Xinjiang Cotton Found in Shein Clothing Imports: Report

Two laboratory tests conducted for Bloomberg News found that apparel shipped to the U.S. by Shein was made with cotton from China’s Xinjiang region.

The findings bring a major concern to the forefront: how the largest online-only retailer can skirt U.S. attempts to ban the import of cotton tied to forced labor by evading U.S. Customs and Border Protection regulations.

Imports of Xinjiang-made products into the United States have been generally banned since June under the Uyghur Forced Labor Protection Act (UFLPA), which prohibits any product made in whole or in part in the region from entering the U.S. unless importers can surface clear and convincing evidence that forced labor wasn’t involved in its mining or manufacture.

“Exploiting loopholes is very much how the system works,” Dr. Adrian Zenz, senior fellow and director in China studies at the Victims of Communism Memorial Foundation and a leading Xinjiang researcher, told Sourcing Journal. “Any feasible loophole is liable to be exploited by entities who will observe if this is working or not. I would say that’s a significant problem, even if we are not fully aware of the scale of it.”

Because Shein hauls typically fall under the $800 value minimum that requires reporting to customs, the fast-fashion giant isn’t subject to the same kinds of inspections applied to retailers’ mass imports, according to Bloomberg, whose findings are in direct contrast to Shein’s claims of having a zero-tolerance policy for forced labor.

Shein countered the outlet’s report by saying its audits haven’t uncovered any “labor violations.”

“Shein takes seriously any claims of forced labor,” a spokesperson for the company told Sourcing Journal. “Our supplier code of conduct is aligned with International Labor Organization core conventions, and all local laws and regulations, with penalties that include the termination of business partnership for those suppliers and manufacturers who do not remediate their practices. Through the Shein Responsible Sourcing Program, we work with leading agencies to conduct ongoing, unannounced audits of our supply chain, which have confirmed no forced labor violations. Additionally, we are working with partners like Oritain, an independent and well-respected testing laboratory, to help us ensure continued compliance with local laws and regulations.”

The Shein test results are the just tip of the iceberg.

Now, two Xinjiang-based joint ventures involved in chemical production show key indicators of the use of forced labor based on government advisories, according to an investigation by Los Angeles-headquartered Kharon, a risk intelligence firm. The two joint ventures are in an economic development zone, held by a state-owned entity that benefits from Chinese government labor transfers. The other owner is a European multinational company based in Germany, one of the world’s largest chemical producers.

The research and data analytics company found that local owner Xinjiang Makor Chemical Co. Ltd. is indirectly owned by Xinjiang Zhongtai (Group), Co., Ltd., which is owned by the government of the Xinjiang Uyghur Autonomous Region (XUAR). The joint ventures sell and manufacture organic chemical compounds, including formaldehyde, methanol, and butanediol, with many industrial applications, including textile production.

“Xinjiang Zhongtai Group and the Korla Economic Development Technology Zone have both received government-organized transfers of laborers in Xinjiang, participating in so-called poverty alleviation programs and providing patriotic or Mandarin-language education,” the Kharon report said. “The U.S. Government’s Xinjiang Supply Chain Business Advisory has identified these practices as indicators of forced labor and other discriminatory practices targeting Muslim minority groups.”

According to a report by the Chinese Communist Party-owned media group People’s Daily, Xinjiang Zhongtai Group received more than 3,000 laborers from southern Xinjiang transferred through poverty alleviation programs between 2017 and 2019. Another report found that the workers transferred to the group underwent “centralized education training” to learn “gratitude” toward the state.

“What Zhongtai is doing is particularly egregious,” Dr. Zenz said. “It’s the maximum level of risk when it comes to labor transfers.”

The two joint ventures are in the Korla Economic Technology Development Zone, roughly 155 miles south of the regional capital Ürümqi. The zone accepted more than 1,000 laborers transferred from other areas of Xinjiang from 2017 through 2018. It uses “ideological education” as part of its “poverty alleviation” efforts and has set up national language night schools and cultural training to “change the thinking of transferred workers,” according to a 2018 press release. The Xinjiang edition of People’s Daily found that labor transfers to the zone continued into 2020.

“No evidence was found indicating that either joint venture has used forced labor, but each was founded in 2014 and doing business in the Korla Economic Development Technology Zone while it was known to be participating in programs associated with forced labor,” the Kharon report said.

But Zenz pointed to a “very clear ethical problem” with Kharon’s investigation.

“You’re working in an ethically, extremely problematic context,” he said. “[But] there’s not actually any link of these two joint ventures to forced labor; they’re not even named. There’s not actual evidence that those joint ventures are engaged themselves in forced labor.”

