This is the transcript of a session recorded at PI Apparel’s Supply Chain Forum in New York in 2022. You can view the full session video here.
Hi. It is a pleasure to be speaking with you all today. My name is Amanda Levitt. I am a partner at the law firm Sandler, Travis & Rosenberg.
Travis in Rosenberg. We specialize in customs and international trade. And today I will be speaking with you all about this new era of forced labor enforcement and with a particular focus on the newly effective, weaker Forced Labor Prevention Act. So we will begin with the general forced labor laws of the United States and then move into the specific details of the weaker Forced Labor Prevention Act and the process that it follows.
And then we will discuss the best practices that your company can consider to comply with this new law and also gain more visibility into your supply chain. And lastly, we will discuss forecasts on what may be coming in the upcoming months and years for this new forced labor enforcement regime. So the federal statute, 19 U.S.C. 1307, is what the US force labor laws are based on.
It has been in effect since the 1930s, and it prohibits imports of all merchandise from any foreign country that our wholly or in part made with forced labor or convict labor or indentured labor. There is no de minimis requirement. So if it is one thread of tainted yarn that makes its way into the shirt, that entire shirt is presumed to be tainted with forced labor and inadmissible into the United States.
And the primary enforcement mechanism that Customs has used to enforce this forced labor statute is withhold release order, which is a detention order that is issued by the Commissioner of Customs to all the field offices based on reasonable suspicion that there might be forced labor in that region or at that factory for a particular product. And w arose are detention orders and they are very specific to.
However, the customs has determined they apply. You probably have had experience or heard of the rules that were on cotton from SPC. C The recently withdrawn ro on Nazi apparel, on apparel and fabric yarn and withhold release orders have been used primarily since 2016 and there have been more issued in unprecedented numbers since 2019 when the genocide in Xinjiang became more more on the agenda of the administration.
So alternatively, while Roe is based on reasonable suspicion that there is forced labor, a finding is based on conclusive evidence that there is forced labor. So a finding will ultimately lead into a seizure of that merchandise. Whereas a roe, you can reexport it and these have been the two primary enforcement mechanisms that customs has used for enforcing their forced labor laws and the only US import ban on merchandise that we had seen before Ufp was the Countering America’s adverse Harry’s Through Sanctions Act, or CASA, which prohibited any merchandise made whole or in part by a North Korean worker or national.
And the reason this is akin to Uofl is because it is a ban on a region, a type of nationality. And we have seen the enforcement in a similar fashion as Uofl because it was also based on clear and convincing evidence that there was no forced labor at that facility that may have had North Korean workers. But the reason the UFP is so expansive is because Xinjiang is the size of four Californias and especially apparel and many commodities source heavily from China.
When Rubio had drafted the legislation and President Biden had signed into law a bill to combat forced labor in China, it affected many different commodities. So the legal framework basics of FCPA Effective June 21st of this year, goods made in whole or in part from the Xinjiang region of China, or are or made by a Ufp listed entity, which we’ll discuss further in a bit, are presumed to be made with forced labor regardless of where they are shipped from.
It’s not that same reasonable suspicion that you have under roads because the US government has determined there is forced labor in Xinjiang. So if your good is made in any part component material sourced from Xinjiang, then it is presumed to be made with forced labor and prohibited from entering the United States. And the UFP has a sunset provision of eight years, or unless the US President determines that China has ended its forced labor practices in Xinjiang.
So we are expecting this law to be in effect or at least eight years, at which point it can be renewed, which essentially shows that this law is here to stay and you are considerations for when you’re sourcing and manufacturing merchandise. So the ufp, the cornerstone is this rebuttable presumption that if goods are made in whole or in part with material or labor from Xinjiang, then they’re presumed to be made with forced labor.
But in the law there was also a mandate for an inter agency strategy to be developed by the forced Labor Enforcement Task Force, which is made up of the Department of Labor, Department of Homeland Security, Department of Agriculture. And the heads of these departments have all come together to create a strategy to combat forced labor, and this strategy is implemented by Customs.
But all the different agencies really do have an impact on how the law is going to be carried out. So the forced labor enforcement task force had about a nine month period to develop this strategy. And when they did, they did their research. They reviewed confidential intelligence, and part of their strategy was to develop high priority sectors, a list of vendors or facilities that have a nexus to Xinjiang.
And in the development of this list of high priority sectors, the forced labor enforcement Task Force has confirmed that the four areas of high priority are apparel, cotton and cotton products. So I do also want to point out that apparel is not just cotton apparel. It is made of rayon polyester. All of these are materials that customs has found can come from this region as well as silica based products and tomatoes and downstream products.
