US crackdown on forced labour in China risks further supply chaos
Pandemic and war have upended American supply chains. The next shock may come from the US campaign against human-rights abuses in China.
A law due to take effect 21 June will bar imported goods partly or wholly made in the Chinese manufacturing hub of Xinjiang — unless companies can prove the products have no ties to forced labour. Passed unanimously by Congress, and with strong support from unions and activists, it aims to make sure that there's no place in the US economy for merchandise made by workers languishing in detention camps.
Unusually, with the deadline less than three weeks away, the US government isn't giving business much of a heads-up about how the measure will be enforced. At a Customs briefing on Wednesday, the message was essentially: Wait and see. That means nobody really knows how big a chunk of America's $500 billion-plus in annual imports from China could get ensnared.
That question has been the subject of a concerted behind-the-scenes campaign by corporate lobbyists and fierce internal debates within President Joe Biden's administration — because there's a huge amount riding on the answer.
More price hikes?
For US consumers already beset by decades-high inflation, stringent policing of the new law could mean another wave of shortages and price hikes. Businesses such as Apple Inc and Nike Inc lobbied on the legislation last fall.
And for Biden, whose Democrats must defend slim majorities in November's congressional elections, there's danger in both directions. Maximal enforcement risks a fresh supply crunch in an economy already showing signs of stagflation – while soft-pedalling the measure would likely trigger Republican charges that he's weak on China.
If enforcing the law ends up disrupting the economy, advocates say, that's a feature and not a bug — because only a credible threat to detain imported goods will force companies to rigorously police their supply chains.
The frontline regulators at Customs and Border Protection are warning of trouble ahead.
Stepped-up scrutiny of imports under the law "will likely exacerbate current supply-chain disruptions," the agency said in its latest budget request. They won't be limited to goods coming from Xinjiang, or even China. All US imports "will be subject to delays in processing time," as officials scrutinise what they estimate will be an additional 11.5 million shipments a year, more than 10 times the previous figure.
Burden of proof
Xinjiang, a province in northwest China, has long been a flashpoint in the escalating standoff between the world's biggest economies. The US accuses China of mass detentions and other forms of oppression that amount to a genocide, and says hundreds of thousands of detainees – mostly Uyghur Muslims or other minorities – have been forced to work against their will. Beijing denies the allegations, saying they're part of a campaign to halt China's economic rise.
Long before Congress passed the Uyghur Forced Labor Protection Act in December — since 1930, in fact — it's been illegal to knowingly import goods made with forced or convict labour.
But the new measure marks a major change, because it effectively shifts the burden of proof from the government to importers themselves. They must now provide "clear and convincing evidence" that merchandise identified as suspect by the federal government, or manufactured even partially in Xinjiang, wasn't produced with forced labour.
That amounts to guilty until proven innocent, business groups complain. Lobbyists for some of the biggest industry associations in Washington — from the National Retail Federation to Autos Drive America — have spent months campaigning against a hardline approach, and urging a gradual phase-in of enforcement.
Some business groups sought — unsuccessfully — to persuade the administration to look the other way when products have only a small overlap with Xinjiang, and encouraged it to focus on high-priority areas identified by Congress, including cotton and tomatoes.
"For the administration to move on to much more complex, value-added goods and detain those goods at the border, that would cause even more supply-chain snarls," says Ed Brzytwa, vice president of international trade at the Consumer Technology Association, which represents an industry that relies heavily on imports.
Shoes and solar
US officials have identified a wide range of goods that touch on Xinjiang at some point during their journey along supply chains. They range from gloves and sneakers to auto parts and remote-controls for televisions.
The region is also the world's top producer of polysilicon, a metal used in solar panels. That's one reason why some of Biden's climate advisers joined economic aides in seeking to narrow the scope of products under the legislation, according to people familiar with the internal discussions.
Business groups have asked Customs to specify what kind of proof is needed to free cargoes detained at US ports. But that kind of detail has been hard to come by. It's a striking contrast with the way the federal government typically implements new laws, a process that involves agencies proposing rules and inviting comment before finalising them after months or even years of back-and-forth.
This time, initial written guidance to help importers prepare isn't expected until 8 June or after — which many companies view as too late. Cargoes that could be subject to the measure are already en route to the US. The government only plans to publish its broad implementation strategy, along with a list of manufacturers linked to forced labour, on 21 June — the day it will begin enforcing the law.
Just Google it
In a 1 June video briefing, Customs officials acknowledged the last-minute scramble — but rebuffed requests for more details now. Importers were advised to search the web for relevant official documents. In an emailed statement Friday, the agency said it has put together a "robust engagement plan" to get importers and other parties the information they need, including one-on-one meetings as well as wider briefings.
Customs has also written to some 2,000 companies warning that they've previously imported goods that are potentially subject to the law, but the letters didn't identify which items were implicated.
While US labour and domestic manufacturers have been vocal in calling for strict enforcement, the other side of the debate has been shrouded in silence.
Officials who've expressed concerns in private are reluctant to be forthright about them, in public or even in conversations with importers, the people familiar with discussions said. Nobody wants to be accused of endorsing forced labour.
Many multinational firms have another calculation to make, too. If they're identified with a campaign to water down the forced-labour law, they'll risk the ire of US consumers. Going too far in the other direction could imperil sales and supply chains in the world's second-largest economy. Intel Corp ended up apologising last year to "Chinese customers, partners and the general public" after the chipmaker asked suppliers not to use labour or materials sourced from Xinjiang, sparking a backlash in China.
'Perhaps it should'
Enforcement may end up being somewhat limited in scope, according to Ana Hinojosa, a former Customs official who now runs her own consulting firm. Maximum enforcement would be like "a nuclear bomb" for the economy, she says.
Still, the government doesn't want to be seen as championing a minimal path either. If there's hardly any disruption, it means the new law has failed to bite. The Biden team's economists have modelled a range of scenarios. But those aren't intended as guidance for implementation, and the administration fully agrees with Congress on the need to hold China accountable, a senior official says.
Either way, it's another significant step in the decoupling of the world's two biggest economies – and a remarkable reversal of fortunes for some of Washington's business heavyweights.
Long accustomed to helping shape the rules for trade with China, they now find themselves struggling to get even a faint signal of the administration's planned enforcement strategy.
"The importers have had their way for so long that I think this is a shock to the system, that they're not in control," says Scott Paul, president of the Alliance for American Manufacturing. "It is going to get hard. And perhaps it should."
Jennifer A Dlouhy is a US Energy Policy Reporter and Jenny Leonard is a White House Reporter
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement
