US Sanctions on Chinese Apparel Companies for Forced Labor Hit Retail Supply Chains

Fashion and luxury goods companies need to be concerned about the recent sanctioning of Chinese companies in Xinjiang province by the US Departments of Treasury and Commerce and other Customs and Border Protection (CBP) developments related to importing products that contain fabric made with prison or forced labor.

There are three kinds of sanctions/import controls:

1. OFAC, Department of Treasury, SDN Sanctions with Import Implications: The Department of Treasury has sanctioned by placing on the SDN list Xinjiang Production and Construction Corps (XPCC), which reportedly produces more than 7 percent of the world’s cotton.
   
   All transactions directly and indirectly between US persons and XPCC are prohibited and blocked, as well as all transactions with any entity that is 50% or more owned by XPCC (Treasury has, however, authorized certain wind-down transactions with such XPCC subsidiaries through September 29). In addition, due to the tie-in, the Administration has drawn between the entity and forced labor in the Xinjiang Province, there is a risk that garments made from cotton produced by XPCC could be subject to a Customs and Border Protection withhold release orders (WRO).
    
2. Department of Commerce Entity List Sanctions with Import Implications: The Department of Commerce has also sanctioned a number of Xinjiang Province companies by putting them on the Entity List — including a number of textile apparel companies, such as Changji Esquel Textile Co. Ltd., Hetian Taida Apparel Co., Ltd. and Nanjing Synergy Textiles Co. Ltd. 
   
   Entity list sanctions prohibit the export, re-export or transfer in-country of items (including commodities, software, and technology) subject to US export controls to those entities, or where those entities purchase or order the items, even if they do not take delivery. However, again, due to the tie in between Entity List sanctions and forced labor, there is a risk that garments made from Entity List entities who are listed due to forced labor allegations could be subject to a CBP WRO.
    
3. CBP Withholding Orders on Imports from Certain Companies: Effective August 11, CBP will detain imported merchandise containing garments produced by the Hero Vast Group (including Shanghai Hero Vast International Trading Co., Ltd.; Henan Hero Vast Garment Co., Ltd.; Yuexi Hero Vast Garment Co., Ltd.; Ying Han International Co., Ltd.; and Hero Vast Canada Inc.) based on information that reasonably indicated the use of prison labor in the production of those garments. 
   
   19 U.S.C. § 1307 prohibits the importation of merchandise mined, produced, or manufactured, wholly or in part, in any foreign country by forced or indentured labor — including forced child labor. Subject merchandise is subject to exclusion through CBP WROs and/or seizure, and may lead to criminal investigation of the importer(s). If importers are found to violate the order, there may be penalties related to introductions contrary to law. 

We discuss other steps importers can take to review their supply chain and other compliance steps — as well as recent CBP enforcement case where CBP imposed half a million in penalties — in the following alert.