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 Region
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.
About The Kreller Group
For nearly 30 years, Kreller has relied on “extensive boots-on-the-ground” research, conducted by investigators who are well-versed in worldwide military, law enforcement, business and government matters to deliver the concise information our clients need to make decisions.
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