China

Can the U.S. End Supply Chain Links to Forced Uighur Labor?

By John Foote
Tuesday, February 2, 2021, 11:57 AM

Recent reporting on the human rights crisis in the Xinjiang Uighur Autonomous Region has revealed the United States to be a major consumer in the global marketplace for forced Uighur labor. It is a near certainty that some goods currently being sold in the United States—though it is difficult to say which ones—were made, wholly or in part, by Uighurs and other Muslim minorities in furtherance of their forced “reeducation” in China.

Any U.S. “demand” for forced Uighur labor is, for all intents and purposes, inadvertent. U.S. companies are not seeking out forced Uighur labor or hoping to secretly reap a financial benefit from it. There is no affirmative U.S. consumer demand for goods made with forced labor. The reputational risks from a supply chain linked to genocide or crimes against humanity would appear to be significant. Yet investigative analysis has produced credible evidence linking U.S.-bound supply chains to forced Uighur labor

Inadvertent U.S. demand is not exactly a cause of the crisis in Xinjiang, but foreclosing U.S. supply chain links to forced Uighur labor is nevertheless a legitimate policy objective. It is also proving to be a confounding one. For 90 years, Section 307 of the Tariff Act of 1930 has prohibited the importation of goods made, wholly or in part, with forced labor. Yet this law is proving incapable of effectively curtailing imports linked to Xinjiang or, for that matter, just about every widespread instance of forced labor in the global economy. 

Section 307 suffers from two main defects. First, supply chain links to forced labor persist because modern global supply chains are vast and opaque. The statute isn’t presently designed to help bring visibility and clarity, though that is a function this law is uniquely well positioned to perform. While Section 307 is reasonably capable of addressing forced labor by a final manufacturer of imported goods, it struggles mightily to target forced labor where it is most pervasive—at the base of the supply chain. Without a change to the structure of Section 307, no volume or breadth of enforcement activity targeting commodities of risk (like cotton from Xinjiang) will ever truly be effective.

Second, despite the easy moral framing of forced labor as a practice of universal scorn, deciding how to identify and then effectively ban the importation of goods made with forced labor presents factual and legal questions that are uniquely complex. These questions carry not just commercial ramifications but also ethical and reputational consequences uncommon to the universe of trade regulation. There is arguably no area of trade regulation where the need for due process and fair procedures is greater—or more absent—than in Section 307.

The crisis in Xinjiang has crystallized the shortcomings of Section 307, and the need for an evolution of the statutory structure. The moment is ripe for a grand reenvisioning of the U.S. import ban on forced labor. A revised Section 307 can play a unique role in the landscape of laws targeting supply chain links to human rights abuses and is an opportunity for the United States to exercise global leadership with and among our allies. 

The idea of banning the importation of goods made with forced labor is proving quite popular. Canada and Mexico agreed through the U.S.-Mexico-Canada Agreement to enact similar bans. A comparable bill was recently introduced in Australia. It’s relatively easy to agree that goods made with forced labor have no place in global trade. The challenge lies in figuring out how to make such a law effective.

Section 307 in Action: The Challenge of Xinjiang

The operative language of Section 307, codified at 19 U.S.C. § 1307, is a surprisingly succinct 54 words: 

All goods, 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 shall not be entitled to entry at any of the ports of the United States, and the importation thereof is hereby prohibited[.]     

     This ban is categorical and absolute. It does not require any supplemental enforcement action to be taken, or any additional legislation to be applicable to a given set of facts. Technically, no mens rea is specified. The sole condition triggering the application of the import prohibition is the use of forced labor in a good’s production. If a good was made wholly or in part with forced labor, such good may not lawfully be imported into the United States. Violations of the ban, if discovered, would be grounds for civil or criminal penalties. 

Thus, in the context of Xinjiang, Section 307 presents an alluringly simple proposition. If the situation in Xinjiang amounts to forced labor, and goods are being made wholly or in part by such labor, then it’s illegal to import such goods into the United States. A few years ago, before the facts in Xinjiang were well documented, it might have been possible to question whether the social programs deployed in Xinjiang really did amount to forced labor. That moment, however, is far in the past. The only party continuing to assert that there is no forced labor in Xinjiang is the Chinese Communist Party.

