What Is Happening?
As previously reported, on January 13, 2021, CBP issued a region-wide WRO against all cotton products and tomato products produced in the XUAR. At the time, CBP stated that this “WRO will direct CBP personnel at all U.S. ports of entry to detain cotton products and tomato products grown or produced by entities operating in Xinjiang. These products include apparel, textiles, tomato seeds, canned tomatoes, tomato sauce, and other goods made with cotton and tomatoes. Importers are responsible for ensuring the products they are attempting to import do not exploit forced labor at any point in their supply chain.”
In response to the importer’s requests for transparency regarding the documentation required to secure the release of goods, on February 12, 2021, CBP issued FAQs that cover a range of issues including products covered, detention of shipments, proof of admissibility, certificate of origin, and due diligence. We summarize the main points:
1) The WRO is not limited to cotton and tomato products produced in the XUAR, it also covers products made in other parts of China and third countries using inputs from the XUAR.
The WRO is not limited to products produced in XUAR. Downstream products produced outside of XUAR that incorporate these inputs may also be detained. For example, a garment cut and sewn in Italy of fabric knit in Turkey from yarn spun in Shanghai, China is covered by the WRO, if the cotton was picked in XUAR. Customs is initially targeting shipments with a known nexus to XUAR, reportedly based on an unpublished internal list of manufacturers in the region. However, the WRO gives Customs authority to seize cotton and tomato products produced anywhere if any inputs are from XUAR.
2) CBP can order redelivery of goods imported before the WRO was issued and the WRO authorizes goods to be detained, not seized.
CBP has clarified that it may order redelivery of goods subject to the WRO up to 30 days after the merchandise was released or the end of the conditional release period, whichever is later. Thus, while the WRO was issued on January 13, 2021, CBP could have required redelivery of goods released up to 30 days prior to that date. If goods are not redelivered, liquidated damages can be assessed.
The WRO allows CBP to detain, and not seize goods. Importers of detained goods have the option to export the goods or provide proof of admissibility in accordance with 19 CFR § 12.43 (Certificate of Origin and Statement by the Importer) within three months of detention. If the documentation is insufficient to prove the goods are not made with forced labor, the goods will be excluded.
3) What will be required to prove goods were not made with forced labor and secure release?
In order to prove admissibility, CBP instructs that importers should submit to the port detaining the goods the documents required by 19 C.F.R. § 12.43:
- 19 C.F.R. § 12.43: a Certificate of Origin signed by the seller with the precise language set forth in the regulation and including a statement “that __________ (Class of labor specified in finding) was not employed in any stage of the mining, production, or manufacture of the merchandise or of any component thereof.”
- 19 C.F.R. §12.43(b): a detailed statement by the importer stating and including proof that the goods were not produced in whole or part with forced labor.
For the first time, CBP is providing published guidance regarding the required proof. Essentially, importers must provide transaction documents for every level of the supply chain and transportation documents evidencing that the cotton/tomatoes are not sourced in XUAR. This is a heavy burden to place on importers that historically did not have visibility to their upstream supply chain.
- Cotton Products: “Affidavit from yarn producer and the source of raw cotton that identifies where the raw cotton was sourced. Purchase Order, Invoice, and Proof of Payment for the yarn and raw cotton. List of production steps and production record for the yarn, including records that identify the cotton and cotton producer of the raw cotton. Transportation documents from the cotton grower to yarn maker. Supporting documents related to employees that picked the cotton, time cards or the like, wage payment receipts, and daily process reports that relate to the raw cotton sold to the yarn producer.”
- Tomato Products: “Provide supply chain traceability documents pointing to the point of origin of the tomato seeds, tomatoes, or tomato products. The affidavit from the tomato processing facility identifies both the parent company and the estate that sourced the tomato seeds and or tomatoes. Purchase Order, Invoice, and Proof of Payment for the tomato seeds, tomatoes, or tomato products, from the processing facility and the estate that sourced the raw materials. All production records for the tomato seeds, tomatoes, and/or tomato products that identify all steps, from seed to finished product, from the farm to shipping to the United States.”
4) Importers without direct relationships with the upstream suppliers/manufacturers must have comprehensive social compliance systems in place.
CBP requires documentation for the entire supply chain to evidence that forced labor is not used. However, in recognition of the complex supply chains for these products, CBP advised that importers can combat the risks of forced labor by having a “comprehensive and transparent social compliance system in place.” CBP directs importers to the forced labor section of its Informed Compliance Publication on Reasonable Care, which essentially requires importers to evaluate their entire supply chain for forced labor risks and implement forced labor policies and procedures. As previously discussed, there are a number of compliance steps that importers can take to ensure that they are following best practices.
What Does This Mean for Importers?
While providing some useful guidance, CBP’s FAQs also confirm importers’ responsibility to ensure that their products are not made using forced labor at any point in their supply chain, including the production or harvesting of the raw material. Although the US government has started initiatives to increase supply chain transparency and traceability, given the scope of this issue, many importers will need to develop comprehensive compliance plans to reduce risk to operations.
Forced labor is a priority CBP issue, and they have increased enforcement in this area. The most recent data shows that from October 1, 2020, through December 31, 2020, CBP detained 90 shipments of goods subject to WROs. These detentions at the end of CY2020 followed by the broader XUAR-WRO in January 2021 point to the possibility of further increases in the number of shipments detained.
What It Means for Apparel Manufacturers and Importers
Companies in the fashion, luxury, and agricultural spaces must take action to limit risk exposure, prepare for pending legislation, and ensure compliance with recent sanctions of Chinese companies in Xinjiang province by the US Departments of Treasury and Commerce. It is critical that manufacturers and importers review and document their entire supply chains, increase visibility, and develop comprehensive compliance policies.