The USTR Section 301 Forced Labor Investigation

In a much-anticipated and much-predicted determination, USTR recently found that 60 economies (59 plus the EU) had been engaged in unfair trade practices, not because they themselves permitted forced labor in their own economies, but because of the lack of forced labor import bans, or the lack of implementation of forced labor import bans in those countries. As a remedy, the U.S. imposed tariffs ranging from 10–12.5% on countries with many carve-outs for specific goods.

Let’s stipulate up front that this is a clear case of pretextual fact-finding, as has been persuasively argued by others. The Section 301 investigation would never have been launched but for the Supreme Court recently striking down the IEEPA tariffs in Learning Resources, Inc. v. Trump, and it would never have been completed so quickly but for the expiry of the stopgap Section 122 tariffs, which had a 150-day statutory time limit.

But on the other hand, so what? Just because the 301 investigation would likely never have occurred but for the administration’s tariff policy objectives doesn’t mean they are illegal or a bad policy idea in themselves. So will this investigation, or future 301 investigations, make a difference in addressing forced labor in the supply chain? I’m skeptical.

What’s Section 301?

Using 301 tariffs to enforce labor rights enforcement in the supply chain has been a goal of trade unions and US labor activists for a long time. The AFL-CIO had petitioned USTR twice in 2004 and 2006 to launch a 301 investigation against China for violations of a number of labor rights and standards, but both petitions were rejected because the Executive determined that more effective means existed to achieve the goals sought. But it wasn’t until 2024 that a 301 investigation was launched, this time focused on Nicaragua, finding that the country violated a number of labor and human rights standards, resulting in tariffs on Nicaraguan imports. The investigation was initiated under the Biden administration’s “worker-centered trade policy,” but the determination and tariff action were completed under the Trump administration.

Section 301 was passed in 1974 as part of the Trade Act of 1974. Its purpose was to give powers to the Executive to “take action” such as imposing duties or other import restrictions on goods of a country if the USTR determines that US rights are being infringed. It gives the President discretion to conduct an investigation and decide, subject to the Administrative Procedure Act’s requirements for Notice and Comment. So it takes some steps, unlike IEEPA, to impose the tariffs, but the results are usually as expected – a violation is found. Not surprisingly, trading partners were not fans of this law, and when the WTO was established in 1995, the U.S. committed—through the Statement of Administrative Action approved by Congress with the Uruguay Round Agreements Act—not to use Section 301 unilaterally in matters covered by the WTO’s Dispute Settlement Understanding. A WTO panel conditionally upheld the law’s validity, finding that it did not violate WTO obligations so long as the U.S. honored its commitment to defer to WTO dispute settlement procedures. Labor rights issues aren’t addressed in the WTO, though, so Section 301 is clear on that front. But I digress…

Under Section 301, actions by USTR are mandatory if there is a violation of a trade agreement or if actions of another country are “unjustifiable” and “burdens or restrict U.S. commerce.” They are discretionary if the acts or policies of another country are “unreasonable or discriminatory” and restrict U.S. commerce. Unreasonable means the policy is “unfair and inequitable.” The law goes on to explicitly include as unreasonable acts that constitute a persistent pattern of conduct that “permits any form of forced or compulsory labor.” It should also be noted that the U.S., unlike most countries that nevertheless do not permit forced labor in their own countries, has banned the import of goods made with forced labor since 1930, when Congress enacted Section 307 of the Tariff Act (19 U.S.C. § 1307) as part of the Smoot-Hawley Tariff Act. Notably, that original ban was driven primarily by protectionist motives—shielding domestic industries from no-wage competition—and included a “consumptive demand” exception that effectively gutted enforcement for decades. In 2021, Congress enacted the Uyghur Forced Labor Prevention Act, which went into effect in June 2022, creating a more stringent regime addressing forced labor in the Xinjiang region of China.

The Forced Labor Findings

The actions by USTR here were taken under the discretionary section of the law, so USTR had to show unreasonableness in countries’ policies, or lack thereof, which it found in spades. In brief, the U.S. concluded that a) the fact that trading partner countries either do not have a formal ban on imports of goods made with forced labor is unreasonable; b) they are unreasonable because permitting goods made with forced labor to enter into your country and into the stream of commerce is unfair and inequitable because it gives you a cost advantage; and c) The lack of forced labor import bans or their lack of implementation is a burden on commerce because U.S. firms have to comply with U.S. forced labor importation restrictions that other firms therefore do not, thus creating costs.

The 60 economies, for the most part, were not found to necessarily be engaged in forced labor practices themselves, it should be noted. In fact, there is some daylight between ILAB’s country list of forced labor violators and the countries identified in the report, which are the economies that consist of almost all of the trade volume with the U.S. 54 of them were found to have not implemented forced labor anti-importation bans, and six were found to have failed to effectively enforce the ones on their books, including the EU and USMCA signatories Canada and Mexico.

