Goods From China Under Heavy Forced Labor Scrutiny By US

Arent Fox
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Arent Fox

On September 14, 2020, the Department of Homeland Security (DHS) through Customs and Border Protection (CBP) issued new withhold release orders (WRO) aimed at entities involved in the importation, downstream manufacturing, and/or sale of certain apparel, cotton, hair products, and computer parts.
 

There are reports that CBP leaders have indicated that other WROs may be under consideration on other apparel and agricultural products.

What Is Happening?

CBP has issued five WROs on certain products from China, finding that the subject products are produced with forced labor in the Xinjiang Uyghur Autonomous Region or Anhui Province. Some of the WROs became effective as early as August 25, 2020. These WROs come as part of an increased pressure campaign by CBP to prevent goods made using forced labor from entering the US stream of commerce. Further, in combination with previously reported WROs covering products from China since September 2019, this raises the tally to nine. The new WROs effectively ban these products made by these companies or areas from being imported into the United States.

The products covered by the new WROs include:

  1. All products made with labor from the Lop County No. 4 Vocational Skills Education and Training Center in Xinjiang Uyghur Autonomous Region, China (effective date: August 25, 2020);
  2. Hair products made in the Lop County Hair Product Industrial Park in Xinjiang Uyghur Autonomous Region, China (effective date: August 25, 2020); and
  3. Apparel produced by Yili Zhuowan Garment Manufacturing Co., Ltd. and Baoding LYSZD Trade and Business Co., Ltd in Xinjiang Uyghur Autonomous Region, China (effective date: September 3, 2020);
  4. Cotton produced and processed by Xinjiang Junggar Cotton and Linen Co., Ltd. in Xinjiang Uyghur Autonomous Region, China (effective date: September 8, 2020);
  5. Computer parts made by Hefei Bitland Information Technology Co., Ltd. in Anhui, China (effective date: September 9, 2020).

As noted in a July advisory from the US Department of State, Xinjiang reportedly produced 84% of Chinese cotton. Given the extensive production of cotton from a region that CBP has found to use forced labor, it is critical that importers, producers, and retailers act now to mitigate the risk of supply chain disruption and penalties. Adding to this urgency is the fact that although CBP’s press release was on September 14, 2020, the five WROs were backdated, one to as early as August 25, 2020. Thus, these WROs may adversely affect merchandise that is currently being shipped to the United States or which is already in CBP’s custody.

CBP Authority to Ban Goods and Penalize Companies that Use Forced Labor

19 U.S.C. 1307 prohibits imported merchandise that was “mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions” into the commerce of the United States. Thus, goods produced in whole or in part with forced labor are prohibited from entering the United States. Shipments suspected of being produced with forced labor will be detained by CBP and excluded if CBP determines that forced labor was used in the production of the goods.

Further, a company paid CBP $575,000 recently to settle penalty claims issued as a result of allegations that it had imported/sold products made from forced labor. The penalties in this case were imposed pursuant to 19 U.S.C. 1307 and likely 19 U.S.C. 1595a. Under 19 U.S.C. 1595a, CBP may issue civil penalties against importers for entering, introducing, or attempting to enter or introduce merchandise that is prohibited or restricted. This appears to have been the first time CBP has imposed penalties under these provisions for goods believed to have been made from forced labor.

What Happens Next?

It is likely that CBP will continue to take an active approach to issuing and enforcing WROs, and may even deploy region-wide rather than company-specific WROs. Further, we may expect that CBP will pursue monetary penalties against companies it suspects of violating forced labor provisions. Accordingly, entities that may be impacted should develop and implement systems that demonstrate supply chains free from 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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