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Exporters caught up in US restrictions on materials from Xinjiang

A US ban on materials made in a western Chinese region and soft demand for Philippine garments have caused exporters to lay off or place on forced leave more than 5,000 workers in the wearables industry, the Confederation of Wearable Exporters of the Philippines (CONWEP) said.

In a virtual briefing on Monday, CONWEP Executive Director Maritess Jocson-Agoncillo said the downsizings involve the country’s top cotton apparel exporter, L&T Clark, which is part of Hong Kong-based Luen Thai Group.

Ms. Jocson-Agoncillo said that industry’s performance has been declining for the past two years due to softened demand.

In 2023, exports of wearable apparel, textiles, travel goods, and footwear declined 19% to $1.36 billion, while exports in the first two months of 2024 declined 12% to $215.86 million.

“Over and above this, what really instigated this (the layoff) was the concerns of the industry related to the Uyghur Forced Labor Prevention Act (UFLPA),” she said, referring to a US law sanctioning China due to allegations that residents of Xinjiang, mainly from the Uyghur ethnic minority, have been placed in camps and made to perform forced labor.

UFLPA requires that exporters certify that their shipments contain no materials from Xinjiang, which is a major producer of cotton.

Ms. Jocson-Agoncillo said that the UFLPA has hindered the entry of L&T exports to the US, which cost the company around $5 million, with the cost to the export industry overall estimated at $6 million in losses.

Ms. Jocson said that L&T ended up retrenching around 2,000 employees in Clark, while nine other plants reported, citing various reasons, the retrenchment or forced leave of 3,077 workers in the four months to April.

In a statement on Monday, L&T Clark said the UFLPA presented unforeseeable difficulties for its operations.

“Despite our strict adherence to UFLPA-compliant sourcing practices, we are currently being required by CBP (the US Customs and Border Protection agency) to prove the origin and production practices of all elements of our supply chain,” the company said.

“(This) has led to prolonged delays in clearing recent US shipments, causing significant business interruption and order losses,” it added.

L&T Clark said that the delayed entry of the shipments led to the decision to place employees on forced leave.

“Given the extended and unanticipated time period for determinations on our shipments by CBP, it has become unsustainable to maintain full capacity without causing undue hardship to our employees,” it said.

“As a result, L&T Clark was compelled to implement a retrenchment program. This challenging decision is made with our employees’ well-being in mind, to spare them from uncertainty and prolonged forced leave,” it added.

On April 26, the company announced a retrenchment program for its 2,000 employees, which allowed affected employees to receive comprehensive severance packages that met legal standards.

“Looking to the future, we are hopeful for a rebound in business. Once these conditions improve and orders resume, our goal is to rehire our skilled workforce and restore normal operations,” the company said.

“It is crucial to recognize that these circumstances are the result of external policies beyond our control,” it added.

According to Ms. Jocson-Agoncillo, the industry saw the release of a few of the shipments a week and a half ago amid efforts by the Department of Trade and Industry to address the problem with the US government.

“However, at the end of the day, the damage is done because these shipments were due for November and December and were supposed to be in the stores in February, but since early November, they started getting detained,” she said.

As such, among CONWEP members, “close to about $6 million (worth of shipments) have been compromised,” she added.

Asked for an industry outlook, she said a rebound is possible by the end of the year.

“(The members) are very optimistic that, towards the end of the year until early next year, we can rebound,” she said. “The optimism is coming from the confidence of the buyers. For the Luen Thai Group, the partnership with its major counterpart buyers is there.” — Justine Irish D. Tabile