We have talked before in our alerts about the rising concern over goods manufactured in the Xinjiang region of China and the concerns about Uyghur labour. We have looked extensively at the issues highlighted by the UK Parliamentary enquiry into forced labour in Xinjiang (for example here https://www.corderycompliance.com/xinjiang-supply-chains-alert/) and we have also looked at proposed EU legislation (https://www.corderycompliance.com/eu-labour-products-ban-1/) and amendments to the UK Modern Slavery Act (https://www.corderycompliance.com/uk-modern-slavery-update-3-reforms/).
Whilst there are considerable moves to highlight concerns about these issues, the campaign received a setback on 20 January when a High Court case seeking to prevent the importation of Xinjiang-made goods failed.
What was this case about?
The case was about the production of cotton in the Xinjiang Uyghur Autonomous Region (XUAR). The case was brought by the Munich based World Uyghur Congress and the Global Legal Action Network (GLAN). It is one of several legal challenges aimed at pressing the UK and the EU into action. The claimants would like to see the UK and the EU follow the lead of the US where cotton products suspected of being made in Xinjiang are banned. The US rules will also toughen in March to require more details to be filed.
The case was essentially about whether the UK Government had acted unlawfully in failing to investigate the conditions in which cotton was produced in Xinjiang. In part the claimants wanted the UK Government to take action. They claimed that the Government could use existing legislation, the Foreign Prison-Made Goods Act 1897 (FPMGA 1897) to prohibit the import of goods from Xinjiang. This legislation is not well used however. Despite it being passed in 1897 there is no record of any action being taken using this legislation.
FPMGA 1897 says:
“The importation of the following goods is prohibited, that is to say: Goods proved to the satisfaction of the [Commissioners of Customs and Excise] by evidence tendered to them to have been made or produced wholly or in part in any foreign prison, gaol, house of correction, or penitentiary, except goods in transit or not imported for the purposes of trade, or of a description not manufactured in the United Kingdom.”
GLAN submitted evidence to HMRC in April 2020 asking HMRC to use FPMGA 1897 to take action against the imports of a number of leading fashion labels. GLAN argued that companies importing goods in breach of the 1897 Act may commit criminal offences under other legislation including the Proceeds of Crime Act 2002 (PoCA 2002).
Essentially the claimants said that PoCA 2002 applied as the cotton in question was criminal property and it argued that anybody who knowingly (or with suspicion) acquired this property committed a money laundering offence.
The claimant’s case was essentially brought on four grounds:
- That the decision of the UK Home Office, HMRC and the National Crime Agency (NCA) not to investigate possible offences under FPMGA 1897 was based on a misdirection of law in that they had misunderstood what was required in evidential terms to establish a breach.
- That the Home Office unlawfully fettered its discretion to investigate potential breaches of FPMGA 1897 as it said its policy was to respond to evidence on a “reactive basis” rather than launching its own proactive investigations.
- That HMRC and the NCA had failed to launch investigations under PoCA 2002.
- That the UK Government had failed to look at its powers of civil recovery under PoCA 2002.
The judge reviewed the work of the Better Cotton Initiative (BCI) and their suspension of their assurance activities in XUAR in March 2020. The judge also looked in particular at the activities of a number of businesses based in XUAR including Ruyi Group, Litai Textiles and LuThai Group.
What did the judge decide?
Sitting in the High Court the judge, Mr. Justice Dove, said that whilst there were concerns, he agreed with the UK Government that there were problems in meeting the standard of evidence needed for a criminal investigation and prosecution. He said that as a result there would be little point in forcing the Government to investigate potential crimes “which would not bear fruit in the form of prosecutions or seizures.” He stressed however that his ruling did not “in any way undermine the striking consensus in the evidence that there are clear and widespread abuses in the cotton industry … involving human rights violations and the exploitation of forced labour.” The judge also said “The evidence before the court explains that 30% of the world’s production of cotton originates in the PRC, and of that 85% originates in the Xinjiang or XUAR. The repressive measures affecting the Uyghurs include forcing them to pick cotton, to work in textile factories either inside or adjacent to the internment camps, as well as forcing them to live and work under coercive conditions in textile industrial parks which are referred to below both in XUAR and elsewhere in PRC. In addition, the evidence records that prison inmates are routinely used to provide labour to support cotton production at other parts of the value chain.”
What happens next?
There is still pressure on the UK Government to take action. One prominent member of the Parliamentary committee who looked at issues in XUAR and was herself sanctioned by China has now re-joined the Government. Some reports suggest however that Rishi Sunak intends to be softer on China than his predecessor.
The Home Office has said that Border Force will continue to look at intelligence which indicates that an offence has been committed under FPMGA 1897. It also emerged in the case that Border Force’s internal operational policy documents do include consideration of possible offences under FPMGA 1897. It could be that campaigners and pressure groups will seek to use evidence obtained in US seizures to support reports to the UK authorities where there is evidence to link batches of goods imported into the US and UK.
The evidence given in court would also suggest that the NCA is still actively engaged in investigations into modern slavery which includes work being done by the NCA’s International Liaison Office in Beijing.
GLAN and WUC are also trying to take similar action in Ireland. In October 2022 they wrote to the Irish Revenue Commissioner calling for a similar ban.
Steps to reduce risk
Whilst this case was lost, it is part of a concerted campaign and organisations, particularly those in high risk industries such as textiles, fashion, agriculture, automotive, electronics and renewables, need to do careful due diligence before entering into any transaction.
Steps to reduce risk might include:
- Doing special due diligence in connection with the acquisition of any cotton, in particular relating to activities in XUAR and Ruyi Group, Litai Textiles and LuThai Group. Some NGOs and University research teams have put data into the public domain which could be useful.
- Being cautious about reflagging – for example we have seen Chinese suppliers under suspicion reflag themselves as Italian textile providers.
- Making sure your organisation complies with its modern slavery reporting requirements.
- Being cautious about any claims made. Any organisation who claims that its supply chain is ‘China free’; or ‘XUAR free’ will need to be able to back up those claims. There are some more thoughts on these concerns here https://www.corderycompliance.com/greenwashing-power-modernslavery-esg/.
- Making sure suppliers know how strongly you feel about these issues – many of the cases we have been involved with feature complicated supply chains in many countries. Proper legal agreements will be key to enforcing your compliance standards.
- Trying to reserve audit rights. We know that auditing facilities in China can be problematical but it may be possible to do testing and auditing of facilities or goods to make sure that you are being told the truth about the origin of your products and the raw materials used to produce them.
- Undertaking proper training for all employees so that they know the risks. You might want to include your supply chain in that training too.
You can read the Judgment here https://bit.ly/3XPVjug
For more information please contact Jonathan Armstrong or André Bywater who are lawyers with Cordery in London where their focus is on compliance issues.
|Jonathan Armstrong, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH||André Bywater, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH|
|Office: +44 (0)207 075 1784||Office: +44 (0)207 075 1785|