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US bans on Xinjiang products could spell trouble for Apple

The tech giant has a number of companies in its supply chain that are alleged to have used forced labour from the Chinese province, where around 1mln Uyghur muslims are estimated to be detained in concentration camps

Apple Inc. - US bans on Xinjiang products could spell trouble for Apple

A proposed ban by the US on key exports from China’s Xinjiang province over the country’s treatment of the region’s Uyghur population could spell both public relations and manufacturing trouble for tech giant Apple Inc (NASDAQ:AAPL), which has been found to have links to companies potentially employing forced labour from the region to produce components for its iPhones.

On Wednesday, it was reported by Reuters that officials at the US Customs and Border Protection (USCBP) agency are preparing to block imports of cotton and tomato products sourced from the region, a move that is likely to further fan the flames of an ongoing trade spat between the two economic superpowers.

The USCBP will use devices known as ‘withhold release orders’ which allow the agency to detain shipments of goods that are suspected of being produced using forced labour as part of efforts to clamp down on human trafficking, child labour and other human rights abuses.

While Apple’s technology does not currently fall under the scope of the products covered under the initial blocking orders, if the US widens the applicable product range it could cause major disruption to the tech firm’s supply chain.

In a report published in March, the Australian Strategic Policy Institute (ASPI) highlighted that one of Apple’s Chinese contractors, O-Film Technology Co Ltd, reportedly saw 700 Uyghurs transferred from Xinjiang to one of its factories in Jiangxi province, located in east-central China. O-Film has previously manufactured ‘selfie cameras’ for Apple’s iPhone 8 and iPhone X models, with one of the company’s factories in Guangzhou having been visited by Apple chief executive Tim Cook in 2017.

Meanwhile, Taiwanese electronics firm Foxconn, which supplies Apple as well as other firms such as Dell and Sony, has also reportedly used Xinjiang labourers at its Zhengzhou facility in Henan province.

M&S also implicated

Aside from Apple, the ASPI report also identified 82 foreign and Chinese companies that it said were “directly or indirectly benefiting from the use of Uyghur workers outside Xinjiang through potentially abusive labour transfer programs”.

Firms on the list included UK high street retailer Marks and Spencer Group PLC (LON:MKS), which the report claimed had used cotton from a Chinese textile company that has operations in Xinjiang.

Other clothing brands such as Gap Inc (NYSE:GPS), H&M and Abercrombie & Fitch also made the list, while Uniqlo has previously boasted about the quality of the cotton from the province being used in its shirts.

However, M&S denied the allegations shortly after the report’s publication, saying in mid-March that it did not source from Youngor Textiles Holdings Co Ltd, the Chinese textiles firm, or its operation in Xinjiang.

“We are aware of this issue in the China supply chain and the movement of Uyghur people... to provide labour in manufacturing facilitates. As part of our annual audit process we identify the demographics of all workers in our manufacturing sites and as due diligence we have also been conducting additional assessments with our suppliers to identify if there is any employment of Uyghur people”, M&S said in its response statement.

However, the multitude of clothing brands with large US markets could find themselves hit hard by the impending ban on Chinese cotton imports, as the country produces around 20% of the world’s cotton, most of which is sourced from Xinjiang.

The US and other nations have been ratcheting up political and economic pressure on China over the situation in Xinjiang, where it is estimated that as many as one million Uyghurs have been detained without trial in what many have dubbed concentration camps.

American lawmakers have already passed restrictions on Xinjiang which assume that any goods produced in the province are made with forced labour and require certification to prove otherwise.

Shares in Apple were 1.4% higher at US$119 in early trading in New York on Thursday, while M&S shares were down 1.5% at 106p in late-afternoon trading in London.

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