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26 February 2021
Companies in the fashion, luxury and agricultural spaces should take action in response to the forced labour supply chain due diligence requirements which Customs recently announced in connection with withhold release orders (WROs) that prohibit the import of cotton and tomato products with any nexus to the Xinjiang province.
Following the region-wide WROs against cotton and tomato products produced in China's Xinjiang Uyghur Autonomous Region (XUAR), Customs and Border Protection (CBP) has provided XUAR-specific FAQs. The FAQs clarify CBP's approach to enforcement of the WROs and publish its requirements to satisfy the burden of proof to evidence that goods were not produced with forced labour. However, underlying challenges remain. The far-reaching implications of WRO coverage and fundamental supply chain visibility feasibility issues mean that importers of covered goods with any nexus to the Xinjiang region should take action to meet the burden of proof that CBP may require to allow imports entry into the United States.
On 13 January 2021 CBP issued a region-wide WRO against all cotton and tomato products produced in the XUAR (for further details please see "CBP begins 2021 with expansive new enforcement against forced labour"). At the time, CBP stated that this:
WRO will direct CBP personnel at all U.S. ports of entry to detain cotton products and tomato products grown or produced by entities operating in Xinjiang. These products include apparel, textiles, tomato seeds, canned tomatoes, tomato sauce, and other goods made with cotton and tomatoes. Importers are responsible for ensuring the products they are attempting to import do not exploit forced labor at any point in their supply chain.
In response to the importer's requests for transparency regarding the documentation required to secure the release of goods, on 12 February 2021 CBP issued FAQs that cover a range of issues, including:
This article summarises the main points.
WRO not limited to cotton and tomato products produced in XUAR
The WRO is not limited to products produced in the XUAR. Downstream products produced outside the XUAR that incorporate these inputs may also be detained. For example, a garment cut and sewn in Italy of fabric knit in Turkey from yarn spun in Shanghai, China, is covered by the WRO if the cotton was picked in the XUAR. Customs is initially targeting shipments with a known nexus to the XUAR, reportedly based on an unpublished internal list of manufacturers in the region. However, the WRO gives Customs the authority to seize cotton and tomato products produced anywhere if any inputs are from the XUAR.
CBP can order redelivery of goods imported before WRO was issued; WRO authorises goods to be detained, not seized
CBP has clarified that it may order redelivery of goods subject to the WRO up to 30 days after the merchandise was released or the end of the conditional release period, whichever is later. Thus, while the WRO was issued on 13 January 2021, CBP could have required redelivery of goods released up to 30 days prior to that date. If goods are not redelivered, liquidated damages can be assessed.
The WRO allows CBP to detain and not seize goods. Importers of detained goods have the option to export the goods or provide proof of admissibility in accordance with 19 Code of Federal Regulations (CFR) Section 12.43 (Certificate of Origin and Statement by the Importer) within three months of detention. If the documentation is insufficient to prove that the goods are not made with forced labour, they will be excluded.
What is required to prove that goods were not made with forced labour and secure release?
In order to prove admissibility, CBP instructs that importers should submit to the port detaining the goods the documents required by 19 CFR Section 12.43:
For the first time, CBP is providing published guidance regarding the required proof. Essentially, importers must provide transaction documents for every level of the supply chain and transport documents evidencing that the cotton or tomato products were not sourced in the XUAR. This is a heavy burden to place on importers that have historically had no visibility as to their upstream supply chain.
With respect to cotton products, the FAQs provide as follows:
Affidavit from yarn producer and the source of raw cotton that identifies where the raw cotton was sourced. Purchase Order, Invoice, and Proof of Payment for the yarn and raw cotton. List of production steps and production record for the yarn, including records that identify the cotton and cotton producer of the raw cotton. Transportation documents from the cotton grower to yarn maker. Supporting documents related to employees that picked the cotton, time cards or the like, wage payment receipts, and daily process reports that relate to the raw cotton sold to the yarn producer.
With respect to tomato products, the FAQs provide as follows:
Provide supply chain traceability documents pointing to the point of origin of the tomato seeds, tomatoes, or tomato products. The affidavit from the tomato processing facility identifies both the parent company and the estate that sourced the tomato seeds and or tomatoes. Purchase Order, Invoice, and Proof of Payment for the tomato seeds, tomatoes, or tomato products, from the processing facility and the estate that sourced the raw materials. All production records for the tomato seeds, tomatoes, and/or tomato products that identify all steps, from seed to finished product, from the farm to shipping to the United States.
Importers without direct relationships with upstream suppliers or manufacturers must have comprehensive social compliance systems in place
CBP requires documentation for the entire supply chain to evidence that forced labour is not used. However, in recognition of the complex supply chains for these products, CBP has advised that importers can combat the risks of forced labour by having a "comprehensive and transparent social compliance system in place". CBP directs importers to the forced labour section of its Informed Compliance Publication on Reasonable Care, which essentially requires importers to evaluate their entire supply chain for forced labour risks and implement forced labour policies and procedures. There are a number of compliance steps that importers can take to ensure that they are following best practices (for further details please see "CBP gets tough on forced labour: turning supply chain risks into advantages").
While providing some useful guidance, CBP's FAQs also confirm importers' responsibility to ensure that their products are not made using forced labour at any point in their supply chain, including the production or harvesting of the raw material. Although the government has started initiatives to increase supply chain transparency and traceability, given the scope of this issue, many importers will need to develop comprehensive compliance plans to reduce risk to operations.
Forced labour is a priority CBP issue and it has increased enforcement in this area. The most recent data shows that from 1 October 2020 to 31 December 2020, CBP detained 90 shipments of goods subject to WROs. These detentions at the end of December 2020 followed by the broader XUAR-WRO in January 2021 point to the possibility of further increases in the number of shipments detained.
Companies in the fashion, luxury and agricultural spaces must take action to limit risk exposure, prepare for pending legislation and ensure compliance with recent sanctions of Chinese companies in Xinjiang province by the US Departments of Treasury and Commerce. It is critical that manufacturers and importers review and document their entire supply chains, increase visibility and develop comprehensive compliance policies.
For further information on this topic please contact Robert J Ernest at Arent Fox LLP's Boston office by telephone (+1 617 973 6100) or email (email@example.com). Alternatively, contact Angela Santos at Arent Fox LLP's New York office by telephone (+1 212 484 3900) or email (firstname.lastname@example.org). The Arent Fox LLP website can be accessed at www.arentfox.com.
David R Hamill, partner, David Salkeld, counsel, and Natan PL Tubman, associate, assisted in the preparation of this article.
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