Baseball guru Yogi Berra once said that “you’ve got to be very careful if you don’t know where you are going, because you might not get there.”
In today’s environment, if Yogi was in the fashion industry, he might look at his sourcing matrix and change his tune yet again because it’s no longer about where you are going—it’s also about where you came from.
The potential for a Xinjiang cotton issue (or an alleged forced labor possibility showing up in your supply chain) has fashion executives sitting on the edge of a cliff. The sourcing game is changing; U.S. Customs is tightening up at the border and U.S. lawmakers may soon have their say in Congress. With standards like “rebuttable presumption” emanating from Washington, executives who are light on “due diligence” may find themselves caught with liabilities they probably didn’t foresee when placing an order.
Transitioning from the Trump administration to the Biden administration has demonstrated the difficulty of managing America’s relationship with China. Ironically, one significant consequence is understanding the (now) minor nuances between Republican and Democratic trade policies.
Tactics and tone continue to differ, but in his first State of the Union speech delivered last week on Wednesday, President Biden looked at China—and picked up where President Trump left off.
“We’re in competition,” Biden said, “with China and other countries to win the 21st century.” President Biden was clearly trying to ascribe that thought as a broadly shared view to his “Build Back Better” agenda and $2 trillion “American Jobs Plan.”
President Biden went on to proclaim:
“…in my discussions with President Xi, I told him, ‘We welcome the competition. We’re not looking for conflict.’ But I made absolutely clear that we will defend America’s interests across the board. America will stand up to unfair trade practices that undercut American workers and American industries, like subsidies…to state-owned operations and enterprises and the theft of American technology and intellectual property.”
President Biden then invoked another of his major priorities, the defense of human rights and democratic principles, as he related what he told the Chinese president:
“No responsible American president could remain silent when basic human rights are being so blatantly violated. An American president…has to represent the essence of what our country stands for. America is an idea—the most unique idea in history: We are created, all of us, equal. It’s who we are, and we cannot walk away from that principle and, in fact, say we’re dealing with the American idea.”
Nowhere do these two concerns collide more dramatically—than with the circumstances that exist in the Xinjiang Uyghur Autonomous Region (XUAR) of China. Basically, President Biden is calling out:
— Economic competition with China
— Defense of human rights
For apparel and retail brands that source and sell in China, the consequence of the Xinjiang turbulence leaves them grappling with serious and conflicting considerations. Sadly, it can also impose several antithetical legal liabilities.
While trading globally and attempting to avoid additional regulatory frameworks, private firms have taken on obligations for the labor and environmental conditions under which they operate. This effort has grown into a huge web of voluntary, soft law and some hard law obligations as well.
All of these interactions are now being put to the test in Xinjiang.
The reality is that China has been treated as sui generis (its own legal world) when it came to codes of conduct and company compliance obligations. Code elements on freedom of association and trade union rights were treated as an exception to the checklists, and remediation recommendations were produced by the “audit” industry for the buyers attempting to manage expectations. The ability to evade the incongruity is now shrinking.
The issues surrounding Xinjiang make it increasingly difficult to separate the notion of free and open trade with countries that are neither free nor open, or at least those that do not accept basic principles of human rights and freedoms (as President Biden’s new framework makes clear). The dilemma of the Xinjiang cotton problem has also imposed itself on the audit industry—whose charge it is to help brands and retailers maintain the implementation and integrity of their compliance obligations. Audit firms have withdrawn from Xinjiang, unable to operate and deliver their contracted services because they fear Chinese government reprisals.
Where does this lead?
Perhaps, at this point, it’s best to revert to President Biden’s address—in which he observed “we’ll see more technological change in the next 10 years than we saw in the last 50. That’s how rapidly artificial intelligence (and so much more) is changing.”
Indeed, that technological change has already been utilized by the Chinese government to establish what is now referred to as the “surveillance state”—which has been developed and piloted in the Xinjiang region.
But while Xinjiang is under surveillance, this same technology is being harnessed to create the “surveillance sourcing supply chain.” Auditing is now giving way to “tracing” and “tracking” with new technologies involving genetic markers and tagging, microbiome data bases, the “fingerprints” of isotopes and trace elements offering the ability to establish the origins of a product. These technologies are competing with many new blockchain and AI platforms that are also offering more visibility and transparency into human rights and environmental sustainability of supply chains.
It is only a matter of time before the geographic origin of inputs can be scientifically established along with the labor conditions for the workers and the environmental sustainability related to it.
Buyers and governments will be able to decide what they want their supply chain to be. However, they will also have to decide whether to make all of that information known to their consumers.
The world is changing rapidly, and it’s up to the next generation of fashion executives to visualize where this goes—and to take the next steps to keep up.
To (once-again) paraphrase the late-great Berra, understanding that new industry tools will soon be in place:
If you’re in the fashion business and don’t know where you’re going, and don’t know where you came from, for sure—you’re never gonna get there…
Andrew Samet is a Principal in Sorini, Samet & Associates and is former U.S. Representative to the Governing Body of the International Labor Organization. He conceived and negotiated the establishment of the original ILO Better Work audit program in Cambodia.
Rick Helfenbein is a Special Adviser to Sorini, Samet & Associates and was the former chairman, president and CEO of the American Apparel & Footwear Association. He appears for industry comment on CNN, CNBC, Fox, BBC, Newsy, and Bloomberg.