fast-fashion-and-the-uyghur-genocide-interim-findings.pdf

Fast Fashion and

the Uyghur Genocide:

Interim Findings

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EXECUTIVE SUMMARY

Although our investigation remains ongoing, we have learned that Temu is responsible

for millions of shipments that are sent to the United States each year through a network of

tens of thousands of sellers on its online marketplace.

However, Temu does not have any system to ensure compliance with the Uyghur

Forced Labor Prevention Act (UFLPA). This all but guarantees that shipments from Temu

containing products made with forced labor are entering the United States on a regular basis,

in violation of the UFLPA.

Both Temu and Shein rely heavily on the de minimis exception to ship packages directly

to U.S. consumers, allowing them to provide less robust data to CBP, avoid import duties,

and minimize the likelihood that the packages will be screened for UFLPA compliance.

While we are continuing our investigation, we make the following interim findings:

1. Temu and Shein alone are likely responsible for more than 30% of all packages shipped

to the United States daily under the de minimis provision, and likely nearly half of all

de minimis shipments to the U.S. originate from China.

2. Temu’s business model, which relies on the de minimis provision, is to avoid bearing

responsibility for compliance with the UFLPA and other prohibitions on forced labor

while relying on tens of thousands of Chinese suppliers to ship goods direct to U.S.

consumers.

3. Temu conducts no audits and reports no compliance system to affirmatively examine

and ensure compliance with the UFLPA. The only measure Temu reported that it takes

to ensure that it is not shipping goods to Americans that are produced with forced labor

in violation of U.S. law was that its suppliers agree to boilerplate terms and conditions

that prohibit the use of forced labor.

4. Temu admitted that it “does not expressly prohibit third-party sellers from selling

products based on their origin in the Xinjiang Autonomous Region.”

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FAST FASHION AND THE UYGHUR GENOCIDE

The Select Committee was formed at the beginning of the 118

Congress to

develop a plan of action to defend the American people, our economy, and values

from the threat posed by the Chinese Communist Party (CCP) and ensure that the

American economy can outcompete that of the PRC.

On March 23, 2023, the Select Committee held a hearing on the CCP’s ongoing

genocide of the Uyghur people and other minorities. The Committee received

first-hand witness testimony and expert reports about the CCP’s atrocities, which

include imprisonment, torture, rape, forced sterilization, and the widespread

exploitation of the Uyghur people in forced labor. Following the hearing, the

Committee unanimously adopted a Committee Report in which the Committee

found that the CCP continues to commit atrocities against the Uyghur people and

other minorities, including by exploiting Uyghur forced labor.

The Committee

Report also found that products made with Uyghur forced labor continue to

contaminate global supply chains and to enter the United States despite

prohibitions on such shipments, including the prohibitions and presumptions in

the Uyghur Forced Labor Prevention Act (UFLPA) of 2021. Expert witnesses

identified specific forced labor concerns in the retail apparel industry and with the

supply chains of a number of Western and China-based companies.

Therefore, on May 2, 2023, the Committee requested information from four

companies regarding the steps each has taken to ensure that the products that the

company provides to American consumers as well as their constituent materials

were not produced with forced labor. These questions were directed to Nike,

Adidas, Shein, and Temu to learn about their efforts to comply with the UFLPA.

In addition, the Committee asked questions related to Temu and Shein’s use of

Section 321 of the Tariff Act of 1930, known as the de minimis rule, which allows

importers to avoid customs duties on incoming packages that are valued at less

than $800. In addition, because of the overwhelming volume of small packages

and lack of actionable data, “in 2022, CBP cleared over 685 million de minimis

shipments with insufficient data to properly determine risk.”

Over the last several weeks, all four companies responded with answers to our

questions and document productions. While all four companies have voluntarily

cooperated with the investigation, they have responded with varying degrees of

detail, thoroughness, and transparency. The Select Committee continues to review

their submissions and anticipates requesting additional productions.

The Chinese Communist Party’s Ongoing Uyghur Genocide: Policy Recommendations, HOUSE

SELECT COMM. ON CHINA (2023).

Letters from Hon. Mike Gallagher, Chairman, and Hon. Raja Krishnamoorthi, Ranking

Member, Select Comm. on China, to Nike; Adidas; Shein; Temu (May 2, 2023).

COAC Next Generation Facilitation Subcommittee: E-Commerce Task Force, U.S. Customs and

Border Protection Office of Trade, Trade Policy and Programs, Intellectual Property Rights

Division, Pub #3083-1122, (Dec. 2022).

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This interim report is not a complete summary of our work or current findings.

Rather, we simply seek to highlight certain key findings involving Chinese fast

fashion companies and online marketplaces operating in the United States that we

believe must be shared with the American people on an expedited basis.

