Impact of the Forced Labor Laws and CBP Policy on Admissions of Goods into U.S. Foreign Trade Zones

• September 16 announcement updates current forced labor enforcement policy on admission to goods into U.S. Foreign Trade Zones
• Preference given to CTPAT Trade Compliance partners who are in good standing
• What importers need to know: Possible Take-Aways from CSMS 62269186 for Both CTPAT Trade Compliance partners and Non-CTPAT Trade Compliance partners

In Cargo Systems Messaging Service (CSMS) Number 62269186 issued on September 16, 2024, entitled, Foreign Trade Zone Benefit for Customs Trade Partnership Against Terrorism [CTPAT] Trade Compliance Partners,[1] U.S. Customs and Border Protection (CBP) stated that it “has determined that importers who are CTPAT Trade Compliance partners, in good standing, may utilize a Foreign Trade Zone (FTZ) for the storage of goods subject to potential forced labor enforcement action.” [2] (Emphasis ).  What is the legal framework for this new policy?

Products in U.S. Foreign Trade Zones

Pursuant to 19 U.S.C. § 81c, unless prohibited, merchandise imported into the U.S. may be admitted into an FTZ, whereupon it shall be treated as exempt from the customs laws of the United States.

Specifically, section 81c(a), provides in part as follows:

• Foreign and domestic merchandise of every description, except such as is prohibited by law, may, without being subject to the customs laws of the United States, except as otherwise provided in this chapter, be brought into a zone and may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated, or be manufactured except as otherwise provided in this chapter, and be exported, destroyed, or sent into customs territory of the United States therefrom, in the original package or otherwise; …. (Emphasis added.)

Under CBP regulation implementing the above law, 19 C.F.R. § 146.10, “[t]he port director may cause any merchandise to be examined before or at the time of admission to a zone, or at any time thereafter, if the examination is considered necessary to facilitate the proper administration of any law, regulation, or instruction which Customs is authorized to enforce.”  Emphasis added.

Furthermore, under 19 C.F.R. § 146.31, CBP provides the following clarification regarding merchandise that may be prohibited from, or restricted upon, admission into an FTZ:

Merchandise of every description may be admitted into a zone unless prohibited by law. A distinction is made between prohibited and conditionally admissible merchandise.

• (a) Prohibited merchandise. Port directors shall not admit prohibited merchandise. If there is a question as to whether the merchandise may be prohibited, port directors may permit the temporary deposit of the merchandise in a zone pending a final determination of its status. Any prohibited merchandise which is found within a zone will be disposed of in the manner provided for in the laws and regulations applicable to that merchandise.
• (b) Conditionally admissible merchandise. The admission of this merchandise into a zone is subject to the regulations of the Federal agency concerned.[3]  Emphasis added.

Based upon the above authorities, any merchandise that is determined to be prohibited from importation into the U.S., will be considered as prohibited from admission into a Foreign Trade Zone in the U.S.   

Prohibition of Importation of Goods Made with the Use of Forced Labor

Generally, under U.S. federal law, goods made with the use of forced labor are prohibited from importation into the U.S.  Specifically, 19 U.S.C. §1307, the underlying law in this area, provides in part as follows:

• 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 to entry at any of the ports of the United States, and the importation thereof is hereby prohibited, and the Secretary of the Treasury is authorized and directed to prescribe such regulations as may be necessary for the enforcement of this provision.  (Emphasis added)

Section 1307 is implemented by CBP in regulations set forth at 19 C.F.R. § 12.42, et. seq., whereby the process for enforcement of the Section 1307 involves the issuance of Withhold Release Orders (WROs) by CBP that identify specific classes of goods, from specific manufacturers, and from specific countries for detention.  Upon issuance of such WROs and the detentions of products thereunder, importers must provide “proof of admissibility” of any detained goods, i.e., proof that the detained goods were not made with the use of forced labor.

