FLT Early Fall 2023 News Roundup

Chinese Seafood; Xinjiang Gold; Automotive Detention Crash; Ninestar Update

Whatever is easily consumed—without effort or thought or cost—is rarely a genuine thing. What soothes, mollifies, and rouses not a second thought is often cheap or sentimental—and our desire for it is an indictment of the deformity of our souls.

Karen Swallow Prior

It’s Early Fall, and it’s been five months since I provided a FLT news roundup, so we’re due.  This week, we’re coming to you with four updates of relevance to anyone with a stake in forced labor trade enforcement: (1) a devastating indictment of forced labor in the seafood industry in China; (2) a new NGO report linking certain Xinjiang minerals (especially gold) to hundreds of U.S.-listed firms; (3) a crash in the value of automotive sector UFLPA detentions in August 2023; and (4) an update on the Ninestar litigation.

Before we jump in, a quick note that I’ll be speaking at three events over the next month.  If you’re an FLT reader, and you’ll be at any of these, please come say hello. 

First, I’m speaking at the annual China Forum, hosted by the Victims of Communism Memorial Foundation, on 10/18.  I was honored to attend this event last year, and I’m honored to be invited back again.  The agenda looks terrific; it’s a meeting of the leading researchers, thinkers and policymakers on all things China related—Dr. Adrian Zenz, Matt Pottinger, Rep. Mike Gallagher, Josh Rogin, Rushan Abbas, and many others.  The event will be livestreamed. I’ll post my remarks on FLT afterward.

Second, I’m speaking at the annual import compliance & enforcement conference hosted by ACI in Washington, DC from 11/6 to 11/8.  If you work in trade compliance, and specifically if you have responsibility for import compliance, this event is a can’t miss.  I’ve been given a code for discounted admission, available at the footnote below.¹  I’ll be speaking on a panel on 11/7, but the whole event will be packed with worthy content for trade compliance professionals.

Last, I’ll be speaking at Directions, The Altana Summit in NYC on 11/8.  Among software providers that can offer you evidence-based insights into the identity of companies in the upstream supply chain, I think Altana might currently be king of the mountain.  It is also a preferred partner of CBP, and is now in possession of a multi-million dollar contract that will put their tool in the hands of CBP officials across the country to inform enforcement efforts.  Ergo, no matter what Altana speculates to exist in the upstream supply chain, it must be taken seriously.  If you’re in NYC on 11/8, this event is worth attending.

Forced Labor in China’s Seafood Industry

Earlier this week, the New Yorker published a pair of devastating indictments of forced labor in the seafood industry in China.  One article documents evidence of the presence of Uyghur workers who appear to be engaged in forced labor at seafood processing facilities in Eastern China, having been transferred from Xinjiang pursuant to a poverty alleviation labor transfer program.  The second article documents forced labor in China’s long distance fishing fleet, particularly in squid fishing.

Equipped with the right tools and knowhow, there’s a lot that an analyst can determine about global supply chains, and even the apparent existence of state-sponsored forced labor, all from the relative safety of a remote computer terminal.  The first New Yorker article is proof of that. 

But sometimes, a computer alone can’t help you discover the way the world is.  And so, you’ll spend “four years, backed by a team of investigators working for a journalism nonprofit” visiting China’s Distant-Water Fleet.  Which means you’ll spend months at sea “near the Galápagos Islands; near the Falkland Islands; off the coast of the Gambia; and in the Sea of Japan, near the Korean Peninsula.”

If you’re Ian Urbina, director of the journalism nonprofit the Outlaw Ocean Project, you’ll endeavor to “board[] vessels (!) to talk to the crew or pull[] alongside them to interview officers by radio.”  And if that doesn’t work, well, here’s Urbina in his own words:

In many instances, the Chinese ships got spooked, pulled up their gear, and fled. When this happened, I trailed them in a skiff to get close enough to throw aboard plastic bottles weighed down with rice, containing a pen, cigarettes, hard candy, and interview questions. On several occasions, deckhands wrote replies, providing phone numbers for family back home, and then threw the bottles back into the water. The reporting included interviews with their family members, and with two dozen additional crew members.

Incredible commitment.  The labor conditions on these vessels, and the documentation of exploitation and death will move you. Both articles are worth a read over the weekend. 

Based on the first article, we must anticipate that UFLPA enforcement will pivot toward seafood in the coming months. The Congressional-Executive Commission on China has already scheduled a hearing for October 24.

The second article concludes with a quote from our old friend Ken Kennedy, known to many who’ve worked on forced labor trade enforcement since the early days of the modern era. Ken is a former manager of the anti-forced-labor program at Immigration and Customs Enforcement. Ken calls for CBP to impose a WRO on all seafood from China, because “the U.S. is awash with criminally tainted seafood.”  This is a topic I intend to write about again in due course.

