FORCED LABOR IMPORTS AND CUSTOMS ENFORCEMENT: A COCOA PERSPECTIVE. CMAA International Cocoa Conference. March 10, 2017

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1 FORCED LABOR IMPORTS AND CUSTOMS ENFORCEMENT: A COCOA PERSPECTIVE CMAA International Cocoa Conference March 10, 2017

2 Overview TFTEA Changes to U.S. Forced Labor Law Cocoa s History with Section 307 CBP Procedures and Practicalities for Importers TFTEA Implementation Post-Consumptive Demand Repeal The Road Ahead 2

3 TFTEA Changes to U.S. Forced Labor Law 3

4 Section 307: Forced-Labor Produced Goods Prohibited All goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions shall not be entitled entry at any of the ports of the United States, and the importation thereof is hereby prohibited.... in no case shall such provisions be applicable to goods, wares, articles, or merchandise so mined, produced, or manufactured which are not mined, produced, or manufactured in such quantities in the United States as to meet the consumptive demands of the United States. Section 307 Tariff Act of 1930; 19 USC sec

5 Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) Amendments Strikes the Consumptive Demand Exception Adds New Forced Labor Report Requirement CBP must issue a report to the House Ways and Means and Senate Finance Committees not later 180 days after the enactment of the law, and annually thereafter Number of enforcement actions in the year preceding each reporting period Description of merchandise denied entry under Section 307 5

6 Forced Labor Defined Forced labor shall mean all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily Includes forced or indentured child labor Section 307 Tariff Act of 1930; 19 USC sec

7 ILO Indicators of Forced Labor Abuse of vulnerability Deception Restriction of movement Isolation Physical & sexual violence Intimidation & threats Retention of identity documents Withholding of wages Debt bondage Abusive working & living conditions Excessive overtime 7

8 Section 307 Underlying Policy Import Prohibition Prevent U.S. companies from competing against goods made with indentured labor Protect American jobs from effects of Great Depression Consumptive Demand Ensure access to critical raw material goods not produced, or available in limited quantities in the U.S. Vital for national security and sustaining U.S. jobs 8

9 Public Policy Evolution Import Prohibition Policy shifted from economic to humanitarian From protecting companies from unfair competition, to protecting adult and child workers Consumptive Demand Provision in direct conflict with humanitarian focus Seen as prioritizing economic needs over ethical considerations 9

10 Section 307 In The Spotlight In the 85 years in force, CBP issued only 39 findings or detention orders No orders issued from November 2000 through March 2016 a span of almost 16 years Four (4) Withholding Release Orders (WROs) issued post TFTEA: Soda Ash, calcium chloride, caustic soda, viscose/rayon fiber (China) March 29, 2016 Potassium products (China) March 29, 2016 Stevia (China) June 1, 2016 Peeled Garlic (China) September 16,

11 Known and Possible Actions International Labor Rights Forum (ILRF) petition covering cotton from Turkmenistan filed April 6, 2016 Products and industries where consumptive demand has likely precluded Section 307 investigations: Cotton from Uzbekistan & Turkmenistan Cocoa from West Africa Seafood from Thailand 11

12 CBP Steps Up Enforcement CBP authorized to add nine (9) more government attaches in U.S. embassies overseas to Learn about forced labor production Target U.S.-bound shipments CBP adds 24 new employees to newly created Trade Enforcement Task Force who will focus on forced labor issues Importers should anticipate increased enforcement efforts and heightened scrutiny of imports of products covered by existing orders 12

13 Cocoa s History with Section

14 Philadelphia Inquirer (2001) 14

15 Harkin-Engel Protocols 2001/2005 Response to Harkin-Engel call for mandatory child slave labor-free labelling of chocolate products and successful passage of House amendment Multi-stakeholder commitment to eliminate the worst forms of child labor by 2005 (then 2008) credible, mutually-acceptable, voluntary, industrywide standards of public certification, consistent with applicable federal law, that cocoa beans and their derivative products have been grown and/or processed without any of the worst forms of child labor. 15

16 Framework of Action Modification 2010 Framework of Action to Support Implementation of the Harkin-Engel Protocol Improve coordination and increase government and private sector resources 70 percent reduction in WFCL by 2020 Establishes the Child Labor Cocoa Coordinating Group (CLCCG) Congress, DOL, foreign governments, cocoa/chocolate industry Creates shared responsibility for progress 16

