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Nike-Linked Supplier Gets Good News in Imports Blacklist Battle

A Hong Kong garment supplier just inched one step closer to officially getting off the American government’s imports blacklist.

Early last month, Esquel sued several U.S. government agencies in the wake of the former Trump administration’s decision last year to add the clothing supplier to the U.S. Department of Commerce’s Bureau of Industry and Security Entity List, essentially barring the producer’s shipments into the world’s biggest economy.

By flagging it on the roster of importers to watch, the Commerce Department accused Esquel, which has cut and sewn clothing for Nike, Patagonia, Banana Republic, and other top-name brands, of having ties to forced labor in Xinjiang, where experts cite a mountain of evidence indicating that legions of Uyghurs and other Turkic and Muslim minorities toil against their free will in what China has vociferously described as a “poverty alleviation scheme.” Esquel immediately denied any forced-labor ties when the original allegation and blacklisting arose last summer, reiterating in July its dismay at the “odious” and “unsubstantiated” claims.

Now, however, Esquel has a shot at a clean victory on the horizon.

Documents filed Tuesday with a District of Columbia federal court state that the BIS’ End-User Review Committee decided on Saturday to remove the garment supplier from the Entity List, “subject to certain conditions.” Esquel’s legal counsel declined to elaborate on what those conditions might entail or provide a general timeframe for when the plaintiffs and defendants might conclude their “discussions” hashing out those circumstances. The review committee, “an inter-agency committee charged with making decisions regarding additions to, removals from, or other modifications to the Entity List,” includes officials from the Departments of State, Defense, Energy, and Commerce, and any other relevant agencies.

Esquel has a lot to gain should it ultimately triumph in its legal action.

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The company claims the “deeply stigmatizing” and “appalling” forced-labor assertion decimated operations, prompting brands like Michael Kors and Lacoste to “pause or terminate business” last year. Losing that revenue ultimately forced Esquel to shut down its two Mauritius factories, curtail Sri Lanka and China operations and “consider making further reductions in its global operations and work force,” according to the July 6 complaint, which notes the Changji Esquel Textile Co. Ltd. subsidiary’s headquarters in Xinjiang.

Esquel’s workforce had shrunk to 36,000 by the end of May, down from 54,000 at the close of 2019, it stated in its original filing. The company also documented supply-chain disruptions when “a U.S. cotton supplier, an Australian cotton supplier, a Japanese supplier of textile machines and spare parts, a Swiss supplier of testing equipment and spare parts, and two U.S. suppliers of computers and servers” also severed business with the clothing maker, which supplied 110 million garments to global brands in 2019.

The Commerce Department and other defendants in the suit have until Sept. 2 to counter Esquel’s request for a tentative ruling, though ongoing talks could “render the defendants’ opposition, and the plaintiffs’ underlying motion for a preliminary injunction, unnecessary,” documents state.