Feds seize nearly $1 billion in forced labor goods

Since late June, federal authorities have seized $961 million worth of goods due to alleged links to forced labor, officials told CNBC.

In many cases, companies have no idea their supply chain is flawed, officials said.

CNBC received exclusive access in February At Port of New York and New Jersey, the largest port on the East Coast, located a few miles southwest of Manhattan. There, millions of dollars worth of goods – from solar panels to bedding to floor tiles – were being held up as big companies scrambled to prove their supply chains were clean.

“Our goal for the forced labor laws [is] to stop goods being made with forced labor in the first place, and we won’t rest until we achieve that goal,” said AnnMarie Highsmith, Executive Assistant Commissioner of Customs and Border Protectionwhich oversees the Office of Trade.

Execution is the responsibility of Uyghur Forced Labor Prevention Lawor UFLPA, signed into law by President Joe Biden in late 2021. The law prohibits imports of goods produced in or originating from the Xinjiang region of China from entering the US economy.

China has recently come under heavy criticism for its treatment of the Uyghur minority. Last year, a report by the Office of the United Nations High Commissioner for Human Rights in China’s Xinjiang Uyghur Autonomous Region concluded that “serious human rights violations” against Uyghurs and “other predominantly Muslim communities” have been committed by the country. beijing denied the allegationscalling them “disinformation” and “lies fabricated by anti-China forces”.

According to Highsmith, enforcement of the ULFPA is a top priority for CBP and the department.

“It’s not just a supply chain security issue for us,” Highsmith said. “It’s a matter of economic security for the country.”

Highsmith told CNBC that Chinese authorities are making doing business in the country even more difficult.

“The Chinese government has taken steps to obscure these supply chains and prevent companies from learning [about] the conditions under which the products are made,” said Highsmith. “So if you go to China, you have an additional level of risk to work against.

Highsmith’s message to American companies: “know your supply chain”.

But it’s not that easy.

Surprisingly, the most recent CBP Data shows that in terms of value, the majority of cargo held since last summer has not been shipped from China. Shipments direct from China accounted for about $80 million worth of goods, while Malaysia accounted for $461 million and Vietnam $370 million. CBP officials told CNBC that those shipments were stopped because the goods were allegedly made with raw materials from the Uyghur region.

To date, only about a third of these detained shipments, or 1,090, have been released.

The Biden and Trump administrations have stepped up economic and trade pressure on China. The White House under President Joe Biden is currently reviewing sanctions imposed under former President Donald Trump, who imposed a series of tariffs on Chinese goods in an effort to bolster US-made products.

During CNBC’s recent visit to the port, 916 40-foot-long shipping containers filled with cargo worth around $60 million were under investigation, the deputy port manager said. of CBP, Ed Fox.

“The UFLPA allows us to presume [goods] were produced with forced labor, and therefore they would be excluded from the United States,” Fox said. ” So now, [after receiving a detention notice]the importer must go through their entire supply chain and prove that it was not produced with forced labor. »

Along with $20 million in locked solar panels, there was also a 40-foot container full of bags of xanthan gum — a food additive commonly used in toothpaste and ice cream — and $15 million worth of tiles. vinyl floor.

Textiles are also a big category. “The cotton that comes out of the Xinjiang region is usually tied to forced labor,” Fox told CNBC.

CBP asked CNBC not to reveal the names of any company that held the items because the information was protected by the Trade Secrets Actwho says its disclosure could impact CBP’s ability to enforce the law as well as the company’s reputation.

Officials sent detention notices to manufacturers, explaining that the merchandise was being held. Companies then had 30 days to come back to CBP and prove that the items were produced without forced labor.

As a business scrambles to prove it’s not breaking the new law, it faces another cost: storage fees. If the company cannot prove within 30 days that its products have no connection with forced labor, then the products are either destroyed or re-exported and will incur additional costs.

“I’ve spoken to executives, CFOs, CEOs, and their investors on their boards because they’re concerned about this,” said Angela Santos, a New York lawyer for the Cabinet ArentFox Schiff. “These forced labor laws could cost companies millions of dollars between preparation and conducting due diligence in hiring new employees to manage this.”

Santos says she faces forced labor issues on a daily basis. Its clients include public and private companies in the solar, fashion, energy and automotive industries that have been owned.

“They just don’t know if their supply chain includes goods produced by forced labor,” she told CNBC. “When it comes to processing detentions, it can be extremely expensive and time-consuming to get goods released.”

According to Santos, companies receive very little information from customs officers when their goods are detained.

“A lot of times the company doesn’t know how problematic the material or level is,” Santos said. “A company must provide chain-of-custody documents for each level of the supply chain.”

She says that’s hard to get, because historically companies only really had a relationship with their tier-one suppliers. But that’s changing – companies are now being pushed to know their entire supply chain.

“It’s an extremely heavy task for businesses and can be really problematic for small and medium-sized businesses that don’t have those kinds of resources,” Santos said.

So is withdrawing from China the answer?

“Many companies still depend on China for their supply chain. And I know China is not the only place where forced labor is believed to take place,” Santos said. “So leaving China may not be the solution for everyone.”