17 Present State until 2020 CLCCG Dealing with host of fundamental questions for holistic approach to identifying and preventing WFCL Poverty, education (availability of schools), infrastructure (access to schools), gender roles (low priority to educate girls), resources for removal and remediation (who pays?) Certification System of Certification (continuous improvement) vs. other traditional certification systems 17

18 Framework/Protocol Focus: WFCL Subset Tulane report found evidence of child trafficked or forced labor to be rare and elusive Most children found to be on family farms and not coerced Did find evidence of unsafe work (i.e. pesticides, heavy loads, machetes) Framework/Protocol focuses on work that by its nature or circumstances is likely to harm the health, safety or morals of children. Not necessarily an apples-to-apples comparison with Section 307 focus is a different subset of WFCL. 18

19 ILO Worst Forms of Child Labor ILO Convention 182 Worst Forms of Child Labor All forms of slavery or practices similar to slavery sale, trafficking of children, debt bondage, serfdom, forced or compulsory labor, use of children in armed conflict, in illicit activities (sex trade, drugs) or work, by its nature or circumstances is likely to harm the health, safety or morals of children. Section 307 Forced or compulsory labor, including child labor Framework/Protocol Harmful work 19

20 ILRF Section 307 Cocoa Law Suit 2005 non-profit International Labor Rights Forum sued CBP for failure to investigate and enforce forced labor ban on cocoa from the Ivory Coast, allegedly produced with forced child labor Court of International Trade found that plaintiffs lacked standing to seek injunctive relief Consumptive demand threshold was not met to initiate investigation because there is no cocoa production in U.S. New action by ILFR on cocoa is possible Unclear how CBP will take into account Protocol and related efforts when considering possible petitions and orders involving cocoa 20

21 CBP Procedures and Practicalities for Importers 21

22 Initiation of 307 Procedures Self-initiated by Customs and Border Protection (CBP) or Customs Immigration and Enforcement (ICE) CBP announces self-initiated cases absolutely critical in agency s actions against forced-labor, post TFTEA 3 rd party petition (non-government organization or former victim) Formal petition or e-allegation No requirement for petitioner to have interest in imported merchandise No requirement for petitions to be made public 22

23 307 Enforcement Actions: Withhold Release Orders (WROs) Information reasonably but not conclusively indicates that merchandise is being, or is likely to be imported CBP may detain any such merchandise pending review; burden then shifts to importer to establish admissibility Importer may: (1) provide satisfactory evidence that goods are not made with forced labor; or (2) export the detained shipment If proof submitted does not establish admissibility, CBP will exclude the shipment 19 CFR 12.42(e) 23

24 307 Enforcement Actions: Findings If conclusive evidence (i.e. probable cause) demonstrates goods are subject to 307, the Commissioner will publish a formal finding in the Federal Register CBP may seize merchandise that is imported directly or indirectly from the locality specified in a finding Importer may obtain release of merchandise by providing satisfactory evidence that goods are not made with forced labor. 19 CFR (f) & (g) 24

25 Notice of Actions Under 307 WROs and Findings posted on CBP website Findings also published in the Federal Register Product and HTS number Locale Identity of manufacturer or farm or facility Brand names under which product is marketed CBP does not generally publicize specific detentions, re-exportations, exclusions or seizures of subject merchandise that may have resulted from active detention orders or findings 25

26 Scope of Detention Orders/Findings CBP may not categorically ban commodities or classes of merchandise under Section 307 Limited to information concerning specific manufacturers or exporters and specific shipments of merchandise Does not generally target entire product lines or industries in problematic countries and regions Merchandise may not be excluded because it appears on a list or report issued by another agency Trafficking Victims Protection and Reauthorization Act (TVPRA) Executive Order

27 Relevance of Other Agency Lists EO (DOL/DHS) Prohibits federal agencies from procuring goods made with forced or indentured child labor; direct legal consequences Federal contractors who supply listed products must certify good faith effort to determine whether forced or indentured child labor was used Listing criteria are nontransparent, and listing can be stigmatizing TVPRA (ILAB) Raise public awareness about child and forced labor; promote efforts to eliminate such practices Public list, with no direct legal consequence to importing or exporting rights Listing may increase likelihood of CBP targeting Cocoa from the Ivory Coast is listed (2009) 27