And when customs is enforcing and detaining merchandise, they are first and foremost basing it off of this list of high priority sectors. So we have seen in practice that the majority of detentions under U.S. law are on apparel and they are on cotton products. And so when a detention notice is issued, what does it look like? So I included a detention notice on the screen.
Essentially, it is as boilerplate and vague as possible. You will receive a hold notification in the broker’s system that your goods are going to be examined and during the examination there will be a finding of whether there is reasonable suspicion that these goods have any nexus to Xinjiang. At that point, a detention notice will be issued that simply says there is a row on the Xinjiang region, it is the LPA, and for that reason you have to provide to us all the traceability documents that you have in order to get these goods released.
So you’ll also notice that there is a line item for the goods that are covered by this detention notice. And so if hypothetically, you are shipping a large container with ten entry line items, you have, you know, t shirts, shorts, pants, if customs thinks that only one of the manufacturers that are involved in this shipment or one of the line items is to be detained, they will explicitly note that entry line item on your detention notice.
So it is so important to review this detention notice and make sure that you work with your broker to get the goods not listed on this detention notice released, because I’m sure you have all felt the frustration of the supply chain delays and the disruption in just getting goods to a warehouse. And if you don’t proactively tell customs that these goods are not subject to the detention notice, they’re not going to go in and segregate your merchandise and release what isn’t to be detained.
So that is the number one priority. Urgent action item that I would implore you all to take is to make sure you segregate out any merchandise not detained as soon as possible so that you get the part of the shipment that you can at that time. And the detention notice is used generally for intellectual property concerns or licensing agreements.
But for the UFP and what we saw with preexisting rows is Customs is attaching a very lengthy attach ment that will explain what you need in order to get these goods released. So under the NFLPA you have two options you can either which I doubt most of you will do, but you could ask for an exception to. You have LPA which essentially says, Yes, we know there are materials from Xinjiang in this merchandise, but we don’t believe that they were made with forced labor.
And so we’re going to prove it to you. And if you are asking for an exception to us, you’ll have to provide a lot more records about the workers and the recruitment fees they might be charged and their payroll. And you are essentially asking Customs to make an exception to this law for your goods. And if you were to overcome this rebuttable presumption through doing so, that decision to release your merchandise is going to be made public to Congress.
It has to be reported to Congress. So if you are seeking an exception to you, f I applaud you. It would be a very hard feat to achieve. But what most of you will probably do is ask for a scope for review. And this is saying that customs, you are mistaken. There is no change on content in these goods.
They were made and all the materials were sourced wholly outside of Xinjiang. And we’re going to prove to you through our document trail that there is no part of this merchandise that was made in Xinjiang. And for that reason, we fall wholly outside the scope of the UF LPA. And to do that you have to submit from Dirt T-shirt the purchase orders for all of the materials, even the zippers on a jacket or a button on a pair of shorts, every single material, because it’s not limited to cotton anymore, it’s not limited to a particular facility.
You have to provide the traceability for all the materials and all the components that make up that detained good in order to show that it is free and clear of Xinjiang content. And you will need to provide the affidavits from all the manufacturers from Tier one beyond all the way to the Cotton Jenner, who is picking that cotton and then ginning it and selling it to the yarn supplier.
And so it becomes a very comprehensive and robust admissibility package that you have to provide if you would like these goods released. So Customs has provided an attachment to this detention notice that lists out what they are looking for. And we have seen that customs cannot guarantee that even if you provide all these documents, if it’s not persuasive enough for them, if there is a question that while you provided us with all the cotton ginning records, but it doesn’t seem like there was enough cotton to make all these t shirts that might lead to cross-contamination and with other cotton.
That is a question that customs might ask. And b, why Customs denies releasing your shipment. So they also provide for the products that are on this high priority list be in cotton and apparel. They do provide even more information of what they are looking for. But it is it is quite intimidating if you were to look at the list.
So if your goods are detained, you have 30 days from that detention notice from that examination and to provide all this documentation. And if customs is not convinced within that 30 day period that your goods are able to be released into U.S. commerce, then they will issue you an exclusion notice. An exclusion notice essentially says your goods are not allowed into the United States.
And what is very tricky about exclusion notices and what keeps me up at night is when you receive it, they will not say if any of the goods were released. They will list what goods were excluded. So when you do get that initial detention and you are making this inventory of what’s on the detention notice by line item by container, you want to track it.
Because I have had clients where they have received an exclusion notice and they’ve gotten 80% of that shipment released. But the exclusion notice lists the containers that were excluded and they never are going to get affirmative statement from Customs saying, Congratulations, you passed the test, the rest of your goods are released. So definitely track what goods are detained, what goods are excluded, and make sure that you have an understanding of what goods are of issue here.
