A U.S. appeals court appeared conflicted about the inclusion of a Chinese clothing manufacturer accused of human rights violations on a list Congress meant for terrorist and illegal arms dealers.
Akin Gump Strauss Hauer & Feld attorneys had argued the inclusion on a list imposing import restrictions on the company was unfairly issued, and had made it essentially impossible for it to work with U.S. retailers. A trial court was unswayed and denied their Administrative Procedures Act claim.
At the U.S. Court of Appeals for the D.C. Circuit on Monday morning the judges appeared more open to claims the U.S. Bureau of Industry and Security overstepped when it added Hong Kong-based textile and apparel manufacturer Changji Esquel Textile Co. to the U.S. Entity List.
Established 25 years ago but updated as part of the Export Control Reform Act of 2018, the U.S. Entity List contains businesses, research institutions, government and private organizations, individuals, and other types of legal persons that traditionally have been associated with at least one of five congressionally authorized issues. The issues include violations associated with U.S. security, terrorism, the proliferation of weapons of mass destruction and other issues that require an additional license for listed parties to do business in the country. Beyond the licensing, however, the designation acts as a kind of scarlet letter, causing other businesses to shy away from working with those on the list, which does not specifically include human rights violations.
Changji Esquel was added in 2020 after the U.S. government implicated the company in “human rights abuses through the practice of forced labor involving members of Muslim minority groups in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China.”
But the company claims it has a sterling record when it comes to its employees, offering more than minimum wage at their facilities and submitting to internationally recognized audits of their labor practices.
“The Changji Esquel facility is highly automated and technologically advanced, and it requires highly skilled workers—the inverse of a business model reliant on underpaid labor,” the company said when they announced the lawsuit.
The addition of its name to the Entity List has caused massive economic damage, the 2021 complaint alleged, including losses of contracts with clothing brands such as Nike, Michael Kors, and Gap Inc.
U.S. District Judge Reggie Walton of the District of Columbia found the bureau’s failure to respond to Changji Esquel’s requests to be removed from the list failed to meet the arbitrary and capricious standard set under the APA.
But at least one appeals judge Monday appeared to open a window to the idea that using “human rights violators” as a distinction for the list may not have met Congress’ intent.
“Either Congress was not as clear as it might have been, or the agency itself in the interim offered no interpretation of this language. Then this rare bird comes along, and lists this entity for human rights violations. If you can’t find anything where Congress was explicit, then you look at the agency’s contemporaneous interpretations, we don’t have that here,” Circuit Judge Judith W. Rogers noted, pointing to the evidence record that showed Changji Esquel’s addition to the list was the first time “human rights violations” had been given as grounds for the Entity List.
“If you can show Congress clearly thought these five purposes were critical, and while the agency can take this additional action, it never has before. It hasn’t despite the world full of claims of human rights abuses,” she said. “It hasn’t exercised this authority before. That’s the rare bird coming back at you.”
Akin Gump attorney James E. Tysse similarly stressed the list has historically not been associated with human rights violators.
“In 2018 Congress overhauled that regime by placing these regulations on a new statutory footing. It imposes certain restrictions and said what the agency could do in certain situations, but the agency chose to ignore it,” he argued. “It expanded the grounds for the entity list, and it’s never engaged outside of this litigation as to whether there are any limitations on that list at all.”
Judge Patricia Ann Millett was less forgiving than Rogers. She pointed to other parts of the regulations that allow for the creation of the Entity List, in addition to other, equally negative lists of entities for reasons not listed by Congress.
“So they could list you, your clients, but I can’t imagine it would be better for your clients to be on the national security list vs. the human rights abusers list,” she pondered.
“Well I don’t think we’d be on the list if that was the case,” Tysse said. “I think there’s a serious question if we’d get added by the government on remand.”
“Would your injuries be any less irreparable if they had created a separate list?” she shot back.
And while he pushed back again on any future list addition for the company, he noted what the textile producer was currently being associated with: “We’ve been lumped in with nuclear weapons proliferators.”
Judge Gregory Katsas rounded out Monday’s panel.