The U.S. Department of Homeland Security (DHS) and the Forced Labor Enforcement Task Force (FLETF) announced last week the addition of more than two dozen cotton and textile companies in the People’s Republic of China (PRC) to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List.
The announcement, made just weeks before the second anniversary of the enforcement of the UFLPA, effectively bans goods produced in whole or in part by these companies from entering the United States.
Kharon research had previously identified 25 of the 26 newly listed entities as presenting a risk of exposure to forced labor. In some cases, Kharon identified these risk-based relationships more than two years prior to the companies being added to the UFLPA Entity List.
As enterprises assess their supply chains to ensure they do not include goods from the newly listed companies or with forced labor, a number of key takeaways merit consideration.
For more on this latest action, join Kharon’s upcoming fireside chat with DHS Under Secretary for Policy, Robert Silvers, on June 12 for a discussion on the latest UFLPA regulatory expectations and enforcement trends.
The announcement, made just weeks before the second anniversary of the enforcement of the UFLPA, effectively bans goods produced in whole or in part by these companies from entering the United States.
Kharon research had previously identified 25 of the 26 newly listed entities as presenting a risk of exposure to forced labor. In some cases, Kharon identified these risk-based relationships more than two years prior to the companies being added to the UFLPA Entity List.
As enterprises assess their supply chains to ensure they do not include goods from the newly listed companies or with forced labor, a number of key takeaways merit consideration.
- 1. Screen for forced labor risk indicators: The companies added to the UFLPA Entity List include cotton traders, warehouses, and logistics facilities. They were added under section 2(d)(2)B(v) of the UFLPA, which pertains to entities that source material from Xinjiang, participate in “poverty alleviation” or “pairing assistance” programs, or facilitate PRC government forced labor efforts.
One of the newly listed entities, Jiangyin Xiefeng Cotton and Linen Co., Ltd., previously worked with companies engaged in activities identified by the U.S. government’s Xinjiang Supply Chain Business Advisory as indicators of forced labor.
In 2022, Jiangyin Xiefeng acted as the warehouse for more than 550 tons of cotton sold by Xinjiang Lihua (Group) Co., Ltd. On at least two occasions in 2019 and 2020, Xinjiang Lihua was reported to have received labor transfers through a local Xinjiang government program, according to Chinese media.
Xinjiang Lihua is also a subsidiary of Xinjiang Zhongtai (Group) Co., Ltd., a publicly traded Fortune Global 500 company that was added to the UFLPA Entity List in September 2023.
A data-driven examination of the high-risk entities involved in activities identified as forced labor indicators by the U.S. government's Xinjiang Supply Chain Business Advisory offers advanced foresight into potential exposure.
Kharon users can explore the Jiangyin Xiefeng Cotton research in Kharon ClearView. Click here to access.
- 2. Comprehensive data is paramount: A majority of the newly listed entities are based outside of the Xinjiang region. Several of them do not have subsidiaries in the region, nor are they owned by companies that are based, or have direct operations, in Xinjiang.
For example, Fujian Minlong Storage Co., Ltd., one of the newly listed companies, is a cargo warehousing services and logistics operator based in Sanming, a small city in Fujian province in eastern China that has become a major industrial base for basic and processed materials. The company, which Kharon first identified in early 2022 for its risk exposure to forced labor, is owned and led by two Chinese businessmen, and has no legally registered subsidiaries in Xinjiang.
- 3. Analysis of inter- and intra-China commerce: The FLETF determined that 21 of the listed entities source and sell cotton from Xinjiang through an online wholesale platform to companies outside the region and then onto the global market.
China Cotton Group Nangong Hongtai Cotton Co., Ltd. and China Cotton Group Shandong Logistics Park Co., Ltd., added to the UFLPA Entity List, are two wholly owned subsidiaries of the China National Cotton Group Corporation. Between 2019 and 2020, the two companies, which are not based in Xinjiang, collectively received more than RMB 21 million (USD $3 million) in subsidies from the Xinjiang regional government for transporting tens of thousands of tons of Xinjiang outbound cotton, according to cotton exchange notices reviewed by Kharon.
In 2020, Hubei Yinfeng Cotton Co., Ltd., another company that was recently added to the UFLPA Entity List, received RMB 2.6 million (USD $363,000) in subsidies to transport 5,000 tons of Xinjiang cotton outside of the region.
- 4. Need for supply chain traceability and risk assessment: None of the 26 companies are producers of cotton in Xinjiang. Rather, they are logistics and warehouse companies that are involved in one or more steps of the supply chain of Xinjiang cotton.
For example, Hubei Yinfeng Cotton Co. Ltd. has served as a warehouse for tens of thousands of tons of Xinjiang cotton, according to a review of a Chinese cotton trading platform. Some of Hubei Yinfeng’s customers include companies that are majority owned by the Xinjiang Production and Construction Corps (XPCC), a U.S. sanctioned paramilitary organization implicated in human rights abuses against ethnic minorities in Xinjiang.
Kharon users can explore the Hubei Yinfeng Cotton Co. Ltd. research in Kharon ClearView. Click here to access.
- 5. Other industries beware: The UFLPA Entity List now includes 65 companies since the legislation was signed into law in December 2021. Those listed span a wide range of sectors, including apparel, polysilicon, plastics, chemicals, batteries, household appliances, electronics, and food additives. This indicates the broad scope of products and industries that the U.S. government is monitoring for Xinjiang forced labor risk.
Additionally, the latest addition of 26 cotton trading and logistics companies, suggests that shipments devoid of Xinjiang-origin goods may now face detention at U.S. ports of entry due to their association with similar trading and logistics firms.
For more on this latest action, join Kharon’s upcoming fireside chat with DHS Under Secretary for Policy, Robert Silvers, on June 12 for a discussion on the latest UFLPA regulatory expectations and enforcement trends.
