Expected Changes to Customs Regulations Will Require Increased Supply Chain Due Diligence by U.S. Importers

Anticipation among importers is growing as U.S. Customs and Border Protection (CBP) prepares to amend its regulations to implement Congress’ repeal of an 85-year-old loophole that, until the Trade Facilitation and Trade Enforcement Act of 2015 (Act), effectively permitted importation of goods produced by forced labor.

Since 1930, federal legislation has prohibited importation of “wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions.” Until February 2016, when President Obama signed the Act, the law also contained a powerful exception—it permitted importation of such goods if the “consumptive demands” of the United States were so great that domestic production could not otherwise keep up. That loophole proved so powerful that during the 85 years it was in effect, CBP detained goods on suspicion that they were made with forced labor only 39 times. In 2016, CBP has already detained four shipments since Congress closed the loophole.

Most consumers in the U.S. would be surprised to hear that goods made with forced labor might reach domestic shores. But according to the International Labor Organization, about 21 million persons worldwide are forced into labor. The U.S. Department of Labor maintains a list of goods produced using forced labor; they are largely agricultural and extractive products, with some manufactured products, including apparel and electronics. CBP uses the Department of Labor list as a source for research purposes, but CBP does not generally target entire product lines or industries in problematic countries or regions.

Instead, CBP acts on tips that accuse importers of bringing shipments containing goods made with forced labor. In the past, a person making such an accusation had to provide the following information:

• A full statement of the reasons for the belief the shipment violates the law.
• A detailed description or sample of the merchandise.
• All pertinent facts obtainable as to the production of the merchandise abroad.
• Detailed information as to the production and consumption of the particular class of merchandise in the United States and the names and addresses of domestic producers likely to be interested in the matter.

Now that Congress has removed the “consumptive demand” exception, CBP plans to change its regulations. CBP may propose to simply eliminate the last element of the requirement, i.e., to provide evidence regarding consumptive demand. Even if a report “reasonably but not conclusively indicates” a violation, CBP can issue a Withhold Release Order, resulting in public identification of the suspected offender. The burden then shifts to the importer to either re-export the shipment or to show that the good was not produced with forced labor. Failure to do so may result in the shipment being detained or seized by CBP.

Global supply chains have grown so complex that U.S. importers may not know if shipments contain goods made with forced labor. CBP has not yet issued draft regulations to implement the change, but its informal guidance demonstrates that it expects importers to proactively implement “comprehensive and transparent social compliance” systems and to be able to produce evidence, such as supply chain audits, to show that imports were not produced with forced labor.

U.S. importers should be prepared to evaluate their global supply chains and to require commitments from their suppliers regarding forced labor. This is likely to add a new layer of sophistication to cross-border supplier due diligence and supplier relationship building. In addition, U.S. importers should expect an uptick in detentions of goods suspected to be the products of forced labor once CBP removes the “consumptive demand” requirement from the petition process.