Intro/Outro (00:01):
Welcome to dial P for procurement, a show focused on today’s biggest spin supplier and contract management related business opportunities. Dial P investigates, the nuanced and constantly evolving boundary of the procurement supply chain divide with a broadcast of engaged executives, providers, and thought leaders give us an hour and we’ll provide you with a new perspective on supply chain value. And now it’s time to dial P for procurement
Kelly Barner (00:31):
On June 21st, 2022, the weaker force labor protection act took effect. It only took days for the first enforcement activity to take place. Us customs officials sees large shipments of solar panels planning to hold them until the importer could document the source of the poly Silicon used to make those panels. Top China based solar panel manufacturers include Longie green energy technology company, Ginko solar company, and Trina solar company. And they are allegedly among those involved. According to PV magazine USA, a news based website that covers the us solar photo Vota community. Now given the uncertainties of the process of getting these panels through customs, many of the panels have actually been removed and shipped elsewhere outside of the United States. Ginja province harbors about 41% of the world’s manufacturing capacity for poly Silicon, a critical ingredient for making solar panels. This is according to clean energy associates, a group that audits the solar supply chain.
Kelly Barner (01:47):
This has been an enormous story because as a result of this new regulation, us customers could see 10 gigawatts or more of supplies delayed. And if you don’t happen to know how many solar panels 10 gigawatts is, I certainly didn’t. That’s equivalent to nearly half of what was installed in the United States last year, in addition to supplies being scarce panel costs have risen 30 to 40% due to the new law. So in this episode of dial P what we’re gonna take a look at is the intent versus the effect of the weaker forced labor protection act. What’s it supposed to accomplish? What has the implementation of the law been like so far and what questions remain now before I go any further, let me introduce myself. If you’re new to dial P for procurement, I’m Kelly Barner, I’m the co-founder and managing director of buyers meeting point.
Kelly Barner (02:51):
I’m a partner at art of procurement, and I’m your host here on dial P on supply chain. Now I am constantly scanning the news for complex articles that I think are worth discussing. These are topics and stories that are interesting, but may escape. People’s notice. I also like to follow stories beyond the headlines. You can call your legislation, whatever you want. What we need to hear is a lot less talk, and we need to see a lot more action. Dial P releases, a new podcast episode, or interview every Thursday. So beyond the lookout for future episodes. And don’t forget to go back and check out our past episodes as well. Now, before I get back to today’s topic, I have a quick favor to ask. I work very hard to make sure you find value in the time that we spend together. If you do, I would love for you to give us a review on iTunes, offer up some stars as a rating on your podcast platform of choice or share this episode post wherever you found it on LinkedIn or Twitter, you can even send this directly to a colleague that you think would benefit from hearing it as always.
Kelly Barner (04:08):
I’m incredibly grateful for your interest and your attention. So thank you for giving me this time. Now let’s go back to this topic by having a quick review of who exactly the are. And if you haven’t come across this, at least in audio form Uighurs is U Y G H U S not exactly phonetic connection between the spelling and the sound. If you’re new to this topic, I also recommend you check out the live stream that Scott Luton and I did with Constantine limbus from risk methods earlier in the year, it was incredibly informative and will give you additional foundational information about the U F L P a, but generally speaking, the Uighur are residents of the mostly Muslim Xinjiang, autonomous region of China. Now that’s what China and the rest of the world calls this region, but the Uighurs and the people who live in that region consider themselves east.
Kelly Barner (05:08):
Turkistan not Xinjiang China. This region of the part of the world has been under intense scrutiny because of reports of state sponsored force, labor, internment camps, and reeducation camps, which the Chinese actually call labor transfer programs. So, as I mentioned, the U F L P a is a law that took effect in June of 2022. It’s a us federal law that assumes all goods coming from Xin. Jang are the product of forced labor companies can petition to have goods from this part of the world, exempted and allowed to import into the United States, but it is intentionally difficult to do so. The burden of proof is on the importers to demonstrate that their product is not the result of forced labor, not the other way around achieving compliance with this rule is a huge and difficult undertaking. According to the diplomat.com Xinjiang gives the world 20% of its cotton, 40% of its poly silicone supply for solar panels, 13% of wind turbines, 25% of tomato paste, 11% of Walnut supply, and 10% of all rayon.
Kelly Barner (06:29):
So think about this in comparison to the Ukraine’s impact on the world food supply. It is on that scale, but the difference is it is spread across many more industries. And these goods from gen J are actually being imported into more parts of the world than food is from Ukraine. Especially once we start to look multiple tiers into the supply chain, the risk that some of these products and materials could reach the us either in defiance of, or without the notice of the U F L P a is extremely high. And as you can imagine, because China is involved, this is a highly sensitive political issue. In fact, the United nations recently released a really significant report on the Uighurs. It was released just minutes before midnight on Wednesday, August 31st by United nation’s high commissioner for human rights, Michelle, ESLE now the importance of her releasing it minutes before midnight on Wednesday, August 31st is that those were the final minutes of her four year term.
