Are American companies getting the message on forced labor in Xinjiang, the far east China province facing product bans under the Uyghur Forced Labor Prevention Act (UFLPA)? Yes, witnesses told the Congressional-Executive Commission on China in a hearing held July 11.
“We have data and anecdotal evidence,” said Robert Silvers, Under Secretary for Policy at the Department of Homeland Security. He was one of five witnesses in a two panel hearing, with the first panel only having Commission members questioning Silvers.
Silvers said that AI-driven supply chain company, Altana, noted that shipments related to Xinjiang to the U.S. fell 50% over the first year of the UFLPA. “The rubber has hit the road. We are looking closer to scientific testing, such as DNA testing for cotton to see if it comes from Xinjiang or not,” he said. Cotton is banned under the UFLPA, which means apparel made from that cotton is also subject to detention under the law.
Isaac Stone Fish, visiting fellow at The Atlantic Council, said far more needs to happen, but companies are “getting the message”.
“I think the national security argument is a very important one,” Fish said. “Letting companies know that unless they take action on their own, the U.S. government will get involved in a way that may be bad for them. Companies need to know that in a worse-case scenario, like a war with Taiwan, national security issues will take over. This is all about regulatory risk, right now,” FIsh said. “Making it clear to companies that reducing your exposure to China has clear financial benefits is the way to go. The more you bring that to light, like IP costs being shared with China, or insurance risks in China, all of that will change that math for these companies and the U.S. government can turn the dial on that. We are at a point now where American companies have a very different set of interests than many of the people in this building.”
The hearing, titled “Corporate Complicity: Subsidizing the CCP’s Human Rights Violations”, featured well-known former NBA player Enes Kanter. The Turkish-born Muslim got caught up on the wrong side of the social justice debates of the 2020s when players were allowed and encouraged to dress in Black Lives Matter slogans, but messages like Free Tibet or Free the Uyghurs were frowned upon.
“I was allowed to be critical of the Turkish government, but the second I was critical of China I was scolded and my team (Boston Celtics) was taken off the air in China because of it,” Kanter told the Commission. Kanter later added the word “Freedom” to his surname after becoming a U.S. citizen. He is no longer playing for the NBA, which he says is due to his anti-China stance.
De Minimis: Backdoor to Forced Labor? Yes.
The Commission talked a lot about de minimis in the first panel. This is the trade rule that allows for duty-free shipments of goods under $800. Chinese consumer products have been flooding the market of late, with at least two tech companies gaining market share here – Shein and Temu – both e-commerce platforms that sell apparel. Temu said in a letter to House leaders on the House Select Committee on the CCP last month that they could neither confirm nor deny the use of banned cotton in the apparel for sale on its platform.
Chairman Christopher Smith (R-NJ) asked Stevens if de minimis was akin to an end around the UFLPA. “Should we close that loophole or do a more robust checking of those packages?”
Silvers said that the UFLPA applies to de minimis shipments and that Customs and Border Protection (CBP), led by Homeland Security, does “risk based targeting” on de minimis. But, he said there are challenges in finding banned goods in clothing from companies like Shein and Temu. “We get less data on de minimis packages than we would get on shipments priced over $800. We get at least two to three million de minimis shipments per day. It is an extremely high volume. This challenges our enforcement to a whole host of issues, not just forced labor restrictions,” he said, mentioning narcotics and counterfeit goods. He made it appear like the UFLPA was easily skirted by de minimis and that CBP was working on new technologies that would be able to test clothing items for cotton DNA found in Xinjiang. That’s not happening today, however, meaning there is no way of knowing if Shein and Temu clothing is used from banned cotton. “We are going to enforce our forced labor laws wherever the facts lead, whether they lead to China or whether they lead to other countries. No place or industry or supply chain is off the table,” he warned.
Co-chair Jeff Merkley (D-OR) said “Businesses should consider themselves on notice” when it comes to forced labor rules.
