Panelists: CBP Having Difficulty Identifying Panels Containing Xinjiang Polysilicon

A Kelley Drye attorney, who used to be part of the Forced Labor Enforcement Task Force due to his role at the U.S. Trade Representative's Office of Labor Affairs, said the recent 26 additions to the FLETF's Uyghur Forced Labor Prevention Act entity list are significant because they are not companies directly employing Uyghurs harvesting cotton or in fabric mills or cut and sew operations.

Kagan was one of the panelists on Georgetown Law's Trade Update "Hot Topics in Customs Enforcement" panel May 22.

The FLETF said that 21 of the companies are wholesalers that source Xinjiang cotton. "They're in the middle of the supply chain," said Josh Kagan, a special counsel at Kelley Drye. "Ultimately, it means that ensuring the use of non-Xinjiang cotton will not be enough to clear a [detained] shipment if one of these purchasers is found in the supply chain."

Kagan said the proportion of detained apparel that is re-exported rather than admitted is "already high, and we expect [rejection rates] are likely to get higher" due to the addition of these firms.

"The high rejection rate is largely driven by the complexity of the apparel supply chain, and the significant variability from product to product, which is not seen in some other sectors, like electronics, for example," he said. But Kagan said Kelley Drye has a more than 90% release rate for apparel detentions.

Kagan contrasted CBP's targeting of apparel with its targeting of solar panels, where he said most goods are released after importers prove the panels have no polysilicon refined in Xinjiang.

"Rejection rates for electronics are very low and falling further," he said. "We anticipate CBP doing three things to counteract this. First, CBP has expanded to detention targets in Thailand and India, in recent months."

Second, he said, the firm believes CBP's "highly detailed requests for information in the solar sector were designed specifically in response to this reality" that CBP's intelligence is not precise enough to identify which goods contain polysilicon from Xinjiang (see 2403140057). Third, FLETF might add polysilicon wholesalers or brokers to the Entity List, similar to its recent action in cotton.

"It seems that CBP has not been equipped with the tools it needs to find solar imports connected to forced labor," he said.

Panelist Richard Mojica, from Miller and Chevalier, said he has clients who received the CBP questionnaire, and said "it is asking for way, way, way more than what you have to provide for goods" entering the U.S. For instance, it is asking for a database of sellers of raw materials for products at earlier stages in the supply chains, as well as bank records showing your purchases, and financial statements and bank records for your suppliers' purchases. "I don't know of any company in any country, and maybe more than a three-tier supply chain that could ever get that," he said, not to mention that some of the players have confidentiality obligations for those records. "I think Customs is trying to find a way to expand targeting, I guess what's going on ... ."

Kagan said when he was in government, FLETF members would vote on whether a particular entity should be added to the entity list, reviewing evidence on the firm's links to Uyghur workers.

In private practice, "the work that I'm doing now is quite similar to the type of analysis that we did in the FLETF. The FLETF, what we were doing is we receive information, and we're looking for specific articulable information regarding the existence of forced labor, at a particular entity, and now in private practice, we're taking that doing that same analysis, but we're doing it from an anticipatory standpoint, we're trying to get a sense of ... where the FLETF is going next."

Kagan said it's likely that seafood will be named as a high-priority enforcement sector, as Xinjiang cotton and polysilicon were at the outset, given the highly-detailed reporting from Outlaw Ocean Project about transferred workers from the Xinjiang region working in seafood processing plants in Eastern China. He said the House Select Committee on China and the Congressional Executive Commission on China have seized on these stories. "I would bet it hasn't gone under the FLETF radar," he said.

He also remarked on the Senate Finance Committee's report on forced labor in Volkswagen, BMW and Jaguar Land Rover supply chains (see 2405200009). He said the analysis reveals both how serious the committee is about preventing the import of goods made with forced labor and its expectation "that a company is expected to know every actor in its physical goods supply chain, every company involved in trading." (The company that used forced labor and was in all three firms' supply chains was a contract manufacturer that supplied a major Tier 1 component supplier, though it did so through an intermediary firm. The report noted that Lear Corp, the Tier 1 supplier that sold directly to the automakers, knew that JWD, the contract manufacturer, was its supplier from documents shared over the years by Bourns, the intermediary).

Kagan said, whether you think that expectation is reasonable or not, "this is what is being expected."

Mojica told the audience: "I think the role of outside counsel in UFLPA is to serve in a way as an architect of a compliance program." He said you work with auditors, due diligence consultants, employees in legal, trade compliance, responsible sourcing, procurement, sales and communications. He said you really have to learn how the company works, and you have to put in your requests for information with a lot of tact, because frequently the people you are talking to "don't want to give it to you."