Shein faces scrutiny over forced labor before IPO

A girl with a Shein bag after entering its first physical store in Madrid, June 2, 2022.

Europa Press News / Contributor

Fast-fashion juggernaut Shein is facing more scrutiny from elected officials within the U.S. who want the corporate to prove it doesn’t use forced labor before it files for a widely rumored initial public offering. 

Attorneys general from 16 states sent U.S. Securities and Exchange Commission Chair Gary Gensler a letter last week asking the agency to make sure Shein and other foreign firms are following U.S. law before they’re permitted to trade on American exchanges. 

“It is clear that SHEIN is attempting to launch an IPO before the top of this calendar 12 months. An IPO of this magnitude—involving a foreign-owned company that’s facing credible concerns about its core business practices—cannot move forward on self-certification alone,” the missive, written by Montana’s Attorney General Austin Knudsen and signed by 15 other Republican attorney generals, stated. 

“We urge you to require, as a condition of being listed on a U.S. based securities exchange, that any foreign-owned company certify via a really independent process that it’s compliant with Section 307 of the Tariff Act of 1930, which prohibits the import of any product manufactured wholly or partly by forced labor.” 

The letter was sent Thursday, the identical day the corporate announced it was taking a stake in Without end 21’s parent company Sparc Group.

Shein has faced accusations that it used forced labor from the Xinjiang region in China to fuel its meteoric rise as rumors swirl that it’s preparing to go public. The corporate’s supply chain has a big presence in China, where it was founded, but U.S. law prohibits imports from Xinjiang due to widespread human rights abuses against Uyghurs within the region. 

The corporate is currently under investigation by the House Select Committee on the Chinese Communist Party, which has also accused Shein of evading U.S. tariff law. The probe comes as U.S. lawmakers from each parties increasingly scrutinize firms from China or those with potential ties to its government.

The letter cited a Bloomberg story published last 12 months that showed, via independent testing, that some Shein clothes were made with cotton from the Xinjiang region. 

Shein has faced enormous blowback from the report. The accusations have turn into a significant hurdle the retailer must overcome before it may grow its presence within the U.S. and go public. 

On the time of the Bloomberg report, Shein and its executives rarely spoke publicly. But since then, it has turn into more open to press, and has acknowledged to CNBC that a few of its cotton supply has been found to come back from the Xinjiang region. 

To check its cotton, it contracted the availability chain tracing firm Oritain, which says it’s capable of track the origin of cotton fibers right down to specific farms. Between June 2022 and July 2023, it has conducted 2,111 tests, which resulted in 46 positive results, or a rate of two.1%, from banned regions, Peter Pernot-Day, Shein’s head of strategy and company affairs, told CNBC. 

“These are in raw materials so when we have now a raw material positive test, that implies that raw material is faraway from production,” Pernot-Day said.

Oritain, which bills itself as an independent firm, previously confirmed those results to Politico and said Shein has fared higher than the style industry on average. 

Annually, the corporate tests greater than 1,000 cotton samples. During a recent testing round across the industry, Oritain found 12% of samples got here up positive for an “unapproved region,” Politico previously reported. 

Pernot-Day said one in every of Shein’s primary objectives for the time being is to get its positive test results right down to zero. To do this, it’s conducting testing from all 40 of its mills every month, and stopped buying cotton from China altogether, Pernot-Day said.