On January 13, 2021 the United States Customs and Border Protection (CBP) expanded the blanket Withhold Release Order (WRO) initially issued on December 2, 2020 and will detain all shipments containing cotton, cotton products and tomato products originating from the Xinjiang Uyghur Autonomous Region (XUAR). Here’s an excerpt from the January 13 statement: 

 The U.S. Department of Homeland Security announced today that U.S. Customs and Border Protection (CBP) personnel at all U.S. ports of entry will detain shipments containing cotton and cotton products originating from the Xinjiang Production and Construction Corps (XPCC). 

 The WRO on XPCC cotton products is the sixth enforcement action that CBP has announced in the past three months against goods made by forced labor from China’s Xinjiang Uyghur Autonomous Region. 

Forced labor is a priority CBP issue, and the 2020 election results probably won’t curb that momentum. The most recent data shows that from October 1, 2020, through December 31, 2020, CBP detained 90 shipments of goods subject to WROs. Implication: businesses that bet on this one being just another case of brow-beating run a significant risk in the near term. 

XUAR Facts and Figures 

The Chinese government plans to double manufacturing capacity in the XUAR by 2025, with a focus on apparel and textiles. The following table shows the XUAR’s top exports in 2019. 

The XUAR’s true role in global supply chains is difficult to determine but assumed to be much more prominent than export data reveals because the XUAR produces components and ingredients that are then incorporated into finished products within China.

Importers Call for Clarity 

In response to importers’ requests for transparency regarding the documentation required to secure the release of goods, on February 12, 2021, CBP issued answers to frequently asked questions covering topics like detention of shipments, proof of admissibility, certificate of origin, and due diligence.  Here are the key points: 

  1. The WRO is not limited to cotton and tomato products produced in the XUAR; it also covers products made in other parts of China and third countries using inputs from the XUAR. Downstream products produced outside of XUAR that incorporate these inputs may also be detained. For example, a garment produced in Vietnam of fabric knit in China is covered by the WRO, if the cotton was picked in XUAR. Customs is primarily targeting shipments with a known nexus to XUAR, reportedly based on an unpublished internal list of manufacturers in the region. However, the WRO gives Customs authority to seize cotton and tomato products produced anywhere if any inputs are from XUAR. 
    Implication: If you haven’t already, map your supply chain using digital twin technology, a virtual mirror of your physical supply chain operations that lets you run multiple what-if scenarios before you activate any changes and make adjustments in real time.
  2. To prove admissibility, CBP instructs that importers should submit the required documents to the port detaining the goods. Essentially, importers must provide transaction documents for every tier of the supply chain proving absence of nexus with the XUAR. Unfortunately, importers typically do not have that level of visibility to their upstream supply chain. 
    Implication: Be prepared to invest in technology for your business, and perhaps for key suppliers’, which creates and maintains a dynamic compliance certificate displaying chain of custody.
  3. Importers without relationships with the upstream suppliers/manufacturers must have verifiable and comprehensive social compliance procedures in place. CBP requires that the entire supply chain is documented in order to provide evidence that forced labor is not used at any tier. However, in recognition of the complex supply chains for these products, CBP advised that importers can prevent the risks of forced labor by having a “comprehensive and transparent social compliance system in place.” CBP directs importers to the forced labor section of its Informed Compliance Publication on Reasonable Care, which basically requires importers to evaluate their entire supply chain for forced labor risks and implement forced labor remediation plans. 
    Implication: When exploring the business implications of import bans, you’re going to have to do the work of comprehensive supply mapping and auditing one way or another. 
Additional (Possible) Business Implications of Import Bans Worth Considering 

Companies, especially larger ones with market presence, may be called upon to exert leverage via business relationships and sourcing choices. This has already begun. Brands report increasing challenges in engaging their Chinese suppliers, which tend to be supportive of the Chinese government’s policies. Nevertheless, companies — especially market leaders — should decide now if their approach will be proactive or reactive.  

Next, consider that governments aren’t the only entities interested in traceable supply chains. Traceability is likely to be a growing consumer demand. New technologies hold promise to support a more rapid scale-up of traceability, with greater reliability. In particular, isotope and microbe tracing may enable identification of product origin to help confirm sourcing information provided by suppliers. As noted, distributed ledger systems or other shared databases may also assist in the scale-up of traceability.  

