Industry Concerns Grow Over How to Comply With Canada's Xinjiang Trade Restrictions
Following Canada's imposition of restrictions on trade with China's Xinjiang region, stemming from the use of forced labor and other human rights violations, industry is expressing anxiety over its ability to come into full compliance with the new regulations, a lawyer said. Cliff Sosnow, partner at Fasken, told Export Compliance Daily that Canada's new regulations are meant to make it harder on importers to import goods with links to Xinjiang and to ramp up the pressure on companies to show due diligence in regard to the sanctity of their supply chains.
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The ratcheted-up restrictions on goods made with forced labor in Xinjiang were implemented Jan. 16, and the measures include a denial of export permits if there is “substantial risk” certain exports could be used for human rights violations in the region (see 2101120056). The new measures include a requirement for importers to sign a Xinjiang Integrity Declaration stating that they are not sourcing directly or indirectly from Xinjiang, and a business advisory to help businesses bring their supply chains into compliance with the regulations.
Sosnow discussed how the increased pressure from regulators to crack down on Xinjiang-sourced products will, in effect, work like sanctions or corruption and bribery restrictions. The bottom line for these regulations and importers will be to find clarity in the supply chain -- a process that has become more difficult with increasingly complex supply networks. The subtext of these new policies is to find supply chains where that clarity can be achieved, even if it means having hard conversations about swapping suppliers, Sosnow said. “It’s a hard conversation to have with suppliers, but what’s changed is that regulators are now saying, ‘We’re not going to permit this anymore,'” Sosnow said. “So you do have now a very serious legal regime with little clarity in a zero-tolerance environment, and that lack of clarity is [about] what documentation is actually needed to make regulators feel comfortable.”
Aside from the business advisory, the Canadian government has offered little in the way of what precise documentation it would require to prove that a company has fulfilled all due diligence concerns, Sosnow said. From his perspective, though, identification and certification of all suppliers are the two fundamental steps that can be taken to prove due diligence, since it ultimately is up to the border official to make a positive determination of links to Xinjiang.
The question then becomes, “How to identify and certify all suppliers?” -- an especially difficult concern if a company doesn't have the resources to find every supplier of a supplier or conduct an external audit of its supply chain. “If you’re a small or medium-sized importer, you’re like, ‘Are you kidding me? I’m not going to get an audit!’” Sosnow said. “But there are NGOs out there that may have name searches with respect to a particular market or product. I also encourage importers to contact the embassy to inquire about certain suppliers.”
Above all, these new restrictions are most likely to affect Canadian cotton importers, as 20% of the world's cotton supply comes from the Xinjiang region, including 7% just from the Xinjiang Production and Construction Corps (see 2008250018).