On July 22, 2020, the US Commerce Department’s Bureau of Industry and Security (“BIS”) published a final rule (“Final Rule”) adding eleven Chinese entities to the Entity List (the “XUAR Designees”) due to their alleged involvement in human rights abuses including mass arbitrary detention, forced labor, involuntary collection of biometric data, and genetic analyses targeted at Muslim minority groups in the Xinjiang Uyghur Autonomous Region (“XUAR”). The Final Rule also provided modifications and revisions of thirty-seven existing entries on the Entity List under the destination of China.
Policy Developments Related to the XUAR
The Final Rule supplements BIS’s two tranches of Entity List designations in October 2019 and June 2020 (see our prior blog posts here and here). BIS’ recent actions reflect the growing global push to implement new regulations to prevent violations of human rights occurring in supply chains. A report earlier this year published by the Australian Strategic Policy Institute provides a summary of the concerns surrounding several multinationals’ supply chains. Seven of the recent Entity List additions were identified in this report.
In the United States, there have been several developments including new sanctions legislation signed by President Trump on June 17, 2020, recent enforcement actions by the US Customs and Border Protection (“CBP”), and the publication of the Xinjiang Supply Chain business advisory by the US Departments of State, Treasury, Commerce, and Homeland Security, cautioning against the reputational, economic, and legal risks associated with supply chain links to entities that engage in human rights abuses, including forced labor, in XUAR and elsewhere in China (see our prior blog post on the advisory here).
Basis for Entity List Designations
Under the Export Administration Regulations (“EAR”), the End-User Review Committee (“ERC”) is tasked with determining new Entity List designations. Among the criteria the ERC applies is whether there is reasonable cause to believe, based on specific and articulable facts, that a party has been involved, is involved, or poses a significant risk of being or becoming involved in, activities that are contrary to the national security or foreign policy interests of the United States. The June 2020 Entity List designations were the first time the Entity List was used as a tool to punish companies engaging in alleged human rights abuses, specifically forced labor.
Two of the companies added to the Entity List on July 22 were previously subject to Withhold Release Orders (WROs) issued by CBP. This is the first time entities named in WROs have been added to the BIS Entity List. While CBP does not have a seat on the ERC, these actions indicate that Commerce is willing to consider the lead action of CBP in making Entity List designations on the same or similar grounds as CBP relies upon to issue WROs. CBP It is also possible that CBP may issue WROs against some of the additional companies that Commerce has added to the Entity List solely on the basis of forced labor allegations.
Final Rule Restrictions
As a result of the Final Rule, companies are prohibited from exporting, reexporting or transferring items subject to the EAR to the XUAR Designees unless a license is obtained from BIS. BIS has imposed a policy of case-by-case review for items classified under Export Control Classification Numbers (ECCNs) 1A004.c, 1A004.d, 1A995, 1A999.a, 1D003, 2A983, 2D983, and 2E983, and EAR99 items described in the Note to ECCN 1A995 (items for protection against chemical or biological agents that are consumer goods, packaged for retail sale or personal use, or medical products), and a presumption of denial for all other items subject to the EAR.
The latest entities added to the Entity List in connection with the practice of forced labor involving Uyghurs and other Muslim minority groups in the XUAR are:
- Changji Esquel Textile Co. Ltd.
- Hefei Bitland Information Technology Co. Ltd.
- Hefei Meiling Co. Ltd.
- Hetian Haolin Hair Accessories Co. Ltd.*
- Hetian Taida Apparel Co., Ltd.*
- KTK Group
- Nanjing Synergy Textiles Co. Ltd.
- Nanchang O-Film Tech
- Tanyuan Technology Co. Ltd.
The entities added to the Entity List in connection with conducting genetic analyses used to further the repression of Uyghurs and other Muslim minorities in XUAR are:
- Xinjiang Silk Road BGI
- Beijing Liuhe BGI
Additionally, BIS modified each of the existing entries for the thirty-seven entities that were added to
the Entity List on October 9, 2019 and June 5, 2020.
Companies should continue monitoring XUAR developments and both US importers and exporters should implement enhanced due diligence of their supply chains with potential links to the XUAR. Baker McKenzie continues assisting many companies with designing effective due diligence responses in response to these developments and maintains a database of primary and secondary reporting from various sources (governments, press, NGOs) of facilities allegedly linked to the use of forced labor. If you have questions, please contact the authors.
The authors thank Maxine Jacobson for contributing to this blog post.