The Uyghur Forced Labor Prevention Act (UFLPA) finally came into force in the US on June 21, 2022, making it now official for importers to ensure no goods mined, produced, manufactured even partly in China's Xinjiang enters the US, and looks like the European Union (EU) is next to impose a similar import ban.
The US Customs and Border Protection (CBP) has released an importer guidance asking them to demonstrate due diligence and effective supply chain tracing to ensure they do not import any such goods that have a trace of forced labor, especially from the Xinjiang region.
This requirement extends throughout the entire supply chain, to include goods that may be shipped from elsewhere in the PRC and to third countries for further processing, it reads.
The US Homeland Security list of entities covered under UFLPA includes Hoshine Silicon Industry, Daqo New Energy, Xinjiang East Hope Nonferrous Metals, GCL New Energy Material Technology, among others.
One of the high-risk commodities included in the CBP list is polysilicon along with cotton and tomatoes. The agency wants importers to be able to provide complete records of transactions and supply chain documentation and the country of origin for each material used in its production.
They will be required to provide a flow chart mapping each step right from the procurement to its production, for instance 'from location of the quartzite used to make polysilicon, to the location of manufacturing facilities producing polysilicon, to the location of facilities producing downstream goods used to make the imported good'.
If the importers are unable to satisfy the CBP requirements with 'clear and convincing evidence', their products will be detained.
China's Xinjiang produces close to half of the world's polysilicon which then makes its way into the Chinese solar cell and modules supply chain, and eventually the world as the country is currently the manufacturing hub of global solar module supply.
While the US government has given a breather to solar developers to continue sourcing their cells and modules from the 4 Southeast nations of Vietnam, Cambodia, Thailand and Malaysia for 24 months, it remains to be seen how the UFLPA impacts the current sourcing practices since a lot of Chinese companies have their manufacturing units in the 4 nations (see Biden Saves The Day For US Solar Industry).
A Roth Capital Partners webinar on June 16, 2022 had panelists anticipating the enforcement under UFLPA to expand to aluminum as well 'with even greater consequences' which will have its repercussions for solar as well. It goes without saying that companies will have to implement more stringent traceability measures to get through US customs.
Meanwhile, the European Union (EU) Parliament has also taken cognizance of the issue, calling on the European Commission to 'propose an import ban on all products produced by forced labor and on products produced by all Chinese companies listed as exploiting forced labor, reiterates its position in favor of an ambitious corporate sustainability due diligence directive'.
A resolution passed by the European Parliament on June 9, 2022 on the human rights situation in Xinjiang refers to leaked documents from Xinjiang internment camps collated as Xinjiang Police Files to show 'systematic, brutal and arbitrary repression in the Uyghur Autonomous Region of Xinjiang'.
Roth analysts expect enforcement of a similar legislation in the EU within the next 1-3 years.