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Li-Ning Hits Back at CBP’s Forced Labor Ban

Li-Ning has broken its silence following U.S. Customs and Border Protection’s (CBP) decision to seize its goods at all ports of entry after the agency’s investigation uncovered the use of North Korean labor in the Chinese sportswear giant’s supply chain.

In a filing to the Hong Kong Stock Exchange Wednesday, Adidas and Nike’s homegrown rival accused customs of making “incorrect” and “misleading” allegations about its operations, where it said it has “not discovered any case of forced labor” to date.

“As a professional sports brand company, the group has a sound corporate governance system in place, strictly complies with the laws, regulations and compliance policies of the [People’s Republic of China], and upholds ethical standards,” Li-Ning wrote. “The group incorporates the principles of corporate citizenship and social responsibility into the relevant areas of its business development, and actively shoulders the responsibilities and missions of promoting synergistic development of the environment, the society and corporate governance with concrete actions.”

CBP said Tuesday that it would be detaining Li-Ning shipments in line with the Countering America’s Adversaries Through Sanctions Act, a.k.a. CAATSA, which bars the entry of goods made wholly or in part by North Korean nationals or North Korean citizens anywhere in the world. Some merchandise may be permitted to enter the United States, however, if Li-Ning is able to provide “clear and convincing” evidence that the products were not made with forced labor within 30 days of the notice of detention.

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“CAATSA is yet another tool in CBP’s trade enforcement arsenal that allows us to uphold the fundamental value of human dignity and to ensure the goods that enter the United States are free from forced labor,” AnnMarie Highsmith, executive assistant director of CBP’s Office of Trade Executive, said in a statement.

A CBP spokesman did not clarify if Li-Ning