A Xinjiang Supply Chain Business Advisory from July of last year outlined the problems that could arise from doing business with the embattled Chinese region.

“Businesses, individuals, and other persons, including but not limited to investors, consultants, labor brokers, academic institutions, and research service providers with potential exposure to or connection with operations, supply chains, or laborers from the Xinjiang-region, should be aware of the significant reputational, economic, and legal risks of involvement with entities or individuals in or linked to Xinjiang that engage in human rights abuses, including but not limited to forced labor and intrusive surveillance,” it said.

A proposed European Union regulation to ban goods made with forced labor from the EU market would create additional risks for importers of products made by joint ventures and others in Xinjiang, according to Kharon. The draft EU regulation, proposed in September, would ban products made with forced labor in any country. Still, previous European Parliament resolutions denote forced labor in Xinjiang as the leading concern under an adopted rule. The June European Parliament resolution, however, called for a ban that explicitly covers Xinjiang.

The German Supply Chain Act (LkSG) will be enacted in January of next year, requiring companies with a corporate or branch presence in Germany to conduct due diligence into their supply chains for evidence of child or forced labor. Violating the LkSG could result in a fine of up to 8 million euros ($8.29 million), depending on the nature and severity of the infraction.

This finding comes just weeks after 50 countries in the United Nations General Assembly Third Committee issued a joint statement regarding the human rights situation in Xinjiang. And weeks before that, more than 60 human-rights organizations, civil society groups and trade unions signed a letter urging the European Commission to strengthen proposed legislation banning goods made with forced labor.

Considering the modern slavery practices in Xinjiang, brands have begun pulling operations from the region. Patagonia cut ties with Chinese cotton partners in July 2020, as did L.L. Bean, with promises to “be completely out of the cotton production process (farm to factory) in Xinjiang by 2021, a 2020 press release stated. But other companies aren’t so quick to act. Though scientists say they have found traces of Xinjiang cotton in garments from Adidas, the company denied ever manufacturing products in the region. Nike has rejected calls to stop sourcing in China because it cannot guarantee it can keep forced labor out of its supply chain. Over the summer, Muji proudly peddled products produced with Xinjiang cotton.

The American Apparel and Footwear Association (AAFA) said Kharon’s report provides valuable intel for member brands.

“AAFA members continue to conduct their due diligence to ensure their supply chains have no nexus with Xinjiang and that they remain free of forced labor,” Steve Lamar, AAFA president and CEO, told Sourcing Journal. “Detailed reports, such as this one, help our members in their due diligence.”

But fashion brands aren’t the first—or last—to use forced-labor products or services.

A new report by Hong Kong Watch and Sheffield Hallam University documents that leading investment funds, such as Vanguard and Fidelity, have invested in companies, such as Foxconn Technologies and Hoshine Silicon Industry Co. Ltd., that have been identified in research and media as using Uyghur labor through state-sponsored transfers.

“The brands called out in this report stand as a cautionary tale for what can happen when companies do business in opaque or high-risk geographies without appropriate and continuous human rights due diligence,” Anita Dorett, director of the Investor Alliance for Human Rights, said. “Millions of Uyghur and other Turkic, Muslim-majority peoples are subject to egregious human rights abuses, and the financial and human rights performance of companies and their investors are put at risk. When it comes to respecting human rights, there can be no such thing as a passive investor.”

The report, “Passively Funding Crimes Against Humanity,” analyzed the component stocks of three major global indexes—Morgan Stanley Capital Investment (MSCI) China Index, MSCI Emerging Markets Index, and MSCI All-Country World Index ex-U.S.—and identified 13 companies listed in the indexes that had been engaged in placing Uyghurs in their workforce through state-sponsored forced labor transfers or have been involved in building internment camps or the system of surveillance and repression in the Uyghur region. Reports in 2020 revealed that the forced labor of Uyghurs has expanded beyond the Uyghur region, with at least 80,000 people transferred to factories across China where they cannot leave, are under constant surveillance, and must undergo “ideological training” to abandon their religion and culture. 

The report also identified workers’ pension funds in the U.S., Canada, and the UK as holding equities linked to forced labor transfers of Uyghurs. “This report should be a wake-up call to every asset manager and pension fund. Investors should require companies they are invested in to fully trace their supply chains and urgently divest from any links to the Uyghur region or to forced labor transfers from the region,” Rushan Abbas, executive director of Campaign for Uyghurs, said. “Further, companies linked to forced labor transfers in this report should be delisted from the indexes so that average citizens do not need to worry that they are funding crimes against humanity.”