At the end of August, Ninestar Corporation and eight of its subsidiaries filed suit in the United States Court of International Trade (CIT) against a group of U.S. governmental agencies and administrators.
The plaintiffs, all based in Zhuhai, China, accuse the defendants of ignoring U.S. administrative law when the government imposed a ban on products from Ninestar and its eight affiliates, preventing them from entering the country.
The ban was announced in June by the Department of Homeland Security (DHS) after the Forced Labor Enforcement Task Force (FLETF), an interagency group led by DHS, determined that the nine Chinese companies had violated the Uyghur Forced Labor Prevention Act (UFLPA). The act, which was implemented in June 2022, prohibits goods from being imported into the U.S. if they’re produced in the Xinjiang Uyghur Autonomous Region or made with forced labor by minority workers from Xinjiang or other regions. According to the FLETF, Ninestar and its eight subsidiaries worked to “recruit, transport, transfer, harbor or receive forced labor or Uyghurs, Kazakhs, Kyrgyz or members of other persecuted groups out of Xinjiang.”
Because Ninestar Corporation disobeyed the UFLPA, FLETF placed the organization and the following companies on the so-called UFLPA Entities List:
- Zhuhai Ninestar Information Technology Co., Ltd.;
- Zhuhai Pantum Electronics Co., Ltd.;
- Zhuhai Apex Microelectronics Co., Ltd.;
- Geehy Semiconductor Co., Ltd.;
- Zhuhai Pu-Tech Industrial Co., Ltd.;
- Zhuhai G&G Digital Technology Co., Ltd.;
- Zhuhai Seine Printing Technology Co., Ltd.; and
- Zhuhai Ninestar Management Co., Ltd.
According to DHS, the firms are subject to the “rebuttable presumption” that forced labor was used in the production of “goods mined, produced or manufactured wholly or in part in Xinjiang or by an entity on the UFLPA Entity List.” A term in the law of evidence, Black’s Law Dictionary defines a rebuttable presumption as a “legal presumption which holds good until disproved.” It’s this presumption that’s at the center of the case filed at the CIT.
Companies can be dropped from the UFLPA Entities List, and a couple appeals are pending. But as far as I know, no companies have been delisted. To be removed from the list, firms must submit a formal removal request to the FLETF along with supporting information that they didn’t violate the UFLPA. After a review of the submitted materials, a majority of the FLETF member agencies vote whether to remove the entity from the list.
The CIT Case
In their suit, the Ninestar companies contend that the FLETF’s method for removal requires that they prove a negative, which is that they didn’t violate the UFLPA. Instead of working with the FLETF, the Chinese companies filed a suit with the CIT challenging the procedures used to place them on the list and named the following defendants:
- DHS and Department of Homeland Security Secretary Alejandro Mayorkas
- Customs and Border Protection (CBP) and Senior Official Performing the Duties of the Commissioner for CBP Troy Miller
- FLETF and Under Secretary for Office of Strategy, Policy, and Plans, and Chair of the Forced Labor Enforcement Task Force Robert Silvers
The plaintiffs argue that they’ve suffered “serious and irreparable economic, contractual, market-based, reputational and other harm” without being provided “any explanation or justification whatsoever for said action.” The lawsuit further alleges the “arbitrary and capricious” action of the defendants violates the “reasoned decision-making requirement” of the Administrative Procedures Act (APA), which was enacted in 1946 to govern the processes U.S. administrative agencies use when enacting laws and regulations. The APA also allows U.S. federal courts, including the CIT, to oversee agency actions such as those taken by DHS.
The APA, says Ninestar, requires the CIT “to hold unlawful and set aside” the listing of the plaintiffs because the action is “arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.” The suit explains that the FLETF “not only failed to provide an adequate explanation, but it also failed to provide any explanation for adding plaintiffs to the UFLPA Entity List” and in so doing violated the APA. In the filing, Ninestar’s attorneys cite legal precedent that states, “A ‘fundamental’ requirement of administrative law is that an agency ‘set forth its reasons’ for a decision; an agency’s failure to do so constitutes arbitrary and capricious agency action.” In addition, the plaintiffs filed a motion for a preliminary injunction that would effectively lift the embargo.
Because they failed “to provide a reasoned explanation” for listing the plaintiffs, the suit requests that the CIT find the defendants’ actions were arbitrary and capricious and thus violated the APA. In addition, the suit requests that the Ninestar firms be removed from the UFLPA Entities List and that DHS and CBP be enjoined from “the UFLPA’s adverse importation presumption against Plaintiffs.” The plaintiffs further request they be awarded attorneys’ fees and “all other reasonable expenses incurred in pursuit of this action” as well as any other relief the CIT “deems just and proper.”
