In January 2020, we warned American companies about potential problems stemming from forced labor in China:
Forced labor is a reality in China. And if you source from China, you need to keep close tabs on your supply chain to avoid forced labor becoming a part of it. In addition to the ethical and reputational implications of using forced labor, it can also get you in trouble with the law. In the United States, for instance, 19 U.S.C. § 1307 prohibits importing goods made using forced labor, defined as ‘all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily’. U.S. Customs and Border Protection (CBP) may issue withhold release order (WRO) against merchandise it suspects has been made using forced labor.
In the months since, we have cited 19 U.S.C. §1307 more than any other statute, reporting on new developments in the U.S. government’s (USG) fight against forced labor. Most, thought not all of the USG responses have been focused on the human rights crisis affecting Uyghurs and other ethnic minorities from Xinjiang. According to the U.S. Department of Labor, “it is estimated that 100,000 Uyghurs and other ethnic minority ex-detainees in China may be working in conditions of forced labor following detention in re-education camps.”
Xinjiang’s cotton industry has come under particular scrutiny. Perhaps the most notable WRO to date is the one entered against all Xinjiang cotton, issued in January 2021. This order prevents entry into the United States of “cotton … and [its] downstream products produced in whole or in part in [Xinjiang], and includes downstream products produced outside [Xinjiang] that incorporate these inputs. Examples of covered products include apparel, textiles … and other goods made with cotton … Importers are responsible for ensuring the products they are attempting to import do not exploit forced labor at any point in their supply chain.”
The campaign against Xinjiang cotton evidently rankled China, but a new focus of attention is emerging: solar panels. In the past, there were allegations “that forced labor in Xinjiang has been used to produce polysilicon, a key component for making solar panels.” Now a report from Sheffield Hallam University points to forced labor use in the “mining and processing of quartz, the raw material at the very start of the solar panel supply chain.”
Climate envoy John Kerry has already indicated that the United States is considering adding solar panels from China to the forced labor blacklist. U.S. panel maker First Solar came out with a scathing statement, worth reproducing in full:
First Solar unequivocally condemns the use of forced labor in China’s photovoltaic solar supply chain. We believe there should be no room for a solar panel where even a single component, no matter how small, is produced by a human being against their will. We also believe that this reflects a broader issue: that the over-reliance on China to supply cheap solar panels comes at a price that’s not always reflected on the bottom line. It’s a price that may include needing to look the other way on environmental and social costs that may not be obvious when those panels are installed in solar projects in the US. We call for the industry to do more than pay lip service to the issue because brushing it under the rug and continuing to advocate for Chinese solar companies to have unchallenged access to the US risks the inherent good that the solar industry delivers and its social license to operate. We need to ensure that in building back better, we build solar responsibly.
The writing is on the wall. WROs against Chinese solar panel manufacturer are a question of when, not if. This means that companies involved in importing Chinese solar panels or solar panel inputs need to take action now.
First, these companies need to take an honest look at their supply chain and make an honest assessment about the risks. They need to avoid the temptation unquestioningly accept what their Chinese business partners tell them. Keep in mind that Chinese company managers might be under pressure from local authorities to do their patriotic duty, helping “integrate” Uyghurs into productive society. Keep in mind also that Chinese companies need to sell their solar panels and any forced labor issues with your imports will hurt you, not them.
If any red flags come up during your supply chain review, you need to address them head on. Continuing to do business with a Chinese supplier using forced labor is not a choice. Saying “we do not really know what is going on there” when CBP comes knocking on your door is not going to cut it. Our international trade lawyers worked on a case where a U.S. company’s claimed lack of knowledge was not enough to prevent it from settling with the U.S. Government for $62.5 million.
Assuming no red flags are present, companies should still set up safeguards to ensure they are doing all they can to prevent forced labor from infecting their supply chain. These efforts need to be well documented.
Finally, companies need to recognize that – with few exceptions – they cannot guarantee forced labor is not present in their supply chains. Obtaining even reasonable certainty that a supply chain is free of forced labor is an intensive task.
This may all seem a bit unfair, but companies have choices, as demonstrated by the fact that some companies make solar panels in countries other than China. In any case, “fair” does not come into it: The U.S. government is turning its guns on China and on its use of forced labor, and for companies importing solar panels from China it is a question of whether they want to take cover or not.