Trending Now

Building a Resilient Supply Chain with Advanced Predictive…

New Articles

Xinjiang US Import Sanctions Looming Over Global Supply Chains

import
Archives, Global Trade Daily, International Trade

Xinjiang US Import Sanctions Looming Over Global Supply Chains

Leave a comment

On December 23, 2021, President Biden signed into law the Uyghur Forced Labor Prevention Act (the “UFLPA”), which passed Congress with strong bipartisan support. With the UFLPA, the US has targeted imports of goods sourced from or produced in the Xinjiang region of China in an effort to address allegations of forced labor. Until now, similar orders had focused only on certain products – computer parts, cotton and cotton products, silica-based products, apparel, and hair products – from Xinjiang or from certain Xinjiang producers. The new measures will affect a wide range of industries and supply chains around the world. Companies are obliged to apply heightened diligence and transparency requirements in Chinese-based supply chains, and anticipate extended shipment delays for US imports and possible shifts in global apparel, food, solar, electronics, and automotive sectors, among others.

Background

The UFLPA was a bipartisan effort following on the heels of congressional action dating to 2019 in reaction to alleged human rights abuses against ethnic minorities in Xinjiang. It was enacted as part of a whole-of-government effort to combat alleged forced labor abuses in Xinjiang:

-US Customs and Border Patrol (“CBP”) has issued Withhold Release Orders (“WROs”) applying to cotton, tomato, apparel, hair products, silica-based products, and computer parts from Xinjiang.

-The Bureau of Industry and Security (“BIS”) of the Department of Commerce added more than 50 Chinese entities on the Entity List.

-The Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury designated more than a dozen persons on the Specially Designated Nationals and Blocked Persons List (“SDN List”) under the Global Magnitsky Human Rights Accountability Act.

-The US Department of State imposed visa restrictions against China Communist Party officials “believed to be responsible for, or complicit in, the unjust detention or abuse of Uyghurs, ethnic Kazakhs, and members of other minority groups in Xinjiang” as well as their family members.[1]

The UFLPA calls for a ban on the import of “all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of China, or by persons working with the Xinjiang Uyghur Autonomous Region government for purposes of the ‘poverty alleviation’ program or the ‘pairing-assistance’ program.” These programs, per the UFLPA, subsidize the establishment and operation of manufacturing facilities in the Xinjiang Region.

In fact, CBP’s authority to withhold release of imports suspected of involving forced labor already has existed for almost 100 years under Section 307 of the Tariff Act of 1930, which prohibits importing into the US any product that was “mined, produced, or manufactured wholly or in part by forced labor, including forced or indentured child labor.” CBP enforces the prohibition through the issuance of WROs.

CBP first began issuing WROs relating to Xinjiang in 2016. Most recently, in 2020 and 2021, CBP issued a series of WROs. Some apply to listed companies and their subsidiaries while others apply to the entire Xinjiang region:

In one of its first major actions under the Biden Administration, on June 24, 2021, CBP issued a WRO instructing ports of entry to detain shipments containing “silica-based materials” that are “derived from or produced using” products manufactured by Hoshine Silicon Industry Co. (“Hoshine”). Hoshine is one of the largest global producers of metallurgical-grade silicon, the raw material needed to produce solar-grade polysilicon that is used to create solar cells. In addition, BIS added Hoshine and four other Chinese companies to the “Entity List,” banning exports, re-exports, or transfers of US goods and technology to the listed entities. When the new order under the UFLPA goes into effect, the 2021 restrictions will be viewed merely as a preview to a much more pervasive region-wide and not sector-specific import ban that will reverberate through a wider variety of supply chains.

The US government has identified the following industries as involving heightened risk due to potential forced labor in Xinjiang:

Where there is suspicion that the goods contain materials originating in Xinjiang, these industries’ products will likely be held at customs as banned from imports into the US on suspicion of being sourced with forced labor.

What does the Uyghur Forced Labor Prevention Act do?

