A complaint filed recently with the U.S. Court of International Trade (CIT) by Virtus Nutrition LLC challenges CBP’s decision to exclude more than $2 million of palm oil and palm oil products exported from Malaysia. Challenges to decisions by CBP to exclude merchandise under Section 307 of the Tariff Act are infrequent with the last decision on the merits having been decided some twenty-five years ago. However, the possibility of more litigation challenging the exclusion of merchandise under a withhold release order (WRO) will continue to rise as the number of such orders grows.
Section 307 of the Tariff Act of 1930 prohibits the importation into the United States of “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.” For many years, the effectiveness of Section 307 was severely blunted because of the “consumptive demand” clause in the original 1930 law that allowed for the importation of goods produced using forced labor, if the goods were not produced “in such quantities in the United States as to meet the consumptive demands of the United States.” Indeed, as noted in a 2021 report issued by the Congressional Research Service, the ineffectiveness of Section 307 to exclude merchandise produced by forced labor is reflected by the fact that U.S. Customs and Border Protection (CBP) did not issue a single withhold release order (WRO) between 2000 and 2015.
The 2016 enactment of the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) eliminated the consumptive demand exception to Section 307. Despite this significant change in law, CBP was initially sluggish to investigate allegations of forced labor and to implement WROs when appropriate. This slow start was, at least in part, due to CBP’s Trade Enforcement Task Force having only “one full-time equivalent (FTE) employee, one full-time contractor, and one or two temporarily assigned staff members,” working on forced labor issues according to a 2021 GAO report. However, CBP’s Forced Labor Division gained financial and operational support beginning in fiscal year 2018 allowing it to better address its mandate to prevent the importation of merchandise produced through forced labor into the United States.
From the time TFTEA was enacted in 2016 and the end of 2019, CBP issued 13 WROs covering products ranging from peeled garlic to disposable rubber gloves. In 2020, the pace of WROs accelerated with CBP issuing an additional 15 WROs and one forced labor finding according to the agency’s website. In mid January of this year, CBP issued a widely covered WRO on all cotton and tomato products from the Xinjiang Uyghur Autonomous Region. When that WRO issued, then Acting CBP Commissioner Mark Morgan explained the importance of Section 307 by noting that “imports made on the cheap by using forced labor hurt American businesses that respect human rights and also expose unsuspecting consumers to unethical purchases.”
With CBP now issuing WROs, it remains to be seen how meaningfully these orders will be enforced. While there is evidence—such as a recent seizure in Cleveland, Ohio of $518,000 of disposable gloves produced using forced labor—indicating that CBP is working to enforce WROs, CBP’s enforcement efforts regarding Section 307 are not transparent and appeals of enforcement actions taken under the statute to federal court are rare (with judicial opinions issued regarding the discretion exercised by the agency even more rare). In 2016, an importer of peeled garlic filed suit against the application of a WRO to its import entries. That case, however, was voluntarily dismissed prior to any decision being reached on its merits.
The last decision issued by the CIT regarding a Section 307 exclusion came in response to a case filed in 1992 involving small diesel engines imported from China. There, after cross-motions for summary judgment were denied by Judge Restani, the case went to trial on whether the diesel engines at issue were manufactured by convict or other forced labor. The Court ultimately concluded that the plaintiff “failed to prove that the {diesel engine in question} was not made . . . with convict labor” and held that the engines in question are to be excluded from entry into the United States.
The complaint filed on April 15th at the CIT by Virtus Nutrition challenges merchandise excluded under a December 2020 WRO on palm oil and palm oil products produced by Sime Darby Plantation Berhad along with its subsidiaries and joint ventures. This WRO was the second issued against a Malaysian palm oil producer in a span of three months.
In its complaint, Virtus Nutrition LLC, a California based dairy feed ingredient manufacturer, states that the MS Argent Gerbera arrived at the Port of San Francisco on February 8, 2021 carrying 1,999.300 MT of Palm Distillate and 499.583 MT of Palm Stearin that was to be imported by Virtus Nutrition. However, upon arrival at the port, CBP detained the merchandise and issued a Notice of Detention to Virtus Nutrition. CBP’s Notice of Detention instructed the importer to provide supply chain traceability documents including production records “for the palm oil derivatives that identify the producer of the palm oil, palm oil mill, and the refinery to include transportation documents from palm tree grower to palm oil mill, and to the refinery.”
CBP determined that the information provided by Virtus Nutrition in response to the Notice of Detention was “insufficient” and excluded the merchandise from entry. A protest filed thereafter by the importer was denied by CBP on April 7, 2021 paving the way for Virtus Nutrition to seek de novo review of the exclusion before the CIT.
The government has until June 14th to answer or otherwise respond to Virtus Nutrition’s complaint.