Human rights and business: Japanese apparel makers in catch-22 over Uyghur cotton uproar

Japanese clothing giants such as Fast Retailing Co. and Ryohin Keikaku Co., known respectively for the Uniqlo and Muji brands, have found themselves caught between their global business initiative and human rights issues, as international human rights groups are stepping up criticism following reports of forced labor involving ethnic minorities in China's Xinjiang Uyghur Autonomous Region.

While the northwestern Chinese region has been known as a major producer of high-quality cotton, Uyghur and other ethnic minorities are reportedly being forced to engage in cotton picking and other work.

Better Cotton Initiative (BCI), an international nongovernmental organization that certifies and supports environmentally and human rights-friendly cotton growing, released a statement in March 2020 regarding cotton produced in Xinjiang, saying that the group could not implement reliable certification programs under the current circumstances. The group accordingly announced that it would not carry out certification during the 2020-2021 farming and harvesting season.

Behind the move apparently lies the international community casting increasingly stern eyes on cotton growing, in which forced labor and other human rights violations are suspected.

For this reason, a flurry of apparel brand operators have publicly announced that their products are free of Xinjiang cotton. These movements, however, irked China, and Swedish clothing giant H&M, in particular, took the brunt of the backlash.

Internet users in China fiercely bashed H&M, criticizing the brand for not buying Xinjiang cotton while making money in China. Eventually, H&M products became unsearchable on online shopping apps in China.

In response, BCI and H&M were forced to remove their announcements regarding Xinjiang-produced cotton from their official websites, in a bid to avoid angering Chinese consumers who are turning increasingly patriotic over the issue.

Under these circumstances, Japanese firms are finding themselves in a hard-pressed position. Fast Retailing Co. Chairman and CEO Tadashi Yanai declined to specify whether Xinjiang cotton is used in the company's products -- which are also sold at its Uniqlo stores in China -- during a press conference on April 8. With regard to the human rights issues in the region, he skirted around the subject, saying, "I will refrain from commenting as it's not so much a human rights issue as a political one."

In a report released by the Australian Strategic Policy Institute in 2020, Fast Retailing was accused of having a deal with a factory in China where Uyghur people were suspected to have been engaged in forced labor. Regarding this issue, Yanai only commented, "We've been monitoring all our factories, and if any problem arises, we suspend our transactions with them."

Ryohin Keikaku Co., which operates Muji stores in China, is also among the 14 Japanese companies that were implicated in the Australian think tank's report. At a press conference on April 14, President Satoru Matsuzaki withheld from commenting on the human rights issues in Xinjiang.

The strong wariness among these top executives in making remarks about the issue apparently is behind their fears that their companies might lose the gigantic Chinese market with 1.4 billion consumers once their products are boycotted like H&M's. When anti-Japanese demonstrations erupted in 2012, a broad range of products launched by Japanese-affiliated companies were targeted in consumer boycotts.

Japanese companies were among the first to foray into the neighboring Chinese market, and thus they heavily depend on it. As of the end of February, there were 800 Uniqlo outlets in China, accounting for 54% of all Uniqlo stores around the world and almost on par with the 807 Uniqlo branches in Japan. As for Ryohin Keikaku, it earned 17.6% of its global sales between September 2020 and February 2021 from its outlets in China.

In recent years, the international community has been stepping up its calls on investors to adopt Principles for Responsible Investment (PRI) that focus on environmental, social and governance (ESG) issues. The principles were advocated by then United Nations Secretary-General Kofi Annan in 2006.

In connection with the human rights issues in the Xinjiang Uyghur Autonomous Region, the United States, Britain, Canada and the European Union have invoked sanctions against Chinese authorities and groups concerned for alleged involvement in human rights violations. In response, the Chinese government has announced countermeasures against those moves, leading the issue to develop into a diplomatic row.

In commenting on top executives of major Japanese apparel companies refraining from addressing China's human rights issues, one economist pointed out, "Japanese companies already tend to be regarded as having weaker human rights awareness than their counterparts in the U.S. and Europe. If their stance of not proactively sharing their efforts and thoughts (over those issues) as a company is interpreted as reluctance to resolve those social challenges, it would adversely affect their business in the long run."

(Japanese original by Koichi Yonemura, Beijing Bureau, and Ayane Matsuyama, Business News Department)