United States: US Customs And Border Protection Detention Orders On Products Produced By Forced Labor In China

US Customs and Border Protection (CBP) recently issued two nationwide orders instructing US ports of entry to detain certain products produced by forced labor in the People's Republic of China (China). The first order, issued on March 29, 2016, prohibits chemicals and fiber products (e.g., soda ash, calcium chloride, caustic soda, and viscose/rayon fiber) from entering the US where those products have been manufactured or mined by the Chinese firm Tangshan Sanyou Group and its subsidiaries. The second order, issued on April 13, 2016, prohibits potassium, potassium hydroxide, and potassium nitrate from entering the US where those products have been manufactured or mined by the Chinese firm Tangshan Sunfar Silicon Company (a.k.a. Tangshan SunFar Silicon Industries Co. Ltd.). To issue these detention orders, CBP invoked a rarely used provision of the Tariff Act of 1930 (19 U.S.C. § 1307 or Section 307), which authorizes CBP to issue such orders prohibiting importation of merchandise mined, produced or manufactured, wholly or in part, by forced labor–including prison labor and forced child labor.

Although Section 307 has long been in existence, recently, on February 24, 2016, President Obama signed the Trade Facilitation and Trade Enforcement Act of 2015 (the 2015 Act), which enhanced CBP's ability to use Section 307 to enforce certain US trade laws and regulations.[i] Importantly, the 2015 Act repealed what was known as the "consumptive demand" clause in Section 307, which had previously eviscerated CBP's ability to prohibit the importation of goods manufactured or mined with forced labor. For example, under the "consumptive demand" requirement, even where it was indisputable that goods were manufactured or mined with forced labor, CBP could only prohibit importations if the same goods were also produced in such quantities in the United States as to satisfy domestic consumptive demand. The repeal of the "consumptive demand" requirement and recent action by CBP signals that the forced labor issue will receive increased trade enforcement attention from CBP and that the agency's issuance of these detention orders is likely to continue to increase.

Considerations for importers and exporters

1. Be aware of government investigations

While the change in Section 307 will likely result in increased CBP trade enforcement actions, other government agencies are also authorized to investigate allegations that forced labor is being used to produce goods imported into the United States. For example, US Immigration and Customs Enforcement investigates allegations of forced labor related to overseas manufacturing or mining of items that are exported to the United States. Moreover, the Department of Labor (in consultation with the Department of State and Homeland Security) maintains and publishes annually a list of products that it believes are produced by forced labor. This list informs the State Department's annual Trafficking in Persons Report. Finally, CBP may either initiate an investigation after receiving a tip or simply initiate an investigation on its own initiative.

2. Review your contracts

If you have a government contract, you must be particularly mindful of forced labor—not just because of CBP detention orders, but because of the potential impact on your contract. In 2012, President Obama issued Executive Order 13627, detailing the administration's intent to strengthen safeguards intended to prevent federal contractors from using forced labor.[ii] On January 29, 2015, the Federal Acquisition Regulation (FAR) was amended to implement Executive Order 13627 and includes a number of new obligations for contractors.[iii] Simply put, the FAR prohibits federal agencies from acquiring products produced by forced or indentured child labor; consequently, when a company is offered a government contract, it is required to certify that it neither uses nor sources from companies that use forced labor. Although it can be tempting to simply assume that your supply chain is free of forced labor, forced labor is used around the world and implicates a variety of goods. You must conduct due diligence to ensure that there are no forced labor issues in your supply chain. The penalties for violating this prohibition are serious and can include termination of your government contract, debarment and where appropriate, civil and criminal punishment.[iv]

3. Be proactive!

Waiting to get a detention notice from CBP before you take action to protect your supply chain from forced labor can prove costly, resulting in seizures, lost business, public relations issues and even civil and potentially criminal liability. Conduct due diligence on your supply chain now:

Assess

  • Identify the types of supplies that are more likely to be produced by forced labor.
  • Identify suppliers who are known to use forced labor.
  • Identify countries who are known to maintain laws or policies that allow forced labor.

Audit

  • Conduct periodic audits of your suppliers.
  • Know who is supplying your suppliers.
  • Visit your suppliers' sites periodically.

Act

  • If you discover or reasonably suspect forced labor in your supply chain, shift to alternative sources.
  • Consider voluntary disclosures to mitigate the risk of penalties.

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