Media reports surfaced this week that a factory in Nanchang, China, which produces components for electronics products sold by global technology companies, is allegedly using forced labor.1 These reports threaten to further increase US Customs & Border Protection’s (“CBP”) scrutiny of articles imported into the United States that are thought to be produced using forced labor. CBP need only have a “reasonable suspicion” that articles imported into the United States are produced in part by forced labor to justify issuing a withhold release order (“WRO”), which prevents the admission of suspect articles into the United States until an investigation can be completed. This Legal Update provides an overview of the law and discusses recent cases and the implications for businesses with global supply chains.

Legal Background and Procedure

US law has long prohibited the importation of merchandise produced using forced labor. This reaches back 90 years, when the Tariff Act of 1930 was passed and Section 307 prohibited the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by “convict labor” and/or “forced or indentured labor”—including forced child labor.2 Although this law has been on the books for decades, an exemption previously available to importers mitigated its impact by allowing for the importation of merchandise produced with forced labor if consumption of the merchandise in the United States exceeded the domestic production capacity. However, on February 24, 2016, President Obama signed into law the Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), which amended the Tariff Act by eliminating the exemption. TFTEA grants CBP wider latitude to pursue enforcement, and CBP has done just that.

Under the implementing regulations, any person who has reason to know that merchandise is being, or is likely to be, imported into the United States and is produced using forced labor can submit that information to the CBP Commissioner.3 Based on the information provided, the Commissioner will conduct an investigation and evaluate whether there is a reasonable suspicion to issue a WRO or to conclusively determine that the merchandise is prohibited under 19 U.S.C. §1307. If the Commissioner issues a WRO, CBP will prevent admission of all merchandise within the scope of the WRO.

If the Commissioner is provided with information sufficient to make a conclusive determination that the goods in question are subject to the provisions of 19 U.S.C. § 1307, the Commissioner will publish a formal finding to that effect in the Customs Bulletin and in the Federal Register. Violations of 19 U.S.C. § 1307 can result in civil penalties and the merchandise will be subject to seizure and forfeiture absent a successful protest by the importer. Importantly, there is no de minimis provision under the law that would authorize the importation of items with only trivial amounts of merchandise made with forced labor.

Recent Enforcement Actions

Since the enactment of TFTEA in 2016, CBP has issued 11 active WROs.4 For example, based on information that the vessel’s tuna had been harvested with the use of forced labor, on February 4, 2019, CBP issued a WRO against tuna and tuna products from the fishing vessel Tunago No. 61.5 Other recent cases include all garments produced by Hetian Taida Apparel in China and disposable rubber gloves produced in Malaysia by WRP Asia Pacific, both of which are subject to WROs issued by CBP on September 30, 2019.6 Moreover, although CBP generally does not issue WROs that target entire product lines or industries, it also recently issued a WRO on November 1, 2019, on all tobacco produced in Malawi and all products containing tobacco produced in Malawi.7

In addition to CBP's civil enforcement actions, ICE's Homeland Security Investigations (“HSI”) can pursue criminal investigations against individuals or companies for the importation of merchandise produced with forced labor. In 2018, ICE initiated 217 domestic and international cases on forced labor and seized US$1,444,551 of goods domestically and internationally.8 HSI also made 560 criminal arrests both domestically and globally, which resulted in 88 indictments and 92 convictions.9

Implications and Takeaways

The heightened scrutiny in this area has significant implications for businesses with global supply chains. Importers typically do not know that CBP is investigating a forced labor allegation until it issues a WRO. Companies caught flat-footed once an WRO is issued can be hamstrung for months before CBP completes its investigation. Companies would be wise to conduct a thorough due diligence of their supply chains, particularly when those supply chains involve countries with a history of using forced labor. Being prepared prior to the issuance of a WRO will make it much easier to engage CBP after the fact with evidence exonerating particular suppliers. That is especially true where CBP issues a broad WRO that covers an entire product, industry or state/province.