CBP Focuses on Forced Labor

During much of the last three years, the US trade community has been preoccupied with the trade war with China, most especially how to navigate the four separate Section 301 actions, or tranches, authorized by the USTR. Our previous blog articles have summarized the status of Section 301 trade activity. Now importers have a new concern – they have to worry about their supply chain being threatened by forced labor issues.

For years CBP has had the authority to investigate, and possibly detain, shipments suspected of being made with forced labor. Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) was originally legislated as the title states, in 1930. It was also amended in 2016, with the most significant change being the elimination of the notorious consumptive demand exception which allowed for the uninterrupted importation of goods produced with forced labor if the “consumptive demand” for those goods in the United States exceeded the capacity of domestic production

In the late 1990’s detention activity slowed to a trickle but in 2020 the tap was again opened to a torrent of activity – more than 10 separate actions filed since then. It is not merely the number of actions that matters. In times past detentions were often issued in regard to a narrow niche of goods. Now however, detention orders, also known as withhold release orders (WROs), can be of a different order of magnitude and cover a wider class of goods – cotton goods or tomatoes in an entire region of China for example – that also comprise vast consumer staples as opposed to niche products.

The impact of these recent detention orders and the threat of future orders is causing a state of panic among select importers who are digging deep into their supply chains to ensure that they have no exposure on the forced labor front. For some unfortunate importers, it is too late, and calamity has ensued where CBP has detained entry of their goods. Later in this article we will discuss an importer of palm oil from Malaysia who now has a pending court case in the Court of International Trade (CIT).

Neither is forced labor an issue that is relegated to the Federal Register or back pages of the Financial Times. Earlier this year House Speaker Nancy Pelosi issued a tweet that in which she suggested the US should boycott the 2022 Olympics in China in part because of concerns over forced labor issues in China. Moreover suggestions of forced labor abuses have dogged not only smaller importers but also the largest companies in the world. Apple has denied allegations its imports are made with forced labor, but it has been publicly accused of violations by independent journalists and by watchdog organizations. These are bold claims and so far none of Apple’s products have been subject to a WRO, but as these exposes become more numerous and the allegations more detailed (including satellite photos) one wonders whether there is actual substance to these stories.

Forced Labor Legislation and Definition of Forced Labor

The Forced Labor statute. 19 U.S.C. 1307, prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by forced or indentured labor – including forced child labor.

Paragraph two of the statute defines the term forced labor.

“Forced labor”, as herein used, shall mean all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily. For purposes of this section, the term “forced labor or/and indentured labor” includes forced or indentured child labor.

An observations is in order. If one does not work voluntarily one is “forced” to work, thus this definition suffers from the weakness of being circular. When defining forced labor increasingly the media, politicians, and officials at DHS or CBP turn to the colorful and descriptive indicia or earmarks of forced labor as set forth by the influential policy-making body International Labour Organization (ILO).

ILO and its Eleven Indicia of Forced Labor

The ILO plays a critical role in the forced labor space. On its own website, www.ilo.org, it describes itself as a UN agency which “brings together governments, employers and workers of 187 member states to set standards, develop policies and devise programmes promoting decent work for all women and men.”

The ILO is most well known perhaps for developing the “11 indicia of forced labor.” As the phrase suggests these are earmarks of forced labor and are useful in applying when it may be difficult to precisely define the term. In press releases concerning issuance of detention orders we have seen CBP quote[1] implicated Forced Labor indicia. CBP reviews WRO cases with the 11 criteria in mind. The CBP website has a page dedicated to WRO modification that states the integral nature of the 11 indicators. “CBP determines a foreign entity subject to the WRO has remediated all of the 11 ILO indicators of forced labor (hyperlink provided) identified, and suspends enforcement of the WRO against the foreign entity.”

The ILO offers this guidance with respect to applying the indicators.

The presence of a single indicator in a given situation may in some cases imply the existence of forced labour. However, in other cases you may need to look for several indicators which, taken together, point to a forced labour case.

Here is the list of 11Forced Labor indicia.

Abuse of vulnerability, deception, restriction of movement, isolation, physical and sexual violence, intimidation and threats, retention of identity documents, withholding of wages, debt bondage, abusive working and living conditions, excessive overtime

Forced Labor Investigation

CBP is permitted to investigate a forced labor allegation based on any communication given upon reasonable belief to the Port Director or Commissioner of the CBP and it shall contain 1) a full statement of the reasons for the belief, 2) a detailed description or sample of the merchandise, and 3) all pertinent facts pertaining to the production.

