From Cullen Hendrix and Marcus Noland at Peterson Institute for International Economics, “Assessing Potential Economic Policy Responses to Genocide in Xinjiang” – Economic Policy Responses:
Broad trade sanctions tend to work only when the target is small and weak, the international community is united, and the targeted policy or behavior is not a core value of the target regime (Hufbauer et al. 2009). Given China’s centrality to the global trading system, the imposition of comprehensive sanctions by a broad coalition of countries is not in the cards. Nevertheless, sanctions may have a role to play by conveying disapproval and insulating the sanctioning countries’ economies from products produced under objectionable conditions. Sanctions may also act as a lever to encourage private firms to more tightly monitor supply chains and increase due diligence. Subnationally targeted sanctions, such as the United States’ ban on cotton and tomatoes produced in Xinjiang (but not the whole of China), follow this logic. They could be expanded to include a broader set of products and firms. Action to date has consisted of a limited number of targeted sanctions and partial trade bans. Before the January 2021 US ban on cotton and tomatoes, trade between the United States and Xinjiang had been rising sharply, from a small base. According to Chinese data, in the first quarter of 2021, Xinjiang’s direct exports to the United States reached $64.4 million, 46.5 percent above first quarter of 2019.
US trade law permits Customs and Border Protection (CBP) to seize any shipment of goods that enters the United States that included forced labor anywhere in the supply chain. The mechanism by which this seizure occurs is called a Withhold Release Order (WRO). CBP can determine that certain red flags indicate forced labor (unless the firm can establish otherwise). The inferential approach is necessitated by the inability to conduct traditional fact
finding in Xinjiang. Canada and the United Kingdom have also imposed bans on Xinjiang cotton. The European Union is considering adopting a similar law to ban products produced using forced labor.
Another challenge is that supply chains tainted by Xinjiang forced labor now extend beyond the region and agricultural commodities and industrial metals. Implementing an effective WRO policy will require expansion of CBP resources devoted to the issue, necessitating either a redirection of resources from other tasks or an expansion of the CBP budget. Schneider (2020) recommends increasing the annual budget allocated to the CBP’s forced labor division,
charged with enforcing WROs, from $2 million to $100 million.
One possibility would be to turn presumption on its head, by banning imports from Xinjiang unless the absence of forced labor can be certified. CBP could then devote its limited resources to identifying acceptable enterprises or shipments rather than trying to root out specific violations. A bipartisan proposal in the US House of Representatives—the Uyghur Forced Labor Prevention Act, which would have created a “rebuttable presumption” that products made in Xinjiang are made with forced labor and prohibited from entering the United States unless “clear and convincing” evidence to the contrary is shown—passed the House by a vote of 406-3. It was reintroduced in the current session and referred to the
Committee on Foreign Affairs. In 2020 Senator Josh Hawley (R-MO) introduced the Slave-Free Business Certification Act, which would mandate the auditing of third-party supply chains for any company with annual revenue greater than US$500 million. At present, the bill has been referred to the Committee on Health, Education, Labor, and Pensions. In parallel, concerned governments should exclude activities in Xinjiang from their trade and investment promotion and guarantee schemes and oppose involvement by the international financial institutions in the region. Human Rights Watch (2021, p. 51) recommends that the European Commission hold off submitting the EU-China Comprehensive Agreement on Investment to the European Parliament and Council for ratification “until reports of forced labor have been investigated by independent and impartial international experts, abuses have been addressed, victims compensated, and there is substantial progress toward holding perpetrators to account.” The Commission suspended the process following the imposition of Chinese sanctions on members of the European Parliament and European think tanks in April 2021. Beyond trade bans, governments could mandate due diligence, calling on firms to publicly disclose the names, addresses, ownership, and other relevant details about those with whom they do business in Xinjiang to prevent, mitigate, and remedy human rights abuses in their value chains. Due diligence laws have been adopted in the Netherlands and France and are being discussed at the EU level.
For examinations of the situation in Xinjiang, see this post.