Ninestar and UFLPA Exhaustion

Exhaustion is a key doctrine in administrative law. When applicable, it requires that a party unhappy with an agency’s determination complete the administrative appeal process before turning to the courts for judicial review. Requiring exhaustion typically promotes judicial efficiency by ensuring that disputes are resolved at the agency and, if they are not, that there is a complete record of the agency process. Exhaustion also ensures that the judiciary respects the executive agencies and their expertise. 

There are, on the other hand, times when the courts will find that exhaustion is not necessary or appropriate. Such is the case in Ninestar Corporation et al. v. United States et al., a decision of the U.S. Court of International Trade. 

Ninestar is also interesting because it is one of the first cases in the CIT involving the Uyghur Forced Labor Prevention Act, known as UFLPA. In my hiatus from active blogging, I missed the rise of UFLPA as a major compliance topic. So, let's catch up a bit. 

U.S. law has long prohibited the importation of products that are produced wholly or in part by convicts or forced or indentured labor including forced or indentured child labor. 19 USC 1307. Enforcement of § 1307 was limited until Congress amended the law to remove the so-called "consumptive demand exception," in the statute as part of the Trade Facilitation and Trade Enforcement Act in 2016. Section 1307 applies globally. Responding to growing concerns of systematic forced labor policies in China targeting Muslim Uyghurs and other ethnic minorities, Congress passed and the President signed the UFLPA into law on December 23, 2021. 

As a side note, the UFLPA is one of those laws that is inexplicably not codified as one would expect. It shows up as a note to 22 USC 6901, which is a general provision stating Congressional finding regarding trade and human rights issues relating to China. The sausage-making that happens in Washington is often opaque and confusing, but it certainly seems that adding UFLPA to § 1307 would have been entirely reasonable and put the law in a place compliance people would expect to find it.

As a second side note, if you are wondering what constitutes forced labor, read the International Labor Organization Indicators of Forced Labor. 

UFLPA creates a rebuttable presumption that good produced in whole or in part in the Xinjian Uyghur Autonomous Region ("XUAR") of China are subject to § 1307 and, therefore, prohibited from entering the United States. Importers of merchandise detained or excluded under UFLPA may submit information to overcome that presumption. That means proving by clear and convincing evidence that the goods were not produced in whole or in part in XUAR and, therefore, presumption does not apply. In the alternative, the importer can attempt to show that although produced in whole or in part in XUAR, the merchandise did not benefit from any forced labor. 

Having merchandise excluded from the United States is a significant penalty. That means, potentially, not being able to deliver goods to customers, the resulting lost sales, the loss of manufacturing materials, potentially idling workers, etc. Supply chain disruptions can get ugly quickly. Also, there is the very real and very serious reputational harm that can occur when a company is publicly identified as having forced or child labor in its supply chain. 

Currently, an importer of goods subject to detention under a § 1307 Withhold Release Order may export, which is not a "loophole" and is entirely consistent with the statute which functions to prohibit the admission of the merchandise. Customs has stated that it may seize the products of forced labor and may impose a civil administrative penalty on an importer of goods made with forced labor. According to DHS's strategy document on the preventing imports of Chinese products of forced labor, authority for that lies in 19 USC 1592 and 1595a. 

The Department of Labor maintains a list of items found to be produced by child or forced labor here. 

At this point, we have not even gotten to the issue in Ninestar. I will reserve my right as blogger-in-chief to return to the scope of CBP's penalty and seizure authority in another post.

The issue presented in Ninestar relates to the activities of the Forced Labor Enforcement Task Force, which is an interagency organization tasked with monitoring and enforcing the forced labor laws. It started as part of the USMCA and has expanded in scope. The FLETF is headed up by the Department of Homeland Security, including representation from Customs. Under the UFLPA, the government was required to come up with a strategy to prevent the importation of products from China that were produced with Forced labor. As part of that strategy, the government is required to publish lists of entities that produce goods in whole or in part with forced labor; work with the government in XUAR to recruit, receive, or otherwise exploit forced labor; or export such products. UFLPA § 2(d)(2)(B). 

FLETF has done that and included Ninestar on the list as an entity that has worked with the government of XUAR "to Recruit, Transport, Transfer, Harbor or Receive Forced Labor or Uyghurs, Kazakhs, Kyrgyz, or Members of Other Persecuted Groups out of Xinjiang." The listing also includes a procedure a listed entity may follow to request removal from the list. The request must include information demonstrating that the entity does not or no longer meets the criteria for being included in the list. Entities requesting removal may also request a meeting with FLETF to make an oral presentation on the issue. 

This is where we finally get to exhaustion.

