Why I Write on Forced Labor & Trade
And a UFLPA news round-up.
[UPDATED 10/28/2022, 11:22 am ET with additional commentary on the ACE Development and Deployment Proposal.]
Hello friends! Writing to you this week from Kelley Drye’s partner retreat in Charleston, South Carolina, where balmy weather had me meandering past the Custom House one evening, and gifted me a close encounter with a container ship from the Ravenel Bridge the next morning.
These were small, unexpected reminders of just some of what I love about international trade. The historicity! The grandeur! Why we have nice things.
This week, I’m taking a moment to share a bit more about why I write about forced labor and trade. Then, I’ll turn to a news roundup: providing you with an update on my previous post about applicability reviews, and bringing you up to speed on the UFLPA hubbub-of-the-week.
Why I Write About Forced Labor & Trade
In case you missed it, early last week, I directed you to an article I wrote on a fairly technical, but deeply consequential issue for forced labor trade enforcement.
In that article, published on Lawfare, I explain that, contrary to the assertions of CBP and DHS, CBP does not actually possess the legal authority to seize imported goods made with forced Uyghur labor. If you’re following UFLPA and Section 307 enforcement with any level of interest, this is important to understand.
I’ve also taken in some good feedback after sharing the article, primarily varieties of: “Dude, what’s your angle?”
As in—is this a good thing, or a bad thing? Do you want CBP be seizing goods made with forced Uyghur labor? Or not? Are you hoping that companies will sue CBP over its enforcement of the UFLPA? Do you want Congress to fix this loophole and so that CBP can start seizing goods aggressively? Whose side are you on anyway?
These are all valid questions, and I thought this presented a good opportunity for me to step back and address why I write about forced labor and trade, in these pages and elsewhere.
As you may know, professionally, I am a representative and advocate for companies engaged in global trade. But I am also an expositor, something I can’t seem to shake no matter how hard I try. Maybe it’s a function of my background in philosophy. I’m sure my graduate degree in economics plays a role. Or maybe it’s just a remnant of teaching sixth grade social studies in my early twenties. Whatever the causes, I find myself almost genetically compelled to seek and promote understanding. That is the simplest justification for why I write.
But I am driven by more. I happen also to be fully persuaded of the link between consumer demand for goods and labor abuses in the deepest recesses of global supply chains. It is empirically demonstrable that these are not unrelated phenomena, but rather a cause and an effect, attenuated only by time, distance, and network effects.
Further, I maintain a deep conviction about the unique power of a border-enforced trade law to sever that link. Perhaps attributable to several years working for a judge at the start of my legal career, I am a loyalist of the law. What the law requires, matters.
When I write on these pages, I do so as an expositor, and a loyalist of the law, and with both an imagination for, and a conviction to seek the art of the possible. I am trying to help illuminate the gaps that exist between what the law aims to do, how the law is currently written, and how it is being enforced. It is one thing to herald a law as a great leap in the promotion of human rights. It is quite another to construct a trade law that is capable of distinguishing between the wheat and the chaff.
My Lawfare article is simply an exposition on a topic of consequence in this space. Depending on where you sit, it will hit you differently. But regardless of where you sit, CBP has claimed the existence of legal authority for enforcing the UFLPA that does not exist, and that matters. If this law is consequential to you, I hope you will take time to absorb the implications of that analysis. Also, if this law is consequential to you, I hope that you will reach out and connect via LinkedIn or email. Let me know how you’re coming to this law, and how I may be of help.
CBP Detains, Releases Non-Forced Labor Goods
Break out the champagne, some importers won applicability reviews!
A few weeks back, I took CBP to task for statements by senior forced labor officials indicating that no importer had successfully obtained release under an “applicability review”.1 If no importer has ever been successful, that means that CBP was claiming to have been 100% successful in identifying goods subject to the UFLPA, which seemed like a stretch.
But this week, Brian Feito, writing for International Trade Today (paywall) reported that an unidentified CBP official, speaking on a webinar with business groups in Asia, said that CBP has released shipments after considering argumentation from importers that CBP had stopped non-subject merchandise. Applicability release achievement: unlocked.
I feel like I’m dedicating an episode of a true crime podcast to an intricately woven tale of a man detained by police for questioning and then released without further suspicion. Worst episode ever! But great news for importers, and we’ll take it where we can get it.
In fact, the Commissioner of CBP, Chris Magnus, took a victory lap in an interview to Eric Martin at Bloomberg. Commissioner Magnus thinks UFLPA enforcement is “off to a remarkably good start.” “We’re seeing good examples of compliance so far,” he said. “When you start to have some success stories, business starts to become more comfortable that there’s a way to work with this act.”
Well, let’s not get carried away. Still, credit where credit is due.
ACE Development & Deployment Brouhaha
This week, CBP announced that some changes are planned for the CBP computer system used to process customs entries, known as ACE (Automated Commercial Environment). One of many changes announced was be a new requirement that, when importers enter manufacturer information for goods from China (which is already an entry requirement), it will now have to include a postal code with the manufacturer address.
