Kreller's Due Diligence Blog
Navigating the Uyghur Forced Labor Prevention Act
Thursday, October 8, 2020
Lori Galvin, Vice President, Global Investigations at The Kreller Group
The Uyghur Forced Labor Prevention Act would
require any importer of Xinjiang-sourced products to prove they were not made
using forced labor. The challenge becomes how to address this potentially
disruptive legislation in a timely, cost effective manner.
On September 22, 2020, by a vote of 406-3, US
lawmakers in the House of Representatives voted to pass the Uyghur Forced Labor
Prevention Act. Simply put, importers
cannot source goods produced wholly or in part in the Xinjiang region unless
the US government can certify with “clear and convincing” evidence that they
are not produced using forced labor.
The primary concern? Cotton sourcing. Twenty percent of the world's cotton comes
from China, and 85 percent of that comes from Xinjiang. Retailers such as L.L. Bean, Hugo Boss and
Uniqlo are re-evaluating their cotton source. While the bill still has to
be approved by the Senate, corporations should be proactively
considering their options.
Already sourcing from Xinjiang?
A large pool of companies in the US already
source materials from Xinjiang, and could be caught in the crosshairs if this
new law is passed. Producing “clear and
convincing” evidence that forced labor is not used in the production of cotton
in Xinjiang would be extremely difficult. Production facilities in Xinjiang
are prepared for investigations, even if unannounced, in order to hide evidence
of forced labor and poor working conditions. And Chinese government and law enforcement officials are ready to
obstruct investigations or audits using intimidation and threats. Ultimately, the best option to remain
compliant with proposed US regulations on forced labor and to maintain
good corporate social responsibility is to cut ties, for now, with Xinjiang.
Think Again Before Sole-Sourcing from One
So, what’s the solution? Don’t source from one region; explore your options. Xinjiang is not the only place
to source cotton. Other
top cotton producing countries are India, Brazil, the United States, Turkey,
and Australia, amongst others. Preparing a long-term sourcing plan and
conducting front-end due diligence is a step in the right direction to avoid
long-term business interruption.
Due Diligence: Invest on the Front End
Before signing an agreement with any supplier
or manufacturer in any region, you should invest on the front end. For more than 30 years, The Kreller Group has
been helping companies mitigate risk by conducting full due diligence on third
parties, including identification of business, government and political
affiliations, site visit verifications, and comprehensive government sanctions
and watch lists checks. The investment
is worth it. We are a third-party, independent corporate investigation company
– there’s no bias in any direction.
You risk business shutdowns, negative media and
reduced share price—so you would be well-advised to take the time to get a
360-degree review of who you’re doing business with. Avoid aligning with
organizations who may be utilizing forced labor, convict labor, child labor or
indentured labor. This type of forethought and diligence into vetting your supply chain
will go a long way with socially responsible consumers.