- Recent actions by the U.S. government and NGOs have intensified international focus on labor conditions in China’s Xinjiang Uyghur Autonomous Region (XUAR) and companies that allegedly source materials and labor from the region.
- On March 1, an Australian think tank issued a report identifying 83 global companies alleged to use labor and materials sourced from the XUAR. On March 10, five major footwear and apparel industry groups (AAFA, NRF, RILA, USFIA, and the FDRA) issued a joint statement responding to reports of forced labor in the XUAR, calling on the U.S. government to “immediately engage” with global stakeholders to find solutions.
- On March 11 and 12, Rep. James McGovern and Sen. Marco Rubio introduced the Uyghur Forced Labor Prevention Act in the House of Representatives and Senate. Among other things, the proposed legislation would create a sweeping rebuttable presumption that all goods manufactured in the XUAR are made with forced labor and barred from entry into the United States under Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307).
- These actions follow months of increased attention by Congress, the executive branch and NGOs on labor conditions in the XUAR. Retailers, manufacturers and other entities with any direct or indirect supply chains in the XUAR, including in the textiles industry, should closely monitor legislative, policy and enforcement activities in this area and prepare for increased scrutiny of supply chains and imports.
- Importers of record and their suppliers should also take special care to understand supply chain due diligence standards and the mechanics of forced labor investigations, and to reinforce compliance programs consistent with CBP’s forced labor enforcement guidelines.
Background: CBP’s Forced Labor Initiative and 2019 Developments.
A wave of recent actions by the U.S. government and non-governmental organizations (NGO) have intensified international focus on labor conditions in China’s Xinjiang Uyghur Autonomous Region (XUAR) and their connection to global brands and retailers, particularly in the textiles industry. These actions are notable in their own right, but they also follow months (if not years) of related efforts by some U.S. policymakers to increase enforcement of the United States’ legal authorities on forced labor and human trafficking. Considered together, they signal a potential acceleration of U.S. efforts to curb allegations of forced labor in the XUAR, including through enforcement against U.S. importers and their suppliers who directly or indirectly rely on materials and labor sourced from the region.
In August 2019, the Department of Homeland Security’s (DHS) division of Homeland Security Investigations (HSI), itself a division of Immigration and Customs Enforcement (ICE) entered into a memorandum of understanding with Liberty Shared, an antilabor trafficking organization based in Hong Kong, to increase coordination with international stakeholders and successfully prosecute forced labor violations around the world (Liberty Shared, Aug. 1, 2019; Immigration and Customs Enforcement, July 31, 2019).
Three months later, on October 1, 2019, DHS’s Customs and Border Protection agency (CBP) announced its issuance of five Withhold Release Orders (WRO) detaining products that the agency believed to have been produced, in whole or in part, using forced labor. Notably, among the goods was a shipment of garments produced by an apparel company, Hetian Taida Apparel Co., Ltd, in Xinjiang, China, which CBP’s order alleges to have been produced with “prison or forced labor.” In announcing the WROs, Acting CBP Commissioner Mark A. Morgan commented that “CBP’s issuing of these five withhold release orders shows that if we suspect a product is made using forced labor, we’ll take that product off U.S. shelves.” Prior to these orders, CBP had only issued seven WROs since 2016.
Following this announcement, CBP’s focus on products sourced from alleged forced labor in the XUAR was intensified by demands for action from U.S. legislators and NGOs. On October 17, 2019, at a hearing of the Congressional Executive Commission on China (CECC), U.S. Rep. Thomas Suozzi (D-NY) named several large U.S. and multinational companies whose products include materials allegedly sourced from the XUAR and which he alleged may have been produced using forced labor. The hearing also highlighted a report by the Center for Strategic and International Studies (CSIS), “Connecting the Dots in Xinjiang,” which called for executive and congressional action and commitments by companies to eradicate forced labor in the XUAR.