Pursuant to the UFLPA, 180 days after enactment of the Act, on June 21, 2022, CBP will apply a “rebuttable presumption” that applies to any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Region or produced by the entities listed by the Task Force. This “rebuttable presumption” will apply except when the CBP determines that the importer has:

(a) fully complied with the guidance described in the China forced labor strategy and any regulations issued to implement that guidance;

(b) completely and substantively responded to all inquiries for information submitted by the CBP to ascertain whether the goods were mined, produced, or manufactured wholly or in part with forced labor; and

(c) shown, by clear and convincing evidence, that the good, ware, article, or merchandise was not mined, produced, or manufactured wholly or in part by forced labor.

CBP advises that the importer may be required to submit time cards, wage payment receipts, and daily process reports that demonstrate the employment status of the employees in order to meet the burden of proving the lack of forced labor. In fact, textile companies whose cargoes got held up at US ports pursuant to Section 307 have needed to prove such evidence to CBP to get the goods released.

Finally, the UFLPA calls for increased enforcement of WROs. Within 30 days of making its determination, CBP will submit a public report to congressional committees identifying the good and evidence it has considered. The UFLPA provides for the Forced Labor Enforcement Task Force (the “Task Force”), in consultation with the Secretary of Commerce and Director of National Intelligence, to develop a strategy for supporting enforcement of CBP WROs.

What does this mean for companies?

The UFLPA is distinguished from a CBP WRO, which subjects to detention at US ports of entry products produced by listed entities or, in many cases, any products derived from or incorporating such products because the UFLPA’s rebuttable presumption will subject any and all goods sourced from or produced in XUAR to the import ban. The release process under the UFLPA will be what it has been for WROs.

To release the goods from detention, the importer must either re-export them from the US or provide evidence demonstrating that the goods were not manufactured with forced labor. In practice, goods subject to a CBP WRO are banned from entering the US until and unless the importer can convince CBP that it should not be withheld.

For example, in January 2021, CBP stopped a UNIQLO shipment of men’s cotton shirts that had arrived at the Port of Los Angeles / Long Beach pursuant to the XPCC cotton WRO. UNIQLO was required to provide various detailed records of the production chain (including timecards, salary records, and transportation records) from the raw cotton grower to the bulk trader to the yarn maker to the finished product. While UNIQLO argued that the shirts were not produced by XPCC, the burden is on the importer to prove the negative; even if UNIQLO eventually succeeds in convincing CBP, the shipment will have been delayed for months. Thus, the new WRO will also trigger shifting of supply chains by companies that do not want to take that risk.

In addition to customs consequences, a variety of measures may be applied to Xinjiang-affiliated entities. For example, an Entity List designation prohibits exports and reexports of all US goods, software and technology to those entities absent a license from BIS. Even more, those listed on the SDN List are prohibited from dealing, directly or indirectly, with US persons and are likely blocked from the global financial system altogether.

1. Shifting of Supply chains

When the rebuttable presumption under the UFLPA becomes effective on June 21, 2022, all goods sourced from or produced in XUAR – including any goods incorporating or derived from such goods in any amount – will essentially be banned from entering the US pending a favorable determination by Customs.  In other words, there is no de minimis requirement for the import ban. Therefore, companies should expect and plan for global supply chain pricing and sourcing issues.

For instance, as 40-45 percent of the world’s solar-grade polysilicon comes from Xinjiang, the US solar projects industry will start to suffer even greater supply chain headaches. Currently, the WRO only applies to silica-based materials if the silicon was produced by Hoshine. Under the rebuttable presumption, it will extend to any products containing either silicon or polysilicon produced in China. This is expected to impact the supply and pricing of polysilicon worldwide. China produces more than 65% of the world’s silicon and around 89% of the world’s polysilicon. Most of the polysilicon production is believed to be outside of Xinjiang. Since Xinjiang is not a transparent place at present, it is hard to say exactly how much. US importers will likely encounter third-country suppliers who are reluctant to dig as deeply as the UFLPA demands.

In order to avoid import delays, component and product manufacturers in third countries (for example, Germany and South Korea) will seek to shift their supply chains to products that are not sourced from or produced in XUAR, if possible. Those efforts are beginning now in anticipation of the June effective date.

