Date: Monday, June 26, 2023
Source: Sourcing Journal
Temu is doing “next to nothing” to keep its supply chains free of forced labor, Representative Mike Gallagher said Thursday.
Gallagher, the Wisconsin Republican who chairs the House Select Committee on the Chinese Communist Party (CCP), was referring to a newly released interim report based on responses gleaned from the popular Chinese e-tailer, its Singapore-headquartered rival Shein and sportswear Goliaths Adidas and Nike.
It was only last month that Gallagher, together with Illinois congressman Raja Krishnamoorthi, the bipartisan group’s Democratic ranking member, had written to the companies questioning them about possible links to the exploitation of Uyghurs and other Muslim ethnic groups in China’s northwestern Xinjiang Uyghur Autonomous Region, where evidence of crimes against humanity are widely documented.
In its preliminary findings, the committee reserved most of its ire for Temu, which sells everything from clothing to electronics to household appliances from its headquarters in Boston. Because the “Shop Like a Billionaire” platform lacks “any system” to ensure compliance with the Uyghur Forced Labor Prevention Act (UFLPA), it said, it’s “all but guaranteed” that forced labor products from Temu are entering the United States on a “regular basis.”
Damningly, America’s most downloaded shopping app, which has been installed more than 50 million times since it made its Stateside debut in September, told the committee that it does not expressly prohibit its network of 80,000-plus third-party sellers from selling verboten products originating from Xinjiang.
Neither Temu, whose name derives from its motto, “Team Up, Price Down,” nor its parent company PDD Holdings (formerly Pinduoduo Inc.), which recently moved from Shanghai to Ireland, responded to requests for comment.
The report also had harsh words for Shein. Like Temu, it said, the Nanjing-founded phenom relies “heavily” on a trade provision that allows direct-to-consumer shipments valued at under $800 to avoid paying import taxes, duties and fees while skirting serious scrutiny from U.S. Customs and Border Protection, a.k.a. CBP.
While de minimis packages aren’t exempt from the UFLPA, as Allison Gill, forced labor program director at Washington D.C.’s Global Labor Justice-International Labor Rights Forum, explained to Sourcing Journal, the lower level of customs information provided with these small shipments makes enforcement “much harder.”
And because many Shein and Temu packages are shipped by air straight to their buyers, researchers and advocates are often unable to track and identify imports of goods that may be made with forced labor.
“Congress should also mandate disclosures of shipping data on goods that arrive by air, road and rail, which are currently not subject to disclosure as ocean freight,” Gill said. “Congress needs to act to allow CBP easier access to the data it needs to enforce the law effectively and prevent forced goods made with Uyghur forced labor from the U.S. market.”
The committee estimates that Temu and Shein are likely responsible for more than 30 percent of all packages shipped to the United States under the de minimis provision, amounting to some 600,000 per day or 210 million a year.
The threshold, it noted, was previously $200 but increased in 2016 with the passage of the Trade Facilitation and Trade Enforcement Act. Since then, the number of de minimis imports entering the country has skyrocketed from 220 million packages in 2016 to 720 million in 2021.
Several lawmakers have called for the so-called “loophole’s” closure, including Senators Sherrod Brown (D-Ohio) and Marco Rubio (R-Fla.) and Representatives Earl Blumenauer (D-Ore.) and Neal Dunn (R.-Fla.), who said last week that the allowance gives “foreign competitors” an unfair trade advantage over American businesses.
Rubio, in particular, has accused Shein of “trade tricks” and “crimes.” Writing to his colleagues on Capitol Hill earlier this month, he said that the Anitta collaborator is able to offer such a range of products at “rock-bottom” prices not because of any particular competitive advantage, but because it “steals intellectual property, infringes copyrights, exploits U.S. trade law and uses fabric linked to Uyghur slave labor.”
Shein is also growing beyond fashion, cribbing a page from the third-party playbook to offer many of the same products that Temu does.
