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18 September 2020
Fashion and luxury goods companies should be concerned about the recent sanctioning of Chinese companies in Xinjiang province by the US Departments of Treasury and Commerce and other US Customs and Border Protection (CBP) developments relating to importing products that contain fabric made with prison or forced labour.(1)
Notably, there is a risk that garments made from cotton produced by Xinjiang Production and Construction Corps (XPCC) could be subject to a CBP withhold release order (WRO).
There are three kinds of sanction and import control.
Department of Treasury Specially Designated Nationals sanctions with import implications
The Department of Treasury has sanctioned XPCC, which reportedly produces more than 7% of the world's cotton, by placing it on the Specially Designated Nationals List.
All transactions directly and indirectly between US persons and XPCC are prohibited and blocked, as well as all transactions with any entity of which XPCC owns 50% or more (however, the Department of Treasury has authorised certain wind-down transactions with such XPCC subsidiaries through to 29 September 2020). In addition, due to the tie in that the administration has drawn between XPCC and forced labour in the Xinjiang province, there is a risk that garments made from cotton produced by XPCC could be subject to a CBP WRO.
Department of Commerce Entity List sanctions with import implications
The Department of Commerce has also sanctioned a number of Xinjiang province companies by putting them on the Entity List, including a number of textile apparel companies, such as Changji Esquel Textile Co Ltd, Hetian Taida Apparel Co, Ltd and Nanjing Synergy Textiles Co Ltd.
Entity List sanctions prohibit the export, re-export or transfer (in country) of items (including commodities, software and technology) subject to US export controls to listed entities, or where listed entities purchase or order the items, even if they do not take delivery. However, again, due to the tie in between Entity List sanctions and forced labour, there is a risk that garments made by entities included on the Entity List due to forced labour allegations could be subject to a CBP WRO.
CBP withholding orders on imports from certain companies
Effective 11 August 2020, CBP will detain imported merchandise containing garments produced by the Hero Vast Group (including Shanghai Hero Vast International Trading Co, Ltd; Henan Hero Vast Garment Co, Ltd; Yuexi Hero Vast Garment Co, Ltd; Ying Han International Co, Ltd; and Hero Vast Canada Inc) based on information that reasonably indicated the use of prison labour in the production of those garments.
19 US Code Section 1307 prohibits the import of merchandise which is mined, produced or manufactured, wholly or in part, in any foreign country by forced or indentured labour, including forced child labour. Such merchandise is subject to exclusion through CBP WROs and seizure and may lead to criminal investigation of the importers. If importers are found to have violated the order, there may be penalties relating to introductions contrary to law.
For further information on this topic please contact Anthony V Lupo, Kay C Georgi, David Salkeld or Matthew Tuchband at Arent Fox LLP by telephone (+1 202 857 6000) or email (email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Arent Fox LLP website can be accessed at www.arentfox.com.
(1) For further details on other steps that importers can take to review their supply chain and other compliance steps – as well as information on a recent CBP enforcement case where it imposed $575,000 in penalties – please see "CBP gets tough on forced labour: turning supply chain risks into advantages".
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