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Esquel Group Blames Xinjiang Blacklist for Sri Lanka Withdrawal

Esquel Group is pulling back its presence in Sri Lanka, the Hong Kong apparel giant told Sourcing Journal.

The Nike and Tommy Hilfiger supplier said it first established its factories in Sri Lanka to meet booming demand from American brands. That changed in 2020, when the U.S. Department of Commerce placed Changji Esquel Textile Co., one its Xinjiang-based subsidiaries, on its Entity List for suspected links to forced Uyghur labor. This, Esquel said, not only damaged its reputation but also “caused incalculable economic harm.”

“While we continue to pursue litigation to clear our name, the loss of U.S. customers has forced us to reduce our production capacity in Sri Lanka,” a spokesperson said. The move, Esquel added, is unrelated to the South Asian nation’s deepening financial crisis, which triggered a nationwide strike Thursday demanding the resignation of President Gotabaya Rajapaksa and the government his family dominates.

Esquel didn’t respond to the Clean Clothes Campaign’s allegations that it was closing two of its factories without assuring employment for their workers. Nor did it say if its two remaining facilities were in similar jeopardy.

The “imminent” shuttering of Koggala I and II will leave 1,500 workers hanging in the balance, the labor-rights consortium said. The timing of the downsizing also couldn’t be worse: Sri Lanka’s economic collapse, which has raised food and fuel prices and generated shortages of everything from daily staples to medicine, has rained nothing but misery and suffering.

“Many of these workers have been employed by Esquel for decades,” said Anton Marcus, joint secretary of the Free Trade Zones & General Services Employees Union (FTZ-GSEU), a member of the Clean Clothes Campaign, said in a statement. “Over the past 1.5 years, we have tried to negotiate in good faith for an agreement to ensure fair compensation and a re-employment plan with both Esquel and their buyers, who continued to profit while workers suffer.”

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The factories, the Clean Clothes Campaign said, have been “non-operational” since March 15. Workers said they suspect the facilities will reopen with new owners but worry that union members and allies will not be rehired. Already, some major employers are refusing to take on Esquel workers affiliated with FTZ-GSEU, they said, adding that Esquel “has a long history of union-busting and discrimination against union activists.” Esquel has requested permission from the commissioner-general of labor to terminate the workers’ contracts, though that ruling remains pending.

“Esquel is doing everything they can to close their facilities without paying workers in full, and to punish the unionized workers in the process,” said Ineke Zeldenrust, international coordinator at the Clean Clothes Campaign. “This process has been going on for over 1.5 years, and now is the time for all the other actors engaged to step up and make sure an agreement is negotiated with the FTZ-GSEU.”

Labor campaigners said that Esquel management pressured most of its workers to sign “voluntary” resignation agreements with the understanding that they would receive more than what they were legally entitled. This, however, did not appear to bear out, prompting 1,000 of them to file a legal case with labor authorities.

Although the roughly 300 workers who did not agree to resign will remain on the payroll until the commissioner-general makes a decision, they have had their annual bonuses cut in contravention of earlier agreements with the unions. This, the Clean Clothes Campaign said, is a “clear act of retaliation” on Esquel’s part.

The world’s largest woven shirt maker said, however, that it has never discriminated against any workers simply because they belonged to a union. It declined to comment on other points raised by the Clean Clothes Campaign.

“Sustainability and ethical business practices have been the cornerstones of Esquel since it was founded more than 40 years ago,” the spokesperson said. “In Sri Lanka, we are following or exceeding all national labor laws, including paying legally required compensation as well as salaries and bonuses in full for all employees.”