Source: Blog – Alliance for American Manufacturing
Screenshot of Temu’s homepage taken on June 22, 2023.
The Select Committee on the Chinese Communist Party is examining whether Temu, SHEIN, Nike and Adidas are reliant on forced labor in China’s Xinjiang region. The panel unveiled interim findings on Thursday — and had especially harsh words for Temu.
Chinese e-commerce retailers SHEIN and Temu have quickly risen in popularity over the past year, dominating app rankings and shipping millions of packages to consumers in the United States. As their popularity has risen, so has well-deserved criticism of their business practices, including their potential reliance on forced Uyghur labor to make their products.
SHEIN has borne the brunt of the backlash, which is probably to be expected, as it has been around longer and is very popular among Gen Z. Temu, on the other hand, practically became famous overnight — nobody knew much about it until it ran ads during the Super Bowl. There hasn’t been a ton of examination of how exactly Temu does business, although observers like myself argued there were plenty of reasons to be leery of the company.
It appears that caution was warranted.
The Select Committee on the Chinese Communist Party (CCP) just unveiled the initial findings of its investigation into whether four companies — Temu, SHEIN, Adidas, and Nike — are reliant on forced labor in China’s Xinjiang region to make their products.
The interim report focuses significant attention on Temu, which it says “does not have any system to ensure compliance with the Uyghur Forced Labor Prevention Act (UFLPA),” a landmark law that banned all imports from China’s Xinjiang region unless importers can definitively prove their goods aren’t made with forced labor.
That law, which passed Congress nearly unanimously, included such a wide ban because of mounting evidence that forced labor is prevalent in Xinjiang, where the CCP is overseeing a genocide of the Uyghur people. While other companies have sought to distance themselves from Xinjiang — even SHEIN is mounting a PR push to distance itself from China, although we’re pretty skeptical about its actual merits — Temu is taking a different approach and dodging responsibility completely.
Temu has failed to “maintain even the façade of a meaningful compliance program” with the UFLPA, according to the report. The company “conducts no audits and reports no compliance system to affirmatively examine and ensure compliance,” merely having its 80,000 mostly China-based suppliers “agree to boilerplate terms and conditions that prohibit the use of forced labor.”
But Temu also admitted to the panel that it “does not expressly prohibit third-party sellers from selling products based on their origin in the Xinjiang Autonomous Region,” according to the report.
And Temu also argued that “[b]ecause it 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.”
Essentially, Temu is arguing that it is up to individual consumers to make sure Temu isn’t making stuff with forced labor.
All of this would be infuriating enough, given Temu’s flouting of the UFLPA. But what is even more aggravating is that current U.S. trade law is essentially underwriting much of Temu and SHEIN’s success.
The report notes that both companies are taking advantage of the “de minimis” loophole that allows packages valued under $800 to be shipped to the United States duty-free. Because the companies ship directly to consumers, they’ve exploited de minimis, not paying tariffs on their products despite the fact that the two are responsible for “almost 600,000 packages shipped to the United States every day.”
Put another way: These two companies account for 30% of the total de minimis packages delivered to the United States every day.
By not having to pay duties, SHEIN and Temu are exploiting a financial advantage other importers don’t have — the report noted the Gap paid $700 million in import duties last year; H&M paid $205 million — and also has allowed SHEIN and Temu to dodge inspection of the UFLPA.
It’s simply much harder for U.S. Customs inspectors to investigate small direct-to-consumer packages, especially when these two companies are responsible for 600,000 de minimis packages every day.
“The overwhelming volume of small packages and lack of actionable data limit [Custom’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,” the report notes.
“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 report continues. “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.”
The report released Thursday is just an interim report; the committee is expected to release more in-depth findings in the coming weeks. But it is more evidence that Congress needs to close the de minimis loophole that Temu and SHEIN have exploited.
New legislation introduced last week in the House by Reps. Earl Blumenauer (D-Ore.) and Neal Dunn (R-Fla.) and in the Senate by Sens. Sherrod Brown (D-Ohio) and Marco Rubio (R-Fla.) is a good place to start. The Import Security and Fairness Act would prohibit goods from countries that have non-market economies and are on the U.S. Trade Representative’s Priority Watch List from benefiting from de minimis.
“The existing $800 threshold undermines trade enforcement actions designed to level the playing field for American workers,” Alliance for American Manufacturing President Scott Paul said of de minimis. “Furthermore, customers are put at risk, as SHEIN and other brands like Temu take advantage of this trade loophole to ship counterfeits, dangerous products, and goods produced with forced labor through U.S. Customs undetected.”
There’s not a whole lot that can be done directly to stop Chinese brands like Temu from using forced labor, but U.S. trade law shouldn’t be giving the brand an unfair advantage — especially at the expense of American workers and companies. Congress should quickly pass this legislation.
You can help: Tell your Members of Congress to support the Import Security and Fairness Act.
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