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Federal Judge’s Rejection Keeps Nike Supplier in Limbo

A federal judge has refused to strike a Xinjiang unit of the world’s biggest shirtmaker from a blacklist of companies that the U.S. government says pose a threat to national security or foreign policy interests.

Judge Reggie B. Walton of the U.S. District Court for the District of Columbia said that Esquel Group, a Hong Kong-based supplier for brands such as Nike, Patagonia and Tommy Hilfiger, has been unable to prove that the Commerce Department was acting beyond its legal prerogative in placing Changji Esquel Textile Co. from the so-called Entity List, which bars companies from purchasing American technology and components without a special license.

“Specifically, the Court concludes that the plaintiffs cannot establish a likelihood of success on the merits sufficient to establish their entitlement to preliminary injunctive relief because the plaintiffs have not shown that the defendants acted ultra vires and in excess of their statutory or regulatory authority,” Walton said Wednesday. “Accordingly, it is hereby ordered that the plaintiffs’ motion for preliminary injunction is denied.”

The Trump administration sanctioned Changji Esquel and 10 other Chinese companies last year, saying they were complicit in Beijing’s campaign of oppression against Uyghurs and other Turkic Muslim minorities in Xinjiang, where 85 percent of China’s cotton is sourced.

Esquel retaliated earlier this summer, filing a lawsuit that accused officials of overreaching “without notice and with no supporting evidence” and causing “incalculable reputational and economic harm,” including the loss of several major clients, the closure of two factories in Mauritius and the shedding of 7,000 jobs globally. A motion to reset a hearing date reared its head in September after discussions with the Bureau of Industry and Security’s End-User Review Committee to drop the forced-labor allegations failed to reach a resolution.

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Esquel has vowed to fight back, telling Sourcing Journal that it will appeal the decision and continue to use litigation to “seek an end” to Changji Esquel’s “mistaken” inclusion. “We continue to believe that Changji Esquel’s original listing by the previous administration was unlawful and that it deserves to be removed from the Entity List without further delay,” a spokesperson said. “No Esquel company has ever used, or will ever use, forced labor.”

The company said that the “substantial, ongoing and irreparable harms” from Changji Esquel’s placement on the Entity List have “continued and even worsened,” with U.S. Customs and Border Protection (CBP) detaining and beginning to exclude from entry a slew of shipments from Esquel factories outside China, including Vietnam.

Last month, chairman and CEO Marjorie Yang said she believed that Esquel was being targeted, which could scare off the firm’s remaining customers and induce permanent financial damage.

“I maintain communications with other textile and garment manufacturers, including those who ship goods from Vietnam,” Yang said. “To my knowledge, no other manufacturer is facing CBP detentions at the same frequency as Esquel. Under these circumstances, I believe that CBP has added most if not all Esquel factories to its targeting criteria, which essentially results in [the] automatic detention of a large amount of Esquel shipments to U.S. importers. I further believe that CBP has done so based on CJE’s status on the Entity List.”

One prominent U.S. brand, a “significant customer” whose shipment from Vietnam was detained, has suspended all production and shipments from Esquel as a result of the uncertainty, Yang said, noting that the affected orders amounted to over $2.5 million. If nothing changes, another U.S. client with more than $10 million worth of products for the upcoming season could follow suit, she added.

“Given my customers’ inability to accept orders shipped from any Esquel facility in the world, I am concerned that our remaining customers will either pause their orders from Esquel or simply cease doing business with us,” Yang said. “I fear that as long as CJE remains on the Entity List, CBP will continue to detain shipments from Esquel’s factories, and that Esquel will permanently lose all U.S. business and U.S. customers.”