The Situation: Companies are facing increased pressure by U.S. Customs and Border Protection ("CBP") and other federal agencies to demonstrate that goods imported into the United States were produced without the use of forced labor.
The Result: Companies may be expected to affirmatively provide evidence that their supply chains are free of forced labor or risk exclusion of their products from the United States.
Looking Ahead: Companies should consult with counsel and labor experts to ensure that they are complying with all relevant law, and should take immediate action if forced labor is suspected or identified.
As outlined in a White Paper published by Jones Day in March 2020, CBP has increased its use of Withhold Release Orders ("WROs"), preventing goods from being shipped into the United States that are suspected to have been made with forced labor. This Commentary serves to update that White Paper by noting that on July 15, 2020, CBP issued a WRO against Malaysia's Top Glove Sdn Bhd and TG Medical Sdn Bhd ("Top Glove"), barring the importation of disposable rubber gloves. In an email statement reported by Reuters, CBP stated that this order followed "extensive inter-agency consultations" which "found evidence of forced labour practices, including debt bondage among other practices." According to CBP, these practices likely include recruitment fees paid by migrant workers to employment agents.
Five additional WROs were issued on September 14, 2020, barring the import of products produced in the Xinjiang Uyghur Autonomous Region, where "the Chinese government is engaged in systemic human rights abuses against the Uyghur people and other ethnic and religious minorities." The banned goods include hair products, apparel, cotton, and computer parts. In addition to these five specific bans, CBP is considering a broader, region-wide import ban. CBP is conducting further research prior to implementation to ensure that the broader ban would prevail against anticipated legal challenges.
CBP has the power to issue a WRO when information reasonably (but not conclusively) indicates that goods have been produced with forced labor. If there is information sufficient to conclusively demonstrate that the goods have been produced with forced labor, CBP can issue a finding. This power derives from the Tariff Act of 1930's prohibition on the importation of goods produced with forced labor, as defined by 19 U.S.C. § 1307. When a WRO is issued, the goods will be detained and the importer is left with two choices: either re-export the goods, or submit information to CBP demonstrating that the goods were not produced with forced labor. When a finding is issued, the goods may be excluded or seized.
After Top Glove received the WRO, it submitted evidence to CBP in hopes of proving that its goods were not produced with forced labor. CBP then identified additional information that Top Glove must provide before CBP can make a determination regarding the goods. Top Glove and CBP have been "in cordial and constructive engagement," and while there is no definitive timeline for resolution, Top Glove has begun paying remediation fees to its migrant workers.
This WRO is only one of many recent indications that the United States has made combatting forced labor in corporate supply chains―and prohibiting the entry of goods produced with forced labor―a top priority. CBP's issuance of WROs has increased significantly over the past couple of years, including five WROs issued on the same day in September 2019 and an "unprecedented" 12 WROs issued so far this year.
In addition to CBP's efforts to combat the importation of goods produced with forced labor, the U.S. Office of Foreign Assets Control ("OFAC") has also issued sanctions against companies who import goods in violation of federal law. In January 2019, cosmetics company e.l.f. Cosmetics, Inc., settled potential civil liability for apparent violations of the North Korea Sanctions Regulations. Calling the company's compliance program at the time "either non-existent or inadequate," and noting that the company appeared "not to have exercised sufficient supply chain due diligence," OFAC found that the company failed to detect that its supply chain included materials sourced from North Korea. This settlement came just six months after the U.S. Department of State issued an advisory, warning companies about restrictions on trade with North Korea and the use of North Korean labor in their supply chains. The U.S. Department of State issued a similar warning regarding corporate supply chains and the use of forced labor in China's Xinjiang Uyghur Autonomous Region on July 1, 2020.
The recent emphasis on combatting forced labor in corporate supply chains is further evidenced by the "Slave-Free Business Certification Act of 2020," which was introduced to the Senate on July 20, 2020. The proposed Act would require each company meeting certain criteria to conduct an audit of its supply chain, followed by a published report of the audit's findings. The Act would provide for civil damages up to $100 million for violations of the Act and punitive damages up to $500 million if the violations are found to be willful. Other recent developments in legislative action and litigation pertaining to forced labor in corporate supply chains are addressed more fully in White Papers published by Jones Day in 2018, 2019, and 2020.
Given the increased scrutiny that importers are facing, companies should consider undergoing regular risk assessments and audits to understand how their goods are being manufactured within their supply chains. Companies should consider consultation with counsel and labor experts to ensure that they are complying with all relevant law, and should take immediate action if forced labor is suspected or identified.
Two Key Takeaways
- Companies should anticipate heightened scrutiny with respect to the use of forced labor in their supply chains and that legislation requiring enhanced due diligence and reporting procedures may be passed.
- Companies should proactively assess their supply chains in consultation with auditors and legal counsel.