“Temu and Shein are building empires around the de minimis loophole in our import rules—dodging import taxes and evading scrutiny on the millions of goods they sell to Americans,” Gallagher said. “We need to take a hard look at this loophole that is being abused to tilt the playing field against American companies.”
Shein maintains that it doesn’t have suppliers in Xinjiang and that it has “zero tolerance” for forced labor. Its policy, it said, is to comply with the customs and laws of the markets in which it operates.
“We…have implemented a robust system to support UFLPA compliance, which includes a code of conduct, independent audits, robust tracing technology and third-party testing,” a spokesperson said. “If any cotton from an unapproved region is detected, we take immediate action such as suspending production, halting shipments to the United States and removing product listings.”
Temu’s admission that it doesn’t weed out products from Xinjiang lines up with the results of an investigation by supply chain intelligence firm Ultra Information Solutions, which said last week that it had identified at least 10 items made or sold by Xinjiang businesses on the U.S. version of Temu’s sprawling marketplace.
Still, the Super Bowl advertiser denied that it was responsible for ensuring that its sellers stay clear of products made with forced labor because it isn’t the “importer of record with respect to goods shipped to the United States.”
Temu said that it relies on a “reporting system” in which “consumers, sellers, [and] regulators,” can “file complaints for violations of Temu platform rules.” So far, the e-tailer hasn’t received any complaints regarding forced labor practices, it told the committee.
But the “lack of any complaints highlights the dubious nature of a system that relies solely on external reporting,” the report noted. “Individuals and entities in China that raise questions about forced labor are routinely penalized and are unlikely to self-report violations of U.S. law.”
Peter Irwin, senior program officer for advocacy and communications at the Uyghur Human Rights Project, a nonprofit based in Washington, D.C., said that the magnitude of Shein and Temu’s combined shipments. requires “immediate attention” from CBP and lawmakers.
The two companies, he told Sourcing Journal, are “highly exposed” to forced labor inputs from China. Despite their Western bases of operation, most, if not all, of their products are made in the country. Cotton-containing products are especially risky: Xinjiang contributes 90 percent of Chinese cotton, which in turn makes up one-fifth of the world’s total. Already, a Bloomberg investigation in November found traces of Xinjiang cotton in Shein garments purchased on separate occasions. The company didn’t refute this at the time, though it has since engaged forensics firm Oritain to validate cotton origins.
“This kind of direct-to-consumer model, whether purposeful or not, is ideally suited to circumvent existing laws meant to stop forced labor goods from entering the country,” Irwin said. “Other jurisdictions need to take note as well, especially those drafting or negotiating forced labor or due diligence legislation, like the EU, Canada and Australia.”
When asked for comment, a CBP representative said that the agency cannot comment on interim findings from an outside source or House legislation.
The report is a “very welcome contribution” to public understanding of the impact of the de minimis import exception, including “how it is currently making it much more difficult for CBP to enforce comprehensively both the UFLPA and the general ban on the importation of goods made with forced labor,” said Dean Pinkert, special advisor to Corporate Accountability Lab, a human rights organization in Chicago.
“Temu’s reliance on legal technicalities in responding to the Select Committee’s questions about compliance with the UFLPA underscores the need for Congress and CBP to work together to enable CBP to obtain much more detailed information about de minimis shipments—and for that information to be made available to civil society—in order to provide for more effective enforcement of U.S. law,” Pinkert, a former vice chairman of the International Trade Commission, told Sourcing Journal.
Krishnamoorthi called the initial findings “concerning,” reinforcing the need for “full transparency by companies potentially profiting from CCP forced labor.”
“Our Select Committee heard from experts under oath that these practices persist to this day and we intend to strengthen laws like the Uyghur Forced Labor Prevention Act to put an end to them once and for all,” he said.
Both he and Gallagher said that all companies operating in the United States have an obligation to “clean up their supply chain” and ensure that they are not contributing to Beijing’s “genocide of the Uyghur people” by “facilitating” the sale of goods made with forced labor.