"Forced Labor Regulations on Uyghurs... Thorough Inspection of Supply Chains in China and Third Countries with Partners"

Institute of Martial Arts Commerce Research 'Forced Labor Regulations and Corporate Response Measures' Report
US Bans Imports of Uyghur Products... EU Also Legislates

There is growing risk of forced labor regulations related to products made in the Xinjiang Uyghur Autonomous Region of China, and companies need to exercise caution, according to an analysis.

The Korea International Trade Association (KITA) announced on the 8th that its International Trade and Commerce Research Institute published a report titled "Trends in Forced Labor Regulations and Response Measures for Korean Companies."

Since the implementation of the U.S. Uyghur Forced Labor Prevention Act (UFLPA) in June 2022, trade sanctions on products made with forced labor have intensified. Under the UFLPA, the U.S. prohibits the import of all products mined, produced, or manufactured in the Xinjiang Uyghur Autonomous Region of China. It also sanctions third-country products that use Chinese raw materials, components, or parts.

According to an investigation by the U.S. Customs and Border Protection (CBP), imports worth $2.205 billion (approximately 2.95 trillion KRW) have been held at customs since the UFLPA took effect. Only 13% of the final shipment destinations were products from China, meaning 87% were from third countries. Malaysia (53%) and Vietnam (26%) accounted for more than China. The regulated items have also expanded. Initially, priority items were cotton, tomatoes, and polysilicon. Now, automotive parts such as electric vehicle batteries and industrial raw materials like aluminum are also included.

The European Union (EU) also legislated the "Regulation on the Prohibition of Import of Products Linked to Forced Labor" earlier this year. The European Commission's draft prohibits the import, release for sale on the EU market, and export outside the EU of products linked to forced labor, even if only a small amount of components are involved. While the Commission proposed that the burden of proof lie with the authorities of member states, the EU Parliament suggested amendments to impose responsibility on companies. Unlike the U.S. UFLPA, the EU regulation can be applied to all regions, implying that sanctions on Southeast Asian products may increase.

The EU Supply Chain Due Diligence Directive, which will take effect early this year, also includes forced labor as a subject of due diligence. The directive mandates human rights and environmental due diligence throughout the supply chain, including subsidiaries and partners. It applies to non-EU companies with a certain scale of sales in the EU. Violations may result in fines proportional to sales or civil liability claims.

Uighur unrest. [Photo by EPA Yonhap News]

The report advises Korean companies to be cautious about increased processing and assembly of Chinese raw materials, components, and parts in third countries; the use of materials and parts from Xinjiang Uyghur; difficulties in information collection due to Chinese government controls; and forced labor in the Asia-Pacific region outside China. Not only the U.S. and EU but also Chinese government control policies have intensified, making it difficult for companies dealing with Chinese or Xinjiang Uyghur partners to conduct forced labor due diligence.

Some companies, such as OCI, may benefit indirectly. Due to the U.S. Inflation Reduction Act (IRA), new solar power installations in the U.S. have surged, and imports of solar cells and modules made from Chinese polysilicon are restricted under the UFLPA. As a result, the price of non-Chinese polysilicon ($22.7 per kg, approximately 31,500 KRW) has risen 147% higher than Chinese polysilicon. Globally, only three companies produce non-Chinese solar polysilicon: OCI, Germany's Wacker, and the U.S.'s Hemlock.

The report points out that domestic small and medium-sized enterprises (SMEs) and mid-sized companies lack sufficient supply chain management capabilities. Senior Researcher Han Areum of KITA said, "Companies exporting to the U.S. and EU should collaborate with their partners to map out the entire supply chain, including raw materials, intermediate goods, and components, to assess forced labor risks in detail." She added, "It is advisable to establish forced labor prevention and due diligence policies and sign codes of conduct with partners, but if that is difficult, companies can use guidelines provided by organizations such as the Responsible Business Alliance (RBA)."

The RBA is a global corporate coalition on social responsibility in supply chains, with members including Samsung Electronics, LG Electronics, SK Hynix, and LG Energy Solution. It operates codes of conduct on labor, occupational health and safety, environment, corporate ethics, and management systems. Senior Researcher Han noted, "If forced labor risks are found and supply chains need to be reorganized, it may become difficult to find alternative suppliers, and issues such as cost increases and deterioration in raw material and component quality should be considered."

This content was produced with the assistance of AI translation services.