2. Heightened Supply Chain Transparency and Recordkeeping Obligations in Affected Sectors

Companies – especially those in industries listed above as identified by the US government to be higher risk – need to establish heightened supply chain transparency obligations. Supply chain transparency will help companies in the uphill battle of meeting the burden to prove the absence of forced labor. Up to now, transparency in Chinese in-country supply chain has been lacking, which makes it difficult to forecast the future impacts of the UFLPA. Without such transparency, it will be nearly impossible for companies to convince the CBP, “by clear and convincing evidence, that the good, ware, article, or merchandise was not mined, produced, or manufactured wholly or in part by forced labor.”

Transparency and recordkeeping will go hand-in-hand, and both will be necessary to navigate the UFLPA waters. In addition to requiring transparency on all levels of the supply chain, companies also need to keep records of the entire supply chain to be able to quickly and easily provide such records to CBP as evidence of lack of forced labor, if and when necessary.

3. Reputational and Banking risks

Aside from US sanctions enforcement risks, reliance on Xinjiang suppliers in any aspect of a supply chain presents significant dual-sided reputational risks. For example, due to reputational concerns, major brands, such as Calvin Klein, Gap, H&M, IKEA, Patagonia, and Tommy Hilfiger, stopped purchasing or committed to stop purchasing cotton sourced from Xinjiang.

There is also reportedly backlash from Chinese authorities and consumers. Brands that issued statements against sourcing cotton from Xinjiang, such as Burberry, thereafter faced a public backlash from Chinese consumers. Intel issued an apology to its Chinese customers after facing backlash for telling its suppliers that it would not be using forced labor or goods sourced from XUAR.

Banks in particular are highly attuned to OFAC primary and secondary sanctions-enforcement risks, as well as the above-mentioned reputational risks. In view of the 9- and 10-figure sanctions-related settlements, even non-US financial institutions are generally conservative in their sanctions compliance and risk appetite. Sanctions pose an existential risk to some banks that rely on access to US correspondent banking accounts in order to deal in US dollars. Thus, aside from the CBP order, banks and companies continuing to engage in transactions directly or indirectly with sanctioned Chinese producers risk having their transactions rejected or blocked by the US and global financial systems.

__________________________________________________________________

Vedia Biton Eidelman is an associate in Eversheds Sutherland’s International Trade Practice. She advises clients on a wide range of regulatory matters, including sanctions (OFAC) and antiboycott matters; antidumping, countervailing duty and safeguard actions before the US International Trade Commission (ITC) and the US Department of Commerce (DOC); export controls (ITAR and EAR); national security controls on investment in US entities (CFIUS); trade policy issues such as free trade agreement negotiations; customs matters; and transactional due diligence.

[1]  M. Pompeo, “The United States Imposes Sanctions and Visa Restrictions in Response to the Ongoing Human Rights Violations and Abuses in Xinjiang,” (July 9, 2020), https://2017-2021.state.gov/the-united-states-imposes-sanctions-and-visa-restrictions-in-response-to-the-ongoing-human-rights-violations-and-abuses-in-xinjiang/index.html.

esg
Archives, Global Trade Daily, International Trade, News

The Consequences of ESG Risk Exposure

Leave a comment

Last week, news emerged linking an electronics company to the transport and employment of labor in Xinjiang, an autonomous region in northwest China with documented occurrences of widespread human rights violations. This is the latest in a series of reports and white papers investigating supply chain connections to this region and the forced labor on its inhabitants. These reports not only expose the atrocities and human suffering in the region but also reveal significant supply chain risks that may not even be on an organization’s radar. With more than half of companies lacking supply chain visibility across their extended ecosystem, organizations are at a growing risk of both environmental, social, and governance (ESG) reputational risks, as well as regulatory risks as governments across the globe ban supply chain exposure to these human rights violations.

Nth-tier Supply Chain Risks

Lacking visibility across the supply chain leaves companies susceptible to blind spots and risks of which they may not be aware. For instance, inspired by this news, we identified almost one hundred companies with direct relationships to the company highlighted in their article, a number that significantly expands when looking beyond the first-tier. Thanks to the hyper-specialization and opacity of supply chains, many companies may not be aware that they risk potential exposure to human rights violations in Xinjiang.

