Companies struggle as US targets forced labour

January 28, 2022

A US law requiring the disclosure of links to potential forced labour could pose more supply chain issues to listed companies as investor scrutiny increases on social issues.

The Uyghur Forced Labor Prevention Act – part of the US Tariff Act – brands goods sourced from or produced in Xinjiang as products of forced labour. Xinjiang is home to many of China’s Uyghur and other Muslim minority populations.

From June 21 this year reports Bloomberg Law, companies will be asked to present documentation to the US Customs and Border Protection to prove that their products do not contain components sourced or manufactured in Xinjiang.

The law also adds a layer to environmental, social and governance (ESG) concerns that corporate boards already face. A failure to comply with this could expose firms to increased shareholder pressure over supply chain issues.

The law was signed by President Joe Biden on 23 December last year and is aimed at putting pressure on China to end the alleged repression of its Uyghur and other Muslim minorities. China’s foreign ministry denies the allegation and claimed that the law would undermine the stability of global industrial supply chains.

The US Customs and Border Protection has prohibited several orders from entering the US in the last two years, though companies including Apple, Nike and BP America have lobbied Congress on the law, and many more firms have lobbied through trade groups.

Cullen Hendrix, a professor at the University of Denver’s Korbel School of International Studies told Bloomberg Law that the new rule, which takes effect in June, was “an incredibly high bar, if not an impossibly high bar to meet”.

However, Rachel Albert, co-chair of law firm Jenner & Block’s National Security, Sanctions and Export Controls Practice, said the move could increase the information that companies disclose as material risks for investors.