Illustration: Annelise Capossela/Axios

The U.S. Commerce Department announced on July 20 that it had added a subsidiary of one of the world's largest contract shirtmakers and 10 other companies to an export blacklist over their supply chain ties to Xinjiang, where Muslim ethnic minorities are pushed into a forced labor factory system.

Why it matters: The Trump administration is showing increasing resolve to try to delink U.S. companies from tainted supply chains in China.

Details: Hong Kong-based Changji Esquel Textile Co. Ltd, one of the companies placed on the U.S. entities list, is headquartered in Urumqi and is owned by Esquel Group.

  • Esquel Group's supply chain was first linked to Xinjiang in a May 2019 Wall Street Journal report.
  • The company was also mentioned in a draft bill introduced in the House and Senate in March that seeks to prevent the import of products made through Uighur forced labor.
  • Esquel has counted Calvin Klein, Tommy Hilfiger and Nike among its customers.
  • The federal entities list prohibits U.S. companies from exporting products to entities on the list. U.S. law forbids the import of products made through forced labor.

What they're saying: "Esquel does not use forced labor, and we never will use forced labor. We absolutely and categorically oppose forced labor. It is abhorrent and completely antithetical to Esquel’s principles and business practices," wrote Esquel CEO John Cheh in a July 20 letter to Commerce Secretary Wilbur Ross, viewed by Axios.

  • "An independent audit of Esquel’s 3 spinning mills in Xinjiang, including Changji, by a leading global audit firm, ELEVATE, commissioned by one of our U.S. customers, was carried out in May 2019. ELEVATE rated all three spinning mills with scores of 85 or above and confirmed that there was no forced labor of any kind," wrote Cheh.

Esquel has recently hired public relations firms to help plead its case among U.S. lawmakers and in the media.

  • In FARA filings from March, public relations firm TrailRunner International disclosed that Esquel has received subsidies from the Chinese government for "promotion of economic development especially in remote areas."
  • Esquel's dependency on the Chinese government is suggested in the filings, in which TrailRunner International advised Cheh that "as you conduct aggressive outreach to ensure the truth is known, we recommend you stay close to Beijing to ensure they don’t see you as attacking them on this issue. This is a needle to thread, but thread it you must."
  • Esquel also hired Akin, Gump, Strauss, Hauer & Feld on July 7, though the firm only filed disclosures in the Senate lobbying database, not through the FARA registry, which has more stringent disclosure requirements.

Background: Since 2017, the Chinese government has operated mass detention facilities in the far western region of Xinjiang that hold 1 million or more Muslim ethnic minorities that the government has explicitly said it seeks to assimilate.

  • Camp detainees and rural minorities are increasingly being funneled into factories as part of a forced labor regime that subjects workers to re-education, tight surveillance and family separation.
  • China is the world's second-largest cotton producer, and about 85% of its crop comes from Xinjiang.
  • International brands such as Muji, H&M, Esprit and Adidas have come under fire for their links to Xinjiang cotton production.

Esquel has long-standing ties to the Xinjiang Production and Construction Corps (XPCC), a quasi-military governmental organization that dominates the agriculture and energy industries in Xinjiang.

  • In the late 1990s, Esquel chairman Marjorie Yang spearheaded an effort to invest tens of millions of dollars in cooperation with the XPCC in Kashgar and Turpan, regions in southern Xinjiang with large ethnic minority populations. According to a 2002 article in official newspaper The People's Daily, this joint project resulted in large "cooperative farms" that specialized in the cultivation of high-quality, long-staple cotton.
  • The XPCC Public Security Bureau was added to the U.S. entities list in October 2019 due to its role in running some mass internment camps.
  • Esquel's managing director of cotton procurement and operations simultaneously served as the director the XPCC Cotton Association.

The bottom line: Companies with factories in Xinjiang are going to be very hard-pressed to prove to an international audience that their operations there have no overlap with forced labor.

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