Broader Regional Xinjiang WRO Remains Possible, Though Functionality Remains a 'Hurdle'

The “idea of a regional” withhold release order is “certainly not out of play,” Department of Homeland Security acting Deputy Secretary Ken Cuccinelli said during a Dec. 2 conference call to announce a WRO on Xinjiang Production and Construction Corps cotton (see 2012020071). Such an action remains “legally doable,” though it takes a different “quantum of evidence to accomplish,” he said. CBP previously considered XPCC and regional WROs, but declined to go ahead with those in September (see 2009140040).

DHS continues to investigate forced labor in the region and Congress is “also looking at a region-wide approach,” Cuccinelli said. Any regional action put in place by either Congress or DHS must “be functional,” he said. “The point isn't to just make announcements, the point is to actually block goods that fall within the target of those made with slave labor, so that's the remaining hurdle with respect to the regional WRO.”

Even while the latest WRO is focused on XPCC, a single company, considering “the massive size of XPCC, the massive amount of cotton that it produces and the massive amount that comes to the United States,” the WRO “really is almost akin to a regional because it is so large,” acting CBP Commissioner Mark Morgan said. About seven-eighths of the cotton produced in China is from the Xinjiang region, he said.

There is some governmental sensitivity around the difficulty of figuring out where individual cotton fibers are sourced as it considers a regional WRO, Morgan said. As much as CBP wants to go after forced labor, it also doesn't want to “inadvertently envelop entities” that aren't involved, he said. “We are not going to implement a regional WRO until we believe we can implement that effectively.”

CBP “would strongly recommend to the industry that they do significant due diligence around their supply chain to try to tease out” the “specific entities that are related to or use cotton out of Xinjiang, CBP Executive Assistant Commissioner for International Trade Brenda Smith said during the call. The agency recently started sending out questionnaires to importers about cotton sourcing and forced labor (see 2012020046).

Customs brokers are frequently asked by importers about how “can they know the identity and specific addresses of affiliates or related companies to XPCC,” Mary Jo Muoio, senior vice president at Geodis, said during the call. She inquired about whether there is some sort of list offered by the government, and said it's hard to “pull that level of detail together to provide to importers.” Morgan responded by saying “we expect businesses to police their own supply chains” and the government doesn't have “legal tools to know your customers' supply chains.”

The importers “have contractual abilities to impose auditing of their own supply chains that we do not have, and to avoid this kind of problem we expect them to use that auditing power and that contract position,” Morgan said. “The briefing underscored importers’ responsibilities” and the government's belief “that companies are and have been on notice for some time,” Geodis said in an emailed description of the WRO.

The WRO “is likely to cause importers of cotton apparel from China a number of issues immediately,” Sidley Austin customs lawyer Ted Murphy said in an email. “Importers of cotton apparel from China should be prepared to have shipments detained by CBP and have to provide evidence that the apparel was not produced with cotton produced by XPCC or one of its hundreds/thousands (?) of affiliates,” he said. “We expect that it will be extremely difficult for most U.S. companies to prove this to CBP’s satisfaction. Longer term, the WRO could be expanded to include cotton from Xinjiang more broadly.”

The action is notable even for companies that don't import cotton goods from China, Murphy said. The WRO seems indicative of where the relationship with China continues to head, Murphy said, noting the news release quote from Cuccinelli that “‘Made in China’ is not just a country of origin it is a warning label.”

Apparel and retail trade groups welcomed “increased efforts by the U.S. Government and other entities to address the human rights abuses, including forced labor and the persecution and detention of Uyghurs and other ethnic minorities in China,” they said in a joint news release. “We note that today’s action is focused specifically on XPCC, which is already the subject of sanctions the industry is helping to enforce.”

Other groups offered support for the WRO. They include the Uyghur Human Rights Project, the AFL-CIO and the Coalition for a Prosperous America, which has advocated for a China-wide WRO (see 2011090039).