It is imperative to appreciate that the “ban” of the forced labor import ban is imposed by the statute itself and does not result from any particular enforcement action taken by U.S. Customs and Border Protection (CBP). This nuance has been lost in essentially all reporting on the recent, overlapping withhold release orders (WROs) issued by CBP against cotton and tomatoes from Xinjiang, and cotton produced by the Xinjiang Production and Construction Corps. These WROs have been almost universally described as actions to “ban” the importation of such goods, though they did no such thing. CBP itself has explained that a “WRO is not a ban.”

A similar phenomenon has also featured in reporting and editorializing on the Uyghur Forced Labor Prevention Act (UFLPA). This legislation, introduced in the 116th Congress, and now reintroduced in the present Congress, would establish a rebuttable presumption that all goods from Xinjiang, or produced by Uighurs in one of the social programs at issue, regardless of location, were made with forced labor. The UFLPA has also been characterized inaccurately as imposing a “ban” on goods from Xinjiang—it isn’t—and described inaccurately as “flip[ping] the burden of proof to line up with reality” by requiring importers “to demonstrate that their imports from Xinjiang are not made with forced labor.” It wouldn’t. 

These are not quibbles. Mischaracterizing WROs as bans, or describing the UFLPA as necessary to shift the burden of proof to importing companies, risks misunderstanding not only what the law can do but also what it can’t do—and, above all, what must be done to make it effective. The forced labor import ban presents enormous enforcement challenges, especially in the context of Xinjiang, where most forced labor is occurring deep at the base of the supply chain. These challenges are not overcome by CBP’s aggressive use of broad WROs—they are exacerbated by it. The UFLPA may accomplish something important, but it does nothing to address the core challenges of enforcement.

What is a WRO, if not a ban? It’s a type of presumption. More specifically, it’s an internal customs directive indicating that CBP has found reasonable grounds to suspect that some class or kind of merchandise is being produced with forced labor and imported into the United States, and instructing port directors to detain shipments of such merchandise. CBP is presuming that the class or kind of merchandise was made with forced labor. If an importer has a shipment detained pursuant to a WRO, the importer could demonstrate either that its shipment doesn’t contain the class or kind of merchandise specified in the WRO (in other words, CBP stopped the wrong shipment) or that, while the shipment does contain the specified class or kind of merchandise, the goods were not actually made with forced labor (in other words, CBP’s presumption is incorrect). 

The WRO mechanism is reasonably well suited to handling allegations of forced labor by the final manufacturer of goods, but it founders quickly when used to target forced labor occurring deeper in the supply chain. For example, if CBP suspects that Company X in China is assembling widgets with prison labor, it can issue an order and reliably stop every shipment of widgets manufactured by Company X. Customs declarations identify imported merchandise (widgets) and manufacturers (Company X). But CBP cannot lawfully use a WRO as a fishing expedition—that is, to detain shipments in order to figure out whether they contain the class or kind of goods specified in the WRO. When CBP targets a commodity deep in the supply chain, (such as cotton from Xinjiang), it has no easy way to know which shipments contain the designated class or kind of merchandise and thus fall within the scope of the WRO. 

This presents a real problem in combating forced labor that occurs anywhere beyond the first tier of supply—that is, forced labor utilized by anyone in a supply chain other than the final manufacturer of imported goods. That is unfortunate, because the vast majority of forced labor links to U.S.-bound supply chains are deeper than the first tier of supply. This includes products that are minimally processed before importation but are traded as commodities and thus lose their individual identity immediately after harvest—products like cocoa, coffee and chili peppers. It also includes commodities that are transformed through multiple stages of manufacturing before importation—products like cotton, palm oil and cobalt.

The Bureau of International Labor Affairs (ILAB) publishes a list of goods known to the U.S. government as being made with forced and child labor. The most recent version of this list identifies some 119 product-country combinations as being produced with forced labor. Some of these goods might be produced with forced labor at the stage of the final manufacturer (such as electronics, garments or carpets), but the vast majority enter the United States indirectly. 