Below is a breakdown, by industry, of companies with direct connections to Universal Electronics Inc. (UEI). While the software industry intuitively comprises a quarter of the companies, other industries such as machinery, media, or entertainment may initially assume minimal exposure. At a time when every company is a tech company, few companies are immune to these kinds of connections.

Global Focus

These recent revelations build on a growing governmental emphasis on prohibiting forced labor from supply chains. In July, the United States government issued a joint advisory pertaining to the heightened risks for businesses with supply chain and investment links to Xinjiang. Released by the U.S. Department of State, U.S Department of Treasury, U.S Department of Commerce, the Office of the U.S. Trade Representative, and the U.S. Department of Labor, the “Xinjiang Supply Chain Business Advisory” highlighted the range of risks to which companies may be exposed when conducting business in that region. As the advisory notes, these include exposure to regulatory risks, surveillance, and human rights abuses.

This advisory reflects the growing focus on ESG supply chain risks as well as the regulatory risks related to the inclusion of prohibited and restricted companies within a supply chain. In the U.S. the Department of Commerce continues to expand various restrictions lists due to human rights violations, banning solar panels companies to numerous tech companies for their connection.

In the European Union, the Global Human Rights Sanctions Regime introduced restrictive measures of entities connected to human rights violations. This is part of a broader emphasis across the ESG spectrum, including the Sustainable Finance Disclosure Regulation as well as mandatory due diligence for human rights, environmental, and governance issues.

Further, as ESG concerns spread worldwide, so does the country coverage for impacted companies. Below is a map denoting the geolocations for the companies which are supplied by Universal Electronics. It is worth noting that, while the US and the EU have issued restrictions and guidelines in this regard, nearly 50% of UEI’s consumers are located in these regions.

Gaining Visibility Across Supply Chain Risks

The Joint Advisory notes, “Given the severity and extent of these abuses, businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law.” Based on both market forces as well as regulatory shifts, it is increasingly essential to maintain visibility across your extended supply chain and proactively eliminate potential exposure to ESG reputational and regulatory risks.

While we quickly identified almost one hundred companies with potential ESG exposure, we only referenced direct suppliers. By looking at the second, third, fourth tier, and beyond, these numbers exponentially grow and illustrate the complex web and risks that extend throughout supply chain ecosystems.

The complexity of these networks and the growing consequences for failing to address ESG risk in the supply chain highlights the clear need for organizations to reexamine how they identify and monitor their extended business relationships.

To learn more about extended supply chain risk and the consequences of ESG risk exposure, visit interos.ai.

_____________________________________________________________

Andrea Little Limbago is the Vice President of Research and Analysis at Interos  

labor
Archives, Global Trade Daily, International Trade

How to Strengthen Trade and Labor Compliance with Technology Amid Increasing Customs Enforcement

Leave a comment

Supply chain constraints, both expected and unexpected, continue to disrupt global trade and appear to be the new normal for the foreseeable future. As the world is slowly recovering from the pandemic and constraints in both materials and labor are creating unprecedented supply chain challenges, recent government actions are also generating often unexpected hurdles in the “last mile” such as unexpected delays and merchandise detentions.

The U.S., [1] Australia[2] and Germany[3] have recently proposed or enacted regulations or legislation aimed at ensuring companies take affirmative steps to prevent and eliminate forced labor in both their direct and indirect supply chains. As supply chains have grown more complex with additional tiers, the risk of exposure to potential human rights issues has grown as well. Importers subject to withhold release orders (WROs) often lack complete visibility into their full supply chain and regulators might not specify where their forced labor suspicions lie. This heightened risk is also driven, in part, by geopolitical tensions and global focus on environmental, social and governance (ESG) initiatives. A forced labor investigation may originate internally within the organization wanting to ensure a compliant supply chain, through non-governmental organization (NGO) reporting, or from a regulatory inquiry.

In the U.S., if Customs and Border Protection (CBP) receives information that “reasonably indicates” merchandise intended for importation contains any components that are the result of forced labor, the agency may detain the suspected merchandise at the port of entry under the authority of a WRO. While the specter of forced labor is a legitimate threat, the lack of a transparent process and ongoing trade disputes have led to concerns that WROs could be also used as political tools.