C4ADS Report on Xinjiang Gold

The Center for Advanced Studies (C4ADS) is a Washington, DC based NGO that stands alongside Sheffield Hallam University’s Helena Kennedy Centre (SHU) as one of the two most influential outfits producing reports that are actionable (and actioned!) by CBP under the Uyghur Forced Labor Prevention Act.  Like SHU, C4ADS does impeccable work, and has a remarkable track record of success when it comes to seeing enforcement activity result from its published reports.

Two weeks ago, I published a post endeavoring to explain “Why Sheffield Hallam Matters”.  My thesis is that SHU’s model for research is to conduct painstaking research into the existence of forced labor, and into documented patterns of global supply chains, and then to engage in inferential reasoning to try and point at which finished goods manufacturers (in China or elsewhere in the world) and which corresponding importing companies therefore might be importing content that is restricted under the UFLPA. 

I didn’t think this was a controversial assertion.  In SHU’s own reports, they describe trying to assign grades of risk to finished goods producers. They want to predict whether certain producers represent a high, medium, or low risk of turning out goods that are UFLPA-restricted.  Those inferences are based on the best public information SHU could locate, and informed by the insight of industry experts.  A lot of folks seemed to track with what I was saying, but I’ve also been told in no uncertain terms that my perspective is incorrect and unhelpful.

I thought a lot about that dialogue when reading the new C4ADS report this week which is, once again, a model of inferential reasoning, though perhaps even more stark than what I’ve seen from SHU. One shortcoming of my previous piece is that I didn’t include many specific examples of where I observe SHU engaging in vigorous research, and where they make inferential judgments. I thought this was intuitive, but in retrospect I wish I had been more clear.

But for now, consider the new C4ADS report (“Fractured Veins”) for yourself.  Here is my tl;dr. 

C4ADS engages in impeccable, thoroughly documented research to identify not just mine sites and mine licenses in the XUAR, but also to identify participation in labor transfer activity by such mines which constitutes, for purposes of U.S. law, forced labor. They then work their way up to the corporate ownership of such mines, identifying four prominent state-owned and publicly-traded firms that operate these mine sites. 

From there, C4ADS confronts the same question as any NGO. Is this content connected to someone — a brand or a company or an investment firm — that could help make the world care? If you agree that the labor abuses in Xinjiang is something worth caring about, then the question must resonate. It doesn’t appear that the local government in the XUAR cares. C4ADS documents a mining disaster that occurred on Christmas Eve, 2022, killing 18 unnamed miners in Xinjiang. And so, they set out to find a nexus to some company that may have consumed gold from these mines, or firms that are invested in such mines.

Let’s talk about investment first. Identifying firms and funds that are invested in the Chinese mining firms which own the Xinjiang mining operations is not an example of inferential reasoning.  An investment firm either is or is not invested in these mining operations. It’s a binary.  A demonstrable reality, one way or another.

But to identify companies that may have XUAR gold within the supply chain, well, this report depends on inferential reasoning. Inferential reasoning, like all reasoning, can be strong or weak. Consider what C4ADS has settled on for this dimension of its report, where it pulls in 423 logos of publicly-traded firms that it describes as “western companies linked to XUAR gold”. 

What is the nature of such link?  Well, each of these firms has filed a conflict minerals disclosure with the SEC, which identify a list of smelters or refineries that “may or may not be in their supply chains.” (Emphasis added.) This is plainly noted on the face of each SEC filing, and transparently recognized by C4ADS.  

Of course, it is also true that every publicly-trade firm that was not obligated to file a conflict minerals disclosure with the SEC “may or may not have” problematic smelters and refineries in their supply chains. It is further true of every privately held corporation, not subject to any form of conflict minerals disclosure. Frankly, it is true of every consumer.  Check your fingers. If the standard for being “linked” is “may or may not contain”, then you, dear reader, may present an equivalent risk.

The reason all this matters to a newsletter dedicated to forced labor trade enforcement is, as I pointed out last post, because the only information that is actionable by CBP under the UFLPA is this sort of inferential reasoning.  CBP has to pick targets for enforcement.  That means foreign finished goods manufacturers / exporters, and U.S. companies / importers.  Under the law as written, if CBP wants to start stopping shipments in the hunt for XUAR gold that would be subject to the UFLPA, it’s going to need some targets to pick.  And what better targets to pick than the firms named by a highly credible NGO report?

So long as inferential reasoning continue to drive enforcement, the less that inferential reasoning resembles six degrees of Kevin Bacon, the better. Especially if you’re going to honor connections between two actors who “may or may not have” been in the same film together.

When everything is the focus, nothing is.

Auto UFLPA Detentions Crash

Each month, CBP is updating the UFLPA detention dashboard with new statistics on the most recent available month of data.  Earlier this month, CBP updated the dashboard with August 2023 statistics.  To my eyes, the most notable development was that detentions by the automotive CEE fell 98.7% relative to the value of detentions effectuated by that CEE in July 2023.