* * *

INTERIM KEY FINDINGS

Our investigation remains ongoing, but the initial responses and document

productions yielded important information that is highly relevant to the

Committee’s recently adopted Committee Report on the CCP’s Uyghur Genocide,

as well as the Committee’s ongoing work related to Uyghur human rights. For

those reasons, we are issuing key, interim findings related to China-based fast

fashion companies and online marketplaces operating in the United States. These

interim findings should not be read to imply any findings as to matters not

discussed in this report.

Temu is an online retail platform operated by Chinese parent company

Pinduoduo, a popular ecommerce site based in China and headquartered in the

Cayman Islands. Temu launched in the United States in September 2022 out of

Chinese parent company Pinduoduo, which was founded in 2015. Like Shein, its

business model is direct-to-consumer, and it does not appear to have any brick-

and-mortar retail location in the United States. Instead, Temu facilitates

transactions between Americans and China-based sellers. According to

documents produced to the Committee, Temu’s network includes more than

80,000 suppliers.

Shein is a Chinese fast fashion retailer famous for selling cheap apparel to Gen

Z consumers. Founded in 2008, Shein is now one of the world’s largest fashion

retailers. Rather than relying on traditional brick-and-mortar stores, Shein is an

online retailer that ships products direct to American consumers, often from its

network of Chinese suppliers. Shein moved its headquarters to Singapore in 2019.

Virtually all of the goods sold to American purchasers on Temu and Shein are

delivered through direct-to-consumer shipments from China. Because the vast

Key Finding 1: Temu and Shein alone are likely responsible for more

than 30% of all packages shipped to the United States daily under the

de minimis provision, and likely nearly half of all de minimis shipments

to the U.S. from China.

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majority of these direct-to-consumer packages are valued at less than $800, Shein

and Temu are able to ship those packages using the de minimis exception.

The de minimis exception provides admission of products free of duty if the

fair retail value of the product does not exceed $800.

The de minimis threshold

was previously $200 but increased in 2016 with the passage of the Trade

Facilitation and Trade Enforcement Act (TFTEA). Since the de minimis threshold

was increased, the scale of de minimis imports arriving in the United States has

expanded from 220 million packages in 2016 to 720 million in 2021.

Excluding

Bahrain and Kazakhstan, the U.S.’s de minimis threshold is more than twice that

of any other country. The PRC’s de minimis threshold is $7, for comparison.

The overwhelming volume of small packages and lack of actionable data limit

CBP’s ability to identify and interdict high-risk shipments that may contain

narcotics, merchandise that poses a risk to public safety, counterfeits, or other

contraband. For instance, ninety percent of all counterfeit goods were seized by

CBP in the de minimis environment.

In FY 2022, CBP cleared over 685 million de

minimis shipments with insufficient data to properly determine risk. While CBP

receives some advance electronic data for Section 321 shipments from carriers,

according to the Commercial Customs Operations Advisory Committee, “the

transmitted data often does not adequately identify the entity causing the

shipment to cross the border, the final recipient, or the contents of the package.”

For these reasons, the de minimis provision is foundational to Shein and

Temu’s business models and relevant to the Select Committee’s analysis of each

company’s UFLPA compliance regime. The fact that the vast majority of products

shipped from both Shein and Temu to American consumers fall under the de

minimis exception means that these companies avoid customs duties—making

each product cheaper—and are less likely to face the same level of customs

scrutiny that other retailers might face on a formal entry.

Based on information provided to us by the two companies in response to our

investigation, Temu and Shein are responsible for almost 600,000 packages

Section 321 Programs, U.S. CUSTOMS AND BORDER PROTECTION (2019) available at

www.cbp.gov/trade/trade-enforcement/tftea/section-321-programs

#:~:text=De%20minimis%20provides%20admission%20of,duty%20shall%20not%20exceed

%20%24800.

Section 321 De Minimus Shipments FY2018-FY2021 Statistics, U.S. CUSTOMS AND BORDER

PROTECTION (2022) available at www.cbp.gov/sites/default/files/assets/documents/2022-

Oct/FY2018-2021_De%20Minimis%20Statistics%20update.pdf.

Overview of de minimis value regimes worldwide, Global Express Association (Nov. 4, 2021)

available at www.global-express.org/assets/files/GEA%20De%20Minimis

%20Country%20information_4%20November%202021

Intellectual Property: CBP Has Taken Steps to Combat Counterfeit Goods in Small Packages but

Could Streamline Enforcement, Government Accountability Office, No. 20-692 (Sep. 2020).

E-Commerce Task Force, U.S. Customs and Border Protection (June 2023) available at

www.cbp.gov/sites/default/files/assets/documents/2023-Jun/NGFE-C~1.PDF.

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shipped to the United States every day under the de minimis rule. At an

annualized rate, this totals about 210 million packages sent to the United States

every year not subject to any import duties.