So once an exclusion notice is issued, an importer does have the opportunity to protest that exclusion and it’s similar to protests per classification or country of origin. You are telling Customs why they erred in excluding this merchandise or for classification or origin of claims, why they erred in their liquidation, but with a protest for an exclusion because it is cargo that you’re relying on.
And it’s not just a numbers game of when will I get my duty refund check. A protest for an exclusion is filed under a separate category called an exclusionary protest. And you have by regulation 30 days for customs to review that exclusion protest. And I’m sure many of you have had protests that have been pending for months, years, and it is quite frustrating.
But for an exclusion protest, you should receive a decision within 30 days. And at that point, if customs was to deny your protest, you could go to court. But that is really the process that you would have to follow and be aware of. What I also do want to point out is if you were to have a mix up where customs thought it was a different manufacturer and they issued you an exclusion notice, if you then continue to try and import merchandise that is of the same and mid the same country of origin, the same tax code, Customs has an algorithm and they’re going to flag in their system all these other shipments for detention.
And if you have enough exclusion notices or in customs opinion, enough notice that these goods are prohibited from entry. Customs has the authority to seize those goods. So don’t treat exclusion notices like a parking ticket and just out of sight, out of mind, know that it can impact your future shipments and you won’t have the option to reexport it as you would when goods are just detained.
You will be concerned with seizure of your goods. So how can your company prepare the best practices? First and foremost, the objective of this law and what Congress, what the forced labor enforcement task force, what customs wants is for you to know your suppliers, for you to know from that original supplier or manufacturer that you’re purchasing those goods from all the way through their sub suppliers.
Who’s who’s manufacturing your clothes? Who are those cotton Jenners? Who’s making that polyester thread? And so in the strategy, guidance from the forced labor enforcement task force and from the operative guidance from Customs, they have repeatedly stated that you have to map it’s part of now reasonable care expectation and you have to map out your entire supply chain at all tiers.
So you want to start having those conversations with your first supplier, with your manufacturer, or with your seller, with your buying agent to try and ask them, who are you buying your thread from? Who are you buying your fabric from? And you want to start creating a mapping exercise where you can see all the traders involved in your supply chain, know the contacts at those different entities and and really know again, from dirt to shirt.
It’s very catchy. So I will keep using that phrase from dirt to shirt. All of the different suppliers in your supply chain. And in addition to mapping the other traceability requirement that Customs is expecting all all importers who deal with China is to have a document trail tracing that Bale of cotton to that yarn spinner, to that fabric lever, to that finished handbag manufacturer and so you want to have the transactional documents, those being the commercial documents that showed this is who sold the merchandise to this other company.
This is who paid for the supplies. This is who received the payment for the supplies and include the purchase order, the invoice, the proof of payment for all tiers. And because we are not only tracking the paper trail and the money we’re tracking, really who touch that cargo, who was involved in making the the zippers move from the zipper manufacturer to the finished garment manufacturer.
So you want to have all the transportation records for your different materials to show that this spool of thread was exported by this supplier in China to this factory in Vietnam. This is where the factory in Vietnam cleared customs for this spool of thread. And this is the warehouse for this Vietnam manufacturer who received this spool of thread and then used it in the manufacture of their product.
And so you want the shipping, the receiving and the inventory records so that you never break that chain of custody. And because customs is so focused on the agricultural level, they are worried about those who are picking the cotton, those who are making the PVC resins. You want to go as far back to the agricultural level as possible.
And last but not least, certificates. You want attestations from all the manufacturers in your supply chain that say these goods were made at this location and they were made without any materials from Xinjiang and they were made without any use of forced labor. Because even though customs has said affidavits and the forced labor certifications are not enough, it is it is a minimum requirement for them to know that you are getting that verification that those goods fall wholly outside the scope of the NFLPA or the WRI.
If if that’s at issue for you. And I cannot stress enough that I’ve received thousands of documents that were translated, companies went through the effort of organizing them so well to show from that material all the way through the final product to all the manufacturers in the supply chain and all the production records. But what you need is a connection from all those documents.
You need to show this bale number that was purchased as shown on the commercial invoice was also referenced on the bill of lading that we’re submitting to show that it moved then to that yarn spinner and that bale of cotton was then referenced in the inventory records. And when it was taken out of the inventory, it was assigned a lot number for the yarn as it was being spun on their spinning machines.
And then that lot number is what was referenced when the yarn was self was supplied to and sold to the fabric manufacturer. So you don’t only need these documents, you need to make sure that there is this connection throughout all the documents. And I’m so sorry. I don’t know the time. I don’t want to just ramble. Okay, great.
