Xinjiang cotton ban impact in global apparel supply chain

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The recent development in the US-China trade war –China’s Xinjiang region cotton ban by the US to put a harness on the global apparel industry to bar all cotton-made apparel over forced labor concerns – has made the fashion industry worried that such a move would ‘wreak unending havoc’ on global apparel supply chains.

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Figure: The global fashion apparel industry depends deeply on Chinese cotton, and a significant amount –to be exact 85% of which is produced in Xinjiang.

Recent five withhold release orders by US Customs and Border Protection (CBP) targeting apparel, cotton and other goods produced in Xinjiang following accusations of prevalent human rights abuses and forced labor in the Chinese region. And a big brand like H&M Group declared to cut ties with a yarn mill in Xinjiang with which it had an ‘indirect relationship’ after it was suspected to be engaged in forced labor.

Mark A. Morgan, Acting Commissioner, CBP said, “The withhold release orders send a clear message to the international community that we will not tolerate the illicit, inhumane and exploitative practices of forced labor in US supply chains.”

As the global fashion apparel industry depends deeply on Chinese cotton, and a significant amount –to be exact 85% of which is produced in Xinjiang, and made clothes in Chinese factories or sent to other garment manufacturing countries in Asia.

The effectivity of this ban is in doubt. As with an absence of transparency makes it hard to track: for instance, products labeled as made in countries like Bangladesh, Vietnam, the Philippines and Cambodia could still contain cotton produced in Xinjiang, a major fabric and yarn source, according to Sheng Lu, Associate Professor in the Department of Fashion and Apparel Studies at the University of Delaware.

Not to mention, in the US, 24% of all imports of cotton textile and apparel, a category worth $11.1 billion, come from China, while in Europe China accounts for 29% of all clothes imported from extra-EU countries, or €23 billion.

The US banning of a cotton manufacturer, two apparel factories and one vocational skills education and training center that delivers labor, falls short of previously announced plans of banning all Xinjiang cotton and yarn, textiles and apparel made with Xinjiang cotton, which would have had larger consequences on the US fashion supply chain.

Still, the experts say, US ban shows that cotton is becoming politicized and fashion needs to improved assess, understand and engage with their suppliers if the situation worsens or is extended.

“Brands and retailers can cut off direct relations with Xinjiang suppliers, but it is very hard to make sure that their other suppliers are not using Xinjiang cotton,” says Di Fan, Assistant Professor of Fashion Retail and Marketing at the Hong Kong Polytechnic University.

A wider ban covering all Xinjiang cotton and yarn, textiles and apparel made with Xinjiang cotton would have made obligatory for US companies to investigate suppliers across the value chain to ensure textile and apparel products had no link with Xinjiang cotton. The ban would have been an incentive for companies to alter their method, but it would also have been hard to execute, adds Fan.

And it neither surprising that very few fashion companies have a clear view of the dynamics of supply chains beyond their first or second-tier suppliers because fashion supply chains are likely to develop across different countries and involve a large number of smaller subcontractors and suppliers.

According to the 2020 Fashion Industry Benchmarking Study, 85% of US companies track first and second-tier suppliers, but only 25% do the same for third and fourth-tier suppliers, respectively.

The EU is now working on obligatory due diligence legislation on environmental and human rights, which will make European companies legally liable for the letdown of due diligence across the supply chain.

The bans demanded by Global Legal Action Network (GLAN) and the World Uyghur Congress and the proposed EU legislation imply different obligations and have different weights, says GLAN’s Director Gearóid Ó Cuinn.

“The mandatory due diligence legislation places an obligation on the company to act; we are asking the state to intervene where companies have failed, and that is what the US is doing,” he says.

Adding that a ban would be ‘possibly stronger’ as it would control access to the market.

This ban will work as a non-tariff trade barrier, making a significant supply malfunction as non-complying products would be detained by customs. Apparel brands depend on global supply chains would consequently act to mitigate these risks, firstly by diversifying the supply chain to countries like Vietnam, Pakistan, or India and possibly expelling raw cotton supply to the US.

But because even products made outside of Xinjiang and outside of China could be made using cotton produced in Xinjiang, and the fashion supply chain remains tremendously cloudy, a blanket ban could ultimately bring companies to undo with all suppliers possibly related to the use of Xinjiang cotton.