US Bans Imports of All Products Containing Cotton and Tomatoes from China’s Xinjiang Region
On January 13, 2021, US Customs and Border Protection (“CBP”) issued a Withhold Release Order (“WRO”) against cotton products and tomato products produced in China’s Xinjiang Uyghur Autonomous Region (“Xinjiang”) based on information that reasonably indicates the use of forced labor in their production. The WRO applies broadly to cotton and tomatoes grown in Xinjiang as well as to all products made whole or in part using such cotton and tomatoes (e.g., apparel, textiles, tomato sauce, etc.), whether these downstream products are made in Xinjiang or elsewhere in the world. It follows several WROs issued late last year targeting products, including cotton, hair, and apparel products, made by specific entities in Xinjiang using forced labor. CBP’s action is the latest in a series of US government actions to address forced labor and other human rights issues in Xinjiang. These actions include the issuance of a July 2020 business advisory by the Departments of State, Treasury, Commerce and Homeland Security alerting businesses to supply chain risks from links to entities engaged in forced labor and other human rights abuses in Xinjiang1 and the sanctions designation of Xinjiang Production and Construction Corps (“XPCC”) and its majority-owned subsidiaries for their connection to serious human rights abuse against ethnic minorities in Xinjiang.2 Beyond China, there has been a marked increase over the past few years in the use of WROs to address issues of forced labor across the globe that is expected to continue under the Biden administration.
The new WRO took effect immediately, and the result is that CBP will detain imports covered by the WRO at all US ports of entry. This Legal Update provides background on WROs and discusses what businesses can do if their products are subject to detention under this latest WRO or others in the future.
What Is a Withhold Release Order?
Section 307 of the Tariff Act of 1930 prohibits 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. As noted in our prior Legal Update, an exemption previously available to importers mitigated the practical impact of Section 307 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, the Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), signed by President Obama on February 24, 2016, amended the Tariff Act of 1930 by eliminating the exemption and giving CBP more leeway to pursue enforcement. Since the enactment of this amendment in 2016, CBP has issued over 20 WROs under the legal authority of Section 307.
A WRO can be issued based on CBP’s own self-initiated investigation or information gathered from outside sources, including whistleblowers. Pursuant to the relevant regulations, any person (inside or outside of CBP) who has reason to believe 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. Section 307 defines “forced labor” as all work or service that is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself or herself voluntarily. In practice, CBP uses the UN International Labour Organization’s (“ILOs”) indicators on forced labor3 to inform its identification of forced labor practices in the WRO process.
As discussed in our prior Legal Update, importers often do not know that CBP is investigating a forced labor allegation until it issues a WRO. Based on the information provided, the commissioner (or a delegate) will conduct an investigation and may issue a WRO when information reasonably but not conclusively indicates that the merchandise is made wholly or in part with forced labor. CBP will prevent the admission of all merchandise within its scope into the United States. Importers will be told to export or destroy the merchandise to the extent any of the merchandise is in the United States but has not yet cleared customs.
WROs are typically issued against imports of specific merchandise manufactured in a specific country by a specific company. However, as with the new WRO on cotton and tomato products from Xinjiang, CBP can issue region- or country-wide WROs targeting merchandise made “wholly or in part” by forced labor. These WROs cover both the targeted article and any merchandise produced downstream that incorporates the targeted article. 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.
What Can Businesses Do If Their Products Are Detained?
If you import or produce goods subject to a WRO, there are avenues to seek exclusion from the WRO and get products into the US market. If the importer contests the WRO, it can submit to CBP, within three months, a certificate of origin and a detailed statement demonstrating that the subject merchandise was not produced with forced labor. Participating in this process will provide an avenue for exclusion from the scope of the WRO. However, CBP has no statutory obligation to address an importer’s submission within a particular period of time. CBP has significant discretion in processing an importer’s request for admissibility as to its imports.
If the importer provides sufficient evidence that the merchandise specific to the detained shipment was not produced with forced labor, CBP releases the detained shipment into the United States and will allow future shipments of the same merchandise to clear customs. At any time during this three-month period, importers can also choose to export their goods out of the United States rather than provide additional documentation to CBP to prove that their merchandise was not produced with forced labor.
In addition to this process for importers to provide evidence that a particular shipment was not produced with forced labor, importers and other parties affected by a WRO can submit evidence supporting a request to revoke a WRO. The process to request the revocation of a WRO is not addressed in the law or relevant regulations, but CBP has noted in public guidance that WROs may be revoked or modified if evidence shows the subject merchandise 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 United States.4
Neither the law nor the implementing regulations require specific documentation be provided to establish proof of admissibility for a particular shipment or a basis for revocation of a WRO. Businesses should work with customs counsel experienced with WROs to put together a persuasive and thoroughly supported submission to CBP.
Conclusion
WROs are being used more frequently as a tool by the US government to combat forced labor in China and other countries. We expect this trend to continue under the Biden administration. In addition to excluding covered goods from the US market, WROs can have a range of implications and consequences for businesses that import or produce the covered goods, including unfavorable media attention, disruption to supply chains, disclosure requirements under any contracts with the US government and possible civil monetary penalties for import violations. Companies facing WROs should work with experienced customs counsel on seeking exclusion of their products from a particular WRO. However, businesses should not wait for a WRO to be issued before addressing forced labor issues and should implement forced labor compliance programs based on comprehensive assessments of their supply chains and the particular risks they face.
1 Xinjiang Business Advisory at https://www.state.gov/wp-content/uploads/2020/07/Xinjiang-Supply-Chain-Business-Advisory_FINAL_For-508-508.pdf.
2 US Department of Treasury Press Release, “Treasury Sanctions Chinese Entity and Officials Pursuant to Global Magnitsky Human Rights Executive Order,” https://home.treasury.gov/news/press-releases/sm1073.
3 The 11 indicators are: (i) abuse of vulnerability; (ii) deception; (iii) restriction of movement; (iv) isolation; (v) physical and sexual violence; (vi) intimidation and threats; (vii) retention of identity documents; (viii) withholding of wages; (ix) debt bondage; (x) abusive working and living conditions; and (xi) excessive overtime. See https://www.ilo.org/global/topics/forced-labour/publications/WCMS_203832/lang--en/index.htm.
4 See, e.g., Fact Sheet: Helpful Hints for Submitting Proof of Admissibility and WRO Revocation/Modification Requests, CBP Publication# 1165-0620 (Aug. 6, 2020), https://www.cbp.gov/sites/default/files/assets/documents/2020-Aug/Final%20Helpful%20Hints_FactSheet_508comp_2_0.pdf.
