On June 24, 2021, US Customs and Border Protection (“CBP”) issued a Withhold Release Order (“WRO”) on silica-based products made by Hoshine Silicon Industry Co., Ltd. (“Hoshine”), a company located in Xinjiang, and its subsidiaries. This WRO is based on information that CBP alleges “reasonably indicates” that Hoshine used forced labor to manufacture silica-based products. As a result, CBP personnel at all US ports of entry have been instructed to immediately begin detaining shipments that contain silica-based products made by Hoshine or materials and goods derived from or produced using those silica-based products. China is by far the world’s largest producer of silicon and silica-based products.
Analysis of the potential impact of the WRO has largely focused on the solar sector since Xinjiang produces almost half of the world’s polysilicon supply and polysilicon is a principle component used to make solar cells.1 However, many other downstream chemicals are also produced from silica-based products, such as silicon metal, an input in the production of many chemical products. By imposing the WRO on all silica-based products from Hoshine, CBP’s ban on imports could extend to numerous downstream articles that incorporate Hoshine’s silica-based products. US importers of products derived from silica will have the burden of proving to CBP that their products did not rely on silica-based products produced by Hoshine. Whether this product scope was intended by CBP remains unclear, but the direct language of the WRO scope adds additional uncertainty. Moreover, this could be the first step towards a region-wide ban, similar to the path CBP took with Xinjiang cotton – first issuing a WRO against a single company and only later issuing a WRO covering the entire region.
In a separate announcement this week, the Department of Labor added polysilicon from China to its list of goods produced with forced labor. Inclusion of a product on this list does not affect its ability to be imported, but it does provide notice that companies need to take extra care when sourcing products from the list to ensure that no forced labor is being used to protect their supply chain from the potential risk of a WRO.
What Is a Withhold Release Order?
Section 307 of the Tariff Act of 1930 prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by convict labor and/or forced or indentured labor, including forced child labor. As noted in our prior Legal Update, an exemption previously available to importers mitigated the practical impact of Section 307 by allowing for the importation of merchandise produced with forced labor if consumption of the merchandise in the United States exceeded the domestic production capacity. However, the Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), signed by President Obama on February 24, 2016, amended the Tariff Act of 1930 by eliminating the exemption and giving CBP more leeway to pursue enforcement. Since the enactment of this amendment in 2016, CBP has issued over 20 WROs under the legal authority of Section 307.
A WRO can be issued based on CBP’s own self-initiated investigation or on information gathered from outside sources, including whistleblowers. Pursuant to the relevant regulations, any person (inside or outside of CBP) who has reason to believe that merchandise is being, or is likely to be, imported into the United States and is produced using forced labor can submit that information to the CBP commissioner. Section 307 defines “forced labor” as “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 [or herself] voluntarily.” In practice, CBP uses the UN International Labour Organization’s (“ILO”) indicators on forced labor2 to inform its identification of forced labor practices in the WRO process.
Importers often do not know that CBP is investigating a forced labor allegation until it issues a WRO. Based on the information provided, the commissioner (or a delegate) will conduct an investigation and may issue a WRO when information reasonably, but not conclusively, indicates that the merchandise is made wholly or in part with forced labor. CBP will prevent the admission into the United States of all merchandise within the scope of the WRO. Importers will be told to export or destroy any of the merchandise in the United States that has not cleared customs.
WROs are typically issued against imports of specific merchandise manufactured in a specific country by a specific company. However, as with the WROs on cotton and tomato products from Xinjiang and tobacco from Malawi, CBP can issue region- or country-wide WROs targeting merchandise made “wholly or in part” by forced labor. These WROs cover both the targeted article and any merchandise produced downstream that incorporates the targeted article. Importantly, there is no de minimis provision under the law that would authorize the importation of items with only trivial amounts of merchandise made with forced labor.
1 Nikos Tsafos, Addressing Forced Labor Concerns in Polysilicon Produced in Xinjiang, (June 7, 2021) https://www.csis.org/analysis/addressing-forced-labor-concerns-polysilicon-produced-xinjiang
2 The 11 indicators are (i) abuse of vulnerability, (ii) deception, (iii) restriction of movement, (iv) isolation, (v) physical and sexual violence, (vi) intimidation and threats, (vii) retention of identity documents, (viii) withholding of wages, (ix) debt bondage, (x) abusive working and living conditions and (xi) excessive overtime. See https://www.ilo.org/global/topics/forced-labour/publications/WCMS_203832/lang–en/index.htm.