Import controls on products produced with forced labor: a developing story

Most professionals involved in international trade compliance in the USA have heard of the recent Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), signed by President Obama on February 24, 2016. There was significant coverage of this both within our industry and outside of it, no doubt helped by the incredible coverage of the Republican and Democratic primaries. Some of the clauses in this act have been covered well, such as:

• The increase from $200 to $800 for Section 321 clearances
• Changes to the US Goods Returned program
• Minimum standards for Customs Brokers
• Changes to Duty Drawback procedures
• Etc.….

One aspect of this bill that has not been discussed as much, is the repeal of an old law called the “Consumptive Demand” clause. This clause was found in 19 U.S.C. § 1307[i] until the TFTEA repealed it.

What does this mean exactly?
19 U.S.C. § 1307 has prohibited the import of “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” for decades, but the “Consumptive Demand” clause allowed such imports if the product in question was not available in sufficient quantities from US sources, so as to “meet the consumptive demands of the United States”.

A more cynical person than I might interpret the old rule to mean that forced labor must be stopped, but not if it’s the only way we can get cheap goods at the local dollar store, but I’ll leave that one alone…. Regardless of my cynicism, the clause is repealed, and such goods should now be prohibited from entry.

So, to return to my earlier statement: “What does this mean exactly?” Well, according to US CBP on their web site[ii], the provision to block relevant imports (known as a Withhold Release Order, or WRO), has been used very sparingly. Until the passage of the TFTEA, it had been used 39 times in over 85 years, and the last use was 15 years ago. Since the passage of TFTEA, it has been used twice in two months. That could either be a coincidence, an anomaly of sorts, or it could be a significant sign: one that trade had better pay attention to. For example, in March 2016 CBP listed Potassium Nitrate (and other chemicals) manufactured by Tangshan Sunfar Silicon Industries in China, as a product manufactured using forced labor[iii]. If you are importing this product from China, you need to take action now, and verify who the producer is. Failure to do so could result in seized goods when they reach the US port.

The list given by CBP is relatively small, but I predict it is going to grow steadily. If you read the FAQ’s provided by CBP, they allude to a list maintained by the Department of Labor. This list is larger, and does not specify producers. I urge importers to consult this list, given below, to identify potential supply chain risk:

http://www.dol.gov/ilab/reports/child-labor/list-of-goods/

As CBP states, the DOL list will not necessarily translate into CBP WOR orders, but: “Importers must exercise due diligence over their supply chains and understand where and how their products are manufactured or produced in whole or in part. The Department of Labor produces reports on forced labor and importers may also monitor CBP’s website which lists all foreign entities and their commodities subject to an active WRO”.

Assuming I have convinced you that this is an area you need to address, the next question is likely “How, exactly?” That’s a good question. The list is not a traditional “Sanctioned Party List” (SPL), but more of a product list. For example, you may purchase Potassium Nitrate from China, but through a distributor. Any SPL efforts by you will not identify the manufacturer, and will be ineffective.

I feel this growing list is one that SPL content providers will be adding in the near future. I personally have already begun talks to get it added to the content I screen in SAP GTS. However, SPL screening will not suffice. You will also need training and education throughout your supply chain, to spot affected products and research the source immediately. To help with this you might want to flag the affected products in your system in some way. For example, in GTS I could classify Potassium Nitrate in such a way that it requires a user release before the PO can proceed. This would allow me to ensure the manufacturer has been vetted before the transaction proceeds. Most importantly though, the awareness and education must happen.

This is similar to a SPL issue I addressed in an earlier blog post: 

http://intltradecompliance.blogspot.ca/2016/04/the-hidden-lesson-in-ofac-guidance-on.html

In both scenarios, SPL screening alone would not have sufficed. If you take one thing away from reading this, I hope it is exactly that: do not implement an automated SPL screening program and think your trade compliance work is done. Screening may only be the beginning…

Kevin Riddell

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[i] http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title19-section1307&num=0&edition=prelim

[ii] http://www.cbp.gov/sites/default/files/assets/documents/2016-Apr/tftea-repeal-consumptive-demand-clause-faqs.pdf

[iii] http://www.cbp.gov/trade/trade-community/programs-outreach/convict-importations