Reactions from the EU, which has a forced labor import ban and due diligence requirements, were, shall we say, piqued, calling the findings “unjustified” and “absurd”. No doubt driving some of this pique is the fact that the U.S., as Desirée LeClercq noted in her critique of the 301 report, is not exactly perfect at implementing its own forced labor bans, such as Section 1307 of the Tariff Act of 1930 (19 U.S.C. § 1307) and the Uyghur Forced Labor Prevention Act (UFLPA). Furthermore, the costs generated for U.S. firms are a choice made by the United States government. Nothing in international law requires a country to ban the import of goods made with forced labor – it’s a choice to raise domestic costs for domestic firms in a global market for political reasons. And when the original Section 1307 ban on forced labor imports was passed in 1930, when there was a much less integrated global supply chain, the main driving factor was to protect domestic industries from low-wage – or no-wage – competition. Now, import bans such as these ironically put domestic firms at a global disadvantage.

So will these tariffs be effective, and what does it mean for future efforts to use Section 301 for labor issues?

First, it’s hard to assess this question based on the forced labor findings because of the pretextual issue. The biggest problem with the pretextual motivations in this case is that the countries subject to them know that no matter what they do, it will be nearly impossible to remove the tariffs because forced labor is not what this is really about. It’s about protectionism, or in the argot of the current administration, reciprocity. Why bother implementing a forced labor import ban and even investing lots of money to try to enforce it when you know that the U.S. is unlikely to remove tariffs, no matter what you do?

But let’s assume that the 301 findings were made in good faith. A second problem is that 301 and most trade-based labor provisions are grounded in a trade logic. That is, a policy by which the problem with violating international labor standards is an economic problem and not so much a political or human rights problem. That means the harm is measured by the degree to which the rights violation impacts the U.S. economy. But harm to the U.S. economy is very tough to show in this case and in most labor rights cases.

For example, the U.S. investigation doesn’t present any specifics or numbers as to the harms suffered by U.S. commerce. Rather, it generally makes general claims about the impact of forced labor on comparative advantage. And it cites research that is 16–23 years old, and that only weakly supports the strong claims of USTR. The first paper cited, for example, by Bakhshi and Kerr states that “The empirical results show that low labour standards could potentially lead to trade distortions, but more empirical work is required before a legitimate case might be made to have labour standards considered in multilateral trade negotiations.” Hardly a powerful statement.

In my view, this means that choices to ban the import of goods made in ways citizens do not approve of are as much, if not more, a political choice than an economic one.

A third issue is that decreasing the occurrence of forced labor in the supply chain might benefit from different policy designs. A flat import ban, which is frankly tough to enforce given the volume of global trade and the challenge of identifying components linked to forced labor, is one approach. Australia, for example, doesn’t have a forced labor import ban – rather, it relies on a Modern Slavery Act model that requires due diligence of importing firms.

In addition, instituting a UFLPA-like forced labor ban could create other challenges. As Shelley Marshall, at RMIT, points out, if Australia were to adopt the US model to get into compliance with 301 tariffs, it would headbutt up against China’s own law, the Provisions on the Security of Industrial and Supply Chains (“Supply Chain Security Regulations”), which were passed to counter US import bans. That puts Australian firms in a potential bind: if China identifies multinational firms as actively complying with or implementing the foreign “extraterritorial measure,” they may be subject to fines or other remedies from the Chinese government. Maybe a due diligence approach would be more effective and more likely to be implemented than a largely unenforceable import ban?

Fourth, forced labor is much more of a cultural and political problem than it is an economic issue. No country chooses to permit or encourage forced labor on economic grounds to promote foreign trade. It’s inefficient and creates too many other domestic and international problems. That’s why, although there is certainly forced labor involved in global supply chains, especially in upstream suppliers, a lot of forced labor is found in domestic industries like construction and domestic work, and in the informal sector. Thus, if reducing forced labor in the supply chain is the goal, which again doesn’t really appear to be the goal of this investigation, interventions into domestic law, culture, and politics of countries with a high prevalence of forced labor are required.

Finally, forced labor in particular is a challenging issue to make the economic trade logic case for using 301. That’s because, despite the presence of forced labor in the supply chain, it mostly exists in tier 2, 3, and 4 suppliers, way upstream. That means a) it’s hard to identify and b) adds very little value to the supply chain. As a result, it’s hard to quantify any real unfair economic advantage based on forced labor.

Perhaps 301 actions could be used to effectively impact labor and human rights in trading partner countries, but we don’t have much evidence for that yet. It’s too soon to tell in the Nicaragua case, and in any event, those tariffs only applied to goods not covered by CAFTA-DR, which exempts most Nicaraguan apparel exports, which make up the bulk of trade between the two countries. And there will be little effect on forced labor through the forced labor investigation, in part because reducing forced labor wasn’t really the point.