July 27, 2020

CBP Issues Detention Order on Top Malaysian Medical Glove Producer Over Forced Labor Concerns

Holland & Knight Alert
Seth M.M. Stodder | Ronald A. Oleynik

Highlights

  • U.S. Customs and Border Protection (CBP) on July 15, 2020, imposed a Withhold Release Order (WRO) – often referred to as a Detention Order – on imports of disposable medical gloves made by Top Glove Sdn Bhd and TG Medical Sdn Bhd, subsidiaries of the world's largest medical glove maker, Malaysia-based Top Glove Corp Bhd.
  • CBP said that the Detention Order was issued because CBP and other U.S. government agencies had determined that there was evidence that medical gloves produced by both companies were products of forced labor practices.
  • CBP stated that it was aware of the current critical need for disposable rubber gloves because of the COVID-19 pandemic. But under U.S. law – as amended by the Trade Facilitation and Trade Facilitation Act of 2015 (TFTEA), it is illegal to import products of forced labor, even where there is unmet domestic demand for the product. In any event, however, CBP has concluded that there is sufficient domestic supply of medical gloves, and also that it would continue to allow the import of gloves produced by other manufacturers not raising forced labor concerns.

U.S. Customs and Border Protection (CBP) on July 15, 2020, imposed a Withhold Release Order (WRO) – often referred to as a Detention Order – on imports of disposable medical gloves made by Top Glove Sdn Bhd and TG Medical Sdn Bhd. Both companies are subsidiaries of the world's largest medical glove maker, Malaysia-based Top Glove Corp Bhd., and in an emailed statement reported by Reuters, CBP said that the Detention Order was issued because CBP and other U.S. government agencies had determined that there was evidence that medical gloves produced by both companies were products of forced labor practices, including debt bondage – likely relating to "recruitment fees" often imposed on migrant workers by employment agents or human traffickers that often take years to repay, with the migrant workers forced to work for the company until large recruitment fee debts are paid off. CBP's email statement indicates that: "This WRO sends a clear and direct message to U.S. importers that the illicit, inhumane and exploitative practices of modern day slavery will not be tolerated in U.S. supply chains." The CBP WRO follows a similar order issued last year against another Malaysian medical glove maker, WRP Asia Pacific Sdn. Bhd. (WRP), that was lifted on March 24, 2020, after the company took remedial action.

Tariff Act – As Amended in 2015 – Gives CBP Authority

CBP has clear authority here. The Tariff Act of 1930 (Tariff Act) 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. When information reasonably, but not conclusively, indicates that merchandise within the purview of the Tariff Act is being imported, the CBP commissioner may detain shipment using a WRO.

Under the Tariff Act, the United States permitted the importation of certain forced labor-produced goods if the goods were needed to meet the consumptive demands of the United States. And, in its press statements, Top Glove has asserted that, given the shortages of medical gloves and other Personal Protective Equipment (PPE) in the United States, CBP should have released the shipment.

However, under the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), Congress repealed the "consumptive demand" clause, and therefore strictly prohibited the import of products made from forced labor, regardless of domestic needs. Among other things, TFTEA was designed to enhance CBP's ability to prevent products made with forced labor from being imported into the United States.

In addition, Sen. Josh Hawley (R-Mo.) has recently announced that he will be introducing new legislation, further strengthening U.S. law on the importation of products made from forced labor, emphasizing that such importers "will be held accountable." Sen. Hawley's bill would require that every corporation with annual worldwide gross receipts of $500 million or more to conduct an audit of its supply chain to investigate the presence or use of forced labor – by the business, or its direct and secondary suppliers. Businesses would provide a report each year, and the report would be conspicuously published on the company's website. The fines to be proposed are severe: the U.S. Department of Labor secretary may assess civil damages of up to $100 million to any corporation that fails the comply with the act, plus punitive damages of up to $500 million. "If these reports from anti-trafficking advocates, anti-slavery advocates are wrong, then the companies will have a chance to set the record straight," Hawley said in an interview.

CBP's Detention Order on medical gloves produced by Top Glove's subsidiaries has been imposed at a time when demand for these products is at its highest, with the United States still in the grip of the COVID-19 pandemic and suffering from severe shortages of PPE, including masks and hand sanitizers. In announcing its WRO against Top Glove, CBP stated that it was aware of the current critical need for disposable rubber gloves, and would continue to allow entry of gloves produced by all other manufacturers. It estimated that the order against Top Glove entities in Malaysia would have no significant impact on total U.S. imports of that type of glove, despite the fact that Top Glove is largest manufacturer of these gloves in the world.

Conclusion

World consumption of protective gloves is expected to jump more than 11 percent to 330 billion pieces this year, two-thirds of which are likely to be supplied by Malaysia, according to Malaysia's rubber glove manufacturers group.

Should Top Glove and TG Medical take prompt remedial action, it is possible that CBP might lift the WRO. This was the case with glove manufacturer WRP Asia Pacific Sdn. Bhd., upon whom a WRO was imposed last year for similar reasons, and lifted subsequent to a conforming change in its manufacturing policies. CBP will likely only be satisfied when all past recruitment fees and related costs, which hold such workers in debt bondage, are fully repaid and other preventative measures imposed. Top Glove said that it has been bearing all recruitment fees since the start of last year, but still potentially had to resolve an issue regarding retrospective payment of recruitment fees that its migrant workers paid to employment agents, assertedly without Top Glove's knowledge, before January 2019.

Aside from paying these debts, it is likely that CBP – as well as U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI) group, which likely worked in concert with CBP on the Top Glove matter – will require further measures by Top Glove, in order to ensure that it no longer engages in forced labor practices. Top Glove will likely be required to take steps to ensure that its employment agents no longer put migrant workers into debt bondage, and that all parts of its supply chain utilize ethical recruitment practices, including zero cost recruitment policies. Absent such longer-term remedial measures aimed at purging its supply chain of forced labor practices, Top Glove's subsidiaries will likely remain on CBP's WRO list.

Given the importance of the U.S. market and the international condemnation that Top Glove will likely receive if it fails to address forced labor issues in its supply chain, it is highly likely that Top Glove will work with CBP to put appropriate remedial measures in place. The North America region, comprising Canada and the U.S., makes up 24 percent of Top Gloves sales in the first nine months of financial year 2020. According to Top Glove's managing director, it has reached out to CBP and expects to resolve the matter soon, with the assistance of the same consultant who assisted WRP in convincing CBP to lift a similar Detention Order.

For additional information and questions on the potential impact of the CBP's WRO, contact the authors.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


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