.jpg)
Share this post
The Uyghur Forced Labor Prevention Act (UFLPA) went into effect on June 21, 2022, and marks a growing trend in fair labor legislation and enforcement around the world. The law enables U.S. customs to block imports from entering the United States that are linked to forced labor in the Xinjiang region of China.
This has far-reaching implications for a variety of industries tied to the region, including oil and gas companies. Going forward, these companies will need to do their due diligence to ensure they do not have suppliers in the Xinjiang region—at any level.
Below we’ll break down what you need to know about the current legislative landscape, what you need to do to comply, and how robust supplier intelligence can help.
Let’s dive in.
The U.S. has banned the import of goods tied to forced labor since the 1930s under the Tariff Act. However, it could only be enforced based on “reasonable evidence” of abuse—a difficult benchmark to meet. With increasing reports of human rights violations in China in recent years, legislators in the U.S. and around the world have mobilized to take strong action to curb the abuse, leading to the creation of the UFLPA in the U.S. and other legislation, including:
The UFLPA specifically addresses the forced labor violations, among other human rights abuses, against the Uyghurs—an ethnic minority native to the Xinjiang Uyghur Autonomous Region (XUAR) in northwestern China.
The Uyghur Forced Labor Prevention Act (UFLPA) prohibits the importation of any goods that have been mined, produced, or manufactured both wholly or in part in the XUAR.
Unlike the Tariff Act, the UFLPA places the burden of proof on importers to show that the goods they’re importing are not sourced from or manufactured in Xinjiang. If that standard cannot be met, the goods will be detained at customs.
To date, $961 million USD worth of shipments have been detained or audited.
Additionally, most shipments manufactured in China are now required to include the postal code of the factory of origin. If the postal code is missing, invalid, or associated with the XUAR region, the system will alert the U.S. Customs and Border Patrol and may result in shipments being detained.
This increased level of scrutiny means companies will need to do more due diligence into their supply chains—not only to avoid shipment detainments and any resulting delays in their own operations, but also to prevent serious reputation, legal, or ethical risks.
About 0.01% of total goods imported into the U.S. come directly from the XUAR. However, the Xinjiang region has significant production capacity across many key raw materials and product components that touch multiple industries, including oil, aluminum, automotive, and agriculture (particularly cotton and tomatoes).
Additionally, these materials are often incorporated into products finished in other parts of China or transshipped through other countries before export to the U.S. So even though a relatively small amount of finished products derive from XUAR, the scope of products and industries touched by the XUAR along the supply chain is much greater—and often difficult to trace.
This means the UFLPA has a huge scope of impact. And while the CBP has secured additional funding to improve its methodologies to track and audit goods coming into the U.S., it is facing an uphill battle.
For instance, the Xinjiang Production and Construction Corps (XPCC)—a state-owned economic and paramilitary organization in the XUAR—has spent billions of yuan to incentivize companies to establish themselves in Xinjiang and has also lowered environmental regulations in XUAR. This means production capacity in these areas will continue to grow, increasing the foothold XUAR has in global supply chains.
And despite U.S. sanctions and import restrictions, the U.S.’s imports from XUAR have been increasing. In fact, between 2019 and 2020, the U.S. was the XUAR’s fastest growing export market, rising by more than 250% ($26.6 million).
Historically, China has been one of the world’s largest importers of oil, but with increasing demand due to the growing economy, they have been shifting and investing in domestic production and exploration, specifically in the Xinjiang region.
Today, oil and gas make up a significant part of XUAR’s exports and are a key focus in China’s plans for strategic growth. Xinjiang’s oil and gas reserves account for about 20% of China’s total reserves, with the two largest oil reserves located in Xinjiang.
But like other industries in the region, the oil and gas companies actively recruit Uyghur workers. One such company is Dushanzi Petrochemical, a subsidiary of PetroChina, Asia’s largest oil and gas producer. Located in Xinjiang, Dushanzi Petrochemical sources its petroleum from the Tarim Oilfield, the largest oil and gas bearing area in China (with estimated reserves of 1 billion tons of oil and gas) and which is known to use Uyghur labor. In 2022, the company reported it had churned out more than 17 million tons of crude oil and natural gas—a record high.
Silica-based products are a high-priority sector for UFLPA enforcement that can also impact oil and gas imports. Silica has a number of uses across multiple industries, including the oil and gas industry, where it is used as a proppant during the hydraulic fracturing process. As a result, oil and gas companies will have to manage increased scrutiny from customs based on the industry’s ties to the raw material.
According to the U.S. CBP, “All entities whose supply chains touch the XUAR or any entity on the UFLPA Entity List should undertake due diligence measures to ensure compliance with U.S. laws and trace their supply chains for potential exposure to forced labor.”
Compliance with the UFLPA will require robust policies and processes to map suppliers, trace products and their components to their origin, and report on the findings.
Companies must show that they have:
To do this, companies must provide
End-to-end supplier mapping is especially important, as there are loopholes that allow companies to circumvent the law or obfuscate the origin of its goods. For instance, transshipping products through other countries or locations can obscure the original source of the products.
Additionally, Chinese companies may have headquarters in other regions that still have presences or relationships with XUAR suppliers. Without a comprehensive supplier map, companies will have risky blindspots when it comes to their product origins. And it will be difficult to demonstrate compliance with the UFLPA and other due diligence legislation.
The U.S. CBP recommends companies:
Under the UFLPA, it is the importer’s responsibility to know its supply chain. But today’s supply chains are increasingly complex, and identifying, tracing, and confirming product origins and whether they are linked to labor violations is a huge task.
Companies can no longer only rely on the word of their suppliers or Tier-1 supplier monitoring to cover their liabilities—especially companies in high-risk industries like oil and gas that are subject to even greater scrutiny. To ensure compliance and confidently move forward with suppliers, companies need robust, reliable data that looks at the entire supply chain.
That’s where Craft comes in. Craft’s comprehensive supplier intelligence solution gives companies a 360-degree view of their supply chain with a suite of features and capabilities, such as:
Locations: See all areas where a company has a presence, beyond just headquarters locations.
N-Tier Mapping: Visualize your downstream suppliers with n-tier supply chain mapping down to raw materials sources via Craft’s partner, Versed.Ai.
Compliance & Risk Data: After identifying what companies are in your supply chain, uncover risks, politically exposed people (PEP), mergers and acquisitions, and first-party data to develop a complete picture of your risk landscape. Review relevant sanctions lists and compare to your supplier map. This not only helps to identify issues specific to UFLPA, but potential risks and opportunities beyond it.
Alerts: Proactively solve supply chain issues by tracking real-time news and events alerts. With early notice, you can stay ahead of the curve and minimize compliance risks that may arise over time.
