Hong Kong’s Esquel Sues U.S. Over China Blacklist Inclusion

Hong Kong apparel giant Esquel Group said it is suing the U.S. government for what it called the “erroneous” blacklisting of a subsidiary, saying it had been “falsely implicated” in the use of forced labor in China’s Xinjiang region.

The unit, Changji Esquel Textile Co. Ltd., was added to the U.S. Commerce Department’s Entity List during former President Donald Trump’s administration. That designation prohibits American firms from doing business with listed companies without first obtaining a government license.

Esquel Group said this move was made with no “supporting evidence” and that its factories in Xinjiang, where China has been accused of widespread human rights abuses against Muslim Uyghurs, do not use forced labor.

Closely-held Esquel Group is one of dozens of companies that have been ensnared by growing tensions between the U.S. and China over issues that span trade, human rights and territorial disputes. The far western region of Xinjiang produces more than 80% of China’s cotton, and the U.S. wants companies to stop doing business there. China denies that it is mistreating Uyghurs and maintains that it is fighting separatism and religious extremism.

Esquel Group is one of the world’s biggest cotton shirt producers and exporters, providing more than 100 million shirts to global fashion brands every year with more than $1.3 billion in annual revenue, according to the government-backed China Cotton Association. The company said in a February statement published to its official WeChat account that it supplies retailers including Chinese sportswear giant Anta Sports Products Ltd., Hugo Boss AG, and Ralph Lauren Corp.

Esquel Group, Anta, Hugo Boss and Ralph Lauren did not immediately respond to requests for comment Wednesday.

Major international retailers including Nike Inc., Hennes & Mauritz AB and Fast Retailing Co. have faced a dilemma over whether to embrace cotton from the region and be attacked in the West, or reject it and risk a boycott by Chinese consumers. Statements from H&M, Nike and Adidas AG declaring they won’t use Xinjiang cotton have incited retaliation in China, including a plunge in sales on e-commerce platforms and forced store closures.

Esquel Group’s suit comes after the U.S. in May agreed to remove Xiaomi Corp. from a blacklist after the Chinese smartphone giant sued the American government. The Defense Department under Trump had issued an order designating Xiaomi a Communist Chinese Military Company, which would have led to its de-listing from U.S. exchanges.

Secretary of State Antony Blinken on Tuesday met with a group of Uyghur internment camp survivors, advocates, and relatives of people detained in Xinjiang, according to spokesman Ned Price, the latest signal that the Biden administration will continue Trump’s efforts to pressure China on the issue. Blinken expressed the U.S.’s committment to working with allies in calling for an end to “genocide” against Uyghurs and promoting accountability for China’s actions, Price’s statement said.

A spokesman for the Commerce Department said that it doesn’t comment on litigation.

Esquel Group said in its statement that audits by multiple third-party independent auditors using internationally recognized industry standards had involved site visits to facilities in Xinjiang and interviews with Uyghur workers.

“In every instance, the audits found no evidence of forced labor or coercion,” the company said. “Further, the Changji Esquel facility is highly automated and technologically advanced, and it requires highly skilled workers -- the inverse of a business model reliant on underpaid labor.”

The Entity List inclusion has caused “devastating reputational and commercial damage” to the company, it said.

Esquel Group has more than 35,000 employees globally and manufacturing facilities in China, Sri Lanka and Vietnam. The company says it was among the first exporters to sell Chinese-made apparel and garments to the U.S.

Esquel Group said in a September 2020 post on its website that by the end of 2019 it had a team of more than 1,300 people in Xinjiang including more than 400 Uyghurs. Nearly 15% of its Uyghur team members had worked at the company for more than 10 years, it said.

©2021 Bloomberg L.P.

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