China’s Predatory Trade Practices Hurting U.S. Textile Industry, Western Hemisphere Co-Production Chain
China’s Predatory Trade Practices Hurting U.S. Textile Industry, Western Hemisphere Co-Production Chain
By Kristi Ellis
China’s unfair trade practices, ranging from rampant intellectual property theft to state sanctioned export subsidies, to the egregious abuse of forced labor in the production of cotton and cotton apparel for well-known global apparel brands and retailers has had a chilling effect on the U.S. textile industry and U.S. trading partners, particularly those in the Western Hemisphere.
The far-reaching impact of China’s illegal practices and its race to dominance as a global supplier of consumer products came under scrutiny at a recent House Ways and Means Trade Subcommittee hearing on Dec. 2, titled “Supporting U.S. Workers, Businesses, and the Environment in the Face of Unfair Chinese Trade Practices.”
NCTO President and CEO Kim Glas, in testimony before the committee, outlined China’s rise to dominance of global textile and apparel production and its adverse impact on the U.S. textile industry, as well as ways to strengthen onshoring and nearshoring of supply chains, and recommendations on the critical policies needed to address these illegal trade practices and rectify inequities in the country’s trade policies.
“China continues to dominate the global textile and apparel market, including our U.S. market through illegal subsidies, rampant IPR theft and other predatory trade practices,” Glas told lawmakers in her opening remarks. “This has cost hundreds of thousands of domestic jobs here in the United States and undermined critical production chains like personal protective equipment (PPE).”
“If I were to offer one overarching recommendation today, we need to hold China accountable and ensure our trade policies are keeping pace to address the rapidly emerging predatory challenges we are facing from China and others,” she added.
Rep. Earl Blumenauer (D-Ore.), chairman of the powerful trade subcommittee, said in his opening remarks, “Instead of joining other market-based world economies, China has doubled down on its state-driven economic model. Economists now describe this phenomenon as the ‘China shock,’ which has had devastating and sustained impacts on U.S. workers and businesses across our country,” Blumenauer said.
“More broadly, China continues to demonstrate that it refuses to play by the rules. China will exploit loopholes wherever they exist. We’ve given too much of a free pass to China over the years – it’s now time to take these issues seriously and take a more aggressive approach,” he stressed.
Glas said China’s “abusive environmental and labor record is on full display in our sector and has been well documented.”
Egregious & Illegal Use of Forced Labor in China
China makes up 44 percent of U.S. imports of textile and apparel products, she noted. One in five garments coming into the U.S. from China are made with forced labor from Xinjiang “with the worst human rights abuses imaginable,” she noted.
Between 2017-2019, the Chinese government has forcefully transferred an estimated 800,000 to 1.8 million Uyghur Muslims from their homes in Xinjiang to detention centers and factories throughout China forced to manufacture products for international sale under forced labor conditions, according to numerous reports and international and domestic news outlets, Glas said in written testimony submitted to the committee.
Given that 20 percent of global cotton production is sourced from Xinjiang, tainted apparel and textiles made with forced Uyghur labor is a serious problem for the U.S. and the world.
U.S. Customs and Border Protection (CBP) issued a Withhold Release Order (WRO), effectively a ban on cotton and cotton products coming from the Xinjiang region in China, but the agency lacks the resources to inspect and stop a majority of goods from Xinjiang from entering the U.S. market, Glas told the committee.
“These items are bleeding into our supply chains and making it to our store shelves and into our closets,” Glas noted in her opening remarks.
Section 321 De Minimis Loophole
“Some of these products are making their way with the press of a button to our doorstep using the Section 321 de minimis loophole that allows these goods to come in duty free—not just evading China 301 duties, but all duties—from China and elsewhere with little scrutiny by U.S. Customs on these products,” she continued.
The United States provides a duty exemption for goods valued at less than $800 in retail value if imported by one person on one day.
Of note, the de minimis exemption was raised from $200 in 2016 under the U.S. Customs reauthorization legislation. The current application of de minimis provides exemptions on base MFN tariffs, as well as Section 301 tariffs, such as those currently in place against imports from mainland China. Use of this exemption has skyrocketed alongside the growth of direct‑to‑consumer e‑commerce, which has further accelerated due to the COVID‑19 pandemic.
De Minimis exemptions are a loophole that allows tainted goods to be imported into the U.S. market duty free virtually unchecked and undermines carefully constructed textile and apparel rules of origin in CAFTA-DR and other free trade agreement and trade preference partners.
Blumenauer took note of Glas’ remarks and called out her reference to the de minimis problem.
“Ms. Glas has noted the example of Shein [a Chinese e-commerce conglomerate that imports billions of dollars of apparel to the U.S.]. This Chinese company has developed a business model to exploit the de minimis provision in U.S. law to avoid paying any costs or go through oversight at the U.S. border, all of which undercuts U.S. companies playing by the rules,” Blumenauer said.
“Shein is also part of the Chinese textile industry that benefits from the deplorable treatment and forced labor of Uyghurs and other minorities in the Xinjiang region of China. Lack of oversight at U.S. borders makes it even more difficult for CBP to intercept these shipments,” he noted.