Kelly Barner (07:40):
And she has indicated that she does not plan to seek reappointment to that role. The report generally supports claims by Western governments and human rights watch groups that there are high levels of disappearances and use of reeducation and internment camps in gen Jang. Talk about a news dump. She basically released this report at the very last minute, and doesn’t intend to be around, to deal with the political fallout. Now that could be good or bad, but it certainly raises the question and the import of who her successor will be. What difference will this report make? The United nations has come out and said it does not constitute a formal investigation, but it certainly could trigger one. And the real challenge is that China sits on the 47 member, UN human rights council. They have a year left in their term, and it both seems like a conflict to have them as part of this massive investigation and also sitting on the council that will review and decide whether or not to act on the report.
Kelly Barner (08:51):
So between how that moves forward with China on the panel and who comes in to replace Michelle bale leaves, huge questions about what’s next in terms of global response and enforcement against what’s happening in Jinjiang. Now, China has taken a very strong position against both the U F L P a and also this United nations report. They had an opportunity to read it before it was released and they lobbied for it to be kept private. Now, on the other hand, the United States accused the United nations of dragging their feet on the release. The Chinese justify their actions in Genji as being in response to quote terrorism and extremism. And certainly in the us, we can appreciate a government wanting to respond. However, the United nations does require even responses to terrorism and extremism to remain in alignment with generally accepted human rights, standards and practices, which internment camps and reeducation camps don’t align with.
Kelly Barner (10:00):
Now, I thought it was interesting. And I do like to provoke thoughts. So this was the quote I chose to go with this week’s episode. Here’s a piece of the response, the formal response from the permanent mission of the people’s Republic of China to the United nations office at Geneva, their response was released in conjunction with the report itself. And I thought this one quote was particularly telling quote at present gin, Jang enjoys, social stability, economic development, cultural prosperity, and religious harmony people of all ethnic groups, and Jinjiang are living a happy life in peace and contentment. It is the greatest human rights protection and the best human rights practice end quote. Now, I haven’t been to Jinjiang, I’ve only read the reports in the articles of the region, but that certainly doesn’t align with most of the discussions worldwide. Now, what has been the impact of the U F L P a so far?
Kelly Barner (11:01):
We’ve already talked about the huge impact had in the solar panel industry, cotton is a significant issue. Tomatoes are a significant issue. And specifically there’s a type of red date that recently has been found in grocery stores around Washington DC, which seems ironic their packaging even bears the logo of the Xinjiang production and construction core. One of the reasons there’s elevated concerns around these red dates is because the fruit is the practice of what’s called inter cropping, where two crops are grown in the same area at the same time. And these specific dates are grown alongside cotton, which is one of the number one materials of concern coming out of this province, because we know it is historically associated with forced labor. So that sort of general news coverage, big picture, uh, international perspective on the topic, but let’s look at it from a supply chain perspective.
Kelly Barner (12:05):
Obviously, if you operate a company being in violation of the U F L P a is incredibly bad legal legally, and from a brand reputation standpoint, if your company is accused of violating it, it will require costly legal investment to clear your name. And even if you do manage to achieve that, the damage will be done, no one ever reads those re retractions in the newspaper, right by then, it’s just too late, but that’s first tier. What about the second and third tiers of the supply chain? Cotton and tomato products from Vietnam are of particular concern as Vietnam is a large and longstanding trade partner with China, including suppliers in Xinjiang. So there’s concern that product marked as coming from Vietnam may actually still be tainted by forced labor in gen Jang and involves some very large company names. For instance, back in March of this year, Amazon was accused by the tech transparency project, a research group run by the nonprofit organization campaign for accountability of having third party suppliers on its e-commerce platform.
Kelly Barner (13:18):
That source materials such as cotton from Xinjiang now, March was before the U F L P a took effect, but it still points to a problem deep in the supply chain, there was all kinds of buying and sourcing involving China, sorting out when products and labor from Xinjiang are involved is very difficult. So companies really have to invest in their supply chain mapping, keep it up to date and be incredibly precise. And this isn’t just Amazon. The same watchdog group found that apple had worked with suppliers connected to labor transfer programs known in Western lingo as reeducation camps. So what’s the takeaway from all of this complexity, from my perspective, it’s the difference between intent and effect, especially around enforcement, us customs plans for enforcement need to be made abundantly clear, partly for the sake of transparency. Everyone involved needs to understand what’s required and what’s at stake, but also as a deterrent, if we’re trying to change the thought process and the strategy and the total cost structure around sourcing from this region of China needs to be very clear to everyone just how big the risk is.
