On January 13, 2021, U.S. Customs and Border Protection (CBP) of the Department of Homeland Security (DHS) issued a withhold release order (WRO), effective immediately, to detain cotton and tomato products from China’s Xinjiang Uyghur Autonomous Region (XUAR) at all U.S. ports of entry. The WRO applies to direct shipments from China, as well as goods shipped from other countries that contain cotton and tomatoes originating from the XUAR. CBP cited various forced labor indicators against ethnic minorities in the XUAR in making its decision to issue the WRO, invoking its authority to prohibit goods produced by forced labor under 19 U.S.C. § 1307. The United States estimates that the Chinese government has detained more than 1 million Uyghurs and other ethnic and religious minorities to work in labor and reeducation camps. The Chinese government has denied these allegations and strongly opposed the new WRO.

CBP issued the new WRO alongside DHS’s 2020 Economic Security Assessment and Strategic Action Plan to Confront Threats from China, which also focus on human rights, trade, and economic security concerns. Similar actions to counter forced labor in China are likely to continue under the incoming Biden administration and impacted industry stakeholders should address potential exposure by managing their supply chains accordingly.

Key Takeaways:

• CBP issued a WRO on January 13th, 2021, effective immediately, to detain products containing cotton and tomatoes originating from China’s XUAR at all U.S. ports of entry. This is the broadest WRO issued by CBP in recent months focused upon the XUAR arising from forced labor indicators – actions the incoming President Biden is unlikely to reverse.

• The XUAR produces one-fifth of the world’s cotton supply, with the U.S. importing roughly $9 billion in cotton products last year. Accordingly, this WRO is expected to significantly disrupt supply chains for many industries reliant upon the region for sourcing – including apparel and footwear.

• Industry stakeholders with products containing cotton or tomatoes should immediately assess their exposure by evaluating sourcing in their supply chains. In addition to mitigating any risks through pre-enforcement assessments, stakeholders whose products may be subject to the WRO should develop plans for how to manage enforcement should products be detained. To avoid future risk related to forced labor, long-term plans should include establishing an effective supplier code of conduct and oversight policy, including regular auditing of supplier facilities.

History of Recent US Response to the Crisis in Xinjiang

The year 2020 saw a significant increase in efforts to address human rights abuses in the production and importation of goods. Various federal agencies highlighted the issue of forced labor in XUAR and CBP increased enforcement efforts regarding the importation of goods made wholly or in part by forced labor. The U.S. Congress also proposed several pieces of legislation aimed at addressing human rights abuses in China’s Xinjiang Region.

U.S. Agency Response. The U.S. Departments of State, Treasury, Commerce, and Homeland Security issued a Xinjiang Supply Chain Business Advisory on July 1, 2020, explaining the various reputational, economic, and legal risks to which businesses may expose themselves when working with entities that may engage in human rights abuses. The Advisory also specifically called out forced labor concerns in the XUAR for the cotton, apparel, and agricultural sectors, forecasting the expanded scope of future CBP efforts.

In 2020, CBP issued a total of thirteen WROs, including nine WROs on products from China, and a September 30 WRO on palm oil products from Malaysia. While prior WROs focused on particular producers, the January 13 WRO is unique in that it appears to be the first WRO on products from China that spans the entire supply chain of a raw material—rather than a singular product category—and an entire region—rather than specific companies.

CBP also issued its first Finding in over a decade in October 2020. CBP issued a Finding that stevia extracts and derivatives, mined, produced, or manufactured in China by the Inner Mongolia Hengzheng Group Baoanzhao Agriculture, Industry, and Trade Co., Ltd. (Baoanzhao) that are being, or likely to be, imported into the United States are being produced by forced labor. This Finding instructs port directors to seize and forfeit stevia derivatives and extracts mined, produced, or manufactured by Baoanzhao. In order to issue a Finding, CBP must find that merchandise that is being or is likely to be, imported into the United States is being produced with convict labor, forced labor, or indentured labor. This Finding resulted from the ongoing investigation associated with a previously issued WRO.

U.S. Congressional Response. The U.S. House of Representatives (House) passed two pieces of legislation that respond to alleged human rights abuses within the XUAR.

• The Uyghur Forced Labor Prevention Act (HR 6210) passed the House on September 22. The proposed legislation was intended to ensure that goods made with forced labor in the XUAR do not enter the United States market. The legislation would also require SEC issuers to disclose in SEC filings the extent of any engagement or activities with certain XUAR entities and affiliates.

• The Uyghur Forced Labor Disclosure Act (HR 6270) passed the House on September 30. The proposed legislation would require SEC issuers to file an annual report to disclose whether the issuer or any affiliate, directly or indirectly, engaged to import manufactured goods or materials that originated within the XUAR.

While neither bill passed the Senate during the last congressional session, these bills received bipartisan attention and support. Similar legislation is expected to be re-introduced in the new Congress.

Business Implications

Textiles Industry. The WRO allows CBP to detain any products that contain cotton produced from the XUAR, including apparel and textiles. One-fifth of the world’s cotton supply comes from the XUAR, so the new WRO is expected to significantly disrupt current cotton supply chains, including for many stakeholders in the U.S. clothing industry. The United States imported $9 billion of cotton products last year alone.

Some of the world’s largest apparel and retail trade groups issued a joint public statement on the new WRO including the American Apparel & Footwear Association (AAFA), National Retail Federation (NRF), Retail Industry Leaders Association (RILA), and The United States Fashion Industry Association (USFIA). The statement focuses on working with CBP to receive information on enforcement actions such that the industry can react accordingly in meeting their commitments to end forced labor in their supply chains.

To assess and potentially mitigate risk of enforcement, textile and apparel companies should proactively review and, if necessary, reconfigure their supply chains to avoid sourcing from the XUAR. Development and implementation of strict supplier oversight policies that identify risks of forced labor in the supply chain through audits and other screening mechanisms will help to avoid compliance, disclosure, and reputational risks that may arise from taking action too late.

Food Industry. While U.S. imports of tomato products traced to Xinjiang are not as large as cotton products, the imports are still significant, estimated at $10 million in the past year. The WRO allows CBP to detain tomatoes and tomato products including tomato seeds, canned tomatoes, and tomato sauces. Companies importing these products may need to audit and adjust their supply chains to ensure minimal disruption and track enforcement actions to get a better understanding of the impacted supply chains.

Other Industries. The U.S. government’s Xinjiang Supply Chain Business Advisory may suggest similar future efforts and WROs targeting other goods from the region. Businesses in various sectors—including apparel, textile, footwear, hair products, food, electronics, and extractives—should consider the potential for future WROs connected to the XUAR in making their supply chain decisions. Human rights in Xinjiang is an issue that garners rare bipartisan support and it is likely to gain further traction under the Biden administration.