Hong Kong’s Esquel Sues US Over Inclusion on China Blacklist

Hong Kong’s Esquel Sues US Over Inclusion on China Blacklist

Workers remove by hand impurities such as leaves from cotton fibres in the Xinjiang Uyghur Autonomous Region city Turpan, China. Getty Images.

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

The unit, Changji Esquel Textile Co. Ltd., was added to the US 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 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 labour.

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.

Major international retailers including Hennes & Mauritz AB, Nike Inc. 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 US 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 US exchanges.

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 labour 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 labour.”

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

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 percent of its Uyghur team members had worked at the company for more than 10 years, it said.

A United Nations assessment has said anywhere from tens of thousands to upwards of 1 million Uyghurs have been detained in Xinjiang, and global outcry against Beijing’s crackdown has grown, with U.S. officials accusing China of committing genocide.

By Karen Leigh

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