Importantly, conclusive proof of a forced labor violation is not necessary. If CBP “reasonably” concludes that the suspect goods are made with forced labor it can “withhold release” or detain those goods and prevent their entry into the US stream of commerce. In that event, CBP will publish a finding of a violation in a weekly issue of the Customs Bulletin and in the Federal Register.

If CBP detains the goods and they are not released by the date of the Federal Register notice, the importer can have the goods released if it “establishes by satisfactory evidence that the merchandise was not mined, produced, or manufactured in any part with the use of a class of labor specified in the finding.”

CBP does not give notice to importers that an investigation is underway nor at any time is the importer allowed to see the evidence upon which a WRO is issued. Forthcoming legislation is expected to add more due process safeguards.

One of the more troubling aspects in rebutting allegations concerns a forced labor allegation where the importer has no direct visibility to the violation.

This can happen when a party who is not in the importer’s direct supply chain has been found to have been engaged in misconduct. It is bad enough when the deck appears to he stacked against the importer, but no situation is more galling than when the violation is alleged to have occurred by actors who are one or more transactions away from the importer gaining title to the alleged tainted goods. Conceivably any of various middleman or suppliers or handlers can be implicated in forced labor activity. And it only takes one “proven” violation to jeopardize the goods at time of entry.

Meanwhile, at the same time that the importer is building a rebuttal case, he may have a detrimental cash-flow related to the detention and be engaged in efforts to placate customers who were relying on a smooth handover of the goods after customs clearance.

As you can see, to mount a convincing and robust challenge can involve outlays of time and money and the investigation may have to take place half way across the globe where the importer has no staff on the ground. In all cases the importer will not have the full array of the findings of fact known to hi. To most importers, responding to a detention order is nothing short of a horror show.

A final vexing issue to consider is the limited time an importer is afforded to rebut a forced labor allegation. There is no clock running on CBP when it investigates an allegation, however, the importer has a 60 day deadline to build and submit a credible defense, often surrounding an allegation in the outer Western provinces of China or in Malaysia or some other far-off land. Failure to build a case within the allotted time, or otherwise failing to rebut the claim, means the goods will not be released into the US and the importer will have to export them at his own expense or allow CBP to destroy them.

Palm Oil Products Face Intense Forced Labor Scrutiny

Investigative journalists have been instrumental in exposing the harsh working conditions in which millions labor on the vast palm oil plantations of Malaysia and Indonesia The Associated Press published a lengthy and painstakingly researched article titled, “Palm Oil Labor Abuses Linked to World’s Top Brands, Banks” on September 23, 2020. The article is rich in data and graphs but it is the woeful account of a single migrant worker named Jum that grabs your attention. It is impossible to read this article and not feel empathy for the millions of plantation workers like Jum who suffer from abuse and worker exploitation, despite protests from the Malaysian Palm Oil Association or international banks, that finance the plantations, that any abuses are not systemic, but isolated cases.

A second AP article appeared on November 17, 2020 and it is titled, “Rape, Abuse in Palm Oil Fields Linked to Top Beauty Brands.” It is written in the expose style as the first article with a special focus on the abuses directed towards women.

A third, and briefer, AP article appeared on December 30, 2020. It is titled, “US Bans Second[2] Malaysian Palm Oil Giant Over Forced Labor.”

“The U.S. said it will ban all shipments of palm oil from one of the world’s biggest producers after finding indicators of forced labor and other abuses on plantations that feed into the supply chains of some of the most famous food and cosmetic companies.” On the same day CBP issued a WRO to the Sime Darby Plantation Berhad of Malaysia and also issued its own press release which reads, “The issuance of a Withhold Release Order against Sime Darby Plantation palm oil is based on information that reasonably indicates the presence of all 11 of the International Labour Organization’s forced labor indicators in Sime Darby Plantation’s production process.”

This WRO and the two press releases linked to it is the segue to an important case recently filed in the CIT as CBP made a connection between the Sime Darby WRO and a palm oil import, which the importer denies. Details below.

CIT Action Challenges Forced Labor Detention – Virtus Nutrition Case

We have demonstrated how procedurally the decks are stacked against importers facing Section 307 detention orders. Is it any wonder then that an importer of Malaysian palm oil whose goods were detained and whose rebuttal CBP found insufficient to overcome the forced labor allegations elected to file suit in the CIT, challenging the 307 action? We now recite a summary of facts from the complaint filed on April 14 and captioned Virtus Nutrition LLC v. United States, Court No. 21-165. This action may prove to be a blockbuster, paving the way for other aggrieved importers to file their own complaints.