Specifically, 19 C.F.R. § 12.42(e) provides:

• (e) If the Commissioner of CBP finds at any time that information available reasonably but not conclusively indicates that merchandise within the purview of section 307 is being, or is likely to be, imported, he will promptly advise all port directors accordingly and the port directors shall thereupon withhold release of any such merchandise pending instructions from the Commissioner as to whether the merchandise may be released otherwise than for exportation. Emphasis added.

CBP in a binding ruling has further stated, “to issue a WRO, i.e., detention order, CBP must have information that ‘reasonably but not conclusively indicates’ that merchandise (1) falls within the purview of section 1307, and (2) is being, or is likely to be, imported into the United States.”[4]  CBP WROs are published on its website[5].

19 C.F.R. §12.43(a) also provides in part as follows:

• Proof of admissibility.(a) If an importer of any article detained under § 12.42(e) or (g) desires to contend that the article was not mined, produced, or manufactured in any part with the use of a class of labor specified in section 307, Tariff Act of 1930, he shall submit to the port director or Commissioner of CBP within 3 months after the date the article was imported a certificate of origin, or its electronic equivalent, in the form set forth below, signed by the foreign seller or owner of the article….

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.

Dated ___________.             

On the other hand, because of the enactment of the Uyghur Forced Labor Prevention Act (“UFLPA”),[6] certain products can be prohibited from importation into the U.S. under 19 U.S.C. § 1307, without the prior issuance of a WRO.   The goal of the UFLPA is to ensure that goods made with forced labor in the Xinjiang Uyghur Autonomous Region of China do not enter the U.S. for any purpose.[7]

Specifically, section 3 of the UFLPA provides as follows:

• IN GENERAL.—The Commissioner of U.S. Customs and Border Protection shall, except as provided by subsection (b), apply a presumption that, with respect to any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China or produced by an entity on a list required by clause (i), (ii), (iv) or (v) of section 2(d)(2)(B)—
  • (1) the importation of such goods, wares, articles, and merchandise is prohibited under section 307 of the Tariff Act of 1930 (19 U.S.C. 1307); and (2) such goods, wares, articles, and merchandise are not entitled to entry at any of the ports of the United States.
• (b) EXCEPTIONS.—The Commissioner shall apply the presumption under subsection (a) unless the Commissioner determines—
  • (1) that the importer of record has— (A) fully complied with the guidance described in section 2(d)(6) and any regulations issued to implement that guidance; and (B) completely and substantively responded to all inquiries for information submitted by the Commissioner to ascertain whether the goods were mined, produced, or manufactured wholly or in part with forced labor; and
  • (2) by clear and convincing evidence, that the good, ware, article, or merchandise was not mined, produced, or manufactured wholly or in part by forced labor.

Emphasis added.

As stated earlier, CBP does have the authority to examine merchandise even after its admission to a FTZ if such is deemed necessary for the proper administration of laws enforced by CBP. [8] The UFLPA and 19 U.S.C. § 1307, laws prohibiting importation of goods made with the use of forced labor, are enforced by CBP.

In the implementation of the UFLPA, CBP has stated the following in its public guidance for importers whose goods are detained on the suspicion of violating the UFLPA:

• … if CBP has taken an enforcement action under the UFLPA on an importation, but an importer believes that its importation is outside the scope of the UFLPA, an importer may provide information to CBP to that effect, i.e., information that the imported goods and their inputs are sourced completely from outside Xinjiang and have no connection to the UFLPA Entity List. [9]

Thus, the initial test will be whether there is sufficient proof that the imported product falls outside of the scope of the UFLPA due to having no production in whole or in part in the Xinjiang Region or by having the involvement of no persons identified on the UFLPA entity list in the production of the imported product.[10]  The time involved in establishing this threshold proof, however can be lengthy, and thus, the flexibility in being able to have options for storage of goods subject to such detentions becomes more crucial.

Can Only CTPAT importers’ Goods Suspected of Forced Labor Violations be allowed to be admitted into an FTZ?

