What it means for the solar supply chain
On December 23, 2021, President Biden signed into law HR 6256, known as the Uyghur Forced Labor Prevention Act. The law is intended to stop the importation of goods made by forced labor from the Xinjiang Uyghur Autonomous Region of the People’s Republic of China into the United States. The law provides additional enforcement tools to complement the already existing protections against the importation of goods produced by forced labour.
Implementation of the law
The law mandates a federal task force to develop a strategy for tackling the importation of goods extracted, produced or manufactured wholly or in part by forced labor in China. This strategy is to be developed over a period of approximately four months and involves soliciting public comments and a public hearing. The task force will submit a report outlining its strategy within six months of the law coming into force. The report should also include the following:
- A list of entities in the Xinjiang region that use forced labor to mine, produce or manufacture goods, wares, articles and merchandise, in whole or in part;
- A list of entities cooperating with the Government of the Xinjiang Region to recruit, transport, transfer, accommodate or receive forced labor or Uyghurs, Kazakhs, Kyrgyz or members of other persecuted groups from the Xinjiang Region;
- A list of products mined, produced or manufactured in whole or in part by entities on the list required by clause (i) or (ii);
- A list of entities that have exported the products described in clause (iii) from the People’s Republic of China to the United States;
- A list of facilities and entities, including the Xinjiang Manufacturing and Construction Corps, that source materials from the Xinjiang Region or of individuals cooperating with the Xinjiang Region Government or the Xinjiang Manufacturing and Construction Corps for the “Poverty Reduction” program or the mating assistance program or other government labor program that uses forced labor;
- A plan for identifying additional facilities and entities described in clause (v);
- An enforcement plan for any such entity whose goods, commodities, or merchandise are exported to the United States, which may include issuing withholding orders to support the enforcement of Section 4 with respect to the entity;
- A list of high priority sectors for enforcement, including cotton, tomatoes and polysilicon; and
- An enforcement plan for each of these high-priority sectors. (emphasis added)
The task force will also provide importers of products that may have been obtained through forced labor with additional guidance on identifying and tracing such products to limit their entry into the United States and to help importers locate and obtain products containing the use of forced labor from regions or countries of concern. The guidance will include the following:
- Due diligence, effective supply chain tracing and supply chain management measures to ensure that such importers do not import goods that have been extracted, produced or manufactured in whole or in part by forced labor from the People’s Republic of China, especially from the Xinjiang region;
- The type, nature and extent of evidence showing that goods originating in the People’s Republic of China have not been mined, produced or manufactured wholly or in part in the Xinjiang region; and
- The type, nature and extent of evidence proving that goods originating in the People’s Republic of China, including goods detained or seized under Section 307 of the Tariff Act of 1930 (19 USC 1307), are not wholly mined, produced or manufactured or partly by forced labour.
The provisions of the “rebuttable presumption” of the law
With respect to all goods, commodities, articles and merchandise mined, produced or manufactured or produced in whole or in part in the Xinjiang Region by the entities identified in the Report to Congress (see (i), (iii), (iv) and (v) above), the law provides that the Commissioner of US Customs applies a presumption that such goods have been produced in violation of Section 307 of the Tariff Act (which includes the prohibition on the importation of goods using forced labor ) and that they have access to the United States. The Commissioner will apply this “rebuttable presumption” unless it determines (1) that the Registered Importer (A) has fully complied with the above guidelines and any regulations issued to implement those guidelines, and (B) fully and substantively has responded to all requests for information submitted by the Commissioner to establish whether the goods have been mined, produced or manufactured wholly or in part by forced labour; and (2) by clear and convincing evidence that the good, commodities, article or merchandise has not been mined, produced or manufactured in whole or in part by forced labour.
Challenges for the solar industry
The law’s emphasis on the polysilicon sector will have a significant impact on the solar PV module market in the coming months. Indeed, pending the passage of the act (and following the Addition of the Commerce Department to the Entity List of Prohibited Importers several silicon producers in the Xinjiang region last summer), many solar PV developers and contractors have already switched from purchasing PV modules from manufacturers with known connections to the Xinjiang region, where a significant amount of raw polysilicon is sourced. However, much uncertainty remains about which entities will be named on the list for which the law’s “rebuttable presumption” applies – a question that will no doubt be hotly debated given the ramifications. Listed entities may have to severely limit their presence in the US market, or even find it impossible to maintain a presence and leave the US altogether.
Solar PV developers and contractors should consider immediate mitigation measures to prevent the potentially catastrophic consequences of their projects from being involved in forced labor concerns, including violations of the law. Cautious mitigation measures may include:
- Implement robust supply chain traceability audit programs from PV module manufacturers to identify potential issues related to forced labor;
- Collaborate with PV module manufacturers in immediate due diligence of their polysilicon sourcing, including addressing any potential risk of Section 307 enforcement;
- Investigating and ensuring forms of performance security by manufacturers of PV modules (e.g., bonds, letters of credit, etc.) to provide adequate remedies in the event of default, especially where manufacturers have a limited presence in the US;
- Identify and develop relationships with manufacturers of alternative PV modules to diversify purchasing options in case PV modules need to be replaced or replaced due to an import ban; and
- Limit or postpone purchases of PV modules where possible pending more clarity and certainty about the progress of the implementation of the law.
International Trade Management Compliance Programs
As evidenced by the challenges facing the solar industry regarding the law, there is no “one-size-fits-all” approach to regulatory compliance programs for managing international trade. SEIA has its own traceability protocol for the solar energy supply chain and encourages its members to The solar industry’s commitment to environmental and social responsibility.
In addition to purchasing PV modules in the solar industry, it is likely that other sectors of the renewable energy sector will be affected by the law once the implementation process begins: As an example, lithium is mined in the Xinjiang region and used for battery power. energy storage systems can be subject to the same stricter import controls under the law.
We can continue to expect understandable concerns and related policy shifts about human rights issues in the global trade sector in the coming years. To ensure supply chain integrity and mitigate the risks of violating trade regulations and sanctions laws, PV developers and contractors should consider implementing robust internal compliance programs that are consistent with risk-based guidelines from the Office of Foreign Assets Control (OFAC) (the Treasury Department’s Sanctions Program Administrator).