In 2022, 685 million shipments entered the United States under de minimis.

This means that duty-free shipments from just two companies – Temu and Shein

– likely amount to more than 30 percent of all global de minimis shipments into

the United States. (Figure 1)

Figure 1: Share of de minimis shipments from Temu/Shein compared to rest of world.

In 2021, more than 60% of all de minimis shipments to the United States came

from China.

(Figure 2) In light of each company’s primary supplier network in

China, this suggests that shipments from Temu and Shein alone may account for

nearly half of all de minimis shipments from China. (Figure 3)

Figure 2: Comparison of approximate shipments from China and the rest of the world.

Josh Zumbrun, How a Trade Loophole May Be Letting in Chinese Imports Made With Forced

Labor, WALL ST. JOURNAL (May 26, 2023) available at www.wsj.com/articles/how-a-trade-

loophole-may-be-letting-in-chinese-imports-made-with-forced-labor-6553a4da.

Section 321 De Minimus Shipments FY2018-FY2021 Statistics, U.S. CUSTOMS AND BORDER

PROTECTION (2022).

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Figure 3: Comparison of shipments from Shein and Temu compared to the rest of China.

The millions of packages that Temu and Shein ship every year duty free to the

United States, without providing CBP with sufficient data regarding the contents

of the packages, stand in stark contrast to the millions of dollars in import duties

paid by retail companies. For instance, in 2022, Gap, H&M, and David’s Bridal

respectively paid $700 million, $205 million, and $19.5 million in import duties.

Moreover, these and similar companies’ imports were accompanied by better data,

allowing CBP to more effectively enforce the law. (Figure 4)

Figure 4: Table of U.S. import duties paid in 2022 by retail companies.

Among other goals, the de minimis rule was intended to reduce the burden

on U.S. customs agents from inspecting packages of minimal value. The

astounding volume of packages shipped to the United States on a daily basis by

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just two Chinese companies provides important insight into both Shein and

Temu’s business models.

We asked Temu what measures it has in place to make sure that goods it sells

are compliant with the UFLPA. Temu wrote, in part, “Because Temu is not the

importer of record with respect to goods shipped to the United States, [the UFLPA]

and the prohibitions set out in [Section 307 of the Tariff Act of 1930] do not apply

directly to Temu’s activities as an online platform operator.”

Temu operates an online platform that facilities the shipping of tens of millions

of packages a year to the United States. Temu informed us that there are about

80,000 sellers that list products on Temu. Moreover, “substantially all shipments

were shipped to the United States under the de minimis provision.” As of last

month, Temu reported that no single product on its website was offered or sold at

or greater than $800. In other words, all products on Temu fell within the scope of

the de minimis rule.

The fact that tens of millions of shipments from China are not being

sufficiently vetted for UFLPA compliance is contrary to the goals of this landmark

legislation.

The UFLPA creates a presumption that goods mined, produced, or

manufactured wholly or in part in Xinjiang (or by designated companies in China)

simply may not be imported into the U.S. To rebut this presumption, an importer

must meet the high burden of clear and convincing evidence.

The UFLPA also

established a UFLPA Entity List, which identifies - and restricts importing from -

companies working with the government of Xinjiang on forced labor matters.

discussed at our recent hearing, this law was Congress’s direct response to the

An Act to ensure that goods made with forced labor in the Xinjiang Uyghur Autonomous Region

of the People’s Republic of China do not enter the United States market, and for other purposes, Pub.

L. 117-78 (2021), available at https://www.congress.gov/117/plaws/publ78/PLAW-

117publ78.pdf.

Id. at § 3(a)(ii).

Cathleen D. Cimino-Isaacs, Christopher A. Casey, & Michael A. Weber, Section 307 and

U.S. Imports of Products of Forced Labor: Overview and Issues for Congress (No. R46631; p. 1-36),

Congressional Research Service (May 21, 2021) available at

https://crsreports.congress.gov/product/pdf/R/R46631.

Key Finding 2: Temu’s business model, which relies on the de minimis

provision, is to avoid bearing responsibility for compliance with the

UFLPA and other prohibitions on forced labor while relying on tens of

thousands of Chinese suppliers to ship goods direct to U.S. consumers.

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CCP’s use of Uyghur forced labor, with the intent of ensuring that American

consumers are not complicit in these ongoing abuses.

In light of the sheer volume of shipments sent to the United States through its

website, Temu’s failure to take any meaningful steps with respect to preventing

the importation of goods produced with forced labor is striking. Simply put, Temu

denies responsibility for ensuring that its 80,000, mostly China-based sellers do

not sell products produced with forced labor because Temu is “not the importer

of record with respect to goods shipped to the United States.”