The reasons for this drop are not clear, but I’ll offer one (hopefully not wishful) potential explanation.

Since earlier this year, CBP has been expanding its enforcement beyond the official high-priority sectors of the UFLPA (polysilicon, cotton, and tomatoes) into what I call “burgeoning” sectors of enforcement.  This includes CBP’s enforcement against PVC (primarily flooring), steel and aluminum, plus PVC, lithium batteries, car and truck tires, and potentially others.  We know about the expansion into burgeoning enforcement because CBP has added these commodities to the so-called “detention template”, which is a form that CBP provides to each importer in the event of a detention.

One of the hallmarks of CBP’s enforcement in high-priority sectors is that it remains focused on the single commodity that has been linked to forced labor in the XUAR.  If CBP stops a solar panel shipment, it only demands traceability for the polysilicon contained in that product.  If CBP stops an apparel shipment, at present, it only wants traceability records relating to cotton. This is still an enormous lift — traceability packages can run for hundreds if not a thousand + pages, and must go all the way “to ground”. But CBP has a narrow focus on the single commodity that is at issue.

By contrast, the hallmark of CBP’s enforcement in burgeoning sectors is that it looks at everything contained in the imported product in addition to the nominal target commodity.  For example, CBP has added PVC as a burgeoning UFLPA target.  When enacting a detention against a product containing PVC, it will demand a complete traceability file record of traceability for every component in the product, not just for PVC.  This broad traceability demand is presented by CBP irrespective of whether such additional components are subject to any allegation of links to XUAR or forced labor, under a Kevin Bacon theory or otherwise.

In the context of PVC, this has gotten out of hand.  But it’s full on madness with respect to CBP’s initial approach to battery detentions.  The UFLPA detention template for batteries indicates that CBP wants to demand traceability packages not just for lithium, but for a minimum of 17 different components as well as the machinery used to conduct 13 different manufacturing operations, among many other demands.  This is bizarrely unfocused. It is also utterly untethered to the law.

Maybe the July-to-August drop in automotive detentions is just a fluke. I could be reading too much into it. But I hope it’s a reflection that someone at CBP had second thoughts about this approach to battery detentions. 

If you’re in the automotive sector or if you have a vested interest in enforcement against renewable batteries and haven’t seen CBP’s battery traceability demand in writing yet, send me an email and I’ll flip you a copy.

Update on Ninestar Litigation

For my most loyal readers who haven’t dropped out of this post yet from sheer exhaustion (hi dad!) . . . last but not least, an update on the Ninestar litigation.

To recap, Ninestar filed suit in the U.S. Court of International Trade to challenge its inclusion under the UFLPA Entity List.  The Forced Labor Enforcement Task Force (FLETF) listed Ninestar for allegedly taking transfers of Uyghur laborers out of Xinjiang under a poverty alleviation program. 

This is a relatively important Entity Listing, because many Entity Listings have been of firms that are based in Xinjiang (arguably duplicative of the region-wide presumption under the UFLPA).  But Ninestar and it’s subsidiaries are located in Guandong Province. What FLETF regards as a sufficient evidentiary basis listing a non-XUAR company is an important question into which we know very little.

In filing suit, Ninestar professed to have no idea of why it might have been entity listed. “Plaintiffs are unaware of any facts relating to their respective businesses or otherwise supporting such an allegation.” Compl. ¶ 45.

Well, now they know. The government filed its rejoinder to Ninestar’s complaint, and argued everything. The Court doesn’t have jurisdiction to hear the case. Ninestar failed to exhaust its administrative remedies. Ninestar’s Complaint is defective and should be thrown out. Ninestar isn’t entitled to injunctive relief. Etc.

But in addition to all that, Ninestar got what they wanted: visibility into the basis for entity listing. The government filed a 226 page administrative record containing some 20 exhibits detailing the evidence against Ninestar. As the government describes it in their brief:

plaintiffs’ sole claim is that the decision of the FLETF to add the plaintiffs to the UFLPA Entity List was not accompanied by a “reasoned explanation.” Plaintiffs have now received that explanation. Their claim is therefore moot.

Def. Mot. to Dismiss at 29.

Now, to the outside world (you, me, and everyone other than Ninestar and FLETF), the administrative record looks like a cubist painting from Picasso’s little-known black period. (The redactions make it all but indecipherable.) But Ninestar now knows what it’s up against. And maybe that was the goal all along.

But it also raises an interesting question. If the government has absolutely no qualms about disclosing the basis for listing activity to the very Chinese companies that it lists, when they file suit over the listing, why wouldn’t it be amenable to adjusting the administrative process to allow such information to be disclosed at the time of listing. At least to other interested stakeholders, perhaps in a combination of public and confidential formats? A question worth pondering.

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