Kelly Barner (14:41):
And this enforcement needs to be absolutely even handed all companies regardless of brand size and headquarters location need to be involved. I think the bar for standard compliance should be even higher for consumer brand companies that are very outspoken about their ESG practices. That’s their environmental, social, and governance related programs. You can’t on the one hand, be espousing your sustainability and human rights investments, as well as your governance ability to remain compliant. And at the same time, not necessarily supporting legislation like the U F L P a that raises the standards in order to have the same effect in 2020 companies like apple, Nike, and Coca-Cola spoke with Congress and provided feedback on a draft version of the U L P a legislation that the business and human rights center characterizes as trying to weaken the bill. So consumer brands that speak out strongly about not having human rights abuses in their supply chains.
Kelly Barner (15:56):
It’s one thing to say those things, but when the burden of proof is demonstrating that you do not rely upon forced labor, many thousands of miles away from where your consumers live, that really does elevate the stakes. The reality is that these circumstances are very hard to root out. They are deliberately being concealed and conditions are always changing. This is made especially difficult to monitor because China’s zero COVID policy makes it nearly impossible for anyone to get into mainland China, to inspect facilities, let alone into Xinjiang province. The additional complexity here is that many of these large brands also sell in China. So they have to be very careful about how they make public statements about their support of adjustment, to compliance with the U F L P a Walmart’s Sam’s club wholesale operator faced intense criticism from Chinese consumers after products made in Xinjiang were removed from their app.
Kelly Barner (17:07):
So in other words, they’re removing products that the Western world would consider inappropriate and illegal to sell. And they got push back in criticism from Chinese consumers for the exact same step. This also happened to Intel. They spoke out about the issue of forced labor in Jinjiang and received a backlash from Chinese consumers. Now, near my beginning, I spoke about the United nations report. This is incredibly important because the U F L P a is a us law. If we truly wanna root out and stop forced labor and other unacceptable human rights practices happening in Xinjiang, the entire world needs to unite around this. And I think in addition to documenting what’s happened, this report is a great first step, but in order to be taken seriously, the United nations needs to seriously consider China’s seat on the human rights council. The European union is a little behind the United States on this matter, but they’re moving in the right direction.
Kelly Barner (18:13):
They have released statements of concern, and they have a draft policy of their own version of the U F L P a that’s going through discussions. It just hasn’t yet been enacted. Now, part of what’s in the U L P a is a requirement that the us Mexican Canadian trade agreement, the us M C a it has to develop a strategy and issue a joint guidance for importers. So the us is using their role in this trading block with Canada and Mexico, to get the Canadians on the Mexicans, to put similar policies in place. That way it’s not just the United States. It ensures that imports to Canada and imports to Mexico. Also face that similar burden of proof demonstrating that products and materials are not the result of forced labor. The last complexity here that I find so interesting, and I simply can’t wait to find out where this ends is the choice that many Americans are currently being forced to make between hitting their environmental sustainability goals in the form of solar panels and the natural desire for social advancement against the horrible practice of forced labor.
Kelly Barner (19:27):
So if we can’t get our solar panels to hit our green objectives without violating standards of human rights worldwide, that is an interesting choice. And that’s my point of view. I always thank you for listening to dial P and then immediately advocate that you don’t just listen. This is something that needs to be thought through and discussed. Join this conversation wherever you found the podcast and let us know what you think can the Western world bring their operational practices into alignment with their statements and posturing with regard to human rights in China, is it even feasible to operate without having Xinjiang sourced or related products in the supply chain? Will the United nations stand up and demand that China stop the internment and labor and reeducation camps in Jinjiang and last, but certainly not least our procurement and supply chain professionals worldwide, willing to stand on that wall and hold the line against Uighur human rights abuses. Please let me know what you think and share this episode with your network. If you have something you feel more comfortable sharing with me directly, you can reach out on LinkedIn or through buyers meeting point.com. Ultimately, we need to work together and have the tough conversations to figure out the best solution to this very real problem until next time I’m Kelly Barner, your host for dial P for procurement here on supply chain. Now thank you for listening. Thank you for being part of this community and have a great rest of your day.
Intro/Outro (21:12):
Thank you for joining us for this episode of dial P for procurement and for being an active part of the supply chain. Now community, please check out all of our shows and events@supplychainnow.com. Make sure you follow dial P four procurement on LinkedIn, Twitter, and Facebook to catch all the latest programming details. We’ll see you soon for the next episode of dial P four procurement.