Okay. So that those documents, which I know are extremely overwhelming and it’s asking a lot are what you need to consider to get your goods released. But just detentions aren’t the only enforcement mechanisms. Customs is used and customs is also increasingly issuing focused assessment audits to companies and asking specifically about forced labor. And if any of you have sat through an audit, you want to do anything in your power to avoid extra questioning from customs that could lead to a full blown audit.
So in order to evidence the integral controls you have in place that make sure you have an ethical supply chain and to make sure that you are doing the right risk assessment, because there is nobody has unlimited resources to commit to forced labor. We would love that, but that would be insane. So you really want to do a risk assessment and make sure that your efforts are in line with what you’re importing.
So if you have high volume suppliers or a partnership with a buying agent who is handling most of your buying, you want to be asking the right questions through that buying agent and of those manufacturers to make sure that you’re assessing whether or not they have in place the controls to monitor and vet their suppliers to make sure that it’s a clean supply chain because you aren’t going to be having everyday conversations with the yarn suppliers unless they’re nominated by you and you might not know where you’re getting your trim items from.
And so you really want to put into effect this cascading effect where your suppliers are asking the right questions also of their suppliers on your behalf. So you want to first vet entities, look at the shareholder ownership under Ufp X PCC, which is a state owned entity operating out of Xinjiang, is not only sanctioned and not only listed under RO, but now under the UF LPA.
It states that any affiliates and any subordinates of ex PCC are presumed to be using for labor. So you want to check if X PCC has any ownership in your supplier, because if they do, then your goods are going to be presumed tainted, falling under the scope of the NFLPA and you may never get your goods. So you want to do that type of research.
Look online. There are so many articles and fortunately right now being written about the different and I guess the different ways in which companies are finding out that Xinjiang materials are making their way in their products. So a Google search on us, Google, China, Google goes a long way just to see what allegations Customs might be relying on and another reason that’s so important is because even though the US LPA entity list is published, very clear as to what entities fall under the scope of the LPA, Customs has confirmed time and time again that they have a confidential list that of vendors that they’re targeting based on reasonable suspicion that they are sourcing shin drug
materials or have a nexus to shine. Jang and Customs is detained in goods not only from you have LPA entity list entities and those become automatic exclusions, but they are largely, I would say, 90% of the detentions are from suppliers that are not on any list. And it’s based on confidential intel they have. It’s based on allegations that they have seen online.
And so if you know of these allegations, you can get ahead before your order orders are made to make sure that your goods will be able to be admitted free and clear into the United States. And for risk assessment. You want to make sure from the moment you enter an a relationship with a vendor, that’s your leverage. That’s where you can say, in order for me to buy X amount of shirts from you, you have to sign a forced labor certification.
That’s what we require. That’s our policy. And so you want to make sure your onboarding requirements include some type of forced labor compliance question or requirement in them. And of course, make sure you have credible audits to verify that there have been independent auditors that have gone to these factories. They’ve seen the type of conditions that the workers are in.
And so then you have something else to rely on that could be done biannually or however frequently you you need to have that additional reassurance that your factory is being monitored for forced labor compliance and to protect your brand review and update any terms and conditions you have with your suppliers. So you know, every company is going to have their code of conduct and the presentation prior had referenced the code of conduct.
You know, you you can have a sustainability requirement, you can have a forced labor requirement that code of conduct is your identity. That is what you are telling suppliers. This is what we expect out of you. And so you want to make sure that it does reflect the current culture of these new due diligence requirements and these new transparency expectations.
And you want to find out what their policies are. There are some vendors who are very lax and may not, you know, they may be recruiting and charging recruitment fees of their workers. And if that’s the case, then and Customs was to find out about that, it’s very possible they would get a row next. And so you want to know what their policies are at a high level, which can come up in an audit report just to know that they do have some type of policy in place against forced labor and for ethical conditions and some things so that you can have an enforceable requirement to consider is to have in your terms and conditions
in the purchase orders themselves, a requirement with consequences of if your vendor isn’t able to provide you within X amount of days. All the documents that customs would expect if your goods were detained, then what are you going to be refunded the entire purchase order? Are they going to pay for reexport of those goods? You want to have that in writing and you want to have that in writing before a detention so that you are protected.
And it’s not just reputational harm you have to worry about and losing cargo. Of course. And lastly, for import documents and data, look at your import documents, look at your commercial invoice, make it says who the manufacturer is with their address on that commercial invoice, because these documents are what are being supplied to customs. This is what Customs is currently concerned about.
