Worldwide: CBP Issues First Ruling Under Amended Forced Labor Statute, Denying Protest Of Apparel Importer And Affirming Exclusion Of Shipment Of Cotton Garments For Violation Of Xinjiang Production And Construction Corps Withhold Release Order On Cotton And Downstream Products

On May 10, 2021, US Customs and Border Protection ("CBP") issued a ruling denying a protest from a well-known fashion importer ("the Importer") that had merchandise detained under CBP's Xinjiang Production and Construction Corps ("XPCC") Withhold Release Order ("WRO") targeting cotton and downstream products from XPCC and its subordinate and affiliated entities.¹ The merchandise was sourced from non-Chinese cotton, but CBP concluded that the Importer had "not provided substantial evidence to establish that the entities within the XPCC that processed that cotton into the subject goods did so without the use of forced labor."²  This was CBP's first ruling addressing the applicability of the Forced Labor Statute, 19 USC §1307, since the law was amended in 2016.

In November 2020, CBP issued a WRO against cotton products made by XPCC based on information that allegedly indicated the use of forced labor in their production. The WRO applies to all cotton and cotton products produced by XPCC and its subordinates and affiliated entities, as well as any products made in whole or in part with or derived from such cotton (e.g., apparel, textiles). The WRO was one of several enforcement actions that the CBP announced against goods allegedly made by forced labor from China's Xinjiang Uyghur Autonomous Region ("Xinjiang"), and it followed the US government's July 2020 advisory cautioning businesses about the risks of forced labor in Xinjiang. A subsequent region-wide WRO, issued in January 2021, covered cotton and downstream products from Xinjiang.

On January 5, 2021, the Port of Los Angeles/Long Beach ("the Port") issued a Notice of Detention to the Importer for violating the XPCC WRO by importing certain shipments of cotton men's shirts from China. The Importer submitted a brief in response to the Notice of Detention, but the Port notified the Importer that the subject cotton garments would be excluded. In response, the Importer filed a protest with a request for an Application for Further Review. The protest argued that the raw cotton used to produce the subject garments did not originate from XPCC, or even China, and, therefore, the garments were not subject to the WRO. However, CBP denied the protest, ruling that the Importer had failed to provide substantial evidence to establish that the entities that processed the cotton into the subject goods did so without the use of forced labor.

In one way, CBP's denial of the protest does not come as a surprise: CBP's Forced Labor Branch, which conducts forced labor investigations, requires full supply chain transparency to demonstrate that a supply chain is free of forced labor. However, this CBP Headquarters ruling codifies the tracing requirements that are required in order to demonstrate compliance with US law. This ruling provides crucial guidance as to how CBP will expect compliance with WROs going forward.

What Is a Withhold Release Order?

Section 307 of the Tariff Act of 1930 prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by convict labor and/or forced or indentured labor, including forced child labor. As noted in our prior Legal Update, an exemption previously available to importers mitigated the practical impact of Section 307 by allowing for the importation of merchandise produced with forced labor if consumption of the merchandise in the United States exceeded the domestic production capacity. However, the Trade Facilitation and Trade Enforcement Act of 2015 ("TFTEA"), signed by President Obama on February 24, 2016, amended the Tariff Act of 1930 by eliminating the exemption and giving CBP more leeway to pursue enforcement. Since the enactment of this amendment in 2016, CBP has issued over 20 WROs under the legal authority of Section 307.

A WRO can be issued based on CBP's own self-initiated investigation or information gathered from outside sources, including whistleblowers. Pursuant to the relevant regulations, any person (inside or outside of CBP) who has reason to believe that merchandise is being, or is likely to be, imported into the United States and is produced using forced labor can submit that information to the CBP commissioner. Section 307 defines "forced labor" as all work or service that is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself or herself voluntarily. In practice, CBP uses the UN International Labour Organization's ("ILOs") indicators on forced labor³ to inform its identification of forced labor practices in the WRO process.

Importers often do not know that CBP is investigating a forced labor allegation until it issues a WRO. Based on the information provided, the commissioner (or a delegate) will conduct an investigation and may issue a WRO when information reasonably, but not conclusively, indicates that the merchandise is made wholly or in part with forced labor. CBP will prevent the admission into the United States of all merchandise within the scope of the WRO. Importers will be told to export or destroy any of the merchandise in the United States that has not cleared customs.

WROs are typically issued against imports of specific merchandise manufactured in a specific country by a specific company. However, as with the WROs on cotton and tomato products from Xinjiang and tobacco from Malawi, CBP can issue region- or country-wide WROs targeting merchandise made "wholly or in part" by forced labor. These WROs cover both the targeted article and any merchandise produced downstream that incorporates the targeted article. Importantly, there is no de minimis provision under the law that would authorize the importation of items with only trivial amounts of merchandise made with forced labor.

Conclusion

As we noted in our previous Legal Update, WROs are being used more frequently as a tool by the US government to combat alleged forced labor issues in China and other countries. This trend has continued under the Biden administration. Companies facing WROs should work with experienced customs counsel on seeking exclusion of their products from a particular WRO. However, businesses should not wait for a WRO to be issued before addressing possible forced labor issues and should implement forced labor compliance programs based on comprehensive assessments of their supply chains and the particular risks they face.

Footnotes

1 See CBP Ruling HQ H318182 (May 10, 2021).

2 On May 18, 2021, CBP issued another ruling to the Importer regarding a different shipment that CBP had detained. The Importer filed a protest with request for Application for Further Review, arguing that 1) the merchandise was manufactured by a Chinese company that was not XPCC, 2) six of the seven detained styles were not made from cotton, and 3) the remaining style was made of raw cotton that originated in the United States and was sourced from entities outside of China. CBP concluded that the Importer provided sufficient evidence to establish that the six designs were not subject to the WRO because they were not made of cotton. CBP denied the protest for the seventh design, however, stating that while the Importer provided evidence to establish that the raw cotton was sourced from entities outside of China, it did not provide substantial evidence to establish that the entities within the XPCC that processed the cotton did so without the use of forced labor. See CBP Ruling HQ H318835 (May 18, 2021). 

3 The 11 indicators are (i) abuse of vulnerability, (ii) deception, (iii) restriction of movement, (iv) isolation, (v) physical and sexual violence, (vi) intimidation and threats, (vii) retention of identity documents, (viii) withholding of wages, (ix) debt bondage, (x) abusive working and living conditions and (xi) excessive overtime. See  https://www.ilo.org/global/topics/forced-labour/publications/WCMS_203832/lang--en/index.htm. 

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