On February 8 a vessel arrived in the Port of San Francisco carrying a cargo that included Malaysian palm oil and its derivatives. On February 10 Virtus Nutrition made entry of imported palm oil and paid estimated Customs duties, taxes, and fees. CBP immediately detained the cargo pursuant to the WRO issued on 12/30 to Sime Darby previously discussed. In an effort to rebut the allegations that the imports were connected to the Sime Darby plantations the importer made a robust reply and submitted numerous documents, tracing the entry all the way back to the plantation from which the oil was extracted. CBP found the rebuttal unconvincing and so on March 31, 2021, plaintiff timely protested the detention of its merchandise. Not wasting any time, seven days later CBP, by electronic transmission, denied of the protest, stating:

“Protest is denied as importer has supplied no additional documentation and is unable to trace production back to the harvesting of the palm kernel/seeds as required by the withhold release order.”

In its CIT complaint counsel for importer hotly disputes that it failed to adequately trace production to a source other than the Darby plantations or “any other Malaysian palm oil producer subject to a WRO”. The implications of this court case are enormous. At stake is not just the detained palm seed oil. It is likely that the CIT will offer guidance to CBP as how to proceed when weighing evidence submitted by all of those whose goods have been detained subject to WROs. What level of documentation or other evidence is acceptable to prove origin and to disprove association with a tainted source? What burden of proof will carry the day? H.R. 1155 which is the bill number assigned to the pending legislation is proposing a clear and convincing standard of review.

Recent 2021 WRO Developments

Whereas WROs of the past may have received scant attention in the press, lately each WRO seems to be issued via a splashy press conference with dignitaries from CBP or DHS issuing solemn words protesting the evils of forced labor. There is the color of political grandstanding surrounding these announcements that has rarely been seen before in official releases of customs or border announcements . Every few weeks we see a new WRO, most of them tied to alleged Chinese labor infractions. Below we summaries two of the latest WROs – a complete list of active WROs can be found on the CBP website.

Link: https://www.cbp.gov/trade/programs-administration/forced-labor/withhold-release-orders-and-findings

The goods subject to the following WROs can be added to the ongoing list which includes tomatoes and cotton from the Xianjang region of China.

Effective August 18 at all U.S. ports of entry, U.S. Customs and Border Protection (CBP) will detain seafood harvested by the Da Wang, a Vanuatu-flagged, Taiwan-owned distant water fishing vessel. Note: this WRO comes on the heels of an earlier WRO connected to other fishing vessels. See WRO issued 5/26/91 to fishing vessels owned by Dalian Ocean Fishing and 12/31/20 to fishing vessels owned by Lien Yi Hsing No. 12.

On June 24 CBP issued a WRO against Hoshine Silicon Industry, Ltd. and its subsidiaries, related to the production of silica manufactured in the Xianjang region of China. Affected are imports of silica and polysilicon, the latter a leding component of solar panels. The CBP investigation revealed workers manufacturing the silica products were subject to intimidations and threats and had their movement restricted.

From the clothes you wear to the foods you eat or the silica used in an imported solar panel intended for your roof, CBP is on high alert looking to detain any goods tainted by Forced Labor.

Section 1307 Forced Labor “Industry Days” Event

On its website CBP recently posted an invitation for interested industry representatives to participate in a two-day event called “Forced Labor Industry Days” to be held June 28 and 29.

LINK: https://www.cbp.gov/trade/stakeholder-engagement/forced-labor-industry-days

The first day will focus on textile supply chain transparency, namely what are the best business practices that allow for an importer to trace the origin of subject goods perhaps to the point of origin of the raw materials (e.g., the planting of the cotton seeds in the production of garments).

The second day will focus on country of origin identification, especially on the technologies allowing for the physical examination or laboratory analysis of goods needed to verify the legitimacy of a Country of Origin claim.

We expect that in the aftermath of this event CBP will lay out rules that will add clarity to the due diligence that is expected from importers in regard to section 1307 enforcement and Withhold Release Orders.

This is not the first time that CBP has stepped in to verify origin nor the first time that it has relied on high tech solutions in trade remedy situations. Origin is a key component to free trade eligibility (USMCA among other FTAs) and CBP routinely questions origin when the benefits of an FTA are claimed.

Two instances of CBP high tech analysis come to mind. In the instance of Burma-origin rubies that were prohibited from importation, CBP previously performed spectrometry analysis, which can be used to identify mineral inclusions which are specific to a geographic area.

In the case of Chinese garlic, antidumping duties will be levied at import. But there is a documented history of falsely declaring Chinese garlic as Mexican when the garlic has merely transshipped Mexico. See ruling no. HQ 562751 (5/10/2004) for a discussion of one such shipment of garlic claimed to be of Mexican origin. Through “multivariate discriminant statistical analysis” the CBP lab ultimately proved the actual origin was Mexico and thus antidumping duties were avoided.