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https://www.barrons.com/articles/xinjiangs-problem-is-not-a-few-rogue-actors-51663330722

About the author: Cullen S. Hendrix is a senior fellow at the Peterson Institute for International Economics.

Grim reports of forced labor and other atrocities in China’s Xinjiang Uyghur Autonomous Region have pushed governments into action. New policies treat exports from the region as guilty until proven innocent, prescribing blanket bans on goods from Xinjiang, whether or not they can be shown to involve forced labor. Will those policies work?  

Felix Papier and Christopher Tang’s recent commentary on fixing forced labor in China’s Xinjiang Uyghur Autonomous Region (“A Better Way to Fixed Forced Labor”) says they will not. Papier and Tang find fault with the 2021 Uyghur Forced Labor Prevention Act, which takes a guilty-until-proven-innocent approach. They argue a better strategy would be to push for supply chain transparency and third-party auditing to ensure goods are not produced with forced labor. As an example, they point to the Accord, an auditing-based set of binding commitments designed to improve working conditions in Bangladesh’s textile industry. 

In principle, supply-chain auditing is a good way to approach the problem of responsible and ethical sourcing. But the approach will not work in Xinjiang for three basic reasons. More international coordination around existing policies and expansion of targeted sanctions are needed to keep goods produced with forced labor out of consumers hands. But so is some pragmatism: sanctions are unlikely to force China to entirely change course in Xinjiang. But they can help keep global consumers from being unwitting accomplices to China’s abuses there.

First, the media environment in Xinjiang makes credible audits impossible. Effective certification programs require an environment where difficult questions can be asked, auditors can do their jobs, and official statements can be subjected to critical scrutiny. Xinjiang is no such environment. Bangladesh is hardly a vaunted bastion of the free press: Reporters without Borders ranks it 162nd out 180 countries in press freedoms. But it’s much more open than China generally and Xinjiang specifically. Xinjiang may be the most tightly controlled media environment on Earth, on par with North Korea. In 2021, the Chinese arm of leading auditor Verité, which has assessed certification schemes in the Democratic Republic of the Congo, Indonesia, and Myanmar among others, was closed by Chinese authorities over scrutiny of its actions in Xinjiang. This came a year after five other auditing firms ceased inspections of Xinjiang-based factories due to tight restrictions on their access. 

Second, firms and consumers lack the leverage to force China to change said environment. Xinjiang is globally pivotal in cotton and polysilicon, which is why the apparel and solar industries are worried about the new U.S. legislation. But Xinjiang is a marginal piece of the Chinese economy, accounting for only 1.4% of Chinese GDP and 0.7% of total exports in 2021. As the consequences of its zero-Covid policy make clear, the Chinese government is willing to bear massive economic costs to achieve political objectives. In the case of Xinjiang and Western sanctions, the costs aren’t particularly massive. Balanced against China’s objectives in the region, which include the suppression of Islam and elimination of Uyghur culture, squelching separatist agitation, and extending the government’s reach in Central Asia, these benefits of opening the region up to international scrutiny are minor.

In contrast, Bangladesh’s textiles are its leading sector. They account for over 80% of exports and over half of GDP. Bangladesh had to get monitoring and compliance right. Failing to do so would have dealt a crippling blow to the backbone of its economy. The industry had every incentive to comply with monitoring efforts that would weed out bad actors and avoid tarnishing the sector as a whole. And multinational apparel companies—for whom brand consciousness is everything—wanted to be able to assuage the fears of their global consumer base. The Accord succeeded because it aligned with the incentives of the Bangladeshi government, textile industry, and major transnational apparel firms. Such alignment is absent in Xinjiang. 

Third and most fundamentally, the problem in Xinjiang is not one of a few rogue actors operating at the margins of Chinese state authority, but state authority itself. Many of the firms most associated with allegations of forced labor in Xinjiang are operated by the Xinjiang Production and Construction Corps, a Chinese state-owned and directed enterprise. Even before the UFLPA, the XPCC had already been under U.S. sanctions for human rights abuses in the region. The bad actors aren’t marginal players that can be ferreted out via audits. They are appendages of the Chinese state. 

There are problems with the UFLPA, and the authors are right to point out the real costs and difficulties with enforcement. But the proposed solutions—independent auditing and public disclosure—are simply unworkable in an environment like Xinjiang. An alternate approach could include: First, expanding the coalition of governments enforcing restrictions on Xinjiang-produced goods under a presumption of guilt framework. The sanctions are only as powerful as the market share of consumer countries willing to enforce them. Second, sanctions could be expanded to include financial transactions involving entities using forced labor and cover online retailers transacting in goods sourced from Xinjiang. The former would hurt the ability of suspected companies to leverage global financial services while the latter would severely curtail their ability to reach global consumers via the wholesale market.

Even with these policies, the global community needs to be realistic about how much economic leverage it can and is willing to bring to bear to curb abuses in Xinjiang. Sanctions work best when the target is small and weak, the international community is united, and the targeted policies are not a core interest of the sanctioned regime. None of those conditions have been obtained—yet. Enhancing global cooperation around targeted sanctions is required.

Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to ideas@barrons.com.

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