28 Definitions of Forced Labor, Child Labor Section 307 Forced Labor; Forced Child Labor EO Forced or Indentured Child Labor All work or service which is exacted from any person (including a child) under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily (1) Exacted from any person under the age of 18 under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily; or (2) Performed by any person under the age of 18 pursuant to a contract the enforcement of which can be accomplished by process or penalties TVPRA Child Labor or WFCL (Forced and Harmful Labor) (1) All labor done by children under the age of 15; or (2) Worst Forms of Child Labor for children under 18 28

29 Establishing Proof of Admissibility, or Satisfactory Evidence Not defined in statute Two Sources of Guidance: CBP Regulations Certificate of Origin and Statement Ultimate Consignee New CBP Forced Labor Enforcement Fact Sheet 29

30 Certificate of Origin Must be submitted within in 3 months after importation Signed by foreign seller or owner of article Additional chain of custody certificate by last seller or owner if the product was made in a country other than that from which it was exported 30

31 Sample Certificate of Origin Certificate of Origin I,, foreign seller or owner of the merchandise hereinafter described, certify that such merchandise, consisting of (Quantity) of (Description) in (Number and kind of packages) bearing the following marks and numbers was mined, produced, or manufactured by (Name) at or near, and was laden on board (Carrier to the United States at (Place of lading) (Place of final departure from country of exportation) which departed from on ; (Date); and that (Class of labor specified in finding) was not employed in any stage of the mining, production, or manufacture of the merchandise or of any component thereof. 31

32 Statement of Ultimate Consignee Detail every reasonable effort made to determine: the source of merchandise and component thereof; and the character of labor used in production of merchandise and each of its components Results of investigation Belief with respect to the use of forced labor (specified in the finding) in any stage of the production of the merchandise or components 32

33 CBP Labor Enforcement Fact Sheet Applicable to WROs and Findings Detailed statement may include a supply chain audit report Evidence will be evaluated on a case-by-case basis WROs/findings stay in effect until revoked; Commissioner may revoke if evidence shows merchandise: was not made with forced labor is no longer being produced with forced labor is no longer being or likely to be imported into the United States 33

34 Failure to Establish Proof of Admissibility Export and Abandonment Detained merchandise (WROs) may be exported any time before seizure or deemed abandoned Seizure and Summary Forfeiture (Findings) ICE Investigations for civil and criminal penalties Negligence, gross negligence, fraud 34

35 Challenges to Establishing Admissibility No silver bullet still proving a negative May be easier, or more difficult, depending on industry, product and country of origin attenuated supply chains for products like cocoa will present unique challenges Traceability (practical or feasible)? Cooperation (or lack thereof) from source country government Lack of publically available information on past detentions, withholdings and seizures to determine best practices Need for more clarity and transparency from CBP 35

36 Compliance-Oriented Culture and System Companies can take steps to protect their brand and reduce risk of section 307 violations by: Implementing procedures and internal controls that can help produce satisfactory evidence; and Assessing or creating a firm-wide social compliance system 36

37 Compliance-Oriented Internal Controls Import Procedures and Records Maintain entry paper trail demonstrating procedures in place to ascertain labor conditions under which merchandise produced Maintain or request H.R. records dates of hire, other local employment requirements that establish employment; maintain and provide wage and hour records associated with production of subject merchandise 37

38 Compliance-Oriented Internal Controls (con t) Supply Chain Policies Incorporate a corporate social responsibility statement into company s code of conduct Verify product supply chains to evaluate and address risks of human trafficking and slavery; audit suppliers Include contractual language prohibiting purchase of goods made with forced labor; require suppliers to certify goods comply with U.S. forced labor laws; create procedures for failure to do so Add record-keeping requirements to vendor agreements (i.e. wages and hours, hire documentation) 38

39 Compliance-Oriented Internal Controls (con t) Independent Audit Reports Issued by NGOs or third-party auditors Regular and random auditing Cocoa monitoring programs through World Cocoa Foundation or CLCCG Civil Society collaborations 39