For the determination announced in CSMS # 62269186, to be lawful under 19 U.S.C. § 81c(a), the section of the Foreign Trade Zone Act referenced above, the products allowed to be stored by the CTPAT Trade Compliance partners must not yet have been determined to be “prohibited” at the time of FTZ admission.  As stated in this statute, prohibited goods cannot be admitted into FTZs.  This would be the reasonable assumption by the statement in the CSMS that the goods are “subject to potential forced labor enforcement action.”

For the same reason, however, it would be reasonable to conclude that goods subject to “potential forced labor enforcement action” would not be statutorily excluded from admission into an FTZ, irrespective of whether the importer of such goods is a member of CTPAT Trade Compliance.  This is because CBP has not yet determined such imported goods are in violation of the Forced Labor laws, and thus “prohibited” from importation. Therefore, importers may question the legal authority of CBP to deny any importer the option of moving such goods to an FTZ when there might appear to be a right to such action under 19 U.S.C. § 81c, in the absence of a determination that the goods are “prohibited” from importation into the U.S.   Well, it may be that CBP’s apparent legal discretion to only allow CTPAT Trade Compliance members this option is derived from the agency’s detention authority under 19 U.S.C. § 1499.

19 U.S.C. § 1499 provides in part as follows:

1)In general. Imported merchandise that is required by law or regulation to be inspected, examined, or appraised shall not be delivered from customs custody (except under such bond or other security as may be prescribed by the Secretary to assure compliance with all applicable laws, regulations, and instructions which the Secretary or the Customs Service is authorized to enforce) until the merchandise has been inspected, appraised, or examined and is reported by the Customs Service to have been truly and correctly invoiced and found to comply with the requirements of the laws of the United States.

…

(c)Detentions. Except in the case of merchandise with respect to which the determination of admissibility is vested in an agency other than the Customs Service, the following apply:

•        (1)In general
• Within the 5-day period (excluding weekends and holidays) following the date on which merchandise is presented for customs examination, the Customs Service shall decide whether to release or detain the merchandise. Merchandise which is not released within such 5-day period shall be considered to be detained merchandise.

…

• (2) Notice of detention The Customs Service shall issue a notice to the importer or other party having an interest in detained merchandise no later than 5 days, excluding weekends and holidays, after the decision to detain the merchandise is made. The notice shall advise the importer or other interested party of—
• (A) the initiation of the detention;
• (B) the specific reason for the detention;
• (C) the anticipated length of the detention;
• (D) the nature of the tests or inquiries to be conducted; and
• (E) the nature of any information which, if supplied to the Customs Service, may accelerate the disposition of the detention.

The above statutory authority is implemented by CBP under 19 C.F.R. Part 151.

Specifically, 19 C.F.R. § 151.1 provides as follows:

• Merchandise to be examined. The port director shall examine such packages or quantities of merchandise as he deems necessary for the determination of duties and for compliance with the Customs laws and any other laws enforced by the Customs Service.

Furthermore, 19 C.F.R. § 151.4 provides: “Imported merchandise shall not be opened, examined, or inspected until it has been entered under some form of entry for consumption or warehouse, except [limited circumstances].”

Therefore, if at the time of importation into the U.S., CBP has preliminary questions as to whether a product is prohibited from importation (e.g. goods possibly made with the use of Forced Labor as implemented by 19 C.F.R. § 12.42, et. seq. or as enhanced by the UFLPA), CBP may detain such goods pursuant to 19 U.S.C. § 1499 and the CBP implementing regulations under 19 C.F.R. Part 151.

Prior to the September 16, 2024 issuance of CSMS 62269186, CBP had taken the position that no products even suspected of possible forced labor law violations could be transported to or stored in an FTZ, pending the determination on the detention, notwithstanding that there had not been a determination of the use of forced labor that rendered the imported goods prohibited,[11]  In fact, CSMS 62269186 affirms this policy in the following statements:

• Importers that are not CTPAT Trade Compliance partners are not authorized to utilize an FTZ for the storage of goods detained for forced labor. Such importers may only store detained forced labor goods in bonded warehouses using a Type 21 entry.

