Customs and Border Protection Proposes to Require a Social Compliance Program as Part of Its CTPAT Cargo Security Program

Section 307 of the Tariff Act of 1930 (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 child labor – including forced child labor. Such merchandise is subject to exclusion and/or seizure, and may lead to criminal investigation of the importer(s). TFTEA repealed the “consumptive demand” clause in 19 U.S.C. § 1307. The clause had allowed importation of certain forced labor-produced goods if the goods were not produced “in such quantities in the United States as to meet the consumptive demands of the United States.” This has led to increased enforcement by CBP.

Also providing impetus to the concept of expanding CTPAT to require a social compliance program that will focus on preventing goods manufactured by forced labor are certain provisions of the Countering America’s Adversaries Through Sanctions Act, which became effective September 21, 2017. The relevant provisions established a presumption that when there is credible information that goods are produced through the use of North Korean labor, such labor should be considered forced labor, regardless of where the labor is located. Thus the goods are prohibited from being imported into the U.S., and the burden of proof to establish that North Korean forced labor was not involved in the production of the goods is on the importer.

The Customs Trade Partnership Against Terrorism was begun after 9/11 in November 2001 to fight terrorism by creating customs-to-business partnerships aimed at securing supply chains and facilitating low-risk trade. The advertised benefits of membership include trade facilitation, fewer inspections and less wait times at the border. CTPAT is a voluntary partnership under the direction of CBP’s cargo enforcement administration, under which compliant trusted traders that are certified and validated members with secure and efficient supply chains are entitled to reduced screening of their imported cargo.

Under the CTPAT proposal, CBP would require members to maintain a specific social compliance monitoring system using established Department of Labor guidelines. A social compliance system is defined by the Department of Labor as an “integrated set of policies and practices through which a company seeks to ensure maximum adherence to the elements of its code of conduct that cover social and labor issues.” The DOL avers that “a social compliance system that enables oversight and control over every actor in every supply chain is challenging” because companies’ “supply chains are long and complex, with a large number of links from their immediate suppliers back to the farms or mines where raw materials are sourced.” Under the proposal, CTPAT eligibility would be based on whether CBP has verified the existence of a robust social compliance program.

Under the proposal, a successful social compliance program must meet seven criteria according to CBP:

1. Engage stakeholders and partners;
2. Assess risks and impacts;
3. Develop a code of conduct; 
4. Communicate and train across the supply chain;
5. Monitor compliance;
6. Remediate violations; and
7. Disclosure, report performance.

All components must be met according to the Department of Labor guidance, because “a system without all components—for example, an auditing system that operates in isolation from communication and training, remediation and other measures—is very likely not to be sufficient to address challenging labor issues that can arise in global supply chains.”

Under the CTPAT’s new forced labor strategy, a company without a social compliance program will be forced to publicly disclose this information. (This appears to be in contrast to CBP’s policy of not disclosing a company’s participation in CTPAT.) Moreover, a forced labor violation would be grounds for removal from the CTPAT.

On the other hand, companies with validated social compliance programs will receive: prior notification from CBP of companies and commodities with a high risk of supply chain forced labor violations; prior notification of hold release orders and an opportunity to prepare exculpatory evidence, with expedited verification of the evidence provided; reduction in the post release inquiries related to forced labor supply chain due diligence; finally, participants will be excluded from the universe of imports considered high-risk unless specific actionable information is furnished against the importer.

It remains to be seen whether CTPAT will be able to get acceptance from the trade. The Commercial Operations Advisory Committee had recommended to the CBP that it allow companies “the option of opting in or opting out of the Forced Labor component of the future CTPAT Trade Compliance program.” The CTPAT has not yet indicated how it will audit or graduate and assist companies to ensure strict compliance.

The DOL further identified a social compliance system as part of a company’s broader approach to Corporate Social Responsibility. The CTPAT therefore seems to be requiring CSR as a specific element of continued membership.

While CBP has been encouraging importers to use the DOL guidance since the TFTEA changes, this proposal shows that CBP is increasing its focus on enforcement.

It also presents a template of factors of a successful program that CBP may use as a measuring stick going forward.