What the US ban on Xinjiang cotton means for apparel
By Hannah Abdulla | 15 January 2021 just style Font size Email Print The US Customs and Border Protection has issued a sweeping Withhold Release Order on cotton products made by slave labour in Xinjiang
The US this week stepped up its efforts to crack down on forced labour in supply chains with a sweeping regional ban on the import of cotton products from China's Xinjiang Uyghur Autonomous Region (XUAR). The move looks set to accelerate the industry sourcing shift away from China – and could prompt a surge in the adoption of alternative fibres – just-style has been told.
The blanket Withhold Release Order (WRO) announced by United States Customs and Border Protection (CBP) means that from 13 January, cotton products – including apparel and textiles – will be detained at US ports of entry. The ban also applies to tomato products from the Uyghur Region. "Importers are responsible for ensuring the products they are attempting to import do not exploit forced labour at any point in their supply chain, including the production or harvesting of the raw material," the agency says.
Spurred by mounting concerns over the detention of between 1-3 million Uyghurs, Kazakhs and others in internment camps across China's Xinjiang province – and the forced use of detainee or prison labour in fields and factories – this is the fourth WRO that CBP has issued since the beginning of fiscal year 2021, and the second on products originating in Xinjiang. A report from the Center of Global Policy revealed last month upward of half a million people were forced to pick cotton through the government's coercive labour training and transfer scheme. However, until now the detention orders have targeted specific companies instead of a blanket regional ban. In December, for example, a WRO was targeted at cotton and cotton products from the Xinjiang Production and Construction Corps. The move is significant for apparel supply chains because around 80% of China's cotton is produced in the Uyghur region – representing around 20% of the industry's global cotton supply – much of which is made into yarn used in textile and apparel produced in the region, and other factories globally. According to the Worker Rights Consortium (WRC), US brands and retailers import more than 1.5bn garments with Xinjiang content every year, representing more than $20bn in retail sales. This includes finished garments exported from dozens of countries – including Bangladesh, Cambodia, and Vietnam, as well as China – that use fabric containing cotton from the Uyghur Region. Every one of these garments is now barred from entry. "This ban will redefine how the apparel industry – from Amazon to Nike, to Zara – sources its materials and labour," says Scott Nova, executive director of the WRC, a member of the coalition to End Uyghur Forced Labour.
"Any global apparel brand that is not either out of Xinjiang already, or plotting a very swift exit, is courting legal and reputational disaster. The days when any major apparel brand can safely profit from Xinjiang cotton are over." What does it mean for the apparel industry? But with the complexity of global supply chains and the fact Xinjiang produces 20% of the world's cotton, just how big is the impact of this decision on the US apparel and textile industry? According to industry experts, multinationals saw this move coming and so were taking the necessary steps to insulate their businesses. Dr Sheng Lu, associate professor in the Department of Fashion and Apparel Studies at the University of Delaware, says US companies were already pulling back from China before the latest CBP action – in part due to additional tariffs imposed by the US government on Chinese imports over the last year. "The newest WRO, which targets any textiles and apparel containing cotton from XUAR, could make US fashion companies accelerate their plan to reduce China exposure," says Dr Lu. He notes that in value terms, only 15.4% of US cotton apparel came from China between January and November 2020 compared with 22.2% in 2019 and 28% in 2017.
During the same 11-month period in 2020, China's total textile and apparel exports to the US fell by 32%, compared with 41.1% and 47.2% in 2019 and 2017 respectively. One of the biggest challenges for companies is how to prove the provenance of the cotton, with Xinjiang supplying much of the raw material to global apparel manufacturers. "Many brands and retailers have already distanced and cut their ties with the Xinjiang region," explains Mike McCue, director of communications at the International Cotton Advisory Committee (ICAC). However, he adds: "Even if they suspend any direct purchases from that region, it would be difficult for them to completely rule out any cotton (including cotton picking) from the Xinjiang region from their entire textile value chain." While Andrew Olah, CEO at Olah Inc and founder of the Kingpins denim trade show, believes the only answer is to mark the cotton from the gin out. "So far there are two options – forensic (check the body after it died) or "live" where you can scan the garment and see the history of the scans." How will the CBP's decision impact cotton supply and prices?
