Date: Tuesday, September 7, 20201
Source: Sourcing Journal
A Hong Kong-based supplier for brands such as Nike, Patagonia and Tommy Hilfiger is suing the U.S. government. Again. And customs seizures of its shipments from Vietnam are likely to blame.
On Friday, Esquel Group filed a motion to reset a hearing date with a federal court for the District of Columbia, resuming its lawsuit against the U.S. Department of Commerce for a Trump administration decision to include one of its subsidiaries on the so-called Entity List, which basically prevents it from doing business with American suppliers. After filing a lawsuit earlier this summer, it appeared that the Bureau of Industry and Security’s End-User Review Committee would be absolving Changji Esquel Textile Co. Ltd. (CJE) of previous forced-labor allegations, “subject to certain conditions.” Now, an impasse threatens to render all previous discussions moot.
“Despite good-faith efforts since early August, Esquel Group and the U.S. Department of Commerce have not been able to come to a resolution as the U.S. government is unable to provide any concrete timeline by which it could finally remove CJE from the Entity List,” Esquel wrote in a statement.
The world’s largest woven-shirt maker, which churns out roughly 100 million shirts annually, said that it has meanwhile suffered “substantial, ongoing and irreparable harms” that have “continued and even worsened” over the past month. In addition, U.S. Customs and Border Protection (CBP) has detained and begun to exclude from entry a “large number” of shipments from Esquel factories outside China, including Vietnam, jeopardizing the manufacturer’s contractual obligations and causing “permanent economic and reputational damages.” Because this “heightens the need for emergency relief,” it added. “Esquel is left with no choice but to resume its lawsuit.”
CBP’s detention of Esquel shipments from Vietnam started happening in early August, chairman and CEO Marjorie Yang said in a supplemental declaration to the filing. CBP had told one Esquel customer that the detained shipments, worth $1.6 million, were subject to a Withhold Release Order against cotton products from Xinjiang, even though, according to Yang, the goods contained no cotton fibers or yarn from China.
She said she believes Esquel is being targeted. “I maintain communications with other textile and garment manufacturers, including those who ship goods from Vietnam,” Yang said. “To my knowledge, no other manufacturer is facing CBP detentions at the same frequency as Esquel. Under these circumstances, I believe that CBP has added most if not all Esquel factories to its targeting criteria, which essentially results in [the] automatic detention of a large amount of Esquel shipments to U.S. importers. I further believe that CBP has done so based on CJE’s status on the Entity List.”
One major U.S. brand, a “significant customer” of Esquel’s whose shipment from Vietnam was detained, has frozen all production and shipments from Esquel immediately due to the “uncertainty regarding future shipments,” with affected orders amounting to over $2.5 million, Yang said. If these detainments continue, another client, an established U.S. brand with more than $10 million worth of products for the upcoming season, could drop Esquel in favor of its competitors, she added.
“I expect that, in addition to the shipments detained by CBP in August 2021, the $6 million worth of goods currently en route from Esquel’s factories in Vietnam and Sri Lanka to the United States are at high risk of being detained,” she said. “Given my customers’ inability to accept orders shipped from any Esquel facility in the world, I am concerned that our remaining customers will either pause their orders from Esquel or simply cease doing business with us.”
“I fear that as long as CJE remains on the Entity List CBP will continue to detain shipments from Esquel’s factories, and that Esquel will permanently lose all U.S. business and U.S. customers,” Yang added.
The Trump administration had accused CJE and others last year of complicity in human-rights abuses against Uyghurs and other Muslim ethnic minorities in China’s northwestern Xinjiang Uyghur Autonomous Region, which supplies 85 percent of the country’s cotton. In 2019, the Wall Street Journal reported that Esquel had established three spinning mills in Xinjiang, and that the company had employed at least 34 Uyghur workers offered by local officials. Responding to the outlet, then-CEO John Cheh said the company was “in no way forced to employ anyone.”
Following its blacklisting by the Department of Commerce, Esquel said it was “deeply offended” by the decision. “We absolutely have not, do not, and will never use forced labor anywhere in our company. There is no evidence to support the allegations against us on the use of forced labor in CJE,” it said.
Esquel made its initial filing against the department on July 6, pointing to a “lack of any factual or legal basis” for CJE’s listing and seeking access to the administrative record the Commerce Department relied on to make its “erroneous listing.” On July 31, the End-User Review Committee moved to discharge CJE from the Entity List, and on Aug. 3, a joint motion was filed to extend the government’s deadline to respond by 30 days.
“As of August 26, 2021, the U.S. government has maintained that no concrete timeline can be provided for the necessary steps needed before CJE will be removed from the Entity List and have acknowledged that several variables could delay [the] fulfillment of the conditions,” Esquel said in its statement. “We continue to feel strongly that the irrefutable facts and the law are on our side in this case and look to seek swift judicial action.”
Both CBP and the Department of Commerce said they do not comment on ongoing litigation.