A Hong Kong-headquartered apparel manufacturer is suing the U.S. government for putting it on an official blacklist of foreign entities with links to forced labor practices in China’s Xinjiang region. According to the complaint that it filed in a federal court in Washington, D.C. on Tuesday, Changji Esquel Textile Co. Ltd. (“Esquel”) claims that it was added to the U.S. Department of Commerce’s “Entity List” – which imposes trade restrictions on named companies – “based on a wholly false and unsubstantiated allegation: that [it] was supposedly engaging in ‘the practice of forced labor involving members of Muslim minority groups’ in Xinjiang, China.”
In the newly-filed complaint, which names the U.S. Department of Commerce and Secretary of Commerce Gina Riamondo, among others, as defendants, Esquel argues that “towards the end of the Trump Administration, the Department of Commerce’s Bureau of Industry and Security” added it to the U.S. Entity List “without prior notice, without evidence, and without any opportunity for [Esquel] to defend itself … in connection with [its alleged] participation in the practice of, accepting, or utilizing forced labor involving Uyghurs and other Muslim minority groups.”
“The appalling assertion that [Esquel] would use, or has ever used, forced labor is antithetical to everything Esquel stands for,” the 43-year-old company argues, stating that it has never “engaged in the practice of forced labor in Xinjiang or anywhere else in the world,” nor has any other Esquel-owned company, including its New York-based entity, Esquel Apparel Inc. “In actuality,” Esquel claims that while it does maintain operations in the controversial Xinjiang region, it has “a thoroughly documented, independently audited, and longstanding track record of adherence to ethical labor practices that absolutely bar any use of forced labor, including in Xinjiang.”
“Neither Esquel nor its major U.S. and European customers would ever countenance forced labor practices in any of their operations or supply chains,” the company asserts in its complaint, and cites “recent independent third-party audits of [its] facilities in Xinjiang (some of which were requested by customers who share the same commitment to socially responsible business practices), [which] have confirmed Esquel’s adherence to ethical labor standards barring forced labor.” Esquel further argues that “adherence to [responsible business] practices is not only an absolute moral imperative” for the company, it is also “a business imperative,” given that it uses “highly sophisticated spinning equipment,” making it so that “cheap or forced labor would have no place” in its factories.
“The outrageous assertion that [Esquel] used forced labor is completely contrary to fact, and the defendants have never provided any substantiation for their false accusation,” the plaintiff argues, claiming that “despite continued outreach and the sharing of numerous business documents with the Department of Commerce’s End-User Review Committee since September 2020, [it] has received no meaningful response or evidence from the U.S. government that would support its inclusion on the List.”
As a result of its allegedly unmerited inclusion on the U.S. blacklist, Esquel – which maintains the title of one of the world’s largest shirtmakers – claims that it has suffered “incalculable reputational and economic harms.” Specifically, on the day the Trump Administration announced that it would be added to the Entity List, Esquel alleges that articles published by various media outlets, including the New York Times, the Washington Post, and the Guardian, “not only repeated the defendants’ false findings about [Esquel], but also named many of [its] major customers, [which] unsurprisingly led several customers to notify Esquel that they would either pause or terminate business with Esquel as a whole.” These included “Michael Kors, Nike, Gap Inc. (for the brand Banana Republic), and PVH (for the brands Calvin Klein and Tommy Hilfiger).” Esquel also names Lacoste and Patagonia as among its “major U.S. and European customers.”
“Beyond direct economic effects, the severe stigma associated with placement on the Entity List has caused immediate and incalculable reputational damage to Esquel, both in the United States and worldwide,” the company claims, leaving it “no choice but to take legal action to end the devastating ongoing reputational and commercial damage resulting from this erroneous designation,” particularly since Esquel claims that it “has no idea when (or if) the defendants will ever remove [it] from the Entity List.”
“Unlawful Agency Action”
In terms of the basis for its complaint, Esquel argues that the defendants’ decision to designate it on the Entity List “was outside the [U.S. Department of Commerce’s] statutory authority.” This is because the “only statutory basis for placing an entity on the Entity List is to prevent certain enumerated harms to U.S. national security and foreign policy, including ‘the proliferation of weapons of mass destruction or of conventional weapons,’ ‘the acquisition of destabilizing numbers or types of conventional weapons,’ and even ‘acts of terrorism,'” none of which is relevant here, per Esquel. The plaintiff also argues that the defendants acted outside of the scope of their authority in placing it on the Entity List, as they “neither possessed nor offered any ‘specific and articulable facts’ demonstrating that [it] was engaged in the practice of forced labor in Xinjiang.”
As such, Esquel claims the defendants’ have engaged in an “unlawful agency action” and have run afoul of the Administrative Procedure Act in the process. Additionally, it asserts that the defendants violated the Due Process Clause of the Fifth Amendment by denying it “at a minimum, the right to notice of the basis for [their] decisions and an opportunity to be heard, including an opportunity to rebut whatever evidence on which the government relied.”
While Esquel asserts that it was “entitled to constitutionally mandated due process prior to any deprivation of its constitutionally protected interests,” it claims that it was “not afforded constitutionally sufficient process: [it] was not provided with the evidentiary basis for [its] designation on the Entity List, and [was] not given an opportunity to rebut the determination reflected in the July 2020 Notice,” which formally added the company to the Entity List and served to immediately “impose a license requirement for all exports, reexports, and transfers (in-country) to [Esquel] of items subject to the U.S. Export Administration Regulations.”
With the foregoing in mind, Esquel has asked the court to “vacate and set aside [its] designation as a listed entity on the Entity List,” to “preliminarily and permanently enjoin the defendants from implementing or enforcing [Esquel’s] Entity List designation,” and to award Esquel its “costs and reasonable attorney fees,” among other things.
A representative for the Department of Commerce told the WSJ that it does not comment on pending litigation.
The case is Changji Esquel Textile Co. Ltd., et al. v. Raimondo, et al., 1:21-cv-01798 (D.D.C.)