“Companies need to know if their supply chain is tainted by forced labor; this has to be a top-tier compliance issue for companies. We need U.S. companies to diversify supply chains and be less susceptible to Chinese coercion,” Merkley said.
Rep. Merkley asked if there would be new company names added to the UFLPA entity list. “We are aggressively looking to add to that list,” Silvers said, without naming names but Shein and Temu would be a hard target. “We have a new process in place now that allows us to add to that list and I am placing a high priority on bringing new names soon,” he said.
China Risk Intensifying
Economic coercion was discussed at the hearing. The idea is that companies do not want to irk China in order to gain, or maintain, access to its market. Wall Street was called out. As was the NBA.
Chairman Smith said the U.S. was “helping to arm” China with investments in China. He referred to the Uyghur situation in Xinjiang as a “genocide”.
“I remember asking executives of Coca Cola about the genocide in Xinjiang and they said nothing,” Smith recalled. “It was like he lost his voice. They are afraid of losing market share. We are helping to arm China. Our companies are more than willing to accommodate them and give them anything they want.”
Rep. Zachary Nunn (R-IA) said companies are learning that their time in China may be short-lived if they do not abdicate to the whims of the CCP.
Nunn called out multinationals kowtowing to the CCP. “They will cease being US institutions, and just really be Chinese institutions that happen to have a headquarters in the United States. This has to be a team fight. American people, government and businesses. We are enfranchising the bad behavior of a few companies who sacrifice principals so they can get advantage over those who are doing the right thing. I’d like for these companies’ executives to come here someday to justify themselves,” he said.
Rep. Susan Wild (D-PA) asked why companies that have left China are not talking about it.
“There is no company out there that has no exposure to China, but the one that has the least exposure to China I assure you does not want to talk about it,” said Fish from The Atlantic Council, citing the possibility of revolt from outside board members.
“We are decoupling,” Fish said. “We are moving in that direction. Maybe in the next six months or so, someone will speak on that and say that this is less risky for me and for my consumers.”
CPA Provides Written Testimony
Roger Robinson, in partnership with the Coalition for a Prosperous America, sent in written testimony. Here are some excerpts from the letter, acknowledged by Chairman Smith at the end of the hearing on Tuesday.
“China’s strategy is to use its command economy (at least when it comes to finance and the markets) to manipulate the global financial system to serve its funding, lobbying, and other strategic interests. Given the CCP’s total control over Hong Kong, this task has been made considerably easier. The large-scale inclusion of CCP-controlled companies in the U.S. and allied capital markets – in terms of both listing and trading – is a major “validator” for China. The spikes and surges in bilateral tensions have flown right over China’s capital markets penetration activities like storm clouds that pass over and do no harm. This fact alone constitutes quite an amazing success for the CCP.” – Roger Robinson
Robinson also noted in his testimony that it is not just U.S. multinationals helping China with free lobbying, like Nike and the NBA, or big Wall Street firms in general. It is also the American retiree, who funnels billions of dollars annually into Chinese stocks through their pension funds. The government’s own Thrift Savings Plan, which manages the money of civil and military retirees, is also open to investments in China.
“Through the research conducted by CPA and its allies, several Chinese Communist Party-owned companies were found in the funds, including the Aviation Industry Corporation of China (AVIC), China General Nuclear Power Group (CGN), and COSCO Shipping — all PLA-linked enterprises. The funds also included companies under scrutiny for forced labor practices, as well as those involved in China’s growing surveillance state.” – RR
By some estimates, American investors have provided as much as $2- $3 trillion or more in investment capital to Chinese companies over the past decade. This is partially due to a May 2013 bilateral agreement between U.S. and Chinese securities regulators, whereby U.S.-listed Chinese companies enjoy preferential access to U.S. capital markets because they are not required to meet the same financial auditing requirements as U.S. public companies.
“U.S. capital markets have funded China’s unprecedented military build-up; its Belt and Road Initiative; gross violations of human rights, including genocide and crimes against humanity; predatory and market distorting trade practices; and the wholesale theft of American technology and intellectual property.” – RR