Ninestar did not request that FLETF remove it from the list. Instead, it sued DHS, CBP, and the FLETF. As initial relief, Ninestar asked the Court to impose a preliminary injunction prohibiting FLETF from acting in furtherance of the listing. Ninestar also asked the Court to invalidate the listing under the Administrative Procedure Act ("APA"). The government responded that Ninestar is not entitled to a preliminary injunction because it never asked to be removed from the list, meaning it failed to exhaust the administrative process. In response, Ninestar argued that the APA does not require exhaustion and that requiring exhaustion would not be prudent in this case.

Compared to other federal courts, the Court of International Trade has a unique relationship to APA exhaustion. Where the CIT has exclusive jurisdiction and unless stated otherwise, the law requires that "the Court of International Trade shall, where appropriate, require the exhaustion of administrative remedies." 28 USC § 2637(d). The "where appropriate" is an enormously powerful phrase because, unless cabined by other language or precedent, it signals to the Court that Congress is giving the judge discretion to do the right thing. The judges, however, may not range freely. The Court of Appeals has said  that the CIT should require exhaustion "absent a strong contrary reason." As CIT Judge Katzmann succinctly put it, the Court should "require exhaustion broadly, excuse it carefully."

But there is a complicating factor here. The APA has its own exhaustion requirement. This rule, at 5 USC § 704, states that only final agency action is subject to judicial review. It goes on to state in remarkably confusing language that, as interpreted by the Supreme Court, exhaustion of the administrative process is required prior to judicial review only (1) when a statute requires it or (2) the agency's rules require an administrative appeal before judicial review and the agency action is inoperative pending that review. If neither of those conditions are present, the Court is not free to require exhaustion. 

There is no statute or agency rule requiring exhaustion. According to Ninestar, that means that the APA prevents the CIT from exercising discretionary (or technically "prudential") exhaustion. It must, therefore, address the matter before it. 

The Court did not agree. According to the Court, § 2637(d) is the relevant statutory requirement for exhaustion; it just happens to be one that is tempered by judicial discretion. In other words, in the CIT exhaustion is the default requirement except in those circumstances where prudential considerations indicate exhaustion is not required. Reading § 2637(d) as the statute that requires exhaustion (with exceptions) resolves the conflict between the APA and § 2637.

Turning to whether prudential considerations weigh in favor of requiring exhaustion, the Court noted that there are four circumstances in which the Court has not required exhaustion:

1. the issue presented is purely a question of law, which the court can resolve;
2. the plaintiff has not had timely access to the agency's confidential record;
3. there was a relevant court decision after the agency decision and the court decision materially affected the issue; or
4. raising the issue at the administrative level would have been futile.

The relevant criterion in this case is that Ninestar did not receive timely access to the confidential record, nor did it receive an adequate explanation of why it had been listed. All it knew was that it had been listed because FLETF found it to be working with the government of XUAR "to recruit, transport, transfer, harbor or receive forced labor or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of Xinjiang." This is merely a statement of the legal conclusion and does not provide any factual basis on which the determination was made. Without that information, any effort Ninestar were to undertake before the FLETF would have required it guess at the evidence it was trying to refute. Prudential considerations of efficiency and deference to agency expertise should not force the affected party into a proceeding where it dispute or contextualize the evidence against it. Given that circumstance, the Court held that requiring Ninestar to exhaust its administrative remedies is not "appropriate." 

That means the Court went on to consider the merits of Ninestar's requested preliminary injunction.

 Preliminary injunctions are extraordinary relief and are, therefore, hard to come by. That was the case here. I am not going to extend this post too much further to review that part of the decision. The merits of UFLPA decisions are going to be before the Court in this or in other cases. It is sufficient to note that the court found:     

1. The record contains an explanation of some facts that support the agency decision including Chinese government documents and statements from an informant; 
2. The Court agreed, preliminarily at least, that the government correctly applied the "reasonable cause to believe" standard to the listing decision rather than the higher "preponderance of the evidence" standard; 
3. There is record evidence that Ninestar was listed based on actions occurring after the UFLPA was in enacted; 
4. Ninestar failed to produce sufficient evidence of irreparable harm;  
5. Finally, balancing the hardships between Ninestar and the public interest of preventing the entry of goods that benefit from forced labor, the Court found the weight tips in favor of the public interest. 

That is a lot (58 pages to be precise) and I skipped over important law. I am certain we will be back to this. The topic is important. Compliance and the avoidance of dealing in products of forced labor should be an obvious goal for everyone involved. Unfortunately, that is not always true at the far ends of some supply chains. Beyond the business concerns, this is one of the few compliance activities importers undertake that have real human consequences on the far ends of supply chains. New tools and newly available data make those far ends more visible and, therefore, easier for the government to enforce and also harder for businesses to ignore.