On June 10, House Ways and Means Committee Democrats sent a letter1 to Acting Customs and Border Protection ("CBP") Commissioner Troy Miller, demanding that he "immediately take aggressive enforcement actions" regarding polysilicon products imported into the United States from the Xinjiang Uyghur Autonomous Region ("Xinjiang"). This letter increases potential supply chain risks particularly for U.S. solar energy companies, including the possible suspension of polysilicon products from Xinjiang.
Forced Labor Imports: Section 307 of the Tariff Act of 1930
Notably, the letter calls on CBP to take enforcement action against polysilicon products from Xinjiang pursuant to Section 307 of the Tariff Act of 1930,2 which prohibits the import of merchandise mined, produced, or manufactured, either wholly or in part, in any foreign country by prohibited forms of labor, including slave, convict, indentured, forced, or indentured child labor. Such merchandise is subject to exclusion and/or seizure and may lead to criminal investigation of the importer.
When information that reasonably (but not necessarily conclusively) indicates that merchandise produced by forced labor is being or is likely to be imported, the CBP Commissioner may issue withhold release orders ("WROs"), or internal instructions to all port directors to suspend the release of specific merchandise into the U.S. commerce, pending further instructions as to whether the merchandise may be released other than for export.3
Importers of merchandise subject to WROs may contend, within 3 months after the date of import, that the merchandise is not produced by a prohibited form of labor by submitting (i) a certificate of origin ("Certificate") signed by the foreign seller; and (ii) a detailed statement ("Statement") demonstrating the goods were not manufactured with forced labor.4 Alternatively, the importer may export the merchandise to a location outside the U.S. within the 3-month detention period.5
If the importer fails to either re-export the detained shipment or timely furnish the required Certificate and Statement, or CBP determines that the evidence submitted by the importer does not establish admissibility of the merchandise, the detained shipment will be excluded from entry.6
Moreover, if the CBP Commissioner ultimately makes a formal finding that the imported merchandise subject to a WRO is being produced with forced labor, CBP port directors may seize the covered merchandise and commence forfeiture proceedings.7
Responsible Business Practices
The U.S. Government has been fervent in highlighting the potential reputational, economic, and legal risks for businesses with potential exposure in their supply chains to Xinjiang or to facilities outside Xinjiang that use labor or goods therefrom. In particular, in July 2020, the U.S. Department of State and several other U.S. agencies issued a "Xinjiang Supply Chain Business Advisory"8 (the "Advisory"), which identifies elements of several industries where the use of forced labor in Xinjiang is prevalent, including cell phones, electronics assembly, and extractives (including coal, copper, hydrocarbons, oil, uranium, and zinc).
Since the issuance of the Advisory, CBP has been aggressive in invoking its Section 307 authorities to stop imports of products produced in Xinjiang, most notably cotton, tomatoes, and downstream products in January.
According to the House Ways and Means Committee letter, CBP informed Members of Congress in December 2020 that it was investigating "detailed allegations regarding the prevalence of forced labor in polysilicon production in Xinjiang," and, just two months later, that "enforcement actions regarding polysilicon were forthcoming." The letter chides CBP for having not taken such action thus far, stating, "CBP has had sufficient time to review the disturbing facts regarding forced labor and polysilicon production in Xinjiang-we believe it is time to act."
As the global industry obtains 45% of its supply of polysilicon, a key component of the production of photovoltaic cells for solar panels, from Xinjiang,9 any issuance of a WRO on products containing polysilicon from Xinjiang could have a profoundly deleterious impact on the U.S. solar energy industry - therefore companies should consider steps to mitigate the effects of this potential threat, and policymakers should appreciate the potential effects on the economy, renewable energy and employment goals.
In this regard, it is vital that companies create and maintain a social compliance system that ensures that key products are not and will not be subject to a WRO due to forced labor concerns. Such a system, which should fit within a company's overall CSR/ESG initiatives, should include a comprehensive set of policies and procedures through which a company seeks to ensure maximum adherence to the elements of its code of conduct that cover social and labor issues.
To this end, the U.S. Government offers several helpful resources. In particular, CBP recommends that companies look to the U.S. Department of Labor's Comply Chain principles10 for guidance on establishing a best-in-class social compliance system. While such systems undoubtedly will vary from industry to industry, the Comply Chain principles ("Comply Chain principles") stress that a good social compliance system nonetheless should be comprised of the following eight components, functioning in a harmonious way:
- Engage stakeholders and partners
- Assess risks and impacts
- Develop code of conduct
- Communicate and Train across your supply chain
- Monitor compliance
- Remediate violations
- Independent Review
- Report performance and engagement
Moreover, companies can look to the U.S. State Department's Responsible Sourcing Tool11 ("RST") to help incorporate these Comply Chain principles into their overall operations. The RST offers a litany of resources to detect, mitigate, and prevent forced labor in a supply chain, including a sample Supply Chain Assurance Program, which provides an overview of the processes that a company can implement to identify risks of forced labor in its supply chains, address identified issues, implement lasting solutions, and monitor supplier performance over time.
If U.S. and Chinese authorities continue the current escalation in trade tensions around polysilicon products from Xinjiang, solar energy companies should prepare themselves for continued regulatory constraints and possibly the eventual suspension of polysilicon products from Xinjiang. But, echoing the words of the House Ways and Means Committee letter, the time to act is now.
2 19 U.S.C. §1307
3 19 CFR § 12.42(e)
4 19 CFR § 12.43
5 19 CFR § 12.44
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