Strategies for Responding to Withhold Release Orders

U.S. Customs and Border Protection (CBP) has been more active in prohibiting entry of products if they were made using forced, indentured or prison labor. This change in direction was precipitated by the 2015 Trade Facilitation and Trade Enforcement Act, which removed a long-standing exception to the prohibition against importing goods made with forced, indentured or prison labor when U.S. “consumptive demand” required it.

For instance, CBP on March 29 issued a finding directing personnel at all U.S. ports of entry to seize disposable gloves pursuant to a withhold release order (WRO) issued in July 2020. The finding was issued in record turnaround time; for context, CBP’s first forced-labor finding after the elimination of the consumptive-demand exception, issued in October 2020, came four years after a May 2016 WRO. 

A WRO essentially acts as notice of a ban, and CBP expects entities to refrain from importing from the locality set forth in the WRO. Upon sufficient evidence of forced labor, CBP publishes its formal findings in the Customs Bulletin and Decisions and Federal Register.

Title 19, U.S. Code, Section 1307 prohibits the importation of any “goods, wares, articles, and merchandise” that are mined, produced or manufactured by convict, forced or indentured labor.” Section 307 of the Tariff Act of 1930 specifically regulates such conduct. The statute defines “forced labor” as “all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily.” CBP may issue civil penalties and fines for violations of the statue.

In general, CBP will issue a WRO when information available “reasonably” but not conclusively indicates that merchandise being imported was produced, whether by mining, manufacture or other means, in any foreign locality with the use of convict labor, forced labor or indentured labor under penal sanctions, including forced child labor or indentured child labor under penal sanctions (collectively, “forced labor”).

If importers contend that the merchandise was not produced using forced labor, the burden of proof is on them. To do so, under current regulations, importers have three months to provide CBP with: (1) a certificate of origin, certifying that the merchandise was not produced with forced labor, and (2) a statement evidencing proof of the same.

A certificate of origin is simply a template statement set forth by statute. Through the template statement, importers certify, among other things, the quantity and description of goods at issue, the manufacturer, production location, and carrier to the U.S. 

In conjunction, importers must submit a statement — generally a letter or memorandum — to substantiate that such merchandise was not produced using forced labor. Three facets are key to an effective statement to a WRO:

1) Provide evidence of a diligent investigation. CBP expects importers to make every reasonable effort to determine the source of merchandise imported, and of every component therein, to ascertain the character of the labor used to produce it. Therefore, CBP will expect an importer not only to conduct a thorough investigation into the allegations of forced labor, but also to demonstrate that its investigation method resulted in accurate and reliable findings. 

To do so, importers should retain outside supply chain investigators to provide an independent and objective review — preferably, under auspices of attorney-client privilege. A diligent investigation will include, among other things, data preservation and collection of evidence (including a litigation hold letter and preservation of emails, human-resources (HR) records, accounting records and manufacturing records), review of relevant documents, interviews of key personnel, and a visit to the production site. Depending on the issue, CBP may also expect importers to leverage forensic accountants to determine whether payments were withheld (in whole or in part) from employees, an indicator of forced labor. 

Accordingly, importers should describe their investigative methodology in their statement to CBP.

2) Provide evidence of permissible labor. Importers must also provide documentation and evidence that imported merchandise and every component therein was made with permissible labor (that is, not forced labor). In other words, importers should show that the entirety of the relevant supply chain, from raw materials to finished goods, is free from forced labor. 

To do so, the diligent investigation should naturally reveal documents and witness statements to evidence use of permissible labor. Such tangible evidence includes, among other things, HR records of adult employees, employee-payroll reports, accounting records to substantiate employee pay, bank statements of payroll expenditures, documentation of working conditions from an independent site visit, and contracts with third parties prohibiting forced labor provisions. 

Collecting this information from suppliers and sub-tier suppliers can be difficult if an importer does not have the contractual right to do so. Therefore, it is helpful to have competent “cooperation” and “compliance with laws” clauses in contracts with overseas suppliers.

However, suppliers subject to WROs often also have incentive to cooperate if they have exonerating evidence. But be wary of such evidence and take special effort to ascertain and verify authenticity.

3) Provide evidence of pre-existing internal controls. Finally, importers should provide evidence of their front-end compliance efforts to maintain a supply chain free of forced labor. Under Section 484 of the Tariff Act, importers are required to use reasonable care to provide information necessary to enable CBP to determine whether all legal requirements have been met. CBP sets forth its expectations as it relates to forced labor in its reasonable-care checklist.

To show reasonable care, importers should be prepared to provide evidence of their internal controls to mitigate, identify and remediate forced labor in their supply chains. This includes, for example, periodic audits of suppliers (preferably unannounced) by independent third-party auditors. This could also include procedures to vet new suppliers for forced-labor risks through questionnaires and other due-diligence efforts, including contract terms with suppliers that require compliance with the Trade Facilitation and Trade Enforcement Act and other applicable laws and regulations that prohibit the use of forced labor.

For companies that import goods and components, front-end compliance work sets the stage for successful back-end evidence gathering in response to a WRO. It’s imperative that importers not wait to implement robust compliance programs.