CBP Takes Measures to Enforce Ban on Imports Made With Forced Labor and Sanctions for Forced North Korean Labor in Supply Chains

On November 22, 2017, Apple, Inc. released a statement confirming reports that its major supplier in China, Foxconn Technology Group has used illegal student labor to assemble the latest version of the iPhone. Apple indicated that the company and Foxconn are taking corrective action in response. In the past, both Apple and Foxconn have been accused of employing forced labor practices. This time, the discoveries coincide with a time of renewed focus on enforcement of the decades-old U.S. ban on imports of forced labor, carrying consequences for importers in terms of penalties, and withholding and/or seizure of merchandise. As reviewed below, U.S. Customs and Border Protection (CBP) has recently taken measures to enforce the import ban and sanctions for forced North Korean labor (described below), and issued guidance to importers in this regard.

On November 7, 2017, U.S. CBP issued a press release reminding “importers of their obligation to exercise reasonable care and take all necessary and appropriate steps” to comply with the forced labor import ban and the sanctions for forced labor and slavery overseas of North Koreans under the Countering Adversaries through Sanctions Act (CAATSA). In addition, CBP stated that it is “committed to preventing the importation of merchandise produced with forced labor or the labor of North Korean nationals or citizens anywhere in the world.” CBP is authorized to take a variety of actions toward that end, and has recently taken steps to enforce the ban.

Below, we discuss the forced labor import ban, the North Korea related sanctions, recent enforcement-related actions, and guidance issued by CBP to assist importers with exercising reasonable care to comply with the forced labor import ban.

Forced Labor Import Ban
Section 307 of the Tariff Act of 1930 prohibits the importation of “[a]ll 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.” CBP may initiate investigations of potential violations of this provision when it has reason to believe that any class of merchandise subject to the ban is being, or is likely to be, imported into the United States. The investigation can result in the issuance of detention or withhold-release orders of the merchandise or in exclusion and/or seizure orders. The regulations provide importers with an opportunity to provide proof of admissibility in response to actions taken by CBP to enforce the import ban.

Since February 2016, after an exemption from the import ban was eliminated under the Trade Facilitation and Enforcement Act of 2015, there has been an increase in instances of enforcement of the ban. Since March 2016, CBP has issued withhold-release orders on importations of soda ash, calcium chloride, caustic soda; potassium, potassium hydroxide, potassium nitrate; stevia and its derivatives; and peeled garlic. By contrast, prior to March 2016, the last withhold-release order was issued in 2000.

As reviewed below, CAATSA strengthened the import ban as it relates to goods made by North Korean labor.

Sanctions for Forced Labor and Slavery Overseas of North Koreans
CAATSA, enacted in August 2017, amends Section 302 of the North Korea Sanctions and Policy Enhancement Act of 2016 to provide a rebuttable presumption of the use of forced labor in connection with goods made by North Korean labor. In particular, under the new law, “any significant goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part by the labor of North Korean nationals or citizens” is prohibited from entry into the United States “unless CBP finds through clear and convincing evidence that the merchandise was not produced with a form of prohibited labor.” Prohibited forms of labor include slave, convict, indentured, forced or indentured child labor.

In October 2017, CBP announced that it is reviewing allegations that certain Chinese seafood imports were made by North Korean laborers in China under forced labor conditions. At an October 24^th hearing before the Senate Finance Committee, Acting CBP Commissioner and the Trump Administration’s nominee for CBP Commissioner, Kevin McAleenan, reported that CBP has already put “up to six shipments” on hold in connection with this investigation. He also noted that CBP is working to “evaluate all commodities and manufacturers” in the affected regions in China in order to “identify elements of North Korean labor,” indicating that additional investigations or detentions of shipments may be forthcoming.

In addition, CBP is reportedly issuing Request for Information forms (CBP Form 28) to high-risk importers (such as Chinese and Russian importers located near the North Korean border) requiring information on their labor practices and related policies. CBP issues such forms “when there is insufficient information in the entry summary package to determine admissibility…of imported merchandise.” In this case, an importer that receives Form 28 would need to provide information to demonstrate that its products are admissible, i.e. they are: 1) not made by North Korean nationals or citizens, or 2) made by North Korean nationals or citizens, but not under forced labor conditions. Relevant information can include employment policies, supplier contracts, payroll and time sheet records, or employment records. Importers that receive this form are required to respond within 30 days. Failure to respond can result in the imposition of penalties or seizure of merchandise.

As reviewed below, CBP has recently issued a number of resources to help importers exercise reasonable care to ensure that their supply chains are free of forced labor.

CBP Resources
CBP has published an updated Importer Due Diligence fact sheet for importers, which provides resources to assist importers with conducting supply chain due diligence. In addition, CBP has recently updated its Informed Compliance pamphlet on Reasonable Care to include a section on forced labor. According to the guidance, the following factors are relevant in determining whether an importer acted with reasonable care in connection with the forced labor import ban:

• Whether the importer established reliable procedures to ensure that it is not importing goods subject to the ban, to conduct internal audits, to have a third-party auditor audit the importer’s supply chain, and to maintain and produce customs entry documentation and supporting information;
• Whether the importer knows how and where its goods are made from the raw material stage ;
• Whether the importer has obtained a ruling regarding the admissibility of goods under the ban, and established procedures to follow the ruling;
• Whether the importer has vetted new suppliers/vendors for the intended purposes;
• Whether the importer’s contracts with suppliers include terms that prohibit the use of forced labor, provide a time frame to take any needed corrective action, and consequences for failure to take action;
• Whether the importer has a comprehensive and transparent social compliance system in place;
• Whether the importer has reviewed information provided on CBP’s Forced Labor webpage; the Department of Labor’s List of Goods Produced by Child or Forced Labor; and the International Labor Organization’s Indicators of Forced Labour booklet.