Date: Wednesday, July 26th, 2023
Source: Sourcing Journal
U.S. lawmakers are mulling bills that would mandate active supply chain audits for Chinese forced labor and impose secondary sanctions on anyone conducting business with companies that have been blacklisted for promoting or benefitting from the same.
The first, which Congresswoman Jennifer Wexton, a Democrat from Virginia, reintroduce on Tuesday, would require publicly listed companies to disclose imports of manufactured goods and materials that are sourced in whole or in part from the Xinjiang Uyghur Autonomous Region or through state-sponsored labor transfer schemes trafficking Uyghurs and other persecuted Muslim minorities to other parts of China.
The so-called Uyghur Forced Labor Disclosure Act, a proposed amendment of the 1934 Securities Exchange Act, would also oblige issuers to divulge gross revenue and net profits from such products, describe any due diligence efforts that they’ve put in place and reveal alternate sourcing options. All of this information would be published on the Securities and Exchange Commission’s website.
Goods with any kind of nexus to Xinjiang are automatically excluded from the United States under the Uyghur Forced Labor Prevention Act, a.k.a. the UFLPA, though importers are given the opportunity to demonstrate otherwise when their shipments are detained.
The Uyghur Forced Labor Disclosure Act narrowly passed the House of Representatives by a vote of 215 to 214 in June 2021 as an amendment to the Corporate Governance Improvement and Investor Protection Act but struggled to gain a foothold in the Senate.
“A lot of my colleagues believe that issuers should only disclose information that’s material,” Wexton said at a recent Congressional-Executive Commission on China hearing. “And they don’t think that this is material.”
She said that SEC filings tend to elide their China revenue by “hiding behind” broader categories like Asia. Her bill, she said, would help answer some of the questions that investors, regulators and citizens have about how American companies are exposed in China.
On Wednesday, Senator Marco Rubio, a Republican from Florida, rebooted the Sanctioning Supporters of Slave Labor Act. While U.S. law authorizes sanctions on foreign entities involved in crimes against humanity against Uyghurs, including forced labor, he said, companies that continue to do business with them are still able to access the American financial system.
“Further actions must be taken to hold accountable those individuals and entities benefiting from the forced labor of Uyghurs,” Rubio said in a statement. “Not only should China’s genocidal regime answer for the crimes they are committing but also the companies that profit from these atrocities.”
Congressman Jim Banks, a Republican from Indiana, introduced companion legislation in the House of Representatives
“The White House hasn’t designated a single firm pursuant to the Uyghur Human Rights Policy Act passed by Congress in May 2020,” he said, referring to legislation condemning gross human rights violations of ethnic Muslims in Xinjiang. “The Biden administration is dragging its feet and slow-rolling bipartisan efforts to hold the Communist Party accountable for Uyghur slave labor, which is why Senator Rubio and I introduced stronger legislation that forces the administration to punish companies profiting and supporting the Communist Party’s genocide in Xinjiang.”
Biden signed the UFLPA into law in December 2021. Since June 2022, Customs and Border Protection has targeted more than 4,650 shipments valued at more than $1.6 billion, according to the agency’s dashboard.
Wexton, whose 10th district houses one of the largest Uyghur diaspora populations in the United States, previously led a group of 22 House of Representatives members in asking the SEC to delay registering Shein until the Chinese-founded e-tail giant can independently certify—“free from state influence”—that it doesn’t use forced labor from China’s persecuted Uyghur minority.
“We strongly believe that the ability to issue and trade securities on our domestic exchanges is a privilege, and that foreign companies wishing to do so must uphold a demonstrated commitment to human rights across the globe,” she and others wrote in a letter addressed to SEC chair Gary Gensler dated May 1.
While Shein has maintained that it has no suppliers in the Xinjiang region—and that it has “zero tolerance” for forced labor—the “math doesn’t add up,” since 90 percent of Chinese cotton hails from Xinjiang and only 20 percent of cotton used by Chinese textile manufacturers is imported from other countries, Wexler and John Rose, a Republican Congressman from Tennessee, wrote in an op-ed in The Hill on Tuesday. An oft-cited Bloomberg investigation from November found traces of Xinjiang cotton in Shein products purchased on separate occasions.
Shein has since brought on board Oritain, a New Zealand-based supply chain tracing firm that told Politico in May that the fast fashion phenom’s cotton test results are “significantly better” than the fashion industry on average. In its most recent round, roughly 12 percent of cotton samples tested positive for an “unapproved” region, said Rupert Hodges, its chief commercial partner.
But Wexler and Rose continue to harbor doubts. “We have serious concerns that Shein is not conducting the due diligence necessary to participate in our U.S. capital markets,” they said. “What’s most unfortunate is how many unsuspecting Shein customers, especially those who discover the brand through social media, are not aware of the slew of forced labor and workplace abuse allegations against the company.”
They said that Shein works with roughly 6,000 clothing factories throughout China and reportedly produces up to 10,000 new products a day. “Based on how extensively the company’s business practices are intertwined with the Chinese clothing production industry, it is clear that greater scrutiny and transparency are necessary to ensure Shein is not complicit with the CCP’s pervasive forced labor scheme,” they added, using an acronym for the Chinese Communist Party.
Rubio isn’t a fan of Shein’s either. Last month, he wrote a letter to his colleagues arguing that more action is still needed to ensure that the UFLPA is fully implemented and enforced and that Shein’s “trade tricks” are neutralized, including by closing what many have called a de minimis “loophole”
that exempts packages under $800 from taxes and tariffs and makes serious scrutiny more challenging.
“Shein knows its reputation is toxic,” he wrote on June 8. “Shein is even touting its own ‘third-party analyses,’ which found that only some of its cotton comes from Xinjiang. This study amounts to an admission of guilt, yet incredibly, Shein presents it as evidence of good corporate citizenship. Shein’s spin and legal maneuvering cannot hide its crimes.”
China has vehemently denied all allegations of human rights violations, including forced labor, against its Uyghur population, instead characterizing its efforts as countering poverty, extremism and terrorism.
“We applaud action by Congress and U.S. regulators to expose and regulate companies like Shein which use forced labor,” Chapin Fay, executive director of Shut Down Shein told Sourcing Journal. ”Our coalition is working to shine a light on Shein»s human rights abuses and lawmakers are turning up the heat on this bad actor that’s looking for access to U.S capital markets on the backs of the Uyghur people and American consumers.”
The South China Morning Post reported Monday that Beijing has promised to mount a “proactive struggle” against what they say are U.S.-led efforts to use Xinjiang to contain China.
In an article in Qiushi, the Communist Party’s official journal, on Sunday, the regional party committee said it would step up the use of legal mechanisms to counter these criticisms and “proactively carry out struggles against external [forces] on Xinjiang-related issues.”