Here’s how the proposal would work. A postal code will have to be entered. If the number entered for a postal code is not a valid postal code in China (e.g., if a broker keyed in all one digit, like 999999), the system would display an error message. Also, if the postal code entered indicates that the address of the manufacturer is in Xinjiang, this would trigger another flag for UFLPA compliance.
And there was much ado! Blog posts were fired off. Complaints were lodged. Apparently, some folks really lost their minds, because the original deployment was scheduled for November. A day later, it had been pushed back to December. Then, a day later still, CBP announced that the development could be put off indefinitely.
With apologies, I must dissent. I cannot manage to get worked up about this.
In the present state, every import declaration filed with CBP must include the name and address of a party functioning as the “manufacturer” of the imported goods.2
A broker must take the name and address for that company, and create a code, known as the Manufacturer ID (MID). This is done using a two-digit country code (like CN), the first three letters from each of the first two words of the manufacturer’s name, four numbers from the street address, and the first three letters of the city where the manufacturer is located. Thus, it is not possible to construct a MID or file a customs entry without already having the manufacturer’s address. The proposed change would require nothing more than to key in the postal code from that address.
There have been other, bigger changes considered for the MID in the past. CBP has considered jettisoning the quirky CBP-invented MID altogether, and supplanting it with something more universal, like a Dun & Bradstreet number. There is certainly a lot to commend such an approach, but it is considered a Big Deal and so, subject to much deliberation. Fair enough.
But this? This will not fundamentally change CBP’s insight into the supply chain for imported goods. This will not illuminate Tier 2 or Tier 3 suppliers, or the origin of cotton fiber or polysilicon or tomatoes. It also does not change the source of any required data. Truthfully, it barely registers as a change in required data, at all. A postal code for the manufacturer is almost certainly already in the possession of the party filing entry . . . right on the commercial invoice bearing the company name and address.
As far as I can tell, the only parties with anything to fear from this shift are (1) those that cannot ask their manufacturers what their zip codes are, or (2) those that are inadvertently buying goods directly from manufacturers in Xinjiang because they have never heard of this “UFLPA” you speak of.
International trade is why we have nice things. I’m writing this on a computer the size of my lap. I, for one, am a believer in the power of America’s importers to look down at the paper again and check what the zip code is. Or to ask. Or to learn about the UFLPA.
UPDATE 10/28/2022 11:22 am ET: A savvy reader has noted a problem with CBP’s proposed ACE deployment that I overlooked. Donning my ref’s cap, I’m going to pronounce the problem small, fixable, and being generous of spirit . . . probably unintentional. But a clear problem, nonetheless.
There is a wrinkle to the MID declaration that I wasn’t going to bore you with. Namely, in the case of all goods other than textiles and apparel, the “manufacturer” declared for purposes of the MID doesn’t actually have to be the party that manufactured the goods. The declared “manufacturer” can actually just be a shipper or exporter. I know that seems weird, but hear me out.
Going back at least 36 years, to the creation of the MID, Customs has always taken the view that the manufacturer ID may identify either the actual manufacturer of the goods, or just the party that shipped the goods to the United States. Why was this the case? Because, from time immemorial, U.S. Customs has never taken an interest in supply chains. Customs cared about who sent the goods to the U.S., and that was it. Manufacturer or shipper, it made no difference.
If you listen carefully, you can still hear the echoes of the shattering precedent, when the 2016 amendment to Section 307 lifted the consumptive demand loophole, and the entirety of the supply chain suddenly became fair game for customs purposes.
The problem with the proposed ACE deployment is that it would be triggered when the declared country of origin is China. If China origin goods are shipped to a third country, like Canada or Mexico, and then imported, they must be declared as China origin goods. But the importer is at liberty to identify the Mexican or Canadian shipper in the MID.
In that case, of course, there would be no Chinese entity referenced in the import declaration, and therefore no Chinese address, and no Chinese postal code.
The obvious solution to this would be to craft the ACE update so that when the manufacturer identified is in China, then the new rules apply (rather than applying the rule to all goods that are China COO).3
Doffing my cap to the savvy reader, and with an invitation to all: send feedback whenever you have it. Thank you!
My postal code is 20006. Feel free to send me a proposed development and deployment schedule, or champagne.
Recall that an “applicability review” is just a name that CBP has assigned to the type of review it conducts when it detains goods under the UFLPA and an importer argues the detention is wrongful, because the detained merchandise is not subject to the UFLPA.
In the case of textile and apparel imports, this declared manufacturer must be the company actually performing the cutting and sewing operation.
An interesting (but also, like, disturbingly arcane) question is whether CBP can just eliminate the permission to declare a shipper instead of the true manufacturer of the goods. The permission to list a shipper rather than a true manufacturer was laid down in a Customs Directive, which the agency has the power to alter at will. On the other hand, in the only time U.S. Customs ever changed the rule, it did so via notice and comment rulemaking in the Federal Register (though that change was occasioned by a new WTO agreement). So I think the answer to that technical question is yes: CBP can change this rule if it wants to. While that couldn’t (and wouldn’t) be achieved by an ACE deployment, CBP could change the game either by modifying the existing Customs Directive or proceeding with notice and comment rulemaking. And that would qualify as a big deal.