CBP’s Region-Wide WRO Escalates Pressure in China’s Xinjiang Region

Pillsbury - Global Trade & Sanctions Law

On January 13, 2021, U.S. Customs and Border Protection (CBP) issued a withhold-release order (WRO) on all cotton and tomato products from China’s Xinjiang Uyghur Autonomous Region (XUAR) based on information that reasonably indicated that such products used forced labor.  This action comes after CBP’s December 2020 WRO on cotton and cotton products produced by Xinjiang Production and Construction Corporation (XPCC).

CBP has taken significant action in recent years with respect to blocking imports from companies in Xinjiang due to forced labor concerns.  During 2020, eight of the 13 WROs issued by CBP involved goods produced by specific companies in Xinjiang.

Although CBP’s most recent action comes during the final days of the Trump Administration, efforts to prevent forced labor and human rights abuses in XUAR have enjoyed bipartisan support within the U.S. Congress and appear to be supported by the Biden Administration.  On January 19, 2020, the State Department determined that China’s repression of Uyghurs and other Muslim minorities in XUAR amounts to genocide.  President Biden supports this determination and has previously expressed his critique of China’s human rights abuses.  At his confirmation hearing, President Biden’s Secretary of State-Designate, Antony Blinken, said that the State Department’s determination was appropriate and expressed support for measures to block imports made with forced labor in Xinjiang.

Impact of the Region-Wide Ban

While the previous XPCC ban on cotton products accounted for 17 percent of Xinjiang’s cotton production, the recent WRO bans all cotton and tomato products that are grown or produced in XUAR, which amounts to approximately 84 percent of total production of cotton in China and 70 percent of the country’s total production of tomatoes.  According to CBP, last year alone, the U.S. imported $9 billion worth of cotton products and $10 million in tomato products from China.

This WRO targets shipments of various cotton and tomato products, including apparel, textiles, canned tomato, and tomato seeds.  Due to its regional scope, all cotton and tomato producers in XUAR are presumed to currently use forced labor unless proven otherwise.  Generally, once CBP has issued a WRO, importers are required to provide documentary evidence to prove that workers at “facilities throughout the supply chain” were legitimately employed.  In some cases, CBP may modify region-wide WROs to exclude specific companies from the ban.  For example, in August 2020, CBP modified a region-wide WRO targeting tobacco from Malawi by permitting imports of the subject products produced by a specific company in Malawi.  CBP explained that it made its decision based on a “rigorous evaluation” of the company’s compliance program “and efforts to identify and minimize the risks of forced labor from its supply chain.”

Compliance with the New WRO

Supply chain diligence is notably difficult, particularly in China where corporate structures are not always transparent.  Due to the large number of cotton products sourced globally from XUAR, global businesses that source outside of China, including from Southeast Asian garment manufacturers, may also be susceptible to import risk.  Successful diligence requires coordinated efforts by companies and suppliers to ensure that supply chains are completely free from forced labor.  Therefore, importers must account for all sourced products and sources of labor.  The region-wide WRO presents additional difficulties for importers in their efforts to publicly verify the origin of cotton in retail clothing and tomatoes in food or beverage products.

To meet the increased diligence demands associated with a region-wide ban, affected companies may enhance their existing compliance programs to manage legal risk and prevent commercial delays.  For instance, companies seeking to closely examine their supply chains or to respond to CBP’s requests for supply-chain and origin-of-materials information may employ third-party (e.g., supplier) questionnaires and certifications.  Additionally, CBP has noted that new technology, such as blockchain, are allowing business managers to track shipments moving through their supply chain.

The July 2020 joint-agency advisory, Xinjiang Supply Chain Business Advisory, may also assist companies in navigating the reputational, economic, and legal risk associated with sourcing goods produced by companies in XUAR, as well as partnering with, investing in, or supporting such companies.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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