Despite facilitating millions of purchases by Americans each year, when

asked, Temu did not report any compliance or auditing system to independently

verify that the tens of thousands of sellers who list on Temu are not selling

products produced with Uyghur forced labor. Temu’s current compliance plan

relies almost entirely on its China-based third-party sellers that send shipments to

the United States with insufficient data to facilitate appropriate customs scrutiny.

The sole measure that Temu reported that it takes to ensure that it is not selling

goods produced with forced labor is to require its sellers to agree with its website’s

“Third Party Code of Conduct,” which includes boilerplate language that the

company has “a zero-tolerance policy” for the use of forced, indentured, or penal

labor. It makes no mention of Xinjiang, the UFLPA, or any other provision of law.

Despite a valuation estimated at $100 billion, Temu also does not have an

auditing or compliance program to determine whether its suppliers are compliant

with the Code of Conduct or to verify whether its China-based sellers are in fact

complying with the UFLPA and other prohibitions under U.S. law.

Lacking any effective compliance measures of its own, Temu relies on a

“reporting system” in which “consumers, sellers, [and] regulators,” among others,

can “file complaints for violations of Temu platform rules.” Unsurprisingly,

“Temu has not received any complaints concerning forced labor practices.” This

lack of any complaints highlights the dubious nature of a system that relies solely

The Chinese Communist Party’s Ongoing Uyghur Genocide: Policy Recommendations, House

Select Comm. on China (2023); Marti Flacks & Madeline Songy, The Uyghur Forced Labor

Prevention Act Goes into Effect, CSIS (June 27, 2022) available at

https://www.csis.org/analysis/uyghur-forced-labor-prevention-act-goes-effect.

Key Finding 3: Temu conducts no audits and reports no compliance

system to affirmatively examine and ensure compliance with the UFLPA.

The only measure Temu reported that it takes to ensure that it is not

shipping goods to Americans that are produced with forced labor in

violation of U.S. law was that its suppliers agree to boilerplate terms and

conditions that prohibit the use of forced labor.

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on external reporting. Individuals and entities in China that raise questions about

forced labor are routinely penalized and are unlikely to self-report violations of

U.S. law.

It is also unclear how American consumers would have relevant

information regarding whether or not a product they purchased on Temu was

produced through forced labor or with illicit Xinjiang inputs.

Temu also stated that under its “Prohibited Products List” policy, sellers are

alerted when they list a product that violates the List, which includes “products

prohibited by applicable laws, nationwide or regional” and “products that

support illegal activities.” Temu explained that sellers are then given a chance “to

cure the violation or remove it” from the website. This system is illustrative once

again of Temu’s reliance on the China-based sellers to self-report and comply with

applicable anti-forced labor laws of the United States.

In response to our inquiry, Temu acknowledged that it does not have a policy

in place to prohibit the sale of goods from Xinjiang—the location of the CCP’s

ongoing genocide against the Uyghurs—on its platform. This is particularly

concerning in light of Temu’s lack of UFLPA compliance mechanisms. In fact, after

we launched our investigation, we found that Temu’s marketplace featured the

product in the below screenshot, obtained on May 31, 2023. The product is labeled

“New Handmade Knitted Cotton Pendant with Xinjiang Cotton,” then available

for sale on Temu. (Figure 5). The reference to Xinjiang may refer to the materials,

the supplier, the pattern, or the origin of the product. As discussed at the Select

Committee’s recent hearing, Xinjiang’s cotton industry is intrinsically linked to

forced labor and import of such cotton into the U.S. is functionally prohibited

under U.S. law.

China: Freedom in the World, FREEDOM HOUSE (2023) available at

www.freedomhouse.org/country/china/freedom-world/2023.

Key Finding 4: Temu admitted that it “does not expressly prohibit third-

party sellers from selling products based on their origin in the Xinjiang

Autonomous Region.”

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Figure 5: Screenshot of item listed on Temu described as a pendant with

“Xinjiang Cotton.”

Temu’s policy to not prohibit the sale of products that explicitly advertise their

Xinjiang origins, even in the face of mounting congressional and public scrutiny

on related topics, raises serious questions that warrant—and will receive—

additional scrutiny.

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As noted above, our efforts to scrutinize the PRC supply chains, UFLPA

compliance programs, and relevant business practices of Nike, Adidas, Shein, and

Temu are still underway. These initial and interim findings – which reveal Temu’s

failure to maintain even the façade of a meaningful compliance program, and the

true scale of both Shein and Temu’s use of the de minimis provision – raise serious

concerns about the continued presence of products made with forced labor

contaminating American imports. American consumers should know that there is

an extremely high risk that Temu’s supply chains are contaminated with forced

labor. And all companies operating in the United States have an obligation to clean

up their supply chain and ensure that they are not contributing to the CCP’s

genocide of the Uyghur people by facilitating the sale of goods made with forced

labor.

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