Did US Customs Create a De Minimis Standard Under Its Forced Labor Regulation?

On July 27, 2021, US Customs and Border Protection ("CBP") issued a set of Frequently Asked Questions (FAQs) to provide guidance on the recently issued Withhold Release Order ("WRO") on silica-based products made by Hoshine Silicon Industry Co., Ltd. ("Hoshine"), a company located in Xinjiang, China, and its subsidiaries. Among the FAQs was the question, "Are finished products that contain a small percentage of silica-based products sourced from Hoshine or its subsidiaries subject to the WRO?" In the response, CBP advised:

The statute prohibits the importation of goods made in whole or in part with the use of convict, forced or indentured labor. However, if the contribution of prohibited labor to the whole product is insignificant (both from a quantitative and a qualitative perspective), CBP may consider the product outside the scope of the statute. For example, if prohibited labor is used to manufacture a single part in the engine of a car, the contribution of prohibited labor to the final product (the car) may be considered “de minimis” for purposes of Section 1307. But, if the part is an essential part of the engine or the manufacture of the part comprises a substantial portion of the total labor, CBP may deem the car to be within the scope of Section 1307.

The underlying statute does not contain a de minimis provision, and CBP’s regulations implementing the statute do not include a de minimis carve-out. Prior to issuing these FAQs, CBP had not referred to a de minimis carve-out, and, indeed, in CBP's FAQs for the WRO on cotton and tomatoes from Xinjiang, the FAQ addressing the scope of the order indicates that "[i]mporters are responsible for ensuring the products they are attempting to import were not made with the use of forced labor at any point in their supply chain" (emphasis added). CBP now appears willing to use its authority to enforce US law on the use of forced labor (19 U.S.C § 1307) to provide importers with flexibility when their imports contain de minimis amounts of product produced with forced labor.

It is not yet clear how CBP will implement the de minimis carve-out in the context of other WROs. To the extent this becomes CBP policy, manufacturers and US importers will be able to focus their compliance on significant material inputs rather than trivial ones, which will benefit articles produced within complex supply chains. However, until more guidance develops on how CBP intends to implement this policy, manufacturers and US importers should be wary of relying on it too heavily.

What Is a Withhold Release Order?

Section 307 of the Tariff Act of 1930 prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by convict labor and/or forced or indentured labor, including forced child labor. As noted in our prior Legal Update, an exemption previously available to importers mitigated the practical impact of Section 307 by allowing for the importation of merchandise produced with forced labor if consumption of the merchandise in the United States exceeded the domestic production capacity. However, the Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), signed by President Obama on February 24, 2016, amended the Tariff Act of 1930 by eliminating the exemption and giving CBP more leeway to pursue enforcement. Since the enactment of this amendment in 2016, CBP has issued over 20 WROs under the legal authority of Section 307.

A WRO can be issued based on CBP’s own self-initiated investigation or on information gathered from outside sources, including whistleblowers and non-governmental organizations. Pursuant to the relevant regulations, any person (inside or outside of CBP) who has reason to believe that merchandise is being, or is likely to be, imported into the United States and is produced using forced labor can submit that information to the CBP commissioner. Section 307 defines “forced labor” as “all work or service that is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself [or herself] voluntarily.” In practice, CBP uses the UN International Labour Organization’s (“ILO”) indicators on forced labor¹ to inform its identification of forced labor practices in the WRO process.

Importers often do not know that CBP is investigating a forced labor allegation until it issues a WRO. Based on the information provided, the commissioner (or a delegate) will conduct an investigation and may issue a WRO when information reasonably, but not necessarily conclusively, indicates that the merchandise is made wholly or in part with forced labor. CBP will prevent the admission into the United States of all merchandise within the scope of the WRO. Importers will be told to export or destroy any of the merchandise in the United States that has not cleared customs.

WROs are typically issued against imports of specific merchandise manufactured in a specific country by a specific company. However, as with the WROs on cotton and tomato products from Xinjiang and tobacco from Malawi, CBP can issue region- or country-wide WROs targeting merchandise made “wholly or in part” by forced labor. These WROs cover both the targeted article and any merchandise produced downstream that incorporates the targeted article.

¹ The 11 indicators are (i) abuse of vulnerability, (ii) deception, (iii) restriction of movement, (iv) isolation, (v) physical and sexual violence, (vi) intimidation and threats, (vii) retention of identity documents, (viii) withholding of wages, (ix) debt bondage, (x) abusive working and living conditions and (xi) excessive overtime. See https://www.ilo.org/global/topics/forced-labour/publications/WCMS_203832/lang--en/index.htm.