Cotton prices have been on the rise, according to ICAC, increasing from 69.9 cents per pound in August 2020 to 86.5 cents per pound in January 2021. But this is due to a combination of several factors – including some countries lifting or easing lockdown restrictions; lower production in the US which is the world's largest cotton exporter; and a faster economic recovery in China, the world's largest cotton consumer, and the recovery of its textile and apparel sector. Drilling down further, Lu suggests the WROs and other US policy actions against cotton products associated with forced labour in XUAR have had some impact on the market price. "For example, according to data from the Federal Reserve of St Louis, the import price of US cotton apparel and household goods barely changed from January 2020 to December 2020." Similarly, some industry sources show the average price of cotton apparel newly launched to the US retail market in 2020 (January to December) edged up 4% from a year ago, he says. Perhaps the biggest difference is that while cotton-based apparel product categories have seen a higher price increase, such as tops (up 6%), bottoms (up 8%), and hosiery (up 6%), the price increase of cotton apparel 'Made in China' jumped 23% in the US retail market from 2019 to 2020.
The price could spike further, with Olah noting that speculators may "take advantage of this situation" and hold cotton they own, pushing the market towards an apparent shortage. ICAC's McCue also believes efforts by US textile buyers to trace or prove that their products have no forced labour links the Xinjiang region will lead to higher costs. "These costs could then either be absorbed by US textile buyers or transferred to the US consumers of cotton products from China (which have a good market share pertaining to their low prices) or to the Chinese textile sellers."
One thing the experts agree on is that alternative fibres are likely to see a boost in demand. "Bear in mind that China is currently the largest producer of synthetic and viscose fibres (67% of the total)," says McCue. "So the current ban could help the Chinese economy by increasing their exports of synthetic and cellulosic products to the US." Olah agrees: "This situation basically deletes cotton from China which accounts for 20% of the global production. The most obvious solution is to simply replace the missing 20% of cotton with manmade fibres and hey presto, there is no longer a need or shortage for Chinese cotton. Again this is already going on." Effective enforcement One of the key challenges around the new ban is effective enforcement. "It's now up to the incoming Biden administration and new Congressional leadership to up CBP's game on enforcement," says WRC's Nova. "The complexity and opacity of the brands' supply chains create major challenges and CBP's track record on enforcement is mixed, but it can be done. The effective and transparent enforcement of this order should be among the immediate regulatory priorities of the new administration." A joint statement from the American Apparel & Footwear Association (AAFA), National Retail Federation (NRF), the Retail Industry Leaders Association (RILA), and the US Fashion Industry Association (USFIA) said their member companies "have long made eradicating forced labour in our supply chains a top operational and public policy priority."
But they also make the point enforcement must be "smart, transparent, targeted, and effective. We urge CBP to share with industry the evidence gathered, and the evidentiary thresholds used, that led to today's announcement. "Additionally, we ask CBP to share enforcement actions so that the industry can further inform their due diligence and amplify and expand CBP's enforcement efforts." Under US law 19 USC §1307 it is illegal for the United States to allow entry of goods, "produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labour." CBP's action is an effort to ensure effective enforcement of this existing law and is based on the recognition that there is a high risk of forced labor on any Xinjiang farm – and therefore in any garment containing tainted cotton regardless of where the garment is sewn. Dr Lu warns the latest WRO "sends out a strong signal that the XUAR forced labour issue is far from over yet, and more 'draconian actions' are not unlikely in the future." For example, two pending pieces of legislation in Congress last year – the Uyghur Forced Labor Prevention Act (H.R. 6210) and the Uyghur Forced Labor Disclosure Act (H.R. 6270) – intended to establish a "guilty until proven innocent" blanket standard that would affect ANY products made in Xinjiang. "Although neither of them became law, I won't be surprised if new bills with similar content are reintroduced to Congress in early 2021," Dr Lu adds.
The Congressional-Executive Commission on China (CECC) yesterday (14 January) said in its 2020 Annual Report that new evidence had emerged that "crimes against humanity – and possibly genocide – are occurring" in China's treatment of Uyghurs and other minority Muslims in Xinjiang. A US genocide declaration would mean increased reputational and compliance risks for companies doing business with the region, as well as raising the spectre of further US sanctions against China.