40 Social Compliance Systems A social compliance system, as defined by US DOL, is an integrated set of policies and practices to enable a company to ensure maximum adherence to its code of conduct. It is part of a broader Corporate Social Responsibility (CSR) construct. 40

41 Social Compliance System Elements Assess risks & impacts Engage stakeholders & partners Develop code of conduct Communicate & train across your supply chain Monitor compliance Remediate violations Independent review Report performance 41

42 Risk to Brand, Reputation Detentions and seizures can result delays and costs i.e. storage for perishables (importer s expense), disruption of just-in-time delivery these actions are not typically made public WROs and Findings are public and importantly name names, posing serious risk to a company s reputation and product brand Investigations or petitions can trigger unwanted press and scrutiny, even if allegations are later found to be frivolous, unfounded or ultimately dismissed Non-consumer facing suppliers should not feel insulated accountability is being sought deeper in the supply chain It is risky to view or write-off forced labor violations as a cost of doing business 42

43 TFTEA Implementation Post-Consumptive Demand Repeal 43

44 TFTEA Implementation New regulations still anticipated Simple elimination of consumptive demand as threshold criteria Additional guidance for importers? Opportunity to comment? Credit for participation in collaborative programs? Timing? Two-for-One Executive Order on new regulations? CBP engaging with stakeholders More civil society than business community Business groups, through associations, coalitions and COAC, pressing for transparent, clear and risk-based targeting; seek practical guidance 44

45 New CBP Resources CBP Forced Labor Website Occasional updates; guidance continues to be thin Forced Labor Importer Due Diligence Fact Sheet Recommends companies have a comprehensive and transparent social compliance system in operations and global supply chains Consult with brokers, attorneys, review CBP rulings, Informed Compliance Publications (ICPs) and other U.S. Government Publications However, binding rulings or ICPs addressing forced labor do not presently exist 45

46 CBP Stakeholder Engagement Commercial Customs Operations Advisory Committee (COAC) Trade Enforcement and Revenue Collection (TERC) Subcommittee established a Forced Labor Working Group (July 2016) 35 members in aerospace, agriculture, food, retail, software, trade associations, brokers, CBP, ICE, DOL, State, Civil Society and NGOs Issued draft recommendations (November 17, 2016) 46

47 FLWG Recommendation Highlights Provide more meaningful compliance tools and educational seminars Create an Informed Compliance Publication on Forced Labor Detail the 307 process; provide information and documentation CBP considers when reviewing allegations Consult Centers of Excellence and Expertise (CEEs) when making allegation assessments or deciding to issue, revoke or modify a WRO Modernize 307 regulations and provide a public comment period (1) proof of admissibility that relies less on obsolete documents; and (2) specified timeframe for CBP to respond to an importer s submission of proof to secure the release of goods 47

48 Many Unknowns, Unanswered Questions How deep into the production process will CBP analyze allegations of forced labor raw material, component, manufacturing? Will burden of proof ( substantial evidence ) change if allegation took place deeper into the supply chain? How will CBP address allegations that an imported product was made with forced labor? Will CBP tighten petition standing to prevent frivolous petitions or unsubstantiated claims that may cause significant reputational damage? How will CBP treat trusted traders in ISA, C-TPAT, etc., when assessing the reasonableness of an allegation? 48

49 The Road Ahead 49

50 Approach of New Administration? Trump-Administration appears trade enforcement-focused Position on consumptive demand repeal unknown potentially more sympathetic toward business concerns on transparency and need for clear guidelines NGOs likely to have less influence, but will not prevent them or congressional critics from raising issues Congress will continue to look at slavery and forced labor issues on a bipartisan basis There will be a new CBP commissioner, with new priorities Will forced labor continue to be a top priority with immigration in the crosshairs? 50

51 Conclusion Common goal of all stakeholders to reduce and eliminate forced labor and child labor Complex problem requiring long-term, sustained collaborative efforts of U.S. and foreign governments, NGOs, civil society and business community New challenges and expectations for companies Expected to know suppliers Supply chain integrity important for protection of company reputation and brands Not just consumer-facing; middle-men and suppliers will also be held to higher expectations to verify chain of custody 51

52 Questions? Jennifer E. McCadney Special Counsel Kelley Drye & Warren Washington, DC