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14 September 2022

EU draft lays out “risk-based” Xinjiang sanctions

The European Commission has proposed a sanctions regimen to ban products made with forced labor in China’s Xinjiang Uyghur Autonomous Region. Because it is the Commission which formulates laws in the EU while the EU Parliament merely amends, approves or rejects them, this is a much more significant step than the EU Parliament’s passage of a non-binding resolution in June which condemned the “systematic repression of the Uyghur community” and called for a ban on forced-labor goods.

As we reported then, the Commission is significantly less favorable to sanctioning China than the Parliament is. That’s why this draft proposal is “risk-based” and puts the onus on national authorities to demonstrate that a product was made with forced labor, with a 30-day time limit.

When trying to trace supply chains within an uncooperative country, uncertainty is guaranteed. If there’s an arbitrary element to determining “risk”, then the nations of EU may look the other way for the products they most need – in the current energy crisis surely solar modules are among those. Half of Chinese solar comes from Xinjiang polysilicon, so it’s one of the big products under threat. While Chinese companies have been building most of their new polysilicon factories outside of Xinjiang because of the forced-labor allegations, it remains unclear whether they would even be allowed by their government to participate in a substantive supply-chain tracing program. With a dozen polysilicon companies, and counting, some of which have factories in multiple provinces, and with the inherent indistinguishability of the polysilicon itself, tracing will be a tall order without the participation of the companies themselves.

According to PV Infolink’s analysis of Chinese export data, the EU bloc currently imports a massive 9 GW of photovoltaics every month from China, almost triple last year’s figures – 9 GW annualizes to 108 GW per year, which is four times the 2021 installation figure and almost three times the expected installations for this year. This trade is worth around $3 billion a month, while the EU’s existing photovoltaic fleet of 160+ GW saved the bloc $29 billion in fuel costs in the months of May, June and July, according to an analysis from Ember. China’s total solar exports are currently running at 15 GW per month, and while global demand is growing rapidly, Chinese manufacturing is easily growing faster – it does not want to lose this market.

On the one hand, it is strange to think that the EU would be willing to disrupt its energy transition precisely when it’s suffering economically from sanctioning its traditional energy sources, and while alternative supply chains are still being built. Perhaps there will be a grace period during which developers will stock up, as with the US and Indian tariff moratoria, the latter of which came to an end in April. On the other hand, solar module purchases are a 30-year investment, not urgent in the same way as the Russian fuels which the EU has found itself unable to completely and immediately sanction.

Moreover, EU officials are clearly taking an interest in the development of non-Chinese solar manufacturing in India and the US. EU Commissioner for Energy Kadri Simson recently conducted a two-day visit to India in which she met officials of the Internal Solar Alliance and sought co-operation with India on the solar supply chain as well as hydrogen and offshore wind.

In the meantime, the US is working on yet another sanctions package against China, this time to be threatened in the event of a mainland Chinese invasion of Taiwan, and is attempting to get the EU on board with the measures, which are still being developed. Taiwan itself hosted dozen of foreign lawmakers this Tuesday from the US, EU and elsewhere, in an unannounced pro-sanctions summit.

At this point the EU’s relations with China are unmistakably on a rapid decline with no prospect of a reversal. The bloc’s first sanctions on China came in March 2021, motivated by the Uyghur forced labor question, with the under-discussion Comprehensive Agreement on Investment (CAI) with China left dead in the water as a result. The Uyghur forced-labor question itself has by now been growing for the better part of a decade, with UN Human Rights Commissioner Michelle Bachelet at first seeming to go easy on China after her May visit to the country, only to publish a hostile report two weeks ago, as she reached the end of her tenure at the UN.