Xinjiang issues are getting closer attention from counsel.

Most US companies are now putting language into contracts to require solar panel and battery suppliers and construction contractors to comply with a supply-chain code of conduct.

A typical clause reads, “Contractor will ensure that none of the equipment used in the project was made (or uses material or components that were mined or made) with forced or child labor and that all equipment purchased for use in the project will be able to clear US Customs. Contractor will comply, and will cause each of its subcontractors and vendors to comply, with the SEIA Protocol to ensure that any materials or components originating in the Xinjiang region in western China can be traced through the supply chain.”

It goes on to require the contractor, if asked by the US developer, “promptly to provide the supply-chain map described in the SEIA Protocol and to allow a review of its records establishing compliance by an independent auditor retained by” the US project developer or its lenders or tax equity investors to confirm compliance.

Any breach is a contract default that allows the US developer to terminate the contract and be paid damages.

Chinese companies continue to insist that there are no forced labor issues in Xinjiang and are taking offense at use of clumsy words in contracts like “foreign adversary country” incorporated from US government orders.

A 36-page “Xinjiang Supply Chain Business Advisory” that six federal agencies issued in July warned that US companies that do not exit supply chains connected to Xinjiang “could run a high risk of violating US law.”

Among the statutes referred to in the advisory is a federal criminal statute at 18 USC 1589(b) that makes it a crime to participate in a “venture” that benefited from forced labor either knowingly or with reckless disregard of the use of forced labor somewhere in the supply chain.

The statute could also be used as a basis for a private civil action. The US courts have authority to hear civil cases even though the forced labor was in another country. The burden of proof in a civil action is preponderance of the evidence rather than the beyond-a-reasonable doubt standard that applies in a criminal case.

The best advice is to require vendors and contractors not to use any materials or components made with forced labor, to monitor news reports about potential links and to consider going one step further to require supply-chain maps.

About a third of solar-grade polysilicon used in solar panels in 2020 was manufactured in Xinjiang, the business advisory said.

US Customs put a “withhold release order” in place in late June to block solar cells and panels containing silica produced by Hoshine Silicon Industry Co. Ltd. from entering the United States.

At least one solar panel supplier reported that US Customs is blocking its panels.

The day before the withhold release order, the US Department of Commerce placed Hoshine and four other companies involved in the manufacture or use of polysilicon products on the “entity list.” The four are Daqo New Energy Co., East Hope Nonferrous Metals Co., GCL New Energy Materials Technology Co. and the Xinjiang Production and Construction Corps, also known as XPCC. US and foreign companies are barred from exporting or transferring US-made goods or foreign-made goods with more than a small amount of US content or US technology to companies on the entity list without US government permission.

The US Senate unanimously passed a bill in mid-July that would create a rebuttable presumption that any goods “mined, manufactured, or produced wholly or in part” in the Xinjiang region in western China were made with forced labor and should be blocked from entry into the United States.

The bill identifies polysilicon as a priority sector for enforcement of the new policy.

It would require the government to hold a public hearing within 150 days after enactment about how best to ban products made anywhere in China with forced labor.  It directs the government thereafter to publish lists of affected products and companies that export such products to the United States as well as guidance to US importers about what diligence to do and how to trace supply chains.

The bill must still pass the House.  A version of it passed nearly unanimously in September 2020, but died when the last Congress adjourned at the end of 2020.

The latest House version cleared the House Foreign Affairs Committee on a 25-22 party-line vote in July as part of the EAGLE Act. The House bill does not have the long implementation timeline and opportunities for companies to comment during the rulemaking process that are in the Senate bill. The two houses will have to iron out differences in approach after the House passes its version.

Marco Rubio (R-Florida) and Jeff Merkley (D-Oregon), the two Senators behind the Xinjiang forced labor bill in the Senate, identified three solar panel manufacturers that they said have publicly acknowledged sourcing polysilicon from the region: Jinko Solar, JA Solar and LONGi Solar.

LONGi accounted for about 21% of solar panels entering US ports in shipping containers in Q2 2021, according to research firm Panjiva. Jinko said in a filing last December with the US Securities and Exchange Commission that some products it sells in the US could contain materials from Xinjiang. The filing said the company may have to reconfigure its supply chains if the US tightens restrictions.

The value of all US solar panel imports in Q1 2021 was $2.14 billion, according to the US Energy Information Administration. US solar panel imports during Q1 2021 came 37% from China (including Hong Kong), 19% from Vietnam, 14% from Malaysia and 9% from Thailand. Vietnamese factories have struggled to meet production schedules during the last few weeks due to COVID lockdowns.

Solar panel prices have increased 18% this year, after falling 90% over the last decade, according to LevelTen Energy.