Cotton a Jam: CBP Withholds Cotton Product Shipments Under Forced Labor Rules

Sheppard Mullin Richter & Hampton LLP

On December 2, 2020, U.S. Customs and Border Protection issued an order preventing certain imported cotton products from China from being released to the importer. The products were made by Xinjian Production and Construction Corp. (XPCC). The order is based on information that indicates the use of forced labor in the production of the goods.

Background on Withhold Release Orders

U.S. Customs and Border Protection (CBP) is authorized to withhold release of goods when information “reasonably but not conclusively” indicates that the merchandise was produced using forced labor.[1]  Forced labor is defined as “all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily” as well as forced child labor or indentured child labor.[2]

The order (known as a Withhold Release Order, or WRO) prevents the goods from entering the United States.  Importers are left with limited options: either export the shipments back out of the United States, or submit information showing that the goods were not made with forced labor.  If an importer pursues the latter option, it must do so within 3 months of importation and submit a certificate of origin as well as a detailed statement demonstrating that the subject merchandise was not produced with forced labor, e.g., a supply chain audit report.

Details of Xinjian Order

This latest WRO applies to “all cotton and cotton products made by XPCC and its subordinate and affiliated entities as well as any products that are made in whole or in part with or derived from that cotton (e.g., apparel, garments, and textiles).”[3]

Other WROs related to the region

The December 2 WRO on XPCC’s products comes on the heels of other recent enforcement actions against companies operating in China’s Xinjian Uyghur region.  For example, in September 2020, CBP announced five WROs on exports from the region.[4]  Relatedly, the U.S. State Department has issued an advisory discussing the risks of forced labor in Xinjiang as well as facilities located elsewhere in China.  According to the advisory, the Chinese government “continues to carry out a campaign of repression in Xinjiang, targeting Uyghurs, ethnic Kazakhs, ethnic Kyrgyz, and members of other Muslim minority groups.”

CBP’s emphasis on imports from China, particularly the Xinjiang region, should prompt importers conducting business in the region to review their supply chains and ensure that their goods are not produced or manufactured—either in wholly or in part—with forced labor.  CBP has issued supply chain due diligence guidance that provides importers with resources to help detect goods manufactured by prohibited forms of labor.  CBP has also published a helpful list of questions that importers can ask in assessing whether a product is made by forced labor:

  • Do you know how your goods are made, from raw materials to finished goods, by

whom, where, and under what labor conditions?

  • Have you reviewed CBP’s “Forced Labor” webpage, which includes a list of active withhold release orders and findings, as well as forced labor fact sheets?
  • Have you reviewed the Department of Labor’s “List of Goods Produced by Child Labor or Forced Labor” to familiarize yourself with at-risk country and commodity combinations?
  • Have you established a reliable procedure of conducting periodic internal audits to

check for forced labor in your supply chain?

  • Have you established a reliable procedure of having a third-party auditor familiar with valuating forced labor risks conduct periodic, unannounced audits of your supply chain for forced labor?
  • Do you vet new suppliers/vendors for forced labor risks through questionnaires or some other means?

If you conduct business with any exporter in the Xinjiang region, you should consider taking steps like those recommended by CBP. Separately, you may wish to consider taking steps to ensure the products you import are not made either wholly or in part from XPCC cotton.

Conducting appropriate due diligence on supply chains can help avoid or mitigate CBP’s stiff financial penalties associated with importing products made with forced labor.[5]

FOOTNOTES

[1] 19 C.F.R. § 12.42(e).

[2] 19 C.F.R. § 12.42(a).

[3] U.S. Customs and Border Protection, CBP Issues Detention Order on Cotton Products Made by Xinjiang Production and Construction Corps Using Prison Labor (Dec. 2, 2020), available at https://www.cbp.gov/newsroom/national-media-release/cbp-issues-detention-order-cotton-products-made-xinjiang-production.

[4] See U.S. Department of Homeland Security, DHS Cracks Down on Goods Produced by China’s State-Sponsored Forced Labor (Sept. 14, 2020), available at https://www.dhs.gov/news/2020/09/14/dhs-cracks-down-goods-produced-china-s-state-sponsored-forced-labor.

[5] See, e.g., U.S. Customs and Border Protection, CBP Collects $575,000 from Pure Circle U.S.A. for Stevia Imports Made with Forced Labor (Aug. 13, 2020), available at https://www.cbp.gov/newsroom/national-media-release/cbp-collects-575000-pure-circle-usa-stevia-imports-made-forced-labor.

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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