The Biden Administration took strong actions restricting the import of products from China that are used in the United States to make solar energy panels because the items banned are believed to be produced by Chinese forced labor.
There was concern voiced earlier that taking these actions would undermine advancement of the Administration’s clean energy policies because these banned items are critical to the manufacture of half of all solar panels produced. In spite of this, a bipartisan group of members of Congress earlier had urged the President to take this action.
Biden, and President Trump before him, targeted companies operating in the Xinjiang Uyghur Autonomous Region, where the Chinese Communist government is accused of confining many members of the Moslem Uyghur minority in forced labor camps and subjecting them to other abuse. Textile and other imports from the region have been banned from import into this country.
The actions ordered by the President are far reaching:
1. The issuance of an immediate Withhold Release Order (WRO) by U.S. Customs and Border Protection (CBP) on silica-based products manufactured by Xinjiang-based Hoshine Silicon Industry Co., Ltd. and its subsidiaries.
2. The addition of a Hoshine affiliate and four other Xinjiang-based companies to the U.S. Department of Commerce’s list of entities subject to export restrictions on certain commodities, technology and software.
3. The addition of polysilicon to the U.S. Department of Labor (DOL) list of goods produced by child labor or forced labor.
Hoshine is one of the world’s largest producers of silicon metal, which is the feedstock for polysilicon used to produce the photovoltaic cells and semiconductors in solar panels and electronics. The substance is also a major input in the production of silicones, which are used to manufacture a wide variety of consumer and industrial products. In addition to silicon metal, Hoshine also produces silicones.
Legal Complications Grow
It was Secretary of Homeland Security Alejandro Mayorkas who announced that CBP had issued a WRO against Hoshine, instructing CBP personnel at all U.S. ports of entry to immediately begin to detain shipments containing silica-based products that have been made by Hoshine and its subsidiaries.
CBP officials confirmed at a news briefing that the ban does in fact apply to solar panels containing Hoshine materials. The WRO also could very well apply to products containing silicones that are derived from silicon metal produced by Hoshine and its subsidiaries.
“Because Hoshine is reportedly the world’s largest producer of silicon metal, the overall impact of the WRO is expected to be widespread,” observed attorneys for the global law firm of DLA Piper. “There is therefore a risk that imports of solar panels—or products containing solar panels—could be detained because CBP may suspect they incorporate materials produced by Hoshine or its subsidiaries.”
If a shipment is detained by CBP under a WRO, it is the responsibility of the importer to prove the order does not apply to it. Importers in this situation must be prepared to demonstrate that the detained merchandise was not made with the use of forced labor; that is, it was not made in, or made from products from, the country and by the entity covered by the WRO.
In order to accomplish this, CPB has imposed strict evidentiary standards requiring “clear and convincing evidence” or “probative evidence” that the detained goods were not produced with the use of, or from products made with the use of, forced labor described in the WRO.
In another action, the Commerce Department’s Bureau of Industry and Security (BIS) has added Hoshine Silicon Industry, a Hoshine affiliate, and several other Chinese firms to the Entity List of companies subject to export restrictions.
The other companies include Xinjiang Daqo New Energy, Xinjiang East Hope Nonferrous Metals, Xinjiang GCL New Energy Material Technology and XPCC, which is also subject to economic sanctions imposed by the Treasury Department.
These Entity List restrictions prohibit exports, re-exports and transfers of commodities, software and technology subject to the Export Administration Regulations (EAR) to listed entities without a license. License applications will face a high bar: BIS can be expected to apply a presumption that they should be denied unless the applicant can demonstrate an exceptional need for the license, the DLA Piper attorneys stress.
Mistakes Can Prove Costly
The inclusion of major companies in the Chinese silica industry on the BIS Entity List also significantly raises the stakes for companies that export, re-export or transfer US goods, software and technology to China, the attorneys add. “The reach of U.S. jurisdiction over such items is broad, including not only direct exports from the U.S. to China but also shipments of US-origin items—or foreign-made items containing U.S. content—from third countries.”
Unlicensed transactions with the listed entities can result in severe criminal and administrative penalties. Criminal penalties for violation of the EAR may include up to 20 years in prison and up to $1 million in fines, or both. Administrative monetary penalties may amount to $308,901 per violation or twice the value of the transaction, whichever is greater.
In addition, unlicensed transactions with listed entities can result in a company’s debarment from U.S. government contract opportunities and result in potential bans on exports.
Given the broad scope of the WRO on silica-based products manufactured by Hoshine and its subsidiaries, companies that import such products into the U.S., or rely on them as inputs in their own production for the U.S. market, may want to take steps now to protect themselves against possible future disruptions to their supply chains, the attorneys suggest.
Among these steps are asking suppliers to provide detailed supply chain documentation showing that imported merchandise is not produced from silica-based products made by Hoshine or its subsidiaries.
The Labor Department maintains the list of goods produced by child labor or forced labor “primarily to raise public awareness about forced labor and child labor around the world and to promote efforts to combat them.” The list “is not intended to be punitive, but rather to serve as a catalyst for more strategic and focused coordination and collaboration among those working to address these problems,” DOL contends.
The Piper attorneys recommend that companies also consider amending their commercial arrangements, such as contracts and purchase orders, to guard against the risk that CBP may not allow them to import merchandise from a current supplier and may detain such imports.
The attorneys’ advice to American companies is: “This broad jurisdiction and the substantial penalties involved mean that it is prudent to conduct rigorous screening of transactions that may involve such items to identify any entities of concern before a transaction is initiated.”