To combat allegations of the use of forced labor with regards to U.S. imported merchandise, the burden of proof is on the importer. If the importer can affirmatively demonstrate that the goods were not produced with forced labor, CBP may deem the merchandise admissible and release it. Importers must provide proof of admissibility, including a certificate of origin conforming to the template set out in 19 CFR §12.43(a), within three months of the importation.[4] While CBP provides scant guidance or information as to why merchandise is detained or how evidence of admissibility is evaluated, practical experience suggests that merely complying with the basic requirements for a certificate of origin and attestation as described in Part 12.43 will likely be an inadequate defense against the agency’s assertions.

To determine if a supply chain is plagued by forced labor activity, CBP uses the International Labor Organization’s 11 indicators of forced labor.[5]  After determining that there is sufficient evidence to suggest the presence of these factors, CBP allows evidence to refute the allegations and demonstrate admissibility. CBP suggests four general kinds of evidence that support admissibility to allow release of detained merchandise:[6]

1. Evidence refuting each identified indicator of forced labor;

2. Evidence that policies, procedures, and controls are in place to ensure that forced labor conditions are remediated;

3. Evidence of implementation and subsequent verification by an unannounced and independent third party auditor; and

4. Supply chain maps that specify locations of manufacturers, factories, farms, and processing centers.

However, CBP does not offer specific examples of the types of documents, records, reports or other due diligence that meet or exceed the subjective standard for release from detention. In the absence of sufficient examples of successful release in the public record, importers may struggle to develop appropriate or adequate compliance measures.

Further, despite the regulatory requirement for a “reasonable indication” that the subject merchandise contains forced labor, CBP has a history of issuing WROs covering broadly defined products, including finished goods and raw materials, originating from entire countries and regions, such as the palm oil industry in Malaysia, which has been the subject of labor compliance allegations for several years.[7],[8]

The number of CBP cargo detentions related to WROs increased by a factor of 27 in FY 2020 over FY 2019, from 12 to 324. Those detentions amounted to a total cargo value in excess of $55.5 million. The steep, upward trend in WRO enforcement has continued thus far in FY 2021 with year-to-date figures indicating 967 cargo detentions representing a total value of over $367 million, a three-fold increase in detentions and six times the import value over last fiscal year (with two months remaining in FY 2021).[9]

Importers caught unprepared have been unable to rebut the presumption of forced labor absent the appropriate evidence and compliance controls attentive to forced labor factors. Given the significant burden to prove the negative, coupled with increasing concerns over supply chain endurance, global companies should be highly motivated to engage with supply chain business partners that can support the required due diligence to defend against forced labor allegations.

Developing or improving trade and labor compliance procedures often requires a multifaceted and customized approach, especially when faced with an ever-changing enforcement landscape. In addition to traditional trade compliance measures such as documentation, due diligence and reasonable care, a robust labor compliance process will also benefit from a more modern, technology-based approach.

For example, blockchain and digital token technology can provide immutable certification throughout the supply chain, which can be independently verified by regulators or a credible third party to trace and validate the origin of materials and labor in addition to real-time logistics tracing. Blockchain solutions have been successfully implemented in similar contexts for supply chain and origin audits and inspections, cradle-to-grave supply chain tracing and global, product tracking to improve regulatory compliance as well as achieve time and cost efficiencies. A combined technology and regulatory approach to compliance can be tailored to improve the traceability of all aspects of the supply chain and designed to create an irrefutable, digital record of compliance. In addition to the regulatory compliance benefits of a traceable supply chain, blockchain demonstrates a company’s efforts to maintain transparency and accountability to its business partners, customers and other stakeholders.

Blockchain technology is often misunderstood. By engaging blockchain experts, organizations can overcome technical challenges and ensure the technology is developed as a unique solution fit for purpose, scale and cost benefits. Companies in an array of industries are implementing blockchain within their supply chains to increase efficiency and transparency.

For example, a global food and beverage company adopted blockchain technology to track its coffee products from bean to cup.[10] Another company implemented a blockchain solution built to trace a product’s travels across the supply chain—achieving insights within seconds, as compared its previous seven-day tracking cycle.[11] Similar applications of blockchain technology can be used to verify and document compliance throughout the supply chain, including validation of workforce compliance, and presented as evidence rebutting underlying allegations of a WRO or in support of the admissibility of merchandise.

