Hanging on by a thread – Xinjiang cotton remains a challenging issue for US apparel brands

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Over the last two years, US apparel brands have faced the challenges posed by the geopolitical tensions between the US and China, in particular with regard to the allegations of human rights abuses in China’s Xinjiang region, populated by the Uyghur Muslim minority.

Xinjiang produces approximately 85per cent of China’s cotton, which itself accounts for roughly 20 percent of the global cotton supply. Beginning in 2020, the US government began imposing sanctions on cotton suppliers from Xinjiang, culminating in the passage of the Uyghur Forced Labor Prevention Act, which President Joe Biden signed into law on December 23, 2021. This law bars the importation into the United States of products made from forced labor in the Xinjiang region.

In order to comply with US sanctions, and to minimize reputational risks, a number of US apparel brands resolved to stop sourcing cotton from Xinjiang. Certain brands also have demanded that their global suppliers vet and eliminate any links to Xinjiang cotton.

In response, the Chinese government criticized these brands and even called for boycotts. For a time, landlords closed a number of stores in China, while other US apparel brands were removed from or restricted on Chinese e-commerce sites. Even celebrities weighed in by ending their endorsement contracts. The Chinese government has since imposed economic sanctions and export control measures on foreign parties deemed to have engaged in conduct inconsistent with Chinese interests and policies, and authorized private claims against foreign and domestic parties for implementing foreign sanctions and export control measures against Chinese parties or that harm Chinese interests.

If US apparel brands fail to remove Xinjiang cotton from their supply chains, they invite legal enforcement from the US government and allegations from activists of complicity in forced labor and human rights abuses. On the other hand, in doing so, US apparel brands risk being targeted by the Chinese government and suffering significant decreases in sales.

The situation is complicated even further by the fact that these brands often need to rely on third parties, whether it be vendors, distributors, licensees, franchisees or other local partners, in operating their retail and/or sourcing business in China.

It is imperative that US apparel brands conduct a careful audit of their contractual relationships with third parties in China to identify and address any vulnerabilities and develop a set of contingency plans in case the geopolitical environment worsens.