Fashion Industry Anxious About NY Fashion Bill, Uyghur Forced Labor Bill

Arent Fox lawyers said a disclosure bill aimed at large fashion retailers and manufacturers may not pass in the New York statehouse, but it's making lots of people in the industry nervous (see 2201200046). "Even if this bill doesn't pass, there's going to be others in the future," Angela Santos said.

Christine Hintze, speaking at an online U.S. Fashion Industry Association program Feb. 16, said that if the bill passes, companies with more than $100 million in global revenues will have to produce a social and environmental sustainabilities report within a year, which will identify areas of social and environmental risk in their supply chains and benchmarks for improvement, and track results in those areas annually. Companies would need to post targets to mitigate climate change, based on the World Resources Institute guidelines, and report compliance on progressing towards those targets annually. They would need to post goals for water management, volume of material use, the amount of recycled material in production and chemical use. Garment workers' average wages would be required to be public, and they would be compared to the local minimum wage.

The bill would also require companies to disclose half of its suppliers across all tiers of production, and which half is published would be based on which suppliers are higher risk. What constitutes a high-risk supplier is not described, she said, but any company that is on a sanctions list or had been subject to a withhold release order would qualify, she expects.

Consumers would have a private right of action to compel compliance, she said, and said that public shaming and reputational harm could be the most dangerous parts of the bill, if it became law. Businesses are particularly concerned about the private right of action, Santos said.

While it provides for fines of up to 2% of annual revenues if disclosures aren't made at companies with more than $450 million in revenue, companies would have three months to rectify the lack of posting before facing fines.

Santos said she has heard that the bill will not pass and that it has a good chance in Albany. She said that labor rights and environmental groups say the disclosures are ineffective in changing behavior, but that businesses are concerned that they'll need to disclose confidential suppliers. And, she said, most fashion companies have little visibility beyond their first and second tier suppliers, so mapping the entire supply chain is a "heavy burden." Santos asked, "How are you supposed to go all the way back to the mine, the cotton picker, when you don’t even know who dyes your fabric?" Still, she said, this is going to have to change, because the Uyghur Forced Labor Prevention Act, which did become law, is forcing the issue.

So companies are going to need to put language on environmental and labor standards in purchase orders and contracts, she said. She said companies should assess the environmental impact of their production. "Pay attention to your ESG [environmental, social and governance] and sustainability advertising claims," she said. The contrast will be great, if, under the New York law, you have to disclose that your workers are paid 20 cents an hour, she said.

"We can help companies lobby for amendments at a minimum," she said, and inform lawmakers about how challenging it would be to comply with this law.

Santos told the audience that forced labor has become a priority area for CBP, and it has added a second forced labor team, which will focus outside Asia. Santos said she's heard from fashion firms that had goods stopped at the border under the Xinjiang cotton withhold release order. Depending on the port, or the particular import specialists, the requests for information vary, she said. Some say the company is giving too much information, others say it's not enough. She said one official asked for wage records for cotton pickers, but others didn't.

Industry officials need to take advantage of the comment period under UFLPA to let the government know how arbitrary the standards have been to convince CBP that the goods were not made with forced labor, she said. And, she said, they can ask that CBP be required to disclose how it's determining a nexus to Xinjiang, and what traceability tools it thinks are credible. She acknowledged, however, that traceability is not economically feasible at this point.

CBP has said it would like to provide more transparency into its WRO process (see 2110170002).

She said the industry would like to know what traceability tools CBP is using, and whether traceability can be used to get goods that have been detained released. Clearly, CBP is getting intelligence from somewhere, she said. Santos said she'd heard one client had 0.5% Xinjiang cotton in the product, "and somehow Customs found out, and their goods were detained. They ended up exporting it."

She also said companies should share with the government that CBP does not act quickly after all the information is provided, so that garments are held so long that the demurrage fees are more than the value of the goods, and the garments are no longer in season. "You are not able to meet your contracts," Santos said. "The government needs to know that’s untenable."

"I know that companies may be anxious that their comments will be misinterpreted or criticized," Santos said, and that companies don't want to be in the news around forced labor. But she said comments can be submitted through lawyers, through trade groups, and can be submitted anonymously directly from the company, as well.

"We’re helping four of the fashion industry groups with drafting comments," Santos said.

Arent Fox recommends that companies have a written policy that forced labor is prohibited in the supply chain, and that contracts detail minimum labor standards, including occupational health, access to food and water, and emergency preparedness. There should be legal liabilities for failure to comply with the terms, and a social compliance officer that vendors can contact. It also recommends unannounced visits to vendors, and that those visits include a forced labor check.

Hintze said it can seem overwhelming to try to start tracing back past the suppliers you know, but companies can prioritize some of the goods that Xinjiang is known for -- footwear, knit and woven garments, pajamas, underwear, bags, household textiles and accessories. She said Arent Fox has a list to six digits in the Harmonized Tariff Schedule code of goods produced in Xinjiang.

She said you may also want to begin with things made in China, or the largest volume products, or goods that include cotton. Chinese suppliers have been reluctant to offer American firms documentation about their suppliers, she said, because of China's blocking statute, which says companies may not give information that could hurt trade in Chinese goods.