On June 8, U.S. Customs and Border Protection (CBP) published a final rule in the Federal Register (the official, daily journal of the U.S. federal government that contains rules, proposed rules, agency notices, executive orders and other presidential documents) amending the CBP regulations in light of Section 910 of the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA).

This section of the TFTEA – former President Obama signed the bipartisan customs bill into law on February 24, 2016 – closed a loophole in the Tariff Act of 1930, which originally gave the U.S. Customs Service (now CBP) its authority to seize commodities imported into the United States where forced labor (including prison and child labor) was suspected to have been used in the supply chain.

The law was seldom enforced, and thanks to a longstanding loophole, many imports that would otherwise have been blocked from entering the country but met enough “consumptive demand” such that U.S. markets would have been adversely impacted and unable to meet domestic needs, were allowed entry.  In addition, the scrutiny applied to supply chain transparency and modern slavery (of which forced labor is one form) was not what it is today.  Freshfields has opined at length on recent, legislative trends and rising pressures on companies to address their impacts on modern slavery in several, previous posts

Rising regulatory scrutiny 

The text of the new CBP rule notes that the agency has been enforcing the prohibition on forced labor since Section 910 came into effect – and the data bears this out.  Prior to the new provision, the law had been used only 39 times since 1930 to apprehend goods mined, produced or manufactured from forced labor – and not in over a decade (since 2000).  

But in March, May and September of 2016, the CBP issued four Withhold Release Orders (or WROs) seizing shipments from Chinese chemical companies and agricultural companies on the basis that the commodities bore signs forced labor was relied on in their production.  There have been no published detentions this year.

By way of background, enforcement actions can be triggered by anyone who reports suspicious activity to a CBP officer who then issues a report to the CBP Commissioner.  Where information reasonably but inconclusively indicates that merchandise has been made with forced labor, the Commissioner may detain goods by issuing a WRO.  Conversely, where information suffices to make a conclusive determination that forced labor has been used, the CBP may issue an official finding of cause which is published in the Customs Bulletin and Federal Register

The CBP has stated that, if a shipment is seized, the purchaser must provide a detailed demonstration that it was not produced with forced labor.  The agency will then decide whether to release shipments on a case-by-case basis.  The new rule states that an importer may now submit proof of admissibility that an article was not made with forced labor to the Port Director or to the CBP Commissioner, not simply the latter as before, to allow for greater flexibility.

Enforcement predictions

There is evidence that the regulatory enforcement uptick will continue:  in addition to the more stringent CBP rule, there are indications of increased collaboration among law enforcement agencies – notably, CBP and HSI, which is the investigating arm of the U.S. Department of Homeland Security.  The CBP also cooperates with authorities in foreign countries to determine the provenance of shipments. 

In the meantime, the CBP makes several resources available to companies to help them identify and address forced labor in their supply chains, via a Forced Labor Detained Shipments Fact Sheet directing firms to a Department of Labor toolkit on forced labor, and furnishing links to business and benchmarking resource KnowThe Chain and software platform BlockChain.  Companies, especially U.S. importers, should take note.