However, nothing in the FTZA nor CBP’s implementing regulations, has precluded CBP’s discretion to allow products only suspected of possible Forced Labor Law violations from being admitted into the FTZ, pending a final determination of whether such product is prohibited from importation into the U.S.  Therefore, it is significant that CSMS #62269186 now makes a limited exception to CBP’s prior policy, consistent with the FTZA, by allowing admission into an FTZ those products that are “subject to potential forced labor enforcement action”, i.e., under a detention, to be admitted into an FTZ, when the importer is a CTPAT Trade Compliance partner.

Nevertheless, despite the limited discretion being exercised by CBP, CSMS 62269186’s very issuance makes the following principle more transparent to all importers:  When goods have not yet been detained by CBP for a possible forced labor violation, or are not the subject of a previous exclusion by CBP on the basis of forced labor, there is no reason to disallow storage of such goods in a U.S. FTZ on the ground they are “prohibited merchandise”, regardless of whether the importer of such goods is a member of CTPAT Trade Compliance.

Possible Take-Aways from CSMS 62269186 for Both CTPAT Trade Compliance partners and Non-CTPAT Trade Compliance partners

1. CBP has discretion, and 19 C.F.R. §146.31(a) expressly allows the temporary deposit of merchandise into a FTZ that may be prohibited, pending a final determination of its status admission of goods.
2.  It is only when CBP determines there is a potential forced labor enforcement action, that CBP has legal discretion under its detention authority to restrict movement or storage into an FTZ. CSMS 62269186 clearly announces CBP’s exercise of discretion to allow transfer of such detained goods to an FTZ only when the importer is a CTPAT Trade Compliance partner.
3. Importers have two choices:

• • a.Seek to become a CTPAT Trade Compliance partner to ensure receiving (as one of many CTPAT benefits) the option of being able to store goods suspected of forced labor violations in an FTZ pending CBP’s final determinations.[12]
  • b. Or, if not a CTPAT Trade Compliance partner and there are no prior forced labor determinations, apply for admission into an FTZ at the time of original importation into the U.S., i.e., prior to presentation of the shipment for consumption or warehouse entry.

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Sandra Bell is an international trade and customs attorney at Rimon. Ms. Bell represents clients on regulatory procedures relating to customs tariff and import issues including securing and responding to decisions on prospective and current import transactions, international trade policy and regulatory programs, and border security and trade enforcement programs. Read more here

The views expressed are solely the opinion of the author and do not represent the official positions of the Rimon P.C.  This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.

[1] CSMS # 62269186 – Foreign Trade Zone Benefit for Customs Trade Partnership Against Terrorism Trade Compliance Partners (govdelivery.com)

[2] See CBP General Guidance on CTPAT Trade Compliance at t:  CTPAT Trade Compliance Handbook | U.S. Customs and Border Protection (cbp.gov)

[3]19 C.F.R. §146.31.

[4] See CBP Ruling H330077 dated Apr 26, 2023, at CROSS Customs Rulings Online Search System (cbp.gov)

[5] See Withhold Release Orders and Findings List | U.S. Customs and Border Protection (cbp.gov)

[6] Prohibition on Importation of Goods Made Through Forced Labor in the Xinjiang Uyghur Autonomous Region, Public Law 117-78, December 23, 2021, 22 U.S.C. § 6901 Note.

[7] See Public Law 117-78, December 23, 2021, 22 U.S.C. § 6901 Note.

[8] See 19 C.F.R. § 146.10.

[9]See Uyghur Forced Labor Prevention Act U.S. Customs and Border Protection Operational Guidance for Importers (cbp.gov)  CBP Publication No. 1793-0522, dated June 13, 2022, at 10.

[10] See UFLPA Entity List | Homeland Security (dhs.gov).

[11] See CSMS # 57200992 – Movement of Forced Labor Detained Cargo for Storage (govdelivery.com), dated 08/03/2023, where CBP stated:  “Importers or their authorized filers may not move detained goods suspected of being made with forced labor into a Foreign Trade Zone for storage.”

[12] See: Applying for CTPAT | U.S. Customs and Border Protection (cbp.gov).