High Stakes
Ninestar’s decision to litigate the matter at the CIT rather than work things out with the FLETF significantly increases the stakes for the U.S. government. If the court sides with Ninestar and finds FLETF has violated the APA, it could undermine the UFLPA. It seems unlikely that the UFLPA could work if the CIT ruled that the rebuttable presumption resulted in arbitrary and capricious actions.
I doubt, however, that the U.S. government will settle the matter without a fight. I’ve spoken with representatives from various governmental agencies, and they made it clear that the government is serious about protecting Uyghurs and other minority groups in the People’s Republic of China. And the UFLPA is getting results—according to data posted on the CBP website, over 5,000 shipments valued at $1.75 billion have been subject to reviews or enforcement actions between the time the UFLPA went into effect in June 2022 and July 2023. Of that total, 1,733 shipments worth $385 million have been denied entry, and, as of this writing, 1,256 shipments worth approximately $390 million are pending. And the UFLPA Entities List continues to grow. On Aug. 1, DHS added two more firms: Chinese battery maker Camel Group and Chenguang Biotech Group, a spice and extract company. Both firms are banned from exporting to the United States because they use forced labor.
Of course, the stakes couldn’t be higher for Ninestar and many of its subsidiaries, which are currently locked out of one of their largest, most lucrative markets. According to filings made with the CIT, sales have all but dried up for Ninestar and its subsidiaries. Plenty of third-party ink and toner cartridges sporting Ninestar brands such as Lemero and myCartridge continue to appear for sale online, but representatives for the Chinese firm indicate its cartridge sales in the region have dropped to zero for certain firms on the UFLPA Entities List.
I understand that hardware sales are also down significantly in the U.S. My company, Actionable Intelligence, estimates that one of the banned firms, Zhuhai Pantum Electronics Co., has only a single-digit share of the U.S. desktop printer market. Lawyers for the banned Chinese firms filed a declaration from Yiling Cheng, the director of Ninestar’s Enterprise Planning, indicating that Pantum recently landed “significant orders” in the U.S. However, those sales were lost once Pantum was banned. Although Lexmark International, an affiliate of Ninestar based in the U.S., wasn’t placed on the UFLPA Entities List, I understand that some of its largest OEM customers immediately canceled their orders when the Ninestar embargo was announced by DHS and are looking for new technology providers.
Ms. Yiling’s declaration indicates that other businesses were also damaged by the embargo, including business at Ninestar’s two chip subsidiaries, Zhuhai Apex Microelectronics Co. and Geehy Semiconductor Co. She said that after the two chip makers were placed on the embargo list, their business ground to a halt in the U.S. According to the filing, international sales were also adversely impacted. In China, for example, the filing said, “Apex customers have paused their sales and supply contracts with Apex Microelectronics out of concern that, if they integrate Apex Microelectronics components into their products, they will not be able to sell to United States customers.” Both Apex and Geehy reportedly lost sales in Europe and other regions as well.
Sound Tactics?
Obviously, Ninestar finds itself in a serious predicament. While working with the FLETF to be delisted may have been arduous and the desired results weren’t guaranteed, it’s not clear that the CIT suit will get the ban lifted. It may seem that being forced to prove a negative runs counter to U.S. law, but it’s not uncommon. For example, corporations and individuals alike are frequently required to prove they didn’t violate tax laws.
We know of one Chinese firm that turned to the CIT to have a ban lifted, and it failed. Changji Esquel Textile Co., a subsidiary of the Hong Kong-based textile company Esquel Group, was placed on the original UFLPA Entities List when it was released in 2022. In 2020, prior to the UFLPA being enacted, products from Changji Esquel Textile were banned because the firm was presumed by the Department of Commerce to have engaged in forced labor. In June 2021, it sued the CIT and sought a preliminary injunction on the grounds that Commerce had violated the APA. The injunction was denied in November 2021, and the case was dismissed just days before Ninestar and its subsidiaries filed suit in August 2023.
With so much riding on this more recent case, neither Ninestar nor the U.S. government will look for an easy out. We suspect that the government’s defense team employed in the Ninestar matter will be highly competent and well-funded. Of course, the same may be true for Ninestar and its subsidiaries. There are plenty of stakeholders in Zhuhai—and beyond—that will want to see the company succeed.
