A woman with a Shein bag after entering her first physical store in Madrid on June 2, 2022.

Europa Press News / Contributor

Fast-fashion juggernaut Shein is coming under increased scrutiny from US elected officials, who want the company to prove it doesn’t use forced labor before it files for a much-rumored IPO.

Attorneys general from 16 states last week sent a letter to Securities and Exchange Commission Chairman Gary Gensler, urging the agency to ensure Shein and other foreign companies comply with US law before allowing them to trade on US stock exchanges is permitted.

“It is evident that SHEIN is attempting to launch an IPO before the end of this calendar year. An IPO of this magnitude — involving a foreign-owned company that has credible concerns about its core business practices — cannot proceed with self-certification alone,” reads the letter, which was authored by Montana’s Attorney General Austin Knudsen and edited by 15 other Republican attorneys general.

“We urge you to require, as a condition of listing on a US securities exchange, that every foreign-owned company certifies through a truly independent process that it complies with Section 307 of the Tariff Act of 1930, which prohibits importation of products that were wholly or partly manufactured by forced labour.”

The letter was sent on Thursday, the same day the company announced it was taking a stake in Sparc Group, Forever 21’s parent company.

Shein has been accused of using forced laborers from China’s Xinjiang region to fuel its meteoric rise amid rumors that the company is preparing for an IPO. The company’s supply chain has a strong presence in China, where it was founded, but US law bans imports from Xinjiang due to widespread human rights abuses against Uyghurs in the region.

The company is currently under investigation by the Chinese Communist Party’s House of Representatives Special Committee, which also accuses Shein of evading US tariff laws. The investigation comes as US lawmakers from both parties are increasingly scrutinizing companies from China or those with potential ties to the Chinese government.

The letter cited a Bloomberg story published last year that showed through independent testing that some Shein garments were made from cotton from the Xinjiang region.

Shein suffered a huge setback from the report. The allegations have become a major hurdle for the retailer to overcome before it can expand its US presence and go public.

At the time of the Bloomberg report, Shein and his executives rarely spoke publicly. Since then, however, the company has become more open to the press, admitting to CNBC that some of its cotton supply has been proven to come from the Xinjiang region.

To test its cotton, the company hired supply chain tracking company Oritain, which it says is able to trace the origin of cotton fiber to specific farms. Between June 2022 and July 2023, 2,111 tests were conducted, yielding 46 positive results, or a 2.1% rate in prohibited regions, Peter Pernot-Day, Shein’s head of strategy and corporate affairs, told CNBC.

“These are raw materials. So if we have a positive raw material test, it means that raw material is withdrawn from production,” Pernot-Day said.

Oritain, which describes itself as an independent company, previously confirmed those results to Politico, saying that Shein outperformed the fashion industry on average.

The company tests more than 1,000 cotton samples each year. In a recent round of testing across the industry, Oritain found that 12% of samples came back positive for an “unapproved region,” Politico previously reported.

Pernot-Day said one of Shein’s main goals right now is getting the positive test results down to zero. To achieve this, the company conducts tests at all 40 factories every month and refrains from buying cotton from China altogether, Pernot-Day said.

Source : www.cnbc.com

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