by Keith Krach
Under Secretary for Economic Growth, Energy, and the Environment
Many American brands have become household names around the globe, renowned for their exceptional quality and value. But with that visibility and consumer trust come great responsibility. American companies increasingly realize that corporate responsibility isn’t just social responsibility, it is also national security. As part of this, companies must perform human rights due diligence and ask themselves tough questions to make sure their foreign deals do not, in the words of Secretary of State Pompeo, “tighten a regime’s grip of repression.”
This is particularly true when it comes to doing business in the People’s Republic of China (PRC), given its authoritarian surveillance practices and egregious human rights abuses against its citizens, particularly against Uyghurs and members of other Muslim minority groups in Xinjiang.
Businesses, countries, and citizens around the world are waking up to the truth about the Chinese Communist Party (CCP) and its efforts to coopt intellectual property and technology systems for their own pernicious ends. We have seen this from the COVID-19 pandemic to the crackdown in Hong Kong, to the skirmish at the Indian border. Now more than ever, U.S. companies that do business with Chinese companies must make sure their commerce and investments do not enable and perpetuate the PRC’s human rights abuses.
To help our companies navigate this difficult landscape, the State Department and Department of Homeland Security have joined with the Departments of the Treasury and Commerce to issue a business advisory on the risks and considerations for businesses with potential supply chain exposure to entities engaged in forced labor and other human rights abuses in Xinjiang. By following this guidance, businesses can be more confident that they are not contributing to human rights abuses in China. Specific to Xinjiang, we see at least three major risks for U.S. companies.
First, businesses may inadvertently assist the PRC government in developing surveillance tools for use in abusive practices. While most attention in recent months has focused on the million-plus Uyghurs and members of other Muslim minority groups held in internment camps, we must also remember that millions more living in the region are effectively prisoners in what can best be described as a vast, open-air detention center. These individuals are under constant watch from ubiquitous cameras that use artificial intelligence-based facial and gait recognition technologies, while local authorities monitor internet activity and collect DNA samples. There is no escape and no due process. Big Brother is always watching. And what he sees determines who goes to the camps.
A second risk is relying on labor or goods sourced in or from Xinjiang from entities implicated in the forced labor of individuals in their supply chains. The Australian Strategic Policy Institute reported that 27 factories in nine Chinese provinces — collectively claiming to be part of supply chains of more than 80 global brands — have placed Uyghurs in “potentially abusive labor transfer programs” since 2017. In early May, additional reports showed that the PRC was dramatically expanding this program far beyond its original limits.
To mitigate risks and reduce unwanted exposure, U.S. businesses can look for potential indicators of forced labor and other abuses from Chinese business partners including very few employees paying into the government social security insurance program, the hiring of workers through government recruiters, and connections to cotton manufacturing.
This introduces the third risk. Hard currency is the lifeblood of the CCP. It is not difficult to imagine how companies that do business in China may have unknowingly funded the CCP’s authoritarian machine, entirely unbeknownst to their shareholders. Your boards at a minimum should disclose to your constituents the Chinese companies in which you invest, and consider divesting from or exiting businesses that pose a risk of financing China’s human rights violations.
The repressive environment in Xinjiang presents unique challenges to conducting human rights due diligence. Businesses should consider the risks and determine if it is possible to mitigate them. Any U.S. business with potential supply chain links to Xinjiang should implement reasonable human rights due diligence in line with the UN Guiding Principles on Business and Human Rights and other relevant guidance.
Earlier this year when talking about the China challenge, Secretary Pompeo told Silicon Valley tech executives that it is critical that American principles and values are not sacrificed for profits. This is advice worth remembering.
Ask yourself: With whom am I dealing? And with whom are they dealing? What is a true risk-return calculus to doing business in Xinjiang, or China writ large?
Am I educating my senior executives, my board, my employees, and most of all my shareholders and investors about the choices my company faces?
What is my moral obligation and perhaps even a fiduciary duty to: a) disclose investments or involvement in Chinese companies that may be complicit in human rights abuses and b) divest from or exit these businesses?
Do human rights due diligence. Get the answers. Businesses can reaffirm corporate America’s role as a powerful force for good around the world. Your companies can make a profound and enduring difference in this human rights tragedy.