If CBP wants to stop cotton from Xinjiang using the WRO against cotton from Xinjiang, it has to be able to tell which shipments contain Xinjiang-origin cotton in the first place. There is virtually nothing in the standard bank of import data at CBP’s disposal that would be useful in helping to close that gap.

Given the reality of global textile supply, CBP cannot justifiably assume that all Chinese merchandise containing cotton is made with Xinjiang cotton. China also happens to be the largest importer of cotton fiber in the world. Plenty of cotton apparel manufactured in China may be made with U.S.-origin cotton. By the same token, Xinjiang-origin cotton might be spun into yarn, and woven into fabric, and eventually enter the U.S. in merchandise as finished apparel from places as far-flung as Turkey, Honduras or Bangladesh. 

This illustrates very well the first “defect” in Section 307 I referenced above. If all cotton from Xinjiang is at risk of having been produced with forced labor, then tens of billions of dollars of cotton-containing finished merchandise may not lawfully be imported into the United States. Xinjiang produces an estimated 15-20 percent of the global supply of cotton. Yet no one knows which finished merchandise is covered by the law, because identifying the provenance of cotton fiber in imported apparel is not a requirement of importation. Most importers don’t know the country of origin of cotton fiber in their supply chains, and CBP knows even less. Ultimately, that means spotting goods made with Xinjiang cotton is a guessing game.

What about the UFLPA, which has been presented as a solution to Section 307 enforcement challenges vis-à-vis Xinjiang? It’s another type of presumption. In essence, it would be like a statutory WRO. The UFLPA would establish a presumption that any good originating wholly or in part in Xinjiang, and any good produced by a Uighur laborer affiliated with the social programs of concern in China, regardless of location, is made with forced labor. As with a WRO, if an importer had a shipment detained on forced labor suspicion after the UFLPA took effect (still a big “if”), the importer could try to prove either that the shipment is out of scope (because it isn’t Xinjiang origin or Uighur made) or that, even though the goods originated in Xinjiang or were made by Uighurs, forced labor was not used. The version of the UFLPA reintroduced by Sen. Marco Rubio in the current Congress contains a number of additional intriguing provisions, including an express authorization for additional rule-making by CBP and the creation of an enforcement strategy with input from the public and multiple federal agencies. At core, however, the operative provision of the bill remains as a statutory presumption with respect to goods produced in Xinjiang or by Uighur laborers.

But the UFLPA will not address any of the core underlying trade enforcement challenges presented by the crisis in Xinjiang. The bill would not equip CBP to better ascertain where Xinjiang-origin or Uighur-made goods are entering U.S.-bound supply chains. Vast and opaque supply chains will continue to hamper enforcement decisions. The bill does not ban any more imports from Xinjiang than are already banned, nor does it fundamentally alter the liability for importers of Xinjiang-origin or Ui     ghur-made goods. It does not “shift the burden of proof” with respect to any shipment unless detained, and does not provide a road map for expanded detentions. Plenty of commerce with undetected links to forced Uighur labor will continue unabated. 

The UFLPA would accomplish at least one valuable goal, however. China categorically rejects the narrative that its social programs for Uighurs in Xinjiang amount to forced labor. In the Chinese view, these are programs for poverty alleviation and combating terrorism. The UFLPA would make clear how the United States views the systemic program of surveillance and oppression, similar to how a 2017 law enacted a comparable presumption with respect to North Korean labor. Whether this is a political determination, or simply a declaration of the facts from the U.S. point of view, it’s a powerful statement for Congress and the president to make, and one that should not be swiftly discarded. 

Section 307 Reframed as Import Regulation

Since a 2016 statutory amendment closed a long-standing loophole in Section 307 and CBP began enforcing the law after a 20-year hiatus, the experience of parties with a stake in Section 307 enforcement has been uneven, at best. The importing business community has been deeply unnerved by the non     transparent enforcement process and actions that could disrupt legitimate non-forced labor trade. Stakeholders wanting stronger enforcement have been frustrated by delays in enforcement, and the small overall number of enforcement actions taken, some of which have been astonishingly narrow. The situation in Xinjiang is only the most recent development, though also the highest profile, to highlight the shortcomings of Section 307.

