is that the Production Linked Incentive will help and encourage industrial units to expand capacity.

In the long run, the UFLPA is a step in the direction of tightening US legal responses to China's alleged ill-treatment of the Uyghur in Xinjiang. The effectiveness of the Act will depend on cooperation from Europe and Canada. Further, UFLPA cannot function in isolation. The US under Joe Biden has to turn its attention solely on China and necessarily away from Russia if a comprehensive China strategy is to be put in place. In the absence of a grand strategy toward China, the UFLPA will remain an episodic event in US-China relations with little to show on the ground.