Two weeks later, CECC co-chairs Rep. James McGovern (D-MA) and Sen. Marco Rubio (R-FL) sent a letter to Acting Commissioner Morgan expressing their “concern that imports made with forced labor from China’s [XUAR] have entered the United States.” The letter further asked CBP to “use its authority under [Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307)]” to “investigate and block imports made with forced labor in the XUAR from entering the U.S. market and, where appropriate, pursue criminal investigations related to the use of forced labor to produce goods being imported into the United States.” The letter noted that CBP’s recent XUAR-related WRO “sends an important message” but that evidence suggested forced labor is more widespread in the XUAR.
On December 12, the CECC wrote again to the Secretaries of State, Treasury and Commerce, urging the Trump administration to take “stronger and more decisive actions to address” labor and human rights issues in the XUAR. Among other things, the bipartisan group of senators and representatives called on the Executive Branch to leverage its authorities on economic sanctions, export controls (i.e., the Entity List) and forced labor (i.e., Section 307 of the Tariff Act) to “target Chinese companies engaged in forced labor in the XUAR.”
On January 15, 2020, DHS capped its 2019 efforts by issuing a formal strategy describing its commitment to combatting human trafficking and forced labor, including through increased enforcement (DHS Strategy, Press Release, Jan. 15, 2020). Among DHS’s five “key goals” identified in the strategy was “Prosecution,” including to “[l]everage DHS law enforcement and national security authorities to investigate, take enforcement action, and refer cases for prosecution.”
After a brief calm in government and NGO activity, the Australian Strategic Policy Institute (ASPI) issued a report on March 1, “Uyghurs for sale: ‘Re-education’, forced labor and surveillance beyond Xinjiang,” that described striking allegations that major global brands and retailers directly or indirectly procured goods sourced in the XUAR or elsewhere in China with the use of forced labor of ethnic minorities from the XUAR. According to the report, ASPI “identified 83 foreign and Chinese companies directly or indirectly benefiting from the use of Uyghur workers outside Xinjiang through potentially abusive labour transfer programs as recently as 2019.”
The following week, on March 10, 2020, five major associations representing brands and retailers in the footwear and apparel industries issued a joint statement expressing deep concern over reports of forced labor and the treatment of Uyghur Muslims and other ethnic minority workers in or from the XUAR. The statement, joined by the American Apparel & Footwear Association (AAFA), the National Retail Federation (NRF), the Retail Industry Leaders Association (RILA), the United States Fashion Industry Association (USFIA) and the Footwear Distributors & Retailers of America (FDRA), “urge[s] the U.S. government to immediately engage a multi-stakeholder working group to develop and deploy a collective approach [to the conditions in Xinjiang] that accurately assess the problem, and find constructive solutions that target bad actors and protect the rights of workers and the integrity of global supply chains.”
On March 11 and 12, 2020, on the heels of this statement and other public responses by major global apparel and footwear brands, Rep. McGovern and Sen. Rubio, with bipartisan support, introduced companion bills entitled the Uyghur Forced Labor Prevention Act (Bill Text, Reuters, March 11) (“the Act”). Notably, the bills specifically identify numerous Chinese and global companies that “[a]ccording to public reports… are or have been suspected of directly employing forced labor or sourcing from suppliers that use forced labor.” If approved and enacted into law without amendment, they would create significant obligations and restrictions for textile and other importers with supply chains connected directly or indirectly to the XUAR.
Among other things, the bills would:
- Create a rebuttable presumption that significant goods manufactured in whole or in part in the XUAR are made with forced labor and accordingly barred from entry into the United States under Section 307 of the Tariff Act of 1930 (which we discuss further below). As we previously reported in our October 2017 Red Notice, Congress took a similar approach to North Korean labor in Section 302A of the Countering America’s Adversaries Through Sanctions Act (CAATSA), which created a rebuttable presumption that goods produced with North Korean labor are prohibited from entry under Section 307 of the Tariff Act. To rebut such presumptions, an importer must present “clear and convincing evidence” to CBP that the goods are not the product of forced labor. Unlike the similar provision in Section 302A of CAATSA, CBP would then have submit its corresponding determination that an importer has overcome the presumption to Congress and make it available in a public report whose only apparent purpose is to publically shame an importer for having the audacity to prove that its goods are not made with forced labor.