To date, efforts to redress these shortcomings have focused mostly on smaller-scale nips and tucks: for example, the creation of an interagency task force to develop a Section 307 enforcement plan, a U.S. Government Accountability Office report recommending additional resources for CBP and improved workforce planning, and recommendations from a private-sector advisory committee to CBP to impose limits on actionable forced labor allegations and make useful changes to the customs regulations. The version of the UFLPA recently reintroduced in the 117th Congress, if enacted, would be the most substantial reenvisioning of Section 307 enforcement to date. Yet for all the legitimate concern about Section 307, scant attention has been paid to the statute itself. Notwithstanding the facial strength of a law that bans the importation of every good made wholly or in part with forced labor, the law itself is in dire need of revision. 

Because Section 307 is an import prohibition, the customs regulations implementing the law are situated, somewhat comically, squarely between other import prohibitions for counterfeit stamps and obscene films—literally the type of goods you know when you see, to paraphrase Supreme Court Justice Potter Stewart. Yet goods made with forced labor are visually—forensically—indistinguishable from goods not made with forced labor. Even the placement of the regulations seems to suggest that the very model of Section 307 is wrong.

If it is true that global supply chain links to forced labor persist because supply chains are vast and opaque, then it is equally true that a law that required supply chain visibility and clarity could be highly useful in rooting out forced labor. Fortunately, the universe of import regulation is replete with examples of how this is done in other contexts, with great success. 

At its core, import regulation is just a function of information that an importer is legally required to collect and declare to customs officials, and the work that customs officials do—either on their own or in partnership with subject matter experts at other agencies—to assess the accuracy of such information and ensure the correct consequences attach. 

Import regulation always derives from a threshold determination that certain imports present some form of risk, and the imposition of conditions for the importation of such merchandise to mitigate that risk. For example, imported food products present a potential source of risk to consumer health. Accordingly, statutes like the Food, Drug, and Cosmetic Act and the Food Safety Modernization Act, both administered by the U.S. Food and Drug Administration and enforced at the border by CBP, impose certain conditions on the importation of covered food products. These laws prescribe different rules for different products, based on risk. 

Importers are required to provide prior notice that they intend to import a certain food product, label products to specific standards, or collect and maintain documentation demonstrating that foreign food manufacturing facilities meet U.S. safety standards. A similar approach is taken to ensure import compliance of everything from sweater labels (fiber content labeling rules imposed by the Federal Trade Commission-administered Textile and Wool Acts) to hazardous waste (under Environmental Protection Agency-administered statutes and regulations).

Because Section 307 operates as a naked, 54-word import prohibition, however, there are no statutory requirements imposing conditions of importation with respect to forced labor. The government does not collect basic information on shipments presenting a known risk of forced labor, or even require an affirmative declaration from importers that “this shipment was not made wholly or in part with forced labor.” There is no form to fill out, no box to check, no information to disclose. 

The failure to fashion Section 307 as a form of import regulation has a peculiar consequence. As pressure increases on CBP to enforce the law, U.S. Customs—long one of the great data engines of the U.S. government—is left to rely on the kindness of strangers to obtain information of relevance to the substantive determinations it is charged to make. This is true both in deciding where to focus the agency’s enforcement attention in the first instance and then in implementing enforcement action against actual imports.

Without a mechanism to consider allegations of forced labor and relevant contrary evidence in a transparent record-based proceeding, CBP has turned to partnerships with nongovernmental organizations (NGOs) to gather intelligence about forced labor, and CBP officials have traveled to countries such as Thailand to learn about the problem firsthand. Sitting members of Congress have taken to writing letters to CBP, flagging interesting articles they’ve read about forced labor and requesting enforcement action. But for the work of these NGOs, journalists and well-read members of Congress, it’s not clear how CBP could go about collecting information needed to enforce Section 307. 

A forced labor prohibition reconceived as a type of import regulation could impose, as new conditions of importation, information production requirements relevant to the question of forced labor. As it happens, CBP has already begun to identify many types of information that could prove useful to the forced labor inquiry. Primarily as a result of CBP’s engagement with industry leaders in sustainable sourcing, CBP has found that comprehensive supply chain maps, explanations of how labor is procured at every step in the supply chain, corporate social responsibility policies and supply chain codes of conduct could all be useful in informing enforcement decisions. 