And so you want to be as transparent as possible with the entry documentation to make sure that customs doesn’t detain your merchandise just because it didn’t list who the manufacturer was. And lastly, customs is detaining goods largely based on the combination of the country of origin, the tax code and the medi and the remedy for textiles is highly regulated where it’s supposed to be the manufacturer of the goods.
Who’s uses the made. But I have seen instances where it was a middleman or an exporter that was accidentally used by the broker because they didn’t have the name of the manufacturer. And I have seen goods detained and also excluded from the outset just because they used the wrong made at the time of entry. So streamlining the process is always is always good.
And so So what’s next? A lot of sleepless nights, so more enforcement resources. Customs has been approved for about $90 million to put towards useful enforcement. We are going to be seeing unprecedented levels of detentions and protests and exclusions, and it’s because customs is being given the resources. That’s what Congress wants. Congress wants them to be reviewing these goods and this merchandise to make sure it has no contact with Xinjiang.
And recently, I think it was earlier this week, there was an article that came out about red dates and how on the Hill where all this the legislation was passed and all these congressmen are combating forced labor in China. There were a few supermarkets that had red dates on the shelf that very clearly said they were made in Xinjiang.
And Congress right now is up in arms and they are worried that the legislation they passed isn’t being enforced correctly, isn’t working. And so we’re expecting there to be you know, there is even more pressure on customs to detain goods and then require the traceability documents. So they have this broad authority and they’re going to use it. And that also links to the forthcoming additions to the NFLPA entity list.
We are expecting many more entities to be listed on this list because of the pressure from Congress on Customs to combat forced labor. And they want names. They want you to they want customs to start thinking about how to better enforce this law. So we are expecting to see a lot more scrutiny for forced labor and new risk sectors.
So earlier in in June, there was an article that came out about PTC 20% of the world’s PTC comes from China and mainly from Xinjiang. And there are horrific stories about how the PVC made in Xinjiang is made of dirty coal, and the environmental concerns and abuses are beyond egregious. And so even though we do have this list of apparel, cotton products, tomatoes and polysilicon that we know Customs is targeting, first and foremost right now, those are the lowest hanging fruit.
We are expecting that PTC and chemicals that go into the precursors to rayon and spandex are going to be what is on customs target list next. And if you then think about the fact that it’s a precursor to the fabric, now, think about how far back in that supply chain you’re going to have to trace for your spandex leggings.
It’s it’s a lot and it’s the authority that customs has and global enforcement trends. The US has been the strictest in enforcing forced labor, but the EU yesterday came out with their proposed rule to have an import ban on forced labor that did not identify and explicitly it’s believed to be that they didn’t. They wanted to abide by the WTO rules and not have a discriminatory process in place.
But there is going to be an import ban in the EU that probably makes its way into law next year and is in effect in about two years. So and Nazi is row that was recently revoked. But on very large garment manufacturer in India. And so it just shows that forced labor is not only linked to Xinjiang, it’s not only linked to China, it’s going to be a focus for enforcement globally for many years to come.
So thank you all very much. Do we have time for questions? Wonderful. Yes. Thank you so much. This is really helpful. I know that I spoke with the documentary Status of the items and most of the items you listed seemed pretty attainable. But in our experience, the affidavit vids have been a little bit more mysterious. So is this something that manufacturers will have readily available, if not like where would they go to get that?
And also, if you have an example of that you could share with me, that would be great. Sure. No, absolutely. So we are seeing a lot of pushback, especially in China, based on the sanctions law and just supplier concerns to divulge who their suppliers are, to have their sub suppliers sign these affidavits. But in a similar way to FTAs where it just becomes part of your your system.
When you issue, for instance, with QIC, if you can use Chinese fabric and it can be sent to Jordan and then incorporated into the goods, if you have the traceability documents and you have the affidavit from that supplier from the moment of the sale, it’s it’s easier to get behind and make it part of the point of doing business.
So I would recommend making sure that you have an affidavit template, which I if you email me after this, I can give you suggestions for sure. Having an affidavit template that you ask your suppliers whether it be for a detention in response or if if you can make it part of your systems and controls and the commercial documentation that has to be provided when or uploaded to a source map or a different type of traceability system, if it just becomes part of doing business to have these affidavits filled out at the time, the fabric is sold to that finished garment manufacturer, it a lot more manageable.
Yeah, my pleasure. Hi. Thanks again. Is there $90 million in enforcement over some time horizon? It was approved for the fiscal year of 2023. Yes. Insane. Yeah. Okay. So if there’s there’s no other questions. Thank you all really so much again for having me here today. And good luck for the rest of the day.
Thank you.