Blumenauer pointed to a roundtable he attended on the issue, nothing that he was made aware of the fact that some 2 million packages are shipped into the U.S. each day under de minimis waivers. He also noted that one witness suggested as many as 6 million packages per day are coming into the U.S. market under the Section 321 waivers.
“These issues with de minimis and forced labor are key areas of importance for me and ones that I intend to legislate on in the coming months,” Blumenauer said.
Rep. Danny Davis (D-Ill.) asked the hearing witnesses what they considered would be the most practical end expeditious solution to addressing China’s illegal practices.
“In terms of things in our trajectory that we can get done very quickly, closing the de minimis loophole is one and effectively banning the cotton and cotton products coming from Xinjiang,” Glas said. I do not believe we have given CBP the resources to effectively administer the WRO. We should be holding daily press conferences on stopping shipments coming in because that will help recalibrate supply chains both here to the U.S. and to our Western Hemisphere partners.”
China’s Predatory Practices Hit CAFTA-DR Countries
“These predatory practices have not only harmed U.S. manufacturers and workers, but also drastically impacted our valued political and economic allies in the Western Hemisphere,” Glas said.
“For example, the CAFTA-DR-U.S. co-production chain for textile and apparel supports over 1 million jobs and has been a critically important and a deeply economically impactful agreement, despite the headwinds from China’s increased access to our markets during the agreement’s existence,” she said.
The main driver behind the stability in the face of the China juggernaut is the yarn forward rule of origin, Glas said.
“This unique investment-based rule ties lucrative duty-free access to the U.S. market and our consumers to ensure investment in yarn, fabric and cut and sew production. Simply put, it means the agreement requires the signatories of the agreement gain the job benefits of the agreement.”
“Onshoring and nearshoring are happening. Key CAFTA-DR countries have seen exports up anywhere from 33 to 56 percent, outpacing major Asian exporters, and more investment in yarn, fabrics and apparel production will be announced soon,” she added.
Glas told the committee that apparel brands and retailers importing product to the U.S. from China are seeking “so-called relief [such as weaking the rules of origin in CAFTA-DR] to give Chinese yarns and fabrics and other countries that are not signatories of the agreement, backdoor access to the CAFTA-DR market.”
“These Trojan Horse ideas must be rejected out of hand because they hurt U.S. jobs and those in the region and reward other countries,” she noted.
In one of the liveliest exchanges during the question-and-answer session with the committee, Rep. Tom Suozzi (D-NY) called on retailers and apparel brands, some of whom have complained that the ban on cotton and cotton products from China is raising prices on imported goods to the U.S. and said they should shift more production to the U.S. and Western Hemisphere.
“The [U.S.] textile industry is very concerned about what China is doing. We’ve gone to China for cheaper goods,” Suozzi said.
He said the U.S. should close the U.S. market to imported goods from the Xinjiang region, something that could be helped by passage of the Uyghur Forced Labor Prevent Act (which the House passed last week).
“We should say that any goods coming from the Xinjiang region are presumed to be made with forced labor,” Suozzi said.
“Concerns from industry and others that this will make the cost of T-shirts and pants go up and be passed on to the consumer, my initial reaction to that is: “It’s too damn bad.”
“We have to hold them accountable for the way they are treating human beings in their country,” Suozzi added.
Glas agreed with Suozzi’s recommendations, noting that she is a commissioner on the U.S. -China Economic and Security Review Commission, and pointing to a recommendation from the commission this year to ban all products coming from Xinjiang for importation to the U.S. market.
“Seventy percent of U.S. textile, fiber, yarn and fabrics go to our Western Hemisphere trading partners,” Glas said. “We have one of the best cotton growing industries in world. There is transparency in our supply chains here and in the hemisphere because we have a strong rule of origin under our free trade agreements.”
“We are already starting to see opportunities coming to our hemisphere. Trade is up from some of the Northern Triangle countries by 56 percent over the last two years because Asian supply chains are breaking down,” Glas added. I do think there are retailers who are trying to de-risk out of Asia given the pervasiveness of the Xinjiang cotton issues. Our market is open here in the United States and we’re open for business in the Western Hemisphere. This is a huge opportunity to onshore and nearshore these critical production chains.”
Glas outlined key policy recommendations to the committee, including:
- Enact tax incentives and other targeted critical investments to strengthen Western Hemisphere trade relationships and re-shore manufacturing
- Close the Section 321 De Minimis Tariff Loophole
- Step up enforcement of forced labor of Uyghurs and others in the Xinjiang Uyghur Autonomous Region (XUAR)
- Firmly maintain Section 301 penalty duties on China for finished textiles and apparel products
- Immediately pass the MTB to help manufacturers with a limited list of critical inputs not made in the U.S. and review/close the mechanism in the MTB renewal which allows for finished products
- Strengthen buy-American practices for PPE and other essential products
- Block expansion of the Generalized System of Preferences (GSP) to include textile and apparel products
- Use trade enforcement in free trade agreements to mitigate transshipment schemes by unscrupulous importers seeking to illegally circumvent duties