CBP has even begun sending questionnaires to importers asking for the production of such documents, though there is no law that presently makes the possession of these documents a condition of importation. Under 19 U.S.C. § 1509(a)(1)(A), CBP maintains a list of all the records an importer may be required to keep as conditions of importation, and these records are not among them. CBP can always ask, and some importers may try to produce useful content, but until Section 307 is revised in the form of import regulation, responding to these requests will remain an act of goodwill. Even those inclined to share may not have information the law does not require them to have. 

Setting the Section 307 Rules of Engagement

It might seem that easy solutions could be found in expanding the list of required import documentation to include supply chain maps and corporate social responsibility policies, or giving CBP a broader detention authority to hunt for imports of Xinjiang cotton or other commodities made with forced labor. But such solutions risk overlooking the more fundamental challenge of designing an effective forced labor import ban—namely, deciding how best to resolve the factual and legal questions that underlie forced labor inquiries. 

The factual and legal questions in the forced labor context are as difficult to resolve as any confronted in the universe of import regulation, but the stakes are much higher—accompanied, as they are, by ethical and reputational connotations without analogue. 

Many forms of import regulation present complex questions of fact and law. For example, how can CBP tell when imported goods have been unfairly subsidized by a foreign government, to the harm of domestic industry, and the equitable value of such subsidization? When CBP opens a container of ball bearings at the Port of Los Angeles / Long Beach, unfairly subsidized ball bearings look exactly the same as the fairly traded ball bearings. 

The answer is that U.S. countervailing duty laws crafted in the late 1970s—and embraced by the international community in the following decades as the template for international standards governing the same—require evidentiary proceedings before knowledgeable agencies and record-based written determinations subject to impartial judicial review. Without that robust administrative structure established by statute, these difficult questions of fact and law would be resolved, if at all, in a murky backwater of innuendo and political will. 

Distinguishing a good made with forced labor from one made with fair labor requires at least as many difficult factual and legal determinations as any countervailing duty case, maybe more. Where exactly is forced labor occurring, and how does CBP know? Where is the line between labor that is merely deeply problematic and labor that is truly forced? How can the government tell if there are links between forced labor and U.S.-bound supply chains? How can investigators and policymakers decide when a narrow remedy is appropriate or when broader action is warranted? If neither CBP nor an importer can prove the question of forced labor definitively, what is the result?

The list goes on. What is the evidentiary standard for taking an enforcement action? Which shipments of goods should be detained? What proof should be sufficient to obtain release? How much remediation is necessary before an enforcement action should be relaxed or terminated? How can the government be sure that like situations are being treated alike?

At present, every one of these questions is answered by CBP alone. None of them is resolved in a record-based proceeding. Investigations are conducted and enforcement actions taken without informing affected parties in advance, considering contrary points of view or publishing any justification for action beyond a press release. No notice is given, no comments are received. No one knows what evidence is considered sufficient to impose an order, revoke an order or keep one in place. The enforcement determinations themselves are not directly subject to judicial review. Even at the administrative level, no body of law has emerged from the thoughtful resolution of cases over time, for the simple reason that nothing is being written down. 

I’m sure the dedicated civil servants at CBP working to eradicate modern slavery from supply chains would agree: A better law is needed.

A Law to Incentivize Identification and Eradication of Forced Labor

In the pantheon of contemporary laws targeting modern slavery, forced labor and related human rights concerns, a few models have proliferated across jurisdictions. The California Transparency in Supply Chains Act, along with the Modern Slavery Acts enacted in many jurisdictions, is premised on the notion that sunlight is the best disinfectant and can drive a “race to the top” for sustainable supply chain practices. The Global Magnitsky Act is a heralded U.S.-designed and internationally embraced template for sanctioning human rights abusers, premised on the notion that meaningful human rights progress can be accomplished by punishing and foreclosing business dealings with truly bad actors. 

