It’s possible a U.S.-based importer’s foreign-manufactured apparel or textiles could contain cotton produced by forced labor in China’s Xinjiang region – and the importer wouldn’t even know it, given how opaque, complex and intertwined global supply chains have become, some sourcing experts say.

That’s more than just an obvious moral problem. It’s also a bottom-line business issue: Border agents, should they suspect the Xinjiang connection, can detain the products and never allow them to enter the United States under the new Uyghur Forced Labor Prevention Act (UFLPA).

Such is one of the complicated, potentially problematic scenarios that can arise for importers in the promotional products market and other industries, now that U.S. Customs and Border Protection (CBP) began enforcing the act on June 21.

To help promo importers navigate the new regulations, we’ve compiled this guide on the UFLPA, its potential implications for things like inventory and product pricing, and sourcing strategies that can potentially help companies operate within the law.

While there’s uncertainty and unknowns, one thing is for sure: Whether you’re a supplier or distributor, if you do any direct importing or source from domestic companies that do, this act has the potential to affect your business. Being informed and well-positioned to deal with it correctly is paramount – for business and ethical reasons alike.

What’s the UFLPA?

Following bipartisan approval in Congress, President Joe Biden signed the Uyghur Forced Labor Prevention Act into law in late December 2021. Under this decree, all goods, merchandise, articles and merchandise extracted, produced or manufactured in whole or in part in the Xinjiang Uyghur Autonomous Region (XUAR) in northwestern China, or by entities identified by the U.S. government in the UFLPA Entity List, will be presumed by CBP to be from forced labor and will be prohibited from entering the U.S. The presumption also applies to goods manufactured or shipped through China and other countries that include inputs manufactured in XUAR.

U.S. Customs & Border Protection will begin enforcing a ban on imports from Xinjiang on June 21. Importers in the #promoproducts market and all industries must ensure none of their supply chain runs through the region of China. https://t.co/B1bh7TLJan@asicentral

— Chris Ruvo (@ChrisR_ASI) June 3, 2022

Put most basically, if an imported item contains even a tiny input from Xinjiang, CBP can seize the product and refuse its entry into the United States. Importers will have the chance to prove to CBP that a product or input from Xinjiang is not made with forced labor, but the standard of proof will be difficult to meet. “Should any entity have product coming from Xinjiang, it will be nearly impossible to prove that it was not made utilizing forced labor,” opines Nathan Cotter, vice president of supply chain at Top 40 supplier Hit Promotional Products (asi/61125).

Why the Xinjiang Ban?

There’s widespread – and growing – evidence that China’s government is pressing Uyghur people and other ethnic minorities primarily of the Muslim faith into forced labor in Xinjiang. Other abusive practices have reportedly been documented, too – from wrongful imprisonment and torture to forced sterilization. Some, including President Joe Biden, have called China’s treatment of the Uyghur people genocide. Beijing vehemently denies any wrongdoing.

Given the reported oppression in XUAR, Congress decided to ban imports from the region. A primary goal of the ban is to compel China’s authorities to change their alleged inhumane practices.

Xinjiang’s Role in Global Supply Chains

China accounts for nearly 30% of the world’s manufacturing output, and Xinjiang is a key region in global supply networks when it comes to a range of materials and products, including cotton and polysilicon, which are essential to apparel and solar panel production, respectively. Kharon, a data and analytics firm, reports that Xinjiang produces more than 40% of the world’s polysilicon and one-fifth of global cotton. The region also accounts for 15% of the world’s hops and about one-tenth of global walnuts, peppers and rayon.

Xinjiang is a major producer of cotton.

Impacts on Importing, Product Pricing

The Biden administration has said it intends to rigorously enforce the Xinjiang ban. That has potential wide-reaching implications. Altana AI, a supply chain technology company, told The Seattle Times that roughly 1 million companies globally would be subject to enforcement action – detention of goods – under the law. That’s reportedly about 10% of businesses worldwide that are buying, selling or manufacturing physical goods.

Some, but not all, sourcing pros think the act will lead to longer delays in getting imported products through U.S. customs. That could exacerbate inventory restocking challenges, which have plagued promo during the COVID-19 pandemic. Meanwhile, the act has compelled sourcing leaders to shift where they buy certain materials and have products manufactured to new locales in the hope of avoiding any Xinjiang connections – and this shift will continue. That creates internal complexities for importing businesses in promo and beyond. It also can come with increased costs, and expenses may get passed on to consumers and B2B buyers in the form of higher product prices.

“Movement in sourcing can present challenges, such as increased pricing and longer lead times,” Cotter shares. “Those can be tied to factors such as higher labor costs in new locations, higher raw material costs, less developed infrastructure, less product to consolidate into full shipping containers, and fewer sailings from ports than that of major Chinese ports.”

Promo’s Changing Sourcing Practices

For several years now the U.S. government, human rights groups and other entities have been sounding the alarm about Xinjiang. As such, even before the Uyghur Act passed, certain suppliers/importers in promo began directing their supply chains away from the region or deeply analyzing their sourcing networks to ensure they already didn’t pass through Xinjiang.

“We stopped all production from Xinjiang in 2020 and I would hope that other suppliers would have done the same,” says Dilip Bhavnani, chief operating officer at Top 40 supplier Suncope (asi/90075) and a member of Counselor’s Power 50 list of promo’s most influential people.

Hit has been highly proactive as well. “We began moving cotton sourcing out of China over two years ago, along with collecting documentation on the source of raw materials from manufacturers in other countries,” explains Cotter. “Cotton is one of the main materials of concern within this new regulation. To address components of all products, we have required manufacturers to declare the component supplier on the product bill of materials, which is then reviewed by our compliance team.”

