Authors: Andrea Little Limgbago, PhD and Mackenzie Clark
Steel and Aspartame Companies Join UFLPA Entity List
Last week, the U.S. Department of Homeland Security announced two new additions to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List. Although the law has been in effect for several years, it marks the first inclusion of a steel or aspartame company on the UFLPA Entity List.
This reflects the expansion of the UFLPA since its inception, as well as the growing concern and risks associated with forced labor in the supply chain.
Interos has been closely monitoring the UFLPA since it came into effect, along with dozens of other critical sanctions and prohibitions lists and helps illuminate connections to these companies deep within complex supply chains.
Cracking Down on Forced Labor in Supply Chains
The UFLPA aims to eliminate forced labor from supply chains through the prohibition on the importation of goods made in part or entirely from forced labor. The law specifically focuses on the Xinjiang Uyghur Autonomous Region of China, but it also applies to all forced labor in all of China. A review of these companies highlights how important it is to maintain visibility across the entire supply chain ecosystem, as small relationships grow exponentially as you move to the outer tiers of a supply chain.
Two Companies Identified Puts 79,000 Companies at Risk
The two new additions to the UFLPA Entity List are Baowu Group Xinjiang Bayi Iron and Steel Co. Ltd and Changzhou Guanghui Food Ingredients Co. Ltd.
According to Interos data, these two companies directly supply over one hundred companies (Tier 1), who in turn supply almost 2,500 companies (Tier 2). Those companies, in turn, supply approximately 79,000 companies, and represent almost 280,000 distinct buyer-supplier relationships (Tier 3).
Importantly, the UFLPA not only consists of an Entity List, but also prioritizes seven industries for enforcement:
- Apparel
- Cotton and cotton products
- Silica-based products
- Tomatoes and downstream products
- Polyvinyl chloride (PVC)
- Aluminum
- Seafood
The last three industries were added earlier this summer and represent the first new addition of key sectors since 2022.
With last week’s inclusion of steel and aspartame companies on the UFLPA Entity List, we should prepare for the potential expansion of those key industries in the near future.
What Would that Impact Look Like on the Chinese Steel and Aspartame Industries?
Interos data highlights the widespread impact of the Chinese steel industry. There are over 66,000 companies in China that sell steel or steel products. Globally, over 655,000 unique companies buy from those companies (Tier 1), a number that grows to over 2.6 million companies when looking at the buyers from those companies (Tier 2).
These numbers pale in comparison to the number of buyer-supplier relationships stemming from those 66,000 companies in China that sell steel or steel products. There are 4.4 million relationships stemming from those companies (Tier 1), which balloons out to over 23 million relationships one hop out (Tier 2), and almost 64 million relationships to the next level of the supply chain (Tier 3). Across these tiers, over a third of the companies are located in the United States, followed by India, the United Kingdom, Germany, and France.
A similar ripple effect appears when looking at producers of aspartame and aspartame-containing products. There are almost 3,000 companies in China that produce aspartame and aspartame-containing products. The impact balloons to over 200,000 companies that buy from those companies (Tier 1), and over two million companies that buy from those 200,000 companies (Tier 2).
We again see the number of unique buyer-supplier relationships exponentially increase across the companies that sell aspartame and aspartame-containing products. Globally, there are over 500,000 buyer-supplier relationships linked to those companies in China (Tier 1). Those, in turn, are connected to almost 12 million distinct relationships (Tier 2), which explodes to over 60 million relationships at the next tier (Tier 3).
Again, over a third of the companies are in the United States, highlighting a potential significant risk if the UFLPA expands to include either of these industries as a key sector for investigation.
Not Just the US: Global Supply Chain Examination is a New Reality
The United States is not alone in sanctioning human rights violators within supply chains. The European Union, United Kingdom, and Canada, along with the United States, all initially coordinated sanctions in 2021. As Homeland Security Secretary Alejandro Mayorkas explained, “The UFLPA is catalyzing American businesses to fully examine and assess their supply chains….” The same is true elsewhere, as earlier this year the European Parliament adopted a new law aimed at eliminating all forced labor, not just from China, in the supply chain.
In return, China is taking steps toward enforcing its own law introduced four years ago that creates an ‘Unreliable Entity List’ for companies evading the Xinjiang Uyghur Autonomous Region and exhibiting discriminatory measures against products made there. This puts companies in a dilemma of conflicting regulatory practices between China and the United States, European Union, and other Western democracies.
Major Regulatory and Financial Risks at Stake
Aside from the regulatory and reputational implications, there also are growing financial risks. Almost $3.6 billion worth of goods have been seized under UFLPA enforcement, highlighting the financial as well as reputational and humanitarian risks at stake.
At Interos, we continue to monitor the regulatory landscape, as well as those industries and companies associated with key sectors or products at risk. Flagging the UFLPA alone is not enough to minimize human rights violations within the supply chain.
Identification is Not Enough: Compliance Requires a Regional View and Cross-Examination of Human-Rights Violation Lists
In addition to the UFLPA, Interos also denotes any company located within the Xinjiang Uyghur Autonomous Region, since the UFLPA specifies the additional scrutiny applied to any goods stemming from that region, whether they are on the Entity List or not.
Moreover, Interos also specifically flags whether a company is on a human rights-related violations list because other restrictions, such as the Global Magnistky Act, address human rights violations and must be integrated into a broader strategy of eliminating human rights violations from the supply chain and addressing the associated regulatory and reputational risks.
Take Action: Root Out Forced Labor from Your Extended Supply Chain
Interos’ continuous monitoring alerts quickly identify the potential impact of additions to new restricted entities lists across their extended supply chain. This visibility empowers companies to get ahead of potential violations both upstream and downstream in their supply chain.
To identify if you are at risk of using a restricted entity, speak to an expert today.
