December 10, 2020 | Virtual Meeting | 12:00 – 3:00 p.m. ET Supply Chain Management and Compliance Strategies

China EHS Roundtable

Lauren Hopkins

December 10, 2020 Overview

1. The Uyghur Context and Legal Developments 2. Minerals and Raw Materials Sourcing 3. Biden Administration Outlook

66 The Uyghur Context - Background

• Reports that PRC has detained over one million and members of ethnic minority groups in since 2017 – Allegations of severe human rights abuses including physical and psychological abuse, forced labor, oppressive surveillance, religious persecution, political indoctrination, forced sterilization, and other infringements • Australian Strategic Policy Institute published report in March 2020 alleging transfer of 80,000 Uyghurs from Xinjiang to factories across “under conditions that strongly suggest forced labor” – 82 global brands named in report – technology, clothing and automotive sectors – contributed to launch of numerous actions and inquiries from governments, NGOs, customers, and other stakeholders

67 Legal Developments - Legislation

• Uyghur Human Rights Policy Act of 2020 – Signed into law June 17 – Calls on the US government to use existing authorities (e.g., sanctions, intelligence) to address and report to Congress on human rights violations in Xinjiang • *Uyghur Forced Labor Prevention Act* H.R.6210/S.3471 – Passed House (406-3), pending in Senate – Import prohibition and disclosure requirements • Uyghur Forced Labor Disclosure Act – Passed House (253-163), pending in Senate – Disclosure requirements • Slave-Free Business Certification Act – Introduced and referred to respective committees in House and Senate in July; no action since – Supply chain audit and disclosure requirements

68 Uyghur Forced Labor Prevention Act H.R.6210/S.3471 • Import Prohibition – Rebuttable presumption that goods mined, produced or manufactured • wholly or in part in the XUAR • or by persons working with the XUAR government under “poverty alleviation” or “pairing-assistance” programs are prohibited from import under Tariff Act Section 307 – Exception if U.S. Customs and Border Protection (CBP) determines otherwise by “clear and convincing evidence”

69 Uyghur Forced Labor Prevention Act H.R.6210/S.3471 Disclosure Requirements • Who must disclose? Issuers that file periodic reports under Section 13(a) of Exchange Act • Triggers for disclosure – Knowingly engaged in an activity with an entity (or affiliate) to provide technology or assistance for mass surveillance in XUAR (including entities on the Department of Commerce’s Entity List) – Knowingly engaged in an activity with an entity (or affiliate) building and running detention facilities in XUAR – Knowingly engaged in an activity with an entity (or affiliate) in reports published by State Dept. under Section 7(c)(1), including (1) any entity engaged in the pairing-assistance program or (2) any entity for which subject to Withhold Release Order under Section 307 of the Tariff Act – Knowingly conducted any transaction or had dealings with (1) any person whose property and interests in property were sanctioned by State Dept. for the detention or abuse of Uyghurs or other minority groups in the XUAR, (2) any person whose property and interests in property are sanctioned pursuant to the Global Magnitsky Human Rights Accountability Act or (3) any person or entity responsible for or complicit in committing atrocities in the XUAR

70 Uyghur Forced Labor Prevention Act H.R.6210/S.3471 Disclosure Requirements • Elements of disclosure – Detailed description in quarterly or annual SEC report of activity triggering the disclosure, including: – (i) the nature and extent of the activity; – (ii) the gross revenues and net profits, if any, attributable to the activity; and – (iii) whether the issuer or the affiliate of the issuer (as the case may be) intends to continue the activity. • Other implications – Concurrent filing of notice to SEC – SEC report to President and Congress – President to determine whether Magnitsky sanctions or criminal investigations warranted

71 Legal Developments – USG Action

Restrictions, Prohibitions and Guidance and Tools Enforcement • CBP Withhold Release Orders, • Xinjiang Supply Chain Business Finding, Civil Penalties Advisory • Treasury Department OFAC • State Department Guidance on Sanctions Products / Services with • Commerce Department Entity Surveillance Capabilities List • New CBP Guidance Documents

