U.S. ban on China’s Xinjiang cotton fractures fashion industry supply chains

Date: Wednesday, February 24, 2021
Source: The Washington Post

Last month, Chinese cotton yarn maker Huafu Fashion sent a warning to investors.

“Multiple American brands have canceled orders,” Huafu said in a Shenzhen stock exchange filing, citing U.S. sanctions. “It’s brought negative effects to the company.”

Huafu — which said it lost at least $54.3 million last year vs. a net profit of $62.5 million in 2019 — is one of the few suppliers to publicly acknowledge the sanctions’ effects. But thousands of companies worldwide are affected after the United States blacklisted 87 percent of China’s cotton crop — one-fifth of the world’s supply — citing human rights violations against Muslim Uighurs in China’s northwest Xinjiang region.

What’s happening now in the fashion industry is rare in the history of global trade: a multibillion-dollar supply chain splintered almost overnight over a human rights issue.

Just a year ago, companies “were saying it’s impossible” to stop buying textiles with Xinjiang cotton, said Scott Nova, executive director of the Worker Rights Consortium, a Washington-based advocacy group. “You can’t leave. Or if you could leave, it would take three to five years to even execute such an exit.”

Cotton picked in Xinjiang winds up in garments cut and sewn across Asia, from Bangladesh to Vietnam, textile industry executives say. The U.S. ban applies to products “made in whole or in part” with Xinjiang cotton, “regardless of where the downstream products are produced,” U.S. Customs and Border Protection said.

The U.S. sanctions were prompted by the Chinese government’s harsh reeducation campaign against Uighurs, a Turkic ethnic minority. Some Uighurs detained in internment camps in Xinjiang in recent years have said they were tortured and forced to work in textile factories as a condition of release.

The sheer scale of the campaign has horrified many in the West — especially as Beijing’s increasing global leadership ambitions generate friction with the United States — and led to economic retribution.

China has denied mistreating Uighurs, calling the sanctions a politically motivated campaign. In a statement to The Washington Post, China’s Foreign Ministry called reports of forced labor in Xinjiang “lies from head to tail.”

The United States began isolated sanctions last year on Xinjiang textile makers, including Huafu, which didn’t respond to a request for comment. On Jan. 13, CBP announced a blanket ban on all Xinjiang cotton.

“Companies can no longer claim ignorance as an excuse,” CBP said in a statement to The Post. “CBP’s message to the trade community is clear: Know your supply chains.”

Justin Huang, president of the Taiwan Textile Federation, said Taiwanese textile manufacturers received notices in September from Western brands to confirm their cotton sources. He said brands no longer wanted Chinese cotton, since it was difficult to confirm from which region of China it originated.

“U.S. manufacturers are very sensitive,” he said, “so before the announcement, U.S. traders had already begun to shift their production lines.”

Patagonia announced in July it was “actively exiting the Xinjiang region,” and said it told suppliers that Xinjiang fiber and manufacturing was prohibited. Gap, which encompasses the Old Navy and Banana Republic brands, said it has prohibited suppliers from sourcing products, components or materials from Xinjiang, directly or indirectly.

Ikea said it “stopped all shipments” to the United States containing Xinjiang cotton after the CBP ban. Ikea and H&M both said their suppliers have stopped new cotton purchases from Xinjiang because of the Better Cotton Initiative’s decision last year to discontinue licensing cotton from the region.

Nike said it has confirmed its suppliers were not using textiles or spun yarn from Xinjiang and that it was communicating the new requirements to them.

There has been little transparency further up the supply chain, with few suppliers publicly explaining if and how they would comply with the sanctions.

One of the rare reports of a factory shift directly attributed to the sanctions came in October from the Vietnam Investment Review, a periodical run under Vietnam’s Ministry of Planning and Investment. It said that Hong Kong-headquartered yarn giant Texhong, which has a Xinjiang subsidiary, was shifting some production to Vietnam because of the U.S. sanctions.

Texhong was more vague in its own financial update, which did not mention sanctions, only “uncertainties brought by the tension escalation between China and the U.S.” It said new yarn factories outside China would serve overseas customers. Texhong declined to comment on U.S. sanctions effects or the Vietnam Investment Review report, saying “certain content seems to be based on speculation.” The company said it has expanded production outside China for years to meet customer requests in different regions.

China’s state-controlled media has published upbeat reports on the cotton harvest, with occasional cryptic mentions of industry trouble. This month, the official China Cotton Association said Xinjiang had a bumper crop of cotton last year but noted, without explanation, that some factories had “no choice” but to use foreign cotton.

Labor activists caution that the fashion industry’s shift out of Xinjiang is partial, with limited enforcement.

“Suppliers have certainly shown themselves willing over the years to deceive their customers,” Nova said. “Sometimes the customers are happy to be deceived.”

Bayard Winthrop, founder of American Giant, said that when Western brands order clothing in China, they often deal only with the final sewing factory and don’t necessarily investigate where that factory is obtaining its fabric or yarn. Winthrop’s company uses U.S. cotton and manufacturers in the United States.

In China, “that factory is probably buying fabric from Chinese producers, which buy yarn from China, and if they are buying yarn from China it’s almost surely made with cotton from Xinjiang,” Winthrop said.

Nate Herman, senior vice president of the American Apparel & Footwear Association, said U.S. brands were working to remove Xinjiang cotton from their supply chains but that the process is slowed by the pandemic.

“We’re getting closer, but we’re not quite there yet,” he said.

Herman said he has heard of about a dozen shipments stopped by CBP since the ban last month. CBP declined to confirm the number but said it’s actively enforcing the measure and that detentions of shipments “are expected to grow.”

There’s growing interest in chemical-tracing technologies to determine cotton origin, though they are not yet in widespread use. Tracing company Oritain is working with a “large number of brands” on gauging their supply chain risk from Xinjiang cotton, chief executive Grant Cochrane said.

China’s official trade data reflects mixed effects of the sanctions. China’s cotton imports rose by 16.7 percent last year, with the United States, Brazil and India the top suppliers. The country’s exports of garments fell 6.4 percent year-on-year, but exports of all textiles rose 9.6 percent.

A report in the state-run China Textile Times in September noted that the country had increased cotton imports to “decrease risk to textile exports to the U.S.”

Hibbie Barrier, a cotton broker at Avondale Futures in Nashville, said the ban may have contributed to rising demand for U.S. cotton in recent months, and a bump in global cotton prices, from 81 cents a pound in mid-January to over 90 cents a pound last week. But tough weather in several cotton-growing regions has also cut supply and boosted prices, he said.

Huang, of the Taiwan Textile Federation, said China probably is using its imported cotton for U.S. orders and shuffling Xinjiang cotton to other markets.

“The global market is only so big,” he said. “Last year, China’s textile exports, in fact, did not decline. Only sales to the U.S. were affected.”


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