Issues Record Fines for “Made in USA” and Forced Labor Violations
Importers, beware. In the last months, Washington has engaged in a flurry of precedent-setting legal, administrative and enforcement actions against trade violations. And in an increasingly rare moment of bipartisanship, Biden officials and Republican lawmakers have joined forces in the new crackdown—especially against China.
Some experts thought the new Democratic administration might bring a reduction to the Trump administration’s China 301 tariffs. But as of now, the US appears to be headed in the opposite direction.
While the specifics of the new administration’s trade policy is still to be determined, the direction is clear. The US is ready to use “all available tools” to fight China’s unfair trade practices, according to a report outlining the new U.S. administration’s trade agenda.
And the US is not just talking tough. New rules and punishing fines are being put into place. Political desire to protect national economies means that CBP is sometimes enforcing new trade barriers even while countries are implementing new trade arrangements to attract investment and hopefully growth, increasing our need to adapt controls to ensure compliance with new requirements.
Record Fine for "Made in USA" Infraction
A month before Biden's January inauguration, the Federal Trade Commission ruled that a U.S. company must pay $1.2 million to settle charges for making deceptive claims that products were “Made in USA." This represents the highest-ever fine levied in a “Made in USA” case, and a bracing reminder that businesses can only use a "Made in USA" label if:
Final assembly or processing, and all significant processing, occurs in the US.
Virtually all materials and components are both sourced and made in the US.
David Stepp, a partner at law firm Crowell & Moring’s Los Angeles office specialized in international trade, warns that this and other recent enforcement actions show the FTC’s increased focus on enforcing against misleading “Made in USA” claims.
“With all of this activity on “Made in USA” advertising claims, companies must increase their diligence in confirming the origin of all inputs used to manufacture their products all the way back in the supply chain to the raw materials.”
Companies also have to beware of individual state origin labeling guidelines, including California’s rules which are even more stringent than those enforced by the FTC. In February of this year, Senators Lee and King introduced a bill to create a single national standard for “Made in USA” claims which revived an unsuccessful similar attempt from last year.
Going After Forced Labor in China
A $575,000 fine was imposed in 2020, on a US stevia importer for importing stevia made using Chinese prison labor. In January, the US issued for the first time a region-wide Withhold Release Order (WRO) against China's Xinjiang Uyghur Autonomous Region (XUAR). Specifically, the new ban extends to all cotton and tomato products produced in the XUAR. That includes apparel made from XUAR cotton.
Importing goods made with forced labor has long been illegal in the US. However, the new WRO gives teeth to the old law. And the CBP has also made it abundantly clear where responsibility lies—with importers.
"Importers are responsible for ensuring the products they are attempting to import do not exploit forced labor at any point in their supply chain, including the production or harvesting of the raw material," declared the CBP.
For importers, that means more paperwork. You can no longer simply rely on just a certificate of origin to show that a product is compliant. You must proactively identify every party in the supply chain of that product that is not in violation of the Uyghur WRO.
Analysts at Lexology have urged importers in the fashion, luxury and agricultural space to take concrete actions to mitigate risk in the wake of the expansive new WRO. If you are concerned that your supply chain includes prohibited goods, check out the CBP's guidelines on Informed Compliance Publication on Reasonable Care.
"Supply chain visibility is essential because it ensures that shippers can meet customer expectations, while demonstrably being good corporate citizens and mitigating compliance and environmental concerns. Meaningful supply chain visibility requires the interconnectivity and seamless interoperability of disparate technology solutions. This has historically proven difficult but it seems that regulators will give new impetus for various participants to build interoperable systems,"
said Brian Aoaeh, General Partner at REFASHIOND Ventures and Cofounder of The Worldwide Supply Chain Federation.
"If you thought a new administration would end the China tariffs and other limits on trade, it's time to think again, and importers need to stay on top of developments to ensure they avoid fines and penalties and remain within the law,"
said Roger Crook, chairman of digital customs broker Zeus Logics and former Global CEO of DHL Global Forwarding and Road Freight.
We view compliance not only as mandatory but also as strategic. If you would like to find out more about managing these risks in your supply chain, feel free to contact us.