Sanctions on China’s top cotton supplier weave a tangled web for fashion brands

Xinjiang cotton has become a striking example of the benefits and hazards of globalization as a business model. The region’s cotton has brought income to one of China’s most impoverished and isolated areas and linked it to the outside world, while providing affordable clothing for Western consumers.

But the flow of Western cash has taken on darker implications as human rights abuses in the region have come to light, and with Xinjiang’s cotton income contributing to China’s construction of a network of surveillance technologies and internment camps targeting Uighur Muslims and other ethnic minorities. Global supply chains have become so complex that many American companies are struggling to verify how much of their raw materials are sourced from the region, and under what labor conditions.

Last month, the Treasury Department announced sanctions on the Xinjiang Production and Construction Corps (XPCC), the paramilitary group often described as a “state within a state.”

The sanctions were overshadowed by President Trump’s announcement the same day of a ban on Chinese video app TikTok. But the cotton restrictions probably will have broader economic repercussions; XPCC produced about one-third of China’s cotton last year, while Xinjiang overall accounts for almost one-fifth of global production, according to official figures and calculations by The Washington Post.

“It’s a concern that it could even affect apparel coming from other countries, like Vietnam or Cambodia or Bangladesh,” said Nate Herman, senior vice president of policy at the American Apparel and Footwear Association. “That could conceivably be made with cotton or yarn from XPCC.”

Cotton textiles produced globally in 2019 were valued at almost $380 billion, or more than a quarter of the overall textile market, according to Grand View Research. About 26.8 million metric tons of cotton were produced last year, according to the U.S. Department of Agriculture.

The sanctions have brought the issue to a head for the fashion industry at a difficult time. A number of retailers have filed for Chapter 11 bankruptcy amid the coronavirus pandemic, including J.Crew, J.C. Penney, Brooks Brothers and Ann Taylor’s parent company, Ascena Retail Group.

The Treasury sanctions prohibit U.S. companies from buying from or selling to XPCC or subsidiaries where it has a majority stake. The sanctions won’t prohibit the use of suppliers that source cotton from XPCC, but Washington is warning U.S. companies of business in Xinjiang more broadly: The State Department issued a supply chain advisory last month that said factories in Xinjiang may have elevated risk of forced labor. It is illegal to import products made with forced labor into the United States.

Over the past three years, a heavy-handed Chinese anti-extremism campaign has swept an estimated 1 million Uighurs and other Muslim minorities into what the government calls “reeducation centers.” Satellite images show these high-security compounds are similar in layout to prisons, and former detainees have alleged they were subject to torture.

Many detainees were placed at textile factory jobs in Xinjiang upon their release, according to official reports. Local officials say it is voluntary work for rehabilitated criminals, although some workers have alleged they were threatened with detention if they refused.

In March, the Retail Industry Leaders Association called the issue “of a scale, scope and complexity that is unprecedented during the modern era of global supply chains.”

Some brands are giving Xinjiang a wide berth. PVH Corp., which owns the Tommy Hilfiger and Calvin Klein brands, said it plans to end all business relationships with factories that use cotton grown in Xinjiang in the next 12 months. Nike issued a statement saying its suppliers do not use textiles or spun yarn from the region.

The Chinese trade publication Cotton China reported this month that domestic textile manufacturers were being asked frequently by U.S. buyers whether they used Xinjiang cotton, with some customers requiring imported cotton. It said the XPCC sanctions had “severely affected” the country’s cotton-spinning industry.

The U.S. cotton industry — the third-largest by output after India and China — has been a beneficiary. China imported large quantities of U.S. cotton this year as part of the trade agreement.

China Foreign Ministry spokesman Wang Wenbin said this month that Beijing would retaliate if the United States did not withdraw the sanctions. XPCC and Xinjiang’s Chinese Communist Party Committee Propaganda Department did not respond to requests for comment.

A cousin of the hibiscus, hollyhock and okra, cotton is an ancient, shrubby plant that produces ruffled flowers ranging from pale yellow to pink. After several days’ bloom, the flowers wither, leaving pods called bolls that dry in the sun until they split to reveal globes of snowy cellulose: cotton. 

Native to hot, humid climates, cotton only became a widespread crop in the harsh Xinjiang expanses as part of a Chinese government plan to develop the region’s economy. Subsidies were so successful in shifting the nation’s cotton industry inland that last year, almost 85 percent of China’s cotton was grown in Xinjiang, according to official figures.

But it wasn’t subsidies alone that established Xinjiang’s cotton industry. Former residents, including Ilshat Hassan, a Uighur activist who now lives in Virginia, recall that until 2008, not only adult residents but also elementary and middle-school students across Xinjiang were required by the government to help pick the cotton crop each year.

“It was called labor education,” said Hassan, 58, who said that as a local teacher he brought his students to pick cotton each year . “Each student had a daily quota of 45 kilograms [100 pounds].”  

Xinjiang moved away from student cotton-picking more than a decade ago, with improving mechanization and pressure from human rights groups. But the issue of forced labor in the region has resurfaced with China’s internment of Uighurs and other minorities.

As a local government body as well as a company, XPCC has come under international scrutiny for its role in building and running some reeducation camps, as documented by local government notices and construction bids.

The XPCC sanctions followed a concerted push by a coalition of more than 190 organizations to urge major fashion brands to stop using Xinjiang cotton, and for international auditing firms to stop working with factories in the region.

Penelope Kyritsis, assistant research director of the Workers Rights Consortium, a member of the coalition, said five international auditing firms have agreed to stop conducting factory audits in Xinjiang because of government pressure on workers that prevents them from speaking freely.

Brian Finnegan, global worker rights coordinator of the AFL-CIO, said the coalition has sought to work with fashion brands in this push, based on previous successful experience in lobbying retailers to stop using Uzbekistan cotton because of forced-labor concerns. The AFL-CIO is the largest federation of unions in the United States and a member of the coalition.

“The lesson learned from Uzbekistan is really keeping a dialogue with the companies and appearing with the companies,” he said.

For retailers, it will be a challenge to simply map out the thousands of companies in which XPCC holds a stake, to check they aren’t dealing with one controlled by the organization. Besides cotton, XPCC has substantial fruit, dairy and other agricultural businesses. While some of XPCC’s subsidiaries are publicly listed, the company is tight-lipped about much of its business, partly because of its historic roots as a military division.
Herman said the XPCC sanctions will be enforced based on a “knowledge standard,” meaning whether a company should have or could have known it was transacting with XPCC.

“People have been mapping and trying to figure that out,” he said.