Commentary: The fabric of withhold release orders

The latest round of withhold release orders (WRO) issued by U.S. Customs and Border Protection involves one of the most pervasive soft commodities used in retail: cotton. According to the End Uyghur Forced Labour Coalition, one in five cotton garments sold globally contains fiber or yarn sourced from the Xinjiang region.

But while direct shipments from banned Hefei Bitland to Lenovo and Asus can be easily tracked, it’s the indirect shipments of items containing cotton along the intra-Asia trade route that can be harder to track.

On July 1, the Department of Commerce, along with the departments of State, the Treasury and Homeland Security, issued a business advisory highlighting the risks for businesses that engaged in manufacturing out of the Xinjiang Uighur Autonomous Region in the People’s Republic of China (PRC). For companies, this was a warning signal to check their supply chains.

I had a chance to speak with Ana Hinojosa, CBP executive director for trade remedy law enforcement, who runs CBP’s Forced Labor Division, on how this ban will be deployed.

LL: These last five WROs regarding forced labor are not the first and the scope of these WROs is large. Have additional CBP personnel been hired??

Hinojosa: Prior to 2016, this was not a big area of work for us because of the consumption demand clause. We created the Forced Labor Division in 2018 and have slowly ramped up. The work of the enforcement of forced labor is led by the forced labor division as well as other departments within the CPB.This year CBP has issued an unprecedented 12 WROs, including eight on goods from China:

  1. Hair products made in the Lop County Industrial Park* (Sept. 14).
  2. All products from the Lop County No. 4 Vocational Skills Education and Training Center* (Sept 14).
  3. Apparel produced by Yili Zhuowan Garment Manufacturing Co. Ltd. and Baoding LYSZD Trade and Business Co. Ltd.* (Sept. 14).
  4. Cotton produced and processed by Xinjiang Junggar Cotton and Linen Co. Ltd.* (Sept. 14).
  5. Computer parts made by Hefei Bitland Information Technology Co. Ltd.* (Sept. 14).
  6. Seafood from the Da Wang Distant Water Fishing Vessel (Aug. 18).
  7. Garments from Hero Vast Group** (Aug. 11).
  8. Disposable rubber gloves from Top Glove Malaysia (July 15).
  9. Hair Products from Lop County Meixin* (June 17).
  10. Seafood from the Yu Long No. 2 Distant Water Fishing Vessel (May 11).
  11. Hair Products from Hetian Haolin* (May 1).
  12. Tobacco from Malawi (Nov. 1, 2019).

LL: According to U.S. government data, around 85% of China’s cotton is produced in Xinjiang. The U.S. imported $50 billion worth of textiles from China last year. What is the estimated potential impact of the last WROs announced?

Hinojosa:  From all five WROs, roughly $200 million annually can be reduced.

One of the WROs was issued on hair products from China. (Photo: CBP)

LL: It’s easy to track down products that are directly exported from a given company. How do you make sure the cotton out of this region does not leak into the intra-Asia countries and made into products? If it does, will you issue a WRO for those products?

Hinojosa: We have to establish reasonable suspicion the good in whole, or in part, is made with forced labor. The product itself is subject to the statute. We have a number of resources to identify what the risk is and the source of the product. We would use our audit enforcement tools as well as our lab system. We have the right to leverage whatever we can in that regard. If that product has parts made with forced labor, it will be subject to the WRO statute.

Importers must exercise due diligence, especially with China. There is so much information published on forced labor it would be hard for importers to say they did not know of the risk.  You have tools like the Department of Labor’s comply chain app where businesses can figure out how to avoid goods that could be higher in risk. You have the State Department’s U.S. Trafficking in Persons Report (TIP). If you are a downstream purchaser, inform yourself on where the products you are looking to buy come from.

One of the WROs was issued on hair products from China. (Photo: CBP)

LL: This really is a wake-up call for companies to know their supply chains. How can a retailer prove their products are pure and do not contain cotton from that region?

Hinojosa: They need to submit a proof of admissibility.  This is hard. China’s supply chains are opaque and can be difficult to track. But ultimately, it is the responsibility of a company to exercise their due diligence and make sure the product they are importing is in compliance. If they are going to use a manufacturer from another country at a lesser cost, they have to find out how that manufacturer is doing that.

The liability of bringing in goods does not end at potential detentions at the border. There can be seizures separate from that. Those consequences affect both the manufacturer or importer. They can also face civil liabilities charged by the CBP if they knowingly or negligently brought in fraudulent goods. If they are complicit, they can also be charged with criminal liabilities by Homeland Security investigations both individually or as a company. For example, we recently finalized a $575,000 civil enforcement action against PureCircle, which imported stevia products that were produced by force labor. In June, close to 13 tons of hair products manufactured by Lop County Meixin Hair Product Co. Ltd were detained at the Port of New York/Newark.

LL: Xinjiang Production and Construction Corps. (XPCC) is not on the list. However, there is information out that suggests Xinjiang Junggar is possibly an affiliate or subsidiary of XPCC and that is the big connector. Are you looking at adding XPCC on the WRO list?

Hinojosa: we are well aware of the concerns expressed about XPCC and its connection to forced labor. We continue to investigate all allegations that we have received with forced labor.

*WRO on goods from China.

**The Hero Vast Group WRO was on goods manufactured outside of the Xinjiang region.