PPAI Magazine May 2023

Must Read | The Long March Quitting China Last year, at the 2022 PPAI Product Responsibility Summit, a poll of the industry compliance professionals in attendance found that 83% were looking to move their production out of China. That the sentiment is so strong isn’t surprising, but moving sourcing away from China represents significant challenges. Businesses’ decision to find alternatives to production in China is driven by a range of issues: • Tariffs • Supply chain disruptions • The country’s rigid COVID lockdowns • Geopolitical tensions • Forced labor allegations However, decades of investment on the part of industry and the Chinese government have built a network of production infrastructure – factories, materials vendors, a skilled workforce, transportation lines and port facilities, etc. – hard to replicate anywhere else. Laws like the UFLPA and export control rules, which prohibit U.S. companies and engineers from assisting in the production of certain types of semiconductors, place limits on what business can be done in China. But China itself has introduced legislation providing for retaliation against companies that comply with these sanctions. Isaac Stone Fish, founder and CEO of Strategy Risks, a consultancy helping companies manage and reduce their risks doing business in China, warned attendees at the 2022 Summit, “For so long, China was the source for most of your materials. In the medium and long term, that’s likely to be a liability.” Cotton Concerns Cotton leads these challenges. President Biden signed the UFLPA into law in December 2021. The legislation, which received bipartisan support in Congress, bans imports from China’s Xinjiang Uyghur Autonomous Region under the presumption that all goods made in whole or in part in the area are produced with forced labor. “In 2022, the XUAR produced roughly 90% of China’s cotton, making much of Chinese cotton product exports potentially susceptible to the UFLPA,” Stone Fish says. “That figure does not include textile products produced outside of Xinjiang with the participation of Uyghur laborers, but the UFLPA applies to such products as well.” Importers can take several steps to reduce the risk of supply chain exposure in Xinjiang, including: Understand and map the cotton supply chain from field to thread to fabric and all the way to the finished product. Hire the services of companies that specialize in supplychain analysis to investigate the supply chain for any exposure to Xinjiang or Uyghur labor. Some companies provide cotton origin tracing services based on DNA tests. Industry companies can provide samples of the cotton products for testing. However, such tests cannot detect the use of forced labor in the supply chain. Make sure that any third-party company hired to investigate a company’s supply chain is based outside of China. Keep up to date with the guidelines of U.S. Customs and Border Protection. Avoid working with any companies already identified by the U.S. government as implicated in human rights violations in Xinjiang. Isaac Stone Fish 68 • MAY 2023 • PPAI