“Should any entity have product coming from Xinjiang, it will be nearly impossible to prove that it was not made utilizing forced labor.” Nathan Cotter, Hit Promotional Products

Some executives, including Bhavnani, say those are smart moves, but not necessarily ones that every – or even many – promo importers may be taking. That potentially opens up such businesses, and thereby the industry more generally, to product detention/deportation and related ills, like the aforementioned inventory replenishment issues.

“Many distributors and suppliers import directly but their volume does not allow them to have the teams in place to ensure that they are fully aware of new governmental requirements or sustainable and ethical sourcing,” Bhavnani opines. “These companies may not even know of these new Uyghur Act requirements and they will be left scrambling. It’s very important to work with a strong, experienced supplier that has a compliance team in place to ensure its sourcing meets all governmental requirements.”

Take Action

For sure, there are actions promo companies can take to become an ethical importer with a well-vetted supply chain, such as Bhavnani describes. Here are some strategies to follow.

Read Up: Thoroughly review the CBP’s Operational Guidance for Importers, which gives a fairly concise breakdown of how importers can proceed in light of the Uyghur Act. Also, read this in-depth document from the Department of Homeland Security: the “Strategy to Prevent the Importation of Goods Mined, Produced or Manufactured with Forced Labor in the People’s Republic of China.”

Review the Entity List: Make sure no companies listed on the UFLPA Entity List are within your supply chain. This may require digging through multiple layers of your sourcing network, but is an essential undertaking.

Conduct a Detailed Supply Chain Inspection: Start by mapping your supply chain. “This means detailing from where and whom raw materials are sourced up to the last possible tier, i.e. the supplier of the supplier,” says Dr. Bertha Martinez-Cisneros, a sourcing expert and coordinator of the degree program in international logistics at CETYS University.

Next, as part of the inspection, examine the manufacturing documents of all components. “No part of the process or material along the supply chain should be left out,” says Martinez-Cisneros.

Additionally, assess the risks of each link in the supply chain. This should involve preparing a system to evaluate the vendor/supply chain partner as to how much risk they put on your import process. For example: Is the supplier on the entity list? Does the supplier have internal control to mitigate potential forced-labor risk?

“We stopped all production from Xinjiang in 2020 and I would hope that other suppliers would have done the same.” Dilip Bhavnani, Sunscope

Shift Sourcing Where Necessary: If your supply chain review identifies obvious or potential exposure to Xinjiang, seek alternative sources for the materials/products outside the region. It’s easier said than done and can prove expensive, particularly as other sourcing pros will be doing the same, which creates competition and can fuel price rises on materials and production. Still, finding alternative sources for, say, cotton in major cotton-producing countries like India, Brazil, Pakistan, Turkey and even the U.S. is possible, sourcing leaders say. Though be mindful: Sometimes yarns are formed from cotton blends from multiple nations; root down to ensure none of that cotton is from Xinjiang.   

Bolster Documentation to Prove Your Products Are Xinjiang-Free: This should center on gathering evidence pertaining to your supply chain. “Collect documentation/affidavits that demonstrates that items have no connection to XUAR from each identifiable supplier and manufacturer,” advises Martinez-Cisneros. “Even the roles of the actors in the supply chain, including shippers and exporters, should be identified.”

CBP will have the ability to request documentation tracing the supply chain from raw materials to the imported good. As such, prepare a system to keep evidence pertaining to raw materials, merchandise, product or any component thereof. Have it all ready to present to authorities.

“Considering the volume of products and operations, a system with information such as purchase orders, invoices for all suppliers and sub-suppliers, packing list, bill of materials, certificates of origin, payment records, sellers’ inventory records (including dock/warehouse receipts), invoices and receipts for all suppliers and sub-suppliers, import/export records…it all needs to be in place as soon as possible,” says Martinez-Cisneros.

Doing the work to remove connections to Xinjiang – and being able to document them to the letter – will be pivotal, as the standard for proving any inputs/products from the region are not made with forced labor will be high. The government will demand a wealth of documentation and it will ultimately be up to the CBP commissioner to rule if items with Xinjiang ties are truly untainted by force labor. “Clearly the best practice is to do as much work as possible on the front end to limit risk during the import and clearance process,” says Cotter. 

Pay Particular Attention to Cotton Supply Chains

CBP has made it clear that it will be intensely focused on cotton products in the enforcement of the Uyghur Act, given Xinjiang’s high level of production of the commodity. Therefore, apparel importers and those who import other items (headwear, bags, towels, etc.) containing cotton will want to have an especially deep reserve of documentation on the supply chain of those products.

Xinjiang reportedly produces about
20%
of the world’s cotton supply.

CBP suggests being prepared to provide any records that may be kept in the ordinary course of business (e.g., purchase orders, payment records, etc.), to show the entire supply chain, from the origin of the cotton at the bale level to the final production of the finished product.

The agency also advises importers to be prepared to provide a flow chart of the production process and maps of the region where the production processes occur. “Number each step along the production process and number any additional supporting documents associated with each step of the process,” CBP states.

Furthermore, CBP says to identify all the entities involved in each step of the production process, with citations denoting the business records used to identify each upstream entity with whom the importer did not directly transact.

Advice for Distributors & Decorators That Don’t Import

Promo distributors/decorators that don’t import directly can take steps to protect against selling products made with forced labor from Xinjiang. These include asking the supplier/importer for an import entry summary to be sure the merchandise they’re procuring entered the U.S. legally and complies with UFLPA and other regulations.