 Finally, consider the challenge faced by companies that complete an exhaustive supply chain analysis only to discover they face a major hurdle establishing a financially viable, diversified supply chain precisely because of China’s dominance in certain sectors. Establishing alternative hubs with vertical integration is likely to prove challenging.  

What Does This Mean for Importers? 

Right now, importers must focus on complying with the CBP’s rules while thinking longer term about developing comprehensive compliance plans to reduce risk to their supply network and brand reputation. 

Learn more about why supply chains today need transparency and authenticity and how to achieve it here.

Occasionally, I cross paths with executives from fashion brands who have a passion for producing products that give back more than they take from the planet. And this kind of leadership is redefining the old ways of business as usual with radical transparency and accountability to build truly sustainable enterprises. 

During this year’s American Apparel & Footwear Association (AAFA) Executive Summit, I enjoyed moderating a panel featuring industry executives from some of these ‘sustainability-first’ brands. Our discussion explored the meaning of a truly sustainable mind set and the secrets to bringing their vision to life. 

A noble edge gained through standardization and foresight 

Whether expanding a 50-year mission, advancing a three-year-old brand to reshape an industry, or demonstrating accountability with better transparency, some apparel and footwear companies are making quantum leaps in their sustainability programs and building truly sustainable enterprises. But to reach this point, they must first extend their focus beyond doing what they believe are the right things to find areas for improvement and take purposeful and verifiable steps to fix them. 

Take, for example, a three-year-old footwear company represented on the panel. Although founded on sustainability principals, CARIUMA also recognizes that its journey to becoming an industry-changing global brand is just beginning. Tiago Klaus, chief operating officer at CARIUMA, noted that its organization is structured to adapt to exponential growth – especially the supply chain – and will continue to evolve as demand accelerates and changes.

For an incumbent brand more mature in its sustainability mind set, recognizing that more than three-quarters of its emissions come from materials and associated supply chains opened the door to a more strategic perspective. Matt Dwyer, head of product impact and innovation at Patagonia, shared that expanding progress beyond recycled materials to establish manufacturing standards and sourcing policies inspires his workforce to focus on doing what he defines as more good rather than just less bad.

Meanwhile, some businesses operate in a completely different context: rising expectations for transparency in environmental and social impact leave little room for error. Devon Leahy, vice president of sustainability at Ralph Lauren Corporation, explained that setting goals and targets and measuring a complete greenhouse gas footprint are critical steps for creating a foundation for sustainability stewardship. But it’s equally important to design a governance structure across the organization to enable everyone – from boardroom executives to store employees and beyond – to engage, communicate, learn, and review its work as a unified ecosystem

Diverse approaches for building sustainable enterprises

Without question, the industry executives who participated in the panel proved what I’ve always suspected: there’s no single “perfect” approach to sustainability – even in the beginning. Every business has its vision for serving customers who all want environmentally and socially friendly products. 

This realization was especially apparent during our conversation around life cycle assessments (LCA). Recently, Ben and Jerry’s reported that it’s calculating this figure from pasture to spoon and using that information to adjust their supply chain and facilities to reduce its carbon footprint. However, according to my panellists, this one method is just one of many to consider in the fashion industry. 

Leahy felt that LCA could be a valuable tool to calculate relative climate impacts from its materials. Objectively knowing the true environmental implications of switching fabrics, such as from cotton to polyester, can be challenging without this approach. For example, brands could conduct a complete greenhouse gas inventory with this assessment, including manufacturing processes and raw materials that often generate most of a company’s emissions footprint. As a result of the evaluation, businesses can set a realistic, science-supported target for meaningful and long-term greenhouse gas reduction. 

However, some brands face a different layer of sophistication and complexity in their operations, making LCA less feasible. Dwyer prudently advised that to build truly sustainable enterprises, businesses must know what they want and have readily accessible data to get the right answers to gain the full benefit of the assessment approach.  

Companies must learn a lot about themselves and every aspect of their supplier network to implement meaningful changes and improvements across their supply chain – from verticalizing processes to understanding preferred materials are environmentally sound and represent a lower carbon footprint. 

No magic bullet, but a much-needed effort 

There’s no one magic approach to answer the sustainability and traceability needs that resonate for all apparel and footwear brands. However, my panel discussion at the AAFA Executive Summit made clear the importance and urgency of seeing every point across the business operations with an open mind.  

Consumers expect it. Governments mandate it. Social communities rely on it. And our planet needs it to heal itself. But most of all, the economic survival of the business requires it.