A forced labor import prohibition is complementary to, but distinct from, both a supply chain disclosure law and a sanctions law. An import prohibition is premised on the notion that goods made with forced labor have no place in international commerce. It presumes that all legitimate actors view forced labor through the same moral lens, and recognizes that forced labor nevertheless proliferates both because illegitimate actors exist and, more fundamentally, because global supply chains are vast and opaque. It rejects the notion that complexity or opacity is a reason to overlook the human and economic tragedy of deception, trafficking, extortion and abuse.

A properly developed forced labor import prohibition can also do what investigative journalism and NGO activists never can: treat all parties equally. There are far more actors engaged in global supply chains leading to cross-border trade that are unknown to consumers than just the brands whose names might appear in reporting by a news outlet or an NGO. Forced labor is a human tragedy, a business problem and an economic reality that an import regulation law is uniquely equipped to address. The law has a role to play in helping sort legitimate actors from illegitimate, and ensuring that everyone is pulling in the same direction by establishing consequences for refusing to do so. 

Folks with a memory of the last grand gambit to wield the law against supply chain maladies—the law requiring Securities and Exchange Commission disclosures pertaining to conflict minerals—will be forgiven for some skepticism. The experiment with conflict minerals was many things, but one thing it was not: an administrative apparatus carefully crafted from the proven tools of import regulation. 

So what does a law to incentivize the identification and eradication of forced labor look like? Detailed recommendations are beyond the scope of this post, but I’ll highlight three critical features. 

First, Congress should create a statutory structure for conducting forced labor investigations, explicitly empowering an administrative authority to receive and investigate allegations of forced labor in a U.S.-bound supply chain. It should establish a statutory timeline for decision-making; enshrine the right to notice and opportunity for hearing by interested parties; and create procedures for the treatment of confidential information to protect business proprietary data or, when needed, to preserve safety of suspected victims.

Congress should also consider whether such investigations warrant the expertise of an administrative law judge, or whether any agencies in addition to CBP should contribute subject matter expertise to the decision-making process (for example, the U.S. International Trade Commission or ILAB). It should require that investigations culminate in the issuance of record-based determinations that are subject to suitably deferential administrative and/or judicial review, and periodic reexamination to consider whether remedial action continues to be warranted. The law should require, at a minimum, that determinations establish whether and where forced labor is occurring, where forced labor produced goods might be entering U.S.-bound supply chains, and which finished imported products should therefore be in scope of potential remedies.

Second, because the circumstances giving rise to forced labor vary widely across industries and countries, Congress should consider creating a menu of remedies that could be employed following an affirmative determination in different cases. For example, in some cases, it could be useful to require an enhanced supplier-disclosure requirement to allow traceability beyond just the final supplier or manufacturer. In other cases, it might be necessary to provide for incentivized state-to-state dialogue, when enhanced law enforcement in the foreign market is believed to be the critical link. Numerous remedies are available under existing trade laws to remediate various forms of problematic trade, including the ability to detain or exclude specific imports or limit import volumes. Many of these remedies might be adapted for purposes of enforcing Section 307.

The range of available remedies should hold intact Section 307’s prohibition on importing goods made with forced labor—which is categorical and absolute—while also permitting, incentivizing, or even requiring remediation and continued engagement when forced labor problems are identified. Congress could, for example, revise the applicable customs penalty and disclosure regime specifically for forced labor. This would distinguish the law from the existing WRO mechanism, which functions in most cases like a sanctions regime—incentivizing only the termination of business dealings with named entities, rather than any form of remediation. 

Finally, and maybe most importantly, the statute should include a built-in incentive to keep legitimate trade flowing. Companies prepared to work with their supply chains on the leading edge of corporate social responsibility and sustainable sourcing should be able to preserve the ability to trade in responsibly sourced goods. Enshrining the ability to prove that a given channel of supply is free of forced labor—including with the use of technologically sophisticated tracing technologies, to achieve “green lane” access to uninterrupted importation—is a powerful incentive, not available under current law, that should be created.

In truth, a revised statute that accomplished even some of these goals would be a marked improvement on the status quo. Here’s hoping the 117th Congress and stakeholders across all constituencies are up for the challenge.