- Require the Trump administration to submit a determination within 60 days on whether grounds do or do not exist to issue WROs under Section 307 of the Tariff Act with respect to six Chinese companies named in the bills.
- Require the Trump administration to impose economic sanctions (in the form of asset freezes and visa restrictions) on foreign persons that knowingly engage, are responsible for or facilitate the forced labor of Uyghurs, Kazakhs, Kyrgyz and members of other Muslim minority groups in the XUAR, or knowingly engage in, contribute to, assist or support the importation of goods into the United States produced with forced labor from XUAR.
- Require the Trump administration to create and provide to Congress a list of products made by forced labor in the XUAR and a list of businesses that sold such products in the United States.
- Require the Trump administration to report to Congress on U.S. government efforts to address labor conditions in the XUAR, including through enforcement of its authorities under the Trafficking Victims Protection Act of 2000 and Section 307 of the Tariff Act, among others.
- Require disclosures by certain public companies to the Securities and Exchange Commission about their dealings and activities with or in Xinjiang, including the “nature and extent of the activity,” “gross revenues and net profits, if any, attributable to the activity” and “whether the issuer or [its] affiliate… intends to continue the activity.” Among other things, the company must disclose if, during the reporting period, it:
- Knowingly engaged in an activity with an entity or the affiliate of an entity “engaged in creating or providing technology or other assistance to create mass population surveillance systems in the [XUAR], including any entity included on the [Entity List, i.e. No. 4 to 15 C.F.R. Part 744]”.
- Knowingly, directly or indirectly, “purchased or otherwise acquired significant types or amounts of textiles made from material produced or manufactured in the [XUAR]”.
- Knowingly engaged in an activity with an entity or an affiliate of an entity identified as a proposed or actual subject of a WRO (i.e., one of the six Chinese companies identified in the Act or a company currently named in a WRO).
- Knowingly “conducted any transaction or had dealings with” certain persons and entities determined subject to sanctions under the bill (as discussed above), the Global Magnitsky Human Rights Accountability Act, or responsible for, or complicit in, committing atrocities in XUAR.
Prospects for the bill right now are unclear with Congress almost exclusively focused on developing responses to the coronavirus pandemic. However, it follows in the footsteps of a similar legislative effort last year that received overwhelming support in both houses of Congress—namely the unanimously-approved Uyghur Human Rights Policy Act of 2019 (passed in the House by a margin of 407-to-1 as the Uyghur Intervention and Global Humanitarian Unified Response (UIGHUR) Act of 2019). This new bill similarly has broad bipartisan support in both the Senate and the House, including the support of polar ideological opposites in the Senate like Sens. Ted Cruz (R-TX) and Jeff Merkley (D-OR) and Reps. Rashida Talib (D-MI) and Mark Meadows (R-NC) in the House. Procedurally, the bills still must work through multiple committees, however, there is a growing consensus in Congress that labor conditions in the XUAR reflect a violation of human rights that must be addressed. As a result, further legislative activity will need to be monitored very closely.
Furthermore, whether or not the bipartisan and bicameral support for these legislative initiatives ultimately result in a bill that reaches President Trump’s desk, they bring into clear view Congress’s focus on forced labor conditions in the XUAR and its intent to take concrete action in an effort to resolve them.
Legal Authorities and the WRO Process
The combination of legislative and NGO pressure just described place significant pressure on CBP to pursue additional allegations of forced labor in the XUAR. As a result, importers and their suppliers in the textiles and other industries with supply chains involving the XUAR should expect increased scrutiny of their imported goods going forward. With that background, it is of critical importance that importers and other industry stakeholders understand the mechanics and timing of investigations, “Withhold Release Orders” and penalties under CBP’s forced labor authorities.
