What the Retail and Hospitality Industries Should Know About Forced Labor in International Trade

U.S. protection of labor rights in international trade has existed for almost 100 years under Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307). While it has been dormant for most of that span, enforcement has increased significantly in the last several years. This has occurred through more Withhold and Release Orders (“WRO‘s”), which allow Customs and Border Protection (“CBP”) to detain shipments of products suspected to be made with forced labor, and through new legislation. In June 2022, the Uyghur Forced Labor Protection Act (“UFLPA”) went into effect prohibiting the importation of certain goods from China made with forced labor. These measures have led U.S. companies to take a closer look at their supply chains to make sure their imported products are compliant and to minimize the risk of detention.

WROs and UFLPA

Until recently, Section 307 has been scarcely used, except in the 1990s and from 2016 to 2021. During those years, CBP issued several WROs, mainly on goods from China, including apparel, garments, cotton, leather, and hair products. In October 2021 CBP issued a WRO on farm tomatoes from Mexico.

However, on Dec. 23, 2021, the United States took a further step in banning the importation of products from China produced by forced labor by enacting the UFLPA. The standard of proof required to overcome a UFLPA detention is higher than that under the WROs. The UFLPA established a rebuttable presumption that any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (“XUAR” or “Xinjiang”) of China, or produced by certain entities identified, are not entitled to enter to the United States.

In its guidance for importers, CBP identified a list of high-priority sectors for enforcement which covers: apparel, cotton and cotton products, silica-based products (including polysilicon), tomatoes, and downstream products (e.g., textiles, garments, solar cells).

While CBP’s guidance provides an overview of the enforcement process and general steps companies can take to avoid having products held up at ports, the reality is that each supply chain is unique and presents different challenges. An internal due diligence audit for a few sample shipments is advisable.

While it is the importer of record that needs to provide a rebuttable presumption to CBP to have the products released, this takes time and could cause unwelcome delays for customers in the retail and hospitality sectors.

For clothing retailers and hotels, the obvious products to consider are those made from cotton, including apparel, textiles, bed sheets, towels, etc. For grocery chains and restaurants, tomatoes are the main focus.

This means working with their importers to establish a detailed trace of sample products from source to finished goods. This can include:

• Confirmation that suppliers are not on the UFLPA targeted entity list;
• Complete shipping entry package of a recent importation (CBP Form 7501, invoice, bill of lading, packing list);
• Bill of materials;
• Purchase order;
• List of production steps and records (including raw materials procurement to finished products);
• Transportation documents between suppliers (including raw materials suppliers);
• Sourcing contracts with suppliers;
• Customs Trade Partnership Against Terrorism (“CTPAT”) certification, if the importer is certified (CTPAT can provide an exception to the rebuttable presumption).

One of the biggest criticisms from the industry about enforcement of the UFPLA is the vagueness of the information required to satisfy the rebuttable presumption. Thus far, no clear formula or idea of what evidence is given higher weight have been offered by the U.S. government regarding the type of information that may suffice.

Rather, CBP has indicated that the required evidence will be made on a case-by-case basis. A recently modified WRO against garment imports from India may serve as a good starting point. In that matter, CBP released the detained shipments after concluding that “non-governmental organization, Eastman Exports, and Natchi Apparel (P) Ltd. provided evidence to CBP that Natchi Apparel (P) Ltd., located in India, had addressed all five of the International Labour Organization’s indicators of forced labor identified by the WRO.”

Impact on Trade 

The chilling effect of increased enforcement under WROs and the UFLPA may already be felt. Companies have been re-evaluating or moving their supply chains in response to these actions and in recent interviews with the press, CBP has confirmed supply chain shifts by U.S. importers and manufacturers around the world. According to CBP officials, the agency has not yet implemented the UFLPA to its fullest extent. CBP likely has import information gathered over multiple years for a multitude of companies connected to Xinjiang.

Some U.S. businesses have also expressed concerns over what they perceive to be unintended consequences of UFLPA enforcement efforts since it is not enough to simply prove that the finished goods do not originate in China. The importer must be ready to go a step further and demonstrate that the inputs are not made with forced labor from Xinjiang. The concern for these businesses is that the law is being weaponized to cover shipments from third countries and U.S. companies sourcing from those countries are the ones bearing the burden of sanctions that were meant for China (i.e., entities in Xinjiang on the UFLPA blacklist).

According to a survey of U.S. fashion companies released in July 2022, 95 percent of respondents said they expected UFLPA’s implementation to impact their sourcing, with more than 85 percent saying they plan to reduce apparel imports from China.

In August 2022, CBP targeted 838 entries, valued at more than $266.5 million for forced-labor concerns, including UFLPA. Albeit, the total value of entries actually detained may be much smaller.

Fighting Forced Labor: An International Trend  

It would seem that the United States is the most vocal country fighting against forced labor, but other countries are also taking part in what is to be an international trend.

North America

With the entry into force of the United States-Mexico-Canada Agreement (USMCA) on July 1, 2020, the restrictions on the importation of forced-labor-made products expanded to Canada and Mexico because the agreement includes a provision that depicts Section 307’s ban. Consequently, in 2020, Canada amended its Custom Tariff consistent with the USMCA’s labor prohibition, while Mexico is still working on the design of new regulations.

Europe

Outside North America, other countries are also taking concrete steps in the same direction. The European Union is currently shaping new regulation to ban the importation of forced-labor-made products. Among the products that would be likely targeted are shoes and clothes (for additional information see here).

Clark Hill’s International Trade Team is ready to assist retailers and hospitality companies in ensuring compliance with U.S. forced labor regulations.

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The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.