DHS Report to Congress Reinforces the Need for Importers to Have ESG Polices in Place and to Know their Vendors

October 2021

BY

Damon V. PikePrincipal, International Tax – Customs & International Trade Services

The U.S. Department of Homeland Security (DHS) posted a report on its website on September 22, 2021 that establishes timelines for Customs and Border Protection (CBP) to respond to allegations of forced labor.
 
Although U.S. law has prohibited the importation of merchandise produced or manufactured by forced labor (including child labor) for more than 90 years, the issue has been under heightened scrutiny of late. A provision requiring parties to prohibit the importation of goods made by or with forced labor was included in the 2020 U.S.-Mexico-Canada Trade Agreement (USMCA), which mandated, in part, that the President establish a task force to set timelines for CBP to respond to allegations of forced labor in supply chains. These initiatives highlight the growing global focus on Environmental, Social, and Governance (ESG) issues in corporate boardrooms and on government enforcement agendas.
 
An Executive Order issued in 2020 established the “Forced Labor Enforcement Task Force” to improve coordination among various U.S. governmental agencies to prevent imports to the U.S. that are produced using forced labor. The task force is led by DHS and includes representatives from the Departments of State, Treasury, Justice and Labor, as well as the United States Trade Representative and U.S. Agency for International Development. The breadth of agencies represented by this task force underscores the importance the government is now placing on the issue of forced labor.
 
CBP is the sole government agency charged with enforcing all federal government regulations at the border and, therefore, investigates allegations of forced labor. CBP has the authority to detain, seize or exclude goods produced with forced labor and can issue a detention order known as a Withhold Release Order (WRO) if an allegation “reasonably but not conclusively” indicates that goods were produced with forced labor.
 
Under CBP’s rules, U.S. importers have an obligation to exercise “reasonable care,” which means that all declarations must be compliant, including compliance with the requirements that no imported goods have been manufactured with forced labor. To fulfill their responsibilities, importers should establish procedures to assess suppliers, including upstream processes for purchased goods, to understand the risks associated with the use of forced labor. Critically, the law prohibits the importation of goods made “wholly or in part” by forced labor, so that, for example, goods purchased from the European Union and produced using Chinese components, materials and parts should be considered in internal risk review processes as well. The prohibition against the importation of goods made with forced labor applies to goods from all jurisdictions.
 
The new timelines for investigations of allegations of forced labor will be initiated when a petition is filed alleging goods made with forced labor are likely to be imported into the U.S. Petitions can be filed by any party or Customs can self-initiate a case based on information from government sources or private reporting. Within 30 days of receipt of the petition, CBP will accept or reject it. If accepted, CBP will initiate an investigation and approximately 90 to 180 days later determine whether a reasonable suspicion of a violation of the forced labor statute exists. If a positive determination results, CBP will issue a WRO and a press release. Thereafter, if any goods are withheld by CBP at a port of entry, importers will have three months to rebut the presumption, and other administrative actions may occur, including refusal of entry of the goods and possible forfeiture/re-export.
 
Importers should be prepared to respond to any allegation of forced labor against goods they are intending to import into the U.S. As noted above, importers only have three months to respond to goods withheld subject to a WRO, at which time it may be too late to conduct a thorough investigation as to whether the merchandise was made in whole or in part by forced labor. Such an investigation is time-consuming and usually cannot be completed after a shipment is withheld and the importer must rebut the presumption that the merchandise at issue was made with forced labor. This scenario could negatively impact a company and result in potential seizures or exclusion of goods, loss of sales, revenue and most importantly, reputational risk. Moreover, CBP can refer such cases to other agencies for criminal investigation.
 
This is especially important for shipments from China due to pending legislation in Congress that aims to ensure that U.S. companies are not funding forced labor among ethnic minorities such as the Uyghurs in the Xinjiang region of China. These restrictions extend to other areas of China where forced labor is suspected and, notwithstanding this pending legislation, applies to all regions of the world.   
 

How BDO can help

BDO’s Customs and International Trade Services can help businesses avoid the importation of goods made with or by forced labor by conducting assessments so the importer knows how goods are made, by whom, where and under what labor conditions. We can also assist in establishing procedures for conducting periodic internal audits to investigate forced labor allegations in supply chains and to vet new suppliers and vendors for forced labor risks.
 
Our services include: 
  • Tariff classification reviews
  • FTA qualification
  • Customs valuation and transfer pricing analysis
  • Import and export compliance assessments
  • Supply chain planning
  • Customs rulings, protests and other administrative filings
  • VAT registration