72 Legal Developments – CBP Activity

# Date Merchandise Manufacturer(s) Status • WROs on goods from China or 33 9/30/2019 All Garments Hetian Taida Apparel Co., Ltd. Active Hetian Haolin Hair Accessories Co., 34 5/1/2020 Hair Products Active Ltd. Xinjiang potentially impacting Lop County Meixin Hair Products Co., 35 6/17/2020 Hair Products Active Ltd. cotton, apparel/textiles and 36 8/11/2020 Garments Hero Vast Group Active Lop County Hair Product Industrial 37 8/25/2020 Hair Products Active electronics supply chains Park No. 4 Vocation Skills Education 38 8/25/2020 Labor Active • Stevia – CBP’s first forced labor Training Center (VSETC) Yili Zhuowan Garment Manufacturing 39 9/3/2020 Apparel Co., Ltd. and Baoding LYSZD Trade Active finding since 1996, and first civil and Business Co., Ltd. Cotton and Xinjiang Junggar Cotton and Linen Co., penalties for forced labor import 40 9/8/2020 Processed Active Ltd. Cotton Computer Hefei Bitland Information Technology since repeal of consumptive 41 9/8/2020 Active Parts Co., Ltd.

demand Cotton and Xinjiang Production and Construction 11/30/202 42 Cotton Corporation (XPCC) and its Active 0 Products subordinate and affiliated entities

73 Legal Developments – Other Jurisdictions

• Thirty-nine countries issued joint statement to UN Human Rights Council expressing concern about alleged human rights abuses within Xinjiang • European Union called on China to allow independent observers to visit Xinjiang to investigate treatment of Uyghurs • Japan considering Magnitsky-like sanctions legislation • UK considering sanctions and import restrictions modeled on U.S. legislation • Australian Parliament introduced legislation Dec. 3 that would prohibit import of forced labor goods produced in Xinjiang

74 Key Considerations and Risk Management Strategies

• Corporate trade compliance programs will play critical role in risk management – Important for EHS and supply chain professionals to coordinate with trade compliance team – Consider whether Uyghur context poses any unique challenges / barriers for these programs • Complex risk profile associated with corporate communications / statements in response to inquiries – Important to use restraint, avoid overly broad or vague terms – Be mindful of range of enforcement authorities (particularly CBP) and timelines associated with external communications since there is potential for liability associated with past imports • Dynamic nature of the situation and limitations of traditional risk management approaches means there will likely be blind spots – Awareness of where the blind spots may be (e.g., deeper tiers of supply chain, lack of information on sales/ultimate users) – Recognition of any limitations of current approach can help identify improvements to risk management practices, opportunities for industry collaboration, etc.

75 Minerals and Raw Materials Sourcing

• China plays dominant role in supply chains of critical minerals and raw materials including: – 97% of global production of rare earth elements – Chinese companies account for 80% of cobalt refining (with bulk of cobalt originating in DRC) – 22% share of global cotton production • Yet continued associations between these materials and ESG risks in the supply chain

76 Minerals and Raw Materials Sourcing

• Emerging approaches to identify and assess these risks – Supply chain “mapping” – Direct engagement with upstream producers (e.g., mines) – Collective action – Auditing protocols or validation frameworks tailored to the specific raw material and its risk profile

77 Biden Administration Outlook – Supply Chains

• Plan to Rebuild U.S. Supply Chains – Goal to develop “stronger, more resilient domestic supply chains” for a range of goods including semiconductors, key electronics and related technologies, and key raw materials – Emphasis on federal government procurement initiatives – Not limited to where the final product sold to the U.S. government comes from, but on the supply chains of companies that receive large federal contracts • Made in All of America mentions the Biden Clean Energy and Infrastructure Plan would – invest $300 billion in R&D technologies and take steps to reduce dependency on China by bringing back “critical supply chains” including rare earth minerals used in the production of ICT goods

78 Biden Administration Outlook – Human Rights Policy • No clear, express commitments yet relating to human rights/forced labor obligations for business • May emerge through other stated priorities including pandemic recovery, tackling climate change and building a 21st century economy, achieving racial justice, and restoring American leadership abroad • Areas to watch include: – Trade and customs/imports – Disclosure and transparency – Expansion of existing government authority (e.g., sanctions) – Re-establishing US global leadership

79 Thank You!

Lauren Hopkins Beveridge & Diamond PC San Francisco, CA [email protected]

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