The foundational authority for regulating imports of goods produced from forced labor is Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) (see our earlier Client Alert on Section 307 here). This law prohibits the importation of “[a]ll goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor[,] forced labor[, or] indentured labor,” which includes forced or indentured child labor. Such merchandise is not only subject to exclusion and seizure, its importation may lead to criminal investigation of the importer and other parties involved in the import transaction—and the imposition of civil or criminal penalties (e.g., 19 U.S.C. § 1592 (penalties for fraud, gross negligence or negligence) and 18 U.S.C. § 545 (smuggling goods in the United States)).
CBP follows a nine-step process for initiating and adjudicating forced labor allegations, the key elements of which generally involve the following:
- CBP may initiate a forced labor investigation on its own or in response to allegations and evidence submitted by third parties pursuant to 19 C.F.R. § 12.42. Often, such allegations come from members of the international NGO community, and an importer may be aware of the allegations and have an opportunity to engage with the community about them. Engagement at this stage is often critical in either preventing or narrowing the scope of allegations ultimately submitted to CBP.
- CBP may engage with the submitter and the broader NGO community as well as the importer itself to develop additional evidence, including through the issuance of administrative subpoenas, requests for information (e.g., CF-28s) or informal agency outreach. Once CBP has information that “reasonably but not conclusively” indicates that merchandise within its purview “is being imported,” the agency may issue WROs pursuant to 19 C.F.R. 12.42(e). Once issued, CBP alerts port directors and instructs them to withhold release of, and detain, subject merchandise described in the WRO(s).
- At this point, importers may export the detained goods or contest the order. To obtain release of such shipments, the importer must submit within three months of the importation a certificate of origin and a “detailed statement… e.g., a supply chain audit report” demonstrating the subject merchandise was not produced using forced labor. Depending on the outcome of this submission, CBP will then either release or exclude (i.e., reject entry of) the detained goods.
- Ultimately, if as a result of this process CBP finds probable cause to believe the goods were produced using forced labor and thus subject to the provisions of Section 1307, it will publish a formal finding in the Customs Bulletin and in the Federal Register accordingly.
- WROs and findings remain in effect until revoked, but may be revoked or modified if evidence shows the merchandise at issue “was not made with forced labor, is no longer being produced with forced labor, or is no longer being, or likely to be, imported into the U.S.”
Compliance and Due Diligence
Companies should understand their supply chains and be prepared to engage CBP and the NGO community at each stage of the WRO process. Early engagement with CBP and the NGO community—accompanied by supply chain vigilance—is critical to preventing the issuance or escalation of a WRO. CBP and other nongovernmental organizations publish an array of detailed guidance and tools to assist importers and their stakeholders in identifying and eradicating forced labor from their supply chains. Some of the most notable (and/or officially recognized) resources include:
- The OECD’s Guidelines for Multinational Enterprises and Due Diligence Guidance for Responsible Business Conduct, including sector specific guidance for the minerals, garment and footwear and agriculture
- CBP’s Forced Labor “Fact Sheets” on Forced Labor Procedures, OECD Due Diligence Guidance, Forced Labor Points of Contact, Importer Due Diligence and Detained Shipments.
- CBP’s publication on Responsible Business Practices on Forced Labor.
- CBP’s Forced Labor FAQs.
- The Department of Labor’s “Comply Chain” website.
Recent actions drawing attention to labor conditions in the XUAR and their connections to textile and other industries signal a potential uptick in investigative and enforcement activity by CBP and the NGO community in the months and years ahead. Importers and their suppliers, especially those with links to China and materials and/or labor from the XUAR, should expect increased scrutiny of their supply chains and be prepared to answer detailed questions about the provenance and production of their imported goods.