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Xinjiang Cotton Giant Slapped with Customs Detention Order

U.S. Customs and Border Protection (CBP) has issued a new Withhold Release Order on cotton merchandise from the Xinjiang Production and Construction Corps (XPCC), a paramilitary organization that produces one-third of China’s cotton, employs 12 percent of Xinjiang’s population and generates 17 percent of the region’s gross domestic product.

“CBP issued the WRO based on information that reasonably indicates that XPCC and its subordinate and affiliated entities use forced labor, including convict labor, to produce cotton and cotton products,” CBP acting commissioner Mark A. Morgan said at a press briefing Wednesday afternoon. The WRO applies to all cotton and cotton-derived items produced by the XPCC and its subordinate and affiliated entities, including clothing, textiles, cottonseed oil and paper, regardless of their country of origin.

“It should be clear and simple: any product having a nexus to forced labor will not [and] should not make it to our borders and be introduced into our supply chain, period,” Morgan said.

The WRO on XPCC cotton products is the sixth enforcement that CBP has announced in the past three months against goods made by forced labor from the Xinjiang Uyghur Autonomous Region in northwestern China, where up to 1.8 million Uyghurs, Kazakhs and other Turkic Muslims are believed to be held in “re-education” camps as part of a broader campaign of torture and indoctrination to compel them to renounce their religion and assimilate into Chinese society. Experts say that the Chinese government has also transferred tens of thousands of Uyghurs and ethnic minorities out of Xinjiang to work in factories across China, sometimes directly from detention centers and often against their will.

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“As Americans, we believe each individual’s granted inalienable rights by our creator,” said Ken Cuccinelli, acting deputy secretary at the Department of Homeland Security. “It’s because we value these rights so highly that we prioritize values like freedom, justice and equality under the law.”

China’s security apparatus profits from this repression by “holding financial stakes in companies that benefit from the forced labor,” he said. “This kind of forced labor is antithetical to American values, negatively impacts both consumers and businesses, undermines legitimate trade and competition, and threatens American workers. No matter how you view it. This is a threat that impacts each and every aspect of our society. And we can’t afford to ignore it.”

The WRO dovetails with sanctions against the XPCC, which the Treasury Department’s Office of Foreign Assets Control (OFAC) placed into effect Monday. The move is potentially the “largest single action in OFAC’s history,” according to corporate intelligence platform Sayari, which combed through Chinese public records to find more than 862,600 direct and indirect holdings—including minority, majority, control and non-control positions—through different XPCC divisions.

“These companies touch 147 countries, including the United States, Germany and the U.K., and offshore jurisdictions like the British Virgin Islands,” Sayari analyst Alex Bate wrote in a blog post in August. “They reach as far as 34 layers of ownership from the XPCC.”

While the OFAC’s sanctions target business relationships, CBP will focus on barring XPCC merchandise from entering the United States, according to Morgan. “That’s why it’s called a Withhold Release Order,” he said. “Everything that enters the country in terms of products comes into the hands of CBP. [We] take custody of it and then we release it into the market. So an WRO would stop that release into the U.S. market.”

Importers encountering an WRO have two options: They can remove the products from the American market or they can present evidence to the CBP commissioner demonstrating that the merchandise was not created using forced labor. Because of the scope and complexity of the XPCC’s reach, however, it’s unclear how CBP will ensure compliance. Morgan referred to undefined technologies and said the agency will be expanding its efforts to identify the provenance of the products it handles. But the onus of responsibility, he said, should be on corporations to monitor their own supply chains.

“Both American and international businesses [that] wish to do business and sell in the U.S. market [have] been on a notice of this problem for quite a long time,” Morgan said. “Many of them are enthusiastic partners in policing their own supply chains to avoid the danger of slave labor entering into their products. Others are not so much and we look forward to partnering with them.”

The idea of a regional WRO that covers all of Xinjiang or China is not off the table yet, but an WRO on XPCC is “almost akin to a regional [WRO] because it’s so massive,” he added.

CBP issued 13 WROs during fiscal year 2020, including eight WROs on goods made by forced labor in China. Federal statute 19 U.S.C. 1307 prohibits the importation of merchandise mined, manufactured or produced, wholly or in part, by forced labor, including convict labor, forced child labor and indentured labor.

Labor rights groups have been quick to praise the announcement, calling it the largest economic challenge to the Chinese government’s human-rights abuses to date.

“CBP’s action is a body blow to every brand that intends to continue sourcing cotton from the Uyghur Region,” Scott Nova, executive director of the Workers Rights Consortium, a member of the End Uyghur Forced Labour coalition, said in a statement. “This order will likely impact the supply chains of virtually every major apparel retailer—from Amazon, to Target, to Zara. A ban on all cotton from the region is warranted, and CBP’s action therefore represents a partial step, but the scope is large enough to have a major impact on the apparel industry.”

Sanctions on the XPCC “should be global,” but today’s action is a “good start,” according to Omer Kanat, executive director of the nonprofit Uyghur Human Rights Project. “International companies are now on notice: if you import any goods produced by the XPCC, you are complicit in human rights crimes,” Kanat said. “Uyghurs have long suffered under massive human rights violations by the XPCC.”

In a joint statement, the American Apparel and Footwear Association, National Retail Federation, Retail Industry Leaders Association and the U.S. Fashion Industry Association applauded CBP’s “clearly defined” WRO that is “based on specific and actionable intelligence.”

The groups “look forward to working with CBP to build a detailed and practical implementation strategy to make sure today’s actions are effective, enforceable and focused on the bad actors who insist upon exploiting slave labor and do not harm trusted traders or our supply chain partners who are working tirelessly to stamp out forced labor,” they said.

The new WRO “reinforces the need for a unified and comprehensive approach to this human-rights crisis, and we want to renew our calls for the U.S. government to build and lead a coalition involving all stakeholders and allied countries to put pressure on China to end forced labor, and the wider campaign of repression it fuels, immediately,” they added. “U.S. unilateral action can only succeed in ending these forced labor practices if it is accompanied by a ‘whole of world’ approach.”

CBP’s announcement is likely another gut punch to brands like Nike, Apple and Coca-Cola, which are reportedly among the major companies lobbying Congress to water down some of the provisions of the Uyghur Forced Labor Prevention Act because of the potential repercussions to their China-centric supply chains, according to the New York Times Sunday.

Greg Rossiter, director of global communications at Nike, told the outlet, however, that it “did not lobby against” the Uyghur Forced Labor Prevention Act but rather conducted “constructive discussions” with congressional staff aides over protecting human rights.

The bill, which passed the House in September, would prohibit certain imports from Xinjiang, require firms to disclose dealings with the region and impose sanctions on “any foreign person who ‘knowingly engages’” in forced labor using Uyghurs or other Muslim minority groups.