Bloomberg News has published a hard-hitting investigative story this week that released findings of lab testing results that confirms certain clothing sold by e-commerce juggernaut Shein has been found to contain banned cotton produced with forced labor from the Xinjiang region of China. Furthermore, the story details how Shein is utilizing a trade loophole called “de minimis” that is facilitating the entry of these banned products into the U.S. market with minimal scrutiny.
The Bloomberg feature story by reporter Sheridan Prasso titled, “Shein’s Cotton Tied to Chinese Region Accused of Forced Labor,” outlines how “laboratory testing conducted for Bloomberg News on two occasions this year found that garments shipped to the U.S. by Shein were made with cotton from China’s Xinjiang region.”
The exposé chronicles how cotton grown and harvested by Xinjiang forced labor continues to bleed into global textile and apparel supply chains and is further facilitated by a little-known trade loophole called the “Section 321 de minimis exception”. This exception, which is routinely utilized by Shein and certain other e-commerce companies, allows imports valued under $800 to come into the United States with minimal review and without paying duties, taxes, and fees.
Through this massive and rapidly growing loophole, approximately 2.7 million individual shipments falling below an $800 value enter the U.S. market each day, according to the latest data. In fact, the U.S. is on record pace for 1 billion de minimis shipments this year alone.
The explosion in e-commerce shipments using the Section 321 tariff waivers spawned new companies, like Shein, to create a multi-billion-dollar empire built on the foundation of a legal, but severely damaging tariff loophole.
We don’t know who is making these products, if they are safe, or if they use forced labor. In fact, unbelievably, these products get rewarded duty-free status. What’s the point of a free trade agreement with high labor and environmental standards, if there is a “click here” workaround that facilitates a race to the bottom?
According to the report, Agroisolab GmbH in Jülich, Germany, tested the garments using stable isotope analysis, “which measures variations in the isotopes of carbon, oxygen and hydrogen present in the cotton’s fibers to indicate the altitude and other climate characteristics of the region where it was grown.”
The lab compared Shein’s cotton fabric with fabric from Xinjiang that Bloomberg obtained from a U.S. apparel company with operations in China. A second test compared the Shein item with another sample the lab had previously obtained from Xinjiang, according to the Bloomberg report.
“We have to conclude it is a typical sample from Xinjiang, China,” Agroisolab’s CEO Markus Boner told Bloomberg.
The test results also ruled out “with more than 95% probability” several other cotton-growing regions, including India, Egypt, Australia, the U.S. and China’s Shandong province, according to the story.
Congress overwhelmingly supported and passed the Uyghur Forced Labor Prevention Act (UFLPA) banning products made of forced labor, including Xinjiang cotton. This law took effect in January 2021. Yet, this loophole in our tariff structure, has created an enormous workaround that is allowing these banned forced labor products to make their way to our doorsteps and into our closets on a daily basis.
House Ways and Means Trade Subcommittee Chairman Earl Blumenauer (D-OR), who has authored and continues to push for key legislation to help close this loophole, has noted: “This loophole also makes it easier for people to import illegal goods and harmful products, because there is virtually no way to tell whether these packages contain products made through forced labor, intellectual property theft, or are otherwise dangerous.”
Until Congress and/or the administration acts to close the de minimis loophole, Chinese companies like Shein will continue to run a speeding train right through this loophole tunnel.
The National Council of Textile Organizations (NCTO) has been very active over the past several years working in a broad coalition to amplify the urgent need for the administration and Congress to use their authorities to close this enormous trade gap.
In congressional testimony before the House Ways and Means Trade Subcommittee last December, I outlined recommendations for Congress aimed at confronting unfair Chinese trade practices, including closing the de minimis loophole.
We must ensure this loophole is addressed immediately to combat the use of forced labor in China and in other areas of the world. Failure to address the de minimis loophole will continue an “open door” policy that invites China and others to ship duty free to the United States illegal and unsafe products that undermine American businesses and jobs, while also diluting any efforts to rein in its abhorrent human rights abuses.
What cannot be ignored is that these practices and this loophole continue to hurt domestic manufacturers, undermine our forced labor laws, and weaken our carefully negotiated free agreement trade structure.
This is why we need Congress and the administration to urgently act and make the policy changes we need to close this damaging loophole once and for all.