Given increasing scrutiny of supply chains and in particular the focus on complete transparency with regards to eliminating forced labor, in addition to importers operating in industries already impacted by existing WROs, all companies should be evaluating their risk and exposure to commodities, regions and countries with a heightened risk of future action. Those who are proactive will maintain a competitive commercial advantage over those who chose to wait until their merchandise is detained and are forced to react to either agency action or public scrutiny over non-compliance.

Without implementing a combination of traceability technology throughout the supply chain and other tools such as third-party audits to ensure compliance, merchandise detained by CBP will not have sufficient documentation to rebut the presumption of a “reasonable indication” of forced labor, which could lead to devastating losses of merchandise, exorbitant storage fees while admissibility is assessed, forced export to non-U.S. markets or costly and protracted litigation. An innovative approach to proactive compliance, including modern technology-based solutions, could be the key to creating an objective record of due diligence in an otherwise subjective space.

________________________________________________________________

Nick Baker is a Senior Director within FTI Consulting. He assists clients with international trade matters including customs, import compliance, export controls and sanctions.

Steve McNew is a Senior Managing Director within FTI Consulting’s Technology segment, where he leads the Blockchain and Cryptocurrency practice. He provides strategic advice and expert services for companies looking to innovate with crypto assets and blockchain technology. 

[1] For example, Chapter 23 of the United States-Mexico-Canada Agreement addresses forced labor rights and compliance in the context of the trade agreement. 

[2] https://www.theguardian.com/australia-news/2021/aug/23/australian-senate-poised-to-pass-bill-banning-imports-made-using-forced-labour, last visited August 23, 2021.

[3] https://www.dw.com/en/german-bundestag-passes-new-law-on-supply-chain-ethics/a-57855174, last visited August 23, 2021.

[4] 19 C.F.R. §12.43(a)

[5] ILO Indicators of Forced Labour, International Labour Organization, October 1, 2012.  Available at, https://www.ilo.org/wcmsp5/groups/public/—ed_norm/—declaration/documents/publication/wcms_203832.pdf

[6] CBP Publication #1394-0321 “WRO Modification/Revocation Process Overview,” U.S. Customs and Border Protection.  Available at https://www.cbp.gov/sites/default/files/assets/documents/2021-Mar/Final_Modification%20Revocation%20Process%5B5%5D.pdf

[7] CBP Issues Detention Order on Palm Oil Produced with Forced Labor in Malaysia, U.S. Customs and Border Protection, September 30, 2020.  Available at https://www.cbp.gov/newsroom/national-media-release/cbp-issues-detention-order-palm-oil-produced-forced-labor-malaysia?_ga=2.188633131.201625649.1629736705-456710946.1628017266

[8] CBP Issues Detention Order on Palm Oil Produced with Forced Labor in Malaysia, U.S. Customs and Border Protection, December 30, 2020.  Available at https://www.cbp.gov/newsroom/national-media-release/cbp-issues-withhold-release-order-palm-oil-produced-forced-labor?_ga=2.201299117.201625649.1629736705-456710946.1628017266

[9] CBP Trade Statistics, published at https://www.cbp.gov/newsroom/stats/trade (last visited August 18, 2021). FY 2021 statistics current as of August 6, 2021.

[10] https://www.supplychainbrain.com/articles/31800-starbucks-customers-farmers-can-now-trace-their-coffee-with-blockchain

[11] https://www.hyperledger.org/learn/publications/walmart-case-study

labor compliance
Archives, Global Logistics, Global Trade Daily, International Trade

Understanding Your Role in Forced Labor Compliance

Leave a comment

It was recently reported that U.S. Customs and Border Protection (CBP) at the ports of LA and Long Beach has “well over 100 shipments on hold pending determination of admissibility“ due to suspicion of forced labor. Despite being enforced since 1930, compliance with forced labor laws and regulations are still an ongoing problem.

