Summary

The Uyghur Forced Labor Prevention Act (UFLPA), which came into force on June 1, strengthens current US prohibitions by introducing a “rebuttable assumption” that any goods mined, produced, or manufactured in Xinjiang were produced with forced labor and so are prohibited - unless the importer can provide clear evidence otherwise, which is challenging in practice. 

If fully enforced, the UFLPA has a broad scope and creates further risk and complexity for MNCs that may be connected to Xinjiang in any way. The Act will also likely cause a wave of supply chain disruptions, bringing risks and challenges for MNCs regarding business and communication. 

Amidst the increasingly complex business and media environment, how do MNCs identify risks associated with the UFLPA and frame solutions to safeguard compliance and public sentiment? How can MNCs avoid getting caught in the crossfire and further seize business opportunities? What is the knowledge MNCs should know in terms of crisis prevention and preparedness? China Advocate presents strategies for MNCs to navigate sensitive topics and power business growth in the long run. 

UFLPA：What’s the story?

US 

• On June 21, the UFLPA officially came into force, and it bans all imports include goods made wholly or partly in Xinjiang over forced labor concerns.

• Congress passed the UFLPA in December 2021 and US President Joe Biden signed it into law.

CHINA   

• China strongly condemns the UFLPA and sees it as “an upgrade of the US’ crackdown on China under the pretext of human rights.”

• MofCom spokesperson cited Xinjiang’s recent economic figures to prove the region’s development. 

• Average disposable incomes for urban and rural residents rose by RMB 14,600 and RMB 6,900, respectively, between 2014 and 2021.

• “China will take powerful measures to protect the lawful interests of Chinese companies and citizens”.

Intensified US-China relation brings new risks for MNCs

• The UFLPA and intensified US-China relations bring new risks for MNCs in terms of business and communication.

• In recent years, China has been working on building a retaliatory toolbox for foreign sanctions and interventions. In 2021, NPC has passed China’s first Anti-Foreign Sanctions Law. Subjects like UFLPA could be on the anti-sanction list for tit-for-tat measures in any form.

Risks

Affected Sectors 

• Polysilicon used for solar panels 

• Agricultural products (Tomato) 

• Cotton 

• Apparel 

• Textiles and Electronics

Supply chain disruptions  

• UFLPA is likely to cause a wave of supply chain disruptions. 

• XUAR supplies products for a wide range of sectors, including manufacturing, textile, and chemical sectors. 

• Renewable energy sector, particularly solar panels, is affected significantly.

• China exports more than 90% of the world’s polysilicon and 45% of all polysilicon come from XUAR.

Implications

Challenges for MNCs   

• Increasing compliance risks and costs involving Xinjiang-linked suppliers 

• Additional operation costs are likely if switching to different suppliers 

• More risk points/trigger points to consider when it comes to communication in different forms.

• Xinjiang-related comments from employees either privately or publicly; official statements 

• News in different channels, marketing materials, maps, etc.

Recommended actions for MNCs  

• Identify risks associated with UFLPA, including those related to products, key law enforcement industries, suppliers, labor, etc. 

• Business units should check Xinjiang-related business in any form.

• Formulate or improve internal  labor compliance policies in accordance with UFLPA and on the premise of complying China’s laws and regulations. 

• Inspect or reexamine messages/statements/news involving Xinjiang issues, if any.

• Employees should strengthen related risk awareness for external communication with stakeholders. 

• Work with legal counsel to tackle problems and difficulties in terms of practical operations.

Balance compliance and public sentiment

Balance compliance and public sentiment to avoid provoking public outrage in other markets.

For MNCs: 

• Seek legal advice and consider public opinion in the media landscape when crafting a statement.

• Confine the messages within the purpose of compliance and avoid leaving the impression of “taking sides.”

• Underscore business impacts and opportunities amidst geopolitical issues.

• Strengthen the crisis awareness of employees, especially executives, about sensitive topics.

• Prepare localized crisis preparedness plans for different scenarios.

• Train executives and frontline staff to empower them with crisis communication skills.

• Formulate messages that are fair, business-driven, and neutral.

• Maintain a good relationship with the media and local government.