This article was originally published by Radio Free Asia and is reprinted with permission.
Two dozen U.S. lawmakers have called for the Securities and Exchange Commission to halt any initial public offering of shares by the Chinese apparel company Shein Group until it proves that it does not use cotton produced by forced labor from the country’s Uyghur population.
It is believed that the China-backed global fashion e-retailer headquartered in Singapore may conduct an IPO for a potential U.S. listing before year-end. The company sells clothing and other products under several brand names, including Shein X and SheGlam, mainly to young consumers through its highly popular mobile application.
Shein has come under fire for using underpaid labor in its supplier factories and violating human rights, the lawmakers said in a May 1 letter addressed to SEC Chairman Gary Gensler.
The legislators cited a Bloomberg report last November that said cotton from the Xinjiang Uyghur Autonomous Region (XUAR) was present in clothing sold by Shein in 2022, based on the results of scientific testing. The article also pointed out that the company has been exploiting a loophole in a U.S. ban on imports of cotton linked to forced labor in China to grow its business by shipping its products directly to consumers.
If the allegations of using underpaid and forced labor prove true, then the company would be in violation of the Uyghur Forced Labor Prevention Act, the lawmakers say in their letter. Signed into law in December 2021, the act requires U.S. companies that import goods from Xinjiang to prove that they have not been manufactured with Uyghur forced labor at any stage of production.
The lawmakers asked the SEC, an independent stock market regulator, to set forth regulations and require Shein to certify via third-party verification that it does not use Uyghur forced labor as a condition of being registered to issue securities in the U.S.
“While Shein claims its products do not utilize Uyghur forced labor and it works with third parties to audit its facilities, experts counter these types of audits are easily manipulated or falsified by state-sponsored pressure,” the letter says. “Other experts argue that it is appropriate to presuppose that any product made in the XUAR is made with forced labor.”
“We strongly believe that the ability to issue and trade securities on our domestic exchanges is a privilege, and that foreign companies wishing to do so must uphold a demonstrated commitment to human rights across the globe,” the letter says.
Corporate human rights policy
There was no immediate response from Shein, whose company website says it is “dedicated to operating in a responsible and ethical manner” with a responsibility for advancing human rights, including rejecting forced labor, harassment, discrimination, and unsafe working conditions for our employees.
Likewise, Shein’s supplier code of conduct says the company has zero tolerance for severe human rights violations, including forced labor and failure to pay minimum wages as required by law.
Because about 90% of China’s cotton is produced in Xinjiang, most Chinese cotton products contain it and therefore are subject to the U.S. ban.
“Xinjiang cotton is still available in the U.S. because of a loophole that is allowing shipments directly to consumers, which bypasses the requirement that other large retailers who have retail stores [must] face regarding reporting to U.S. Customs and Border Protection,” journalist Sheridan Prasso, who wrote the Bloomberg report, told Radio Free Asia.
Because Shein ships directly to consumers, it can bypass the law by using the de minimis trade exemption, meaning that packages valued under U.S. $800 do not require a U.S. customs declaration, she said.
Shein, which has nearly 10,000 employees worldwide and sells in over 150 countries, has operation centers in the United States and other major global markets.
The company was established in Nanjing, China, in 2008, and now is the world’s largest online fashion retailer with an estimated value of U.S. $64 billion.