A newly introduced congressional bill, U.S. Innovation and Competition Act (S. 1260), which focuses on several trade initiatives including 301 tariff exclusions, would specifically establish a Forced Labor Division within the Office of Trade of CBP. The Forced Labor Division would prioritize investigations and work closely with the Bureau of International Labor Affairs. With the establishment of a Forced Labor Division, there is more enforcement on this issue coming as resources are increased.

Importers must understand their responsibilities related to vetting suppliers for forced labor or face potential penalties for non-compliance.

What is forced labor and how are products flagged?

Forced labor is when a product is mined, produced, or manufactured, in a municipality that has unlawful labor practices such as slave labor or child labor.

The International Labor Organization (ILO) published a booklet identifying common signs that could indicate forced labor. They include:

-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

If any part of your imported goods were subject to forced labor, wholly or in part, anywhere throughout your supply chain, your goods could be detained or seized with a Withhold Release Order (WRO) or as a Finding.

Understanding Withhold Release Orders (WRO’s)

A WRO is issued against a foreign manufacturer by CBP when they have a reasonable suspicion of forced labor being used to produce the imported product including tracing back to the materials used.

If the product imported has a WRO issued against the manufacturer for that product, the importer can re-export the freight or must prove the cargo in question was not made with forced labor.

To contest the WRO, sufficient evidence is needed to prove the admissibility of the product from the manufacturer for a specific shipment. For admissibility, an importer has three months to demonstrate that detained merchandise was not produced with forced labor. The importer must also demonstrate that the supplier is not included on the WRO. Supporting documentation should be submitted in a clear and concise manner so that CBP can quickly and easily review it. Keep in mind that while this process is taking place the container is accruing storage, demurrage and detention charges.

Understanding Findings

Additionally, a foreign manufacturer can have a Finding action issued against them. This means CBP has determined there is probable cause that forced labor was used in the manufacturing of the specific imported good.

Upon arrival into the United States, the cargo is subject to seizure by CBP and treated as an importation prohibited by 19 U.S.C 1307. There is not an opportunity to export the goods under a Finding.

The freight will be seized, and the importer could face a potential penalty for importing goods made with forced labor into the United States. A potential mitigating factor is if the importer can show the due diligence they used to vet the supplier for potential forced labor actions which should include the use of a third-party auditor.

Your role as an importer in maintaining forced labor compliance

Remaining compliant and avoiding detained or seized cargo, penalties, and fees starts by understanding your role and responsibilities when it comes to forced labor laws.

Below are steps you can take to be prepared:

1. Review the Sweat & Toil app.

This free download to your phone can help you know about potential commodities that are suspected of forced labor or goods produced with child labor. It also includes useful information on forced labor efforts and initiatives.

2. Audit your supply chain suppliers and manufacturers.

The most effective way to do this is to develop a questionnaire based on the ILO forced labor indicators and outline the process for how your product is produced. If you catch any red flags through this process, discuss with your supplier how they will rectify the situation. You can also utilize the U.S. Department of Labor’s Comply Chain website.

3. Work on a modification process with suppliers that have a WRO or Finding against them.

The supplier will have to prove to CBP that the forced labor indicator no longer exists within the supply chain. Learn more about what this entails using CBP’s WRO Modification/Revocation Processes Overview document. 

4. Construct a process for implementing and monitoring for compliance.

Establishing an ongoing routine can help maintain and monitor compliance.

5. Find and review other helpful resources.

Visit the CBP website for many useful resources and information on forced labor, including:

–Forced Labor | U.S. Customs and Border Protection (cbp.gov)

-Responsible Business Practices on Forced Labor

-The Active WRO’s and Findings List

-Fact Sheet: Helpful Hints for Submitting Proof of Admissibility

-Reasonable Care Informed Compliance Publication

Final thoughts on forced labor compliance

Now is the time to ensure compliance, make changes as needed, and mitigate your potential risk and penalties from forced labor.

You’re not on your own. The steps to compliance can seem complicated and the consequences for non-compliance can be overwhelming, but our Trusted Advisor® trade experts are here to help.

At C.H. Robinson we have proven policies and procedures around forced labor compliance. We can help you develop the in-house procedures you need to become compliant and stay compliant.

As international trade topics continue to shift, stay up to date with weekly updates on our Trade & Tariff Insights page