China is the world’s largest consumer and the second largest producer of cotton, with Xinjiang being the most significant cotton-producing region. As of 2020, local cotton production in Xinjiang accounted for 87% of China’s total output and 20% of global cotton production. Xinjiang cotton has been highly controversial due to longstanding allegations of forced labor against the Uyghur population. Following the inauguration of the Biden administration, the US imposed sanctions on several Xinjiang officials in March 2021. The Uyghur Forced Labor Prevention Act (UFLPA) was passed subsequently in December 2021, placing a blanket ban on goods from the region.

The UFLPA creates a rebuttable assumption that any goods mined, produced, or manufactured in whole or in part in Xinjiang or by entities identified on the Entity List are prohibited from importation into the US. An importer may overcome the presumption by providing “clear and convincing evidence” showing forced labor was not used in the production of the goods. Failure to provide sufficient evidence can result in fines of up to $250,000 (approximately 7.4 million New Taiwan Dollars). The Act is estimated to impact nearly $12 billion worth of Chinese exports, and the Forced Labor Enforcement Task Force (FLETF), chaired by the Department of Homeland Security (DHS), announced the enforcement strategy for the UFLPA on June 17, 2022.

DHS also published the UFLPA Entity List, which includes the lists of “entities in Xinjiang that mine, produce, or manufacture wholly or in part any goods, wares, articles and merchandise with forced labor,” “entities working with the government of Xinjiang to recruit, transport, transfer, harbor or receive forced labor” and “entities involved in the ‘poverty alleviation’ program or the ‘pairing-assistance’ program or any other government-labor scheme that uses forced labor,” as well as five other lists.

It is generally believed that the main impacted goods include textiles, footwear, and electromechanical products. As Xinjiang is a major source of cotton and solar-grade polysilicon, the prohibition could impact relevant product supply or exacerbate supply chain disruptions. On the other hand, a ban on solar panels could slow down progress towards Biden' climate goals. Xinjiang accounts for around 87% of China’s cotton production, and Chinese cotton exports make up 20% of global exports. Around one-fifth of globally sold cotton garments are made from Xinjiang cotton or yarn.

The scope of US sanctions against Chinese entities has expanded from military and telecommunications to cloud computing and AI image recognition, and the list of products subject to Section 301 tariffs continues to extend. In response, Taiwanese and foreign companies have initiated supply chain reorganization in recent years, mostly to shift their supply chains for exports to the US outside China to regions such as Taiwan and Southeast Asia. For instance, Japanese retailer Uniqlo, previously ensnared in Xinjiang cotton controversy, has relocated its main production and shipping bases for US exports to Southeast Asia or South Asia, yet retain some production facilities for other regions (including China). This has allowed the company to circumvent the US import ban on Xinjiang cotton or products, and the approach has also been adopted by Taiwanese textile companies to mitigate the impact of the UFLPA implementation. Taiwanese textile manufacturers who previously sourced cotton from Xinjiang could also switch to alternative sources instead.

From a trade perspective, the main products imported from China to Taiwan and exported from Taiwan to the US in the past five years (2017-2021) were electrical machinery and parts (HS85), machinery and parts (HS84), and plastics and products (HS39). If the U.S. identifies products involving forced labor in Xinjiang in these industries, the impact will be more significant.

Regarding the 10 goods with links to forced labor in Xinjiang outlined in the enforcement strategy, around 42.86% of Taiwan’s imports from China and 23.74% of exports to the US are accounted for. Of those, electronics are a key component of Taiwan’s trade with China and the US, and it remains to be seen how the UFLPA will affect actual trade after its implementation. The government and relevant companies are advised to review the supply chain structure if Taiwan-produced electronics utilize raw materials or semi-finished goods from Xinjiang as inputs. The contribution of the other nine categories to Taiwan’s trade with the US and China is relatively low (none exceeding 1% concurrently), and the impact of the Act is assumed to be limited. However, major Chinese exports from Xinjiang include cotton products, electronics, hair products, solar products, tomato products, and dried jujubes, and the supply chains for cotton products and the solar industry are relatively complex. This study will monitor the import and export flows of the products listed in the US UFLPA enforcement strategy from July to December this year (2022).