Report on the House Ways & Means Committee’s Trade Subcommittee Hearing on September 17, 2020.
by Kenneth Rapoza, CPA Industry Analyst
Thursday’s Trade Subcommittee hearing at the House and Ways Means Committee had just one industry leader providing testimony on the Xinjiang, China ban and the biggest takeaway is that tracing sources of supply is “complicated” and shooting for a regional ban is something the apparel industry frowns upon.
“Enforcement is best done when specific entities are targeted. There should not be a limit to the number of WROs, but…if you go to a regional WRO and you change the burden of proof, then it becomes harder to enforce,” said Steve Lamar, President and CEO of the American Apparel & Footwear Association in response to a question by Devin Nunes (R-CA). “You will run into a situation where you are finding that Customs and Border agents have a hard time enforcing (a regional ban) and while companies on my end will do what they can to follow the guidelines, without the possible tracing capabilities, they won’t be in a position to be effective,” he said, adding that companies that do not want to comply with the CBP’s Withhold Release Orders, or import bans, will just sell to other markets.
The Ways and Means Committee hearing, chaired by Earl Francis Blumenauer (D-OR), heard testimony from five people, including Cathy Feingold, the director of international development at the AFL-CIO, one of the groups that sent a petition last month to the CBP in favor of a regional ban against all products coming from Xinjiang. To date, the CBP has banned 9 companies from selling goods to the US.
Blumenauer’s comment at the opener suggests that there is bipartisan support for using human rights as a tool to railroad China. The WROs from the CBP are all based on forced labor allegations taking place among the Uyghur Muslim and other minorities in Xinjiang province, located in far Western China.
“Goods that are produced under such circumstances should not make their way into grocery stores and shopping malls across this country,” the chairman said.
Despite the constant swipes by Democrats on the Committee against President Trump for not using human rights issues as part of his phase one trade agreement, William Pascrell (D-NJ) actually had to admit that it’s not Trump’s fault. He called out corporate America by name.
“Corporations have to take responsibilities, too. Whether it’s a major movie studio filming in the back yard of forced labor camps, Heinz buying tomatoes or Nike potentially using cotton harvested by forced labor, we need accountability,” he said.
The movie studio is Disney. They filmed Mulan in Xinjiang even though the Uyghur issue has been known for some time, and surely prior to them filming there.
Pascrell made a point on yet another way China undercuts the US. “Forced labor is terrible for the American worker because it makes them compete against forced labor. Think about that?” he said, adding that a school in his New Jersey district had to hunt for new laptops because one of the suppliers, likely Hefei Bitland Information Technology, which was put on the Entity List this year and now has a WRO against it by the CBP.
Amy Lehr, director and senior fellow at the Center for Strategic and International Studies said in the Q&A segment of the hearing that some of the companies have “very extensive libraries from Xinjiang and do have the ability to identify origin.”
In his testimony, Lamar said that “the situation in Xinjiang is of a scale, scope, and complexity that is unprecedented in modern supply chains. Forced labor – as horrendous as it is – is only one component of a much larger campaign of repression. These are state-sponsored programs and they are extensive.” He said a regional WRO would declare all cotton from the Uyghur Autonomous Region of Xinjiang (XUAR) “in part or in whole” as products made with forced labor and would “wreak unending havoc…on legitimate supply chains all over the world.”
According to the Apparel and Footwear Association, the XUAR accounts for about 20 percent of all cotton consumed globally and it is hard to trace. This capacity is not readily or quickly able to be replaced, a claim we hear repeated constantly, no matter the product, and one that highlights an over-dependence on China that must be shelved.
Also, cotton grown in the XUAR is often co-mingled with similar cotton fibers from other sources, including from the US. In fact, China will soon become the largest market for US cotton, buying more than $840 million worth in the first 7 months of 2020, a 63% increase over 2019.
XUAR cotton easily could show up in final products made all over the world, accounting for tens of billions of dollars of trade in supply chains that employ millions of workers and that thread through developed and developing countries alike. For example, XUAR cotton could make its way into yarns and fabrics used to produce apparel in other Asian countries, like Bangladesh, Vietnam, Cambodia, and Indonesia, Lamar said in his testimony.
“When a WRO is announced, we make sure our suppliers and our supplier’s suppliers are not connected to those entities,” he told the Subcommittee, highlighting the need WROs on companies, not on Xinjiang. “It’s a guidepost to know who are identified bad actors.”
Nunes pointed out to Lamar that we have cotton in California that is easily traceable, but the conversation didn’t expand from there.
Vern Buchanan (R-FL) summed up our view on this in simple language: “Businesses must establish best practices to tighten the supply chain so they know in confidence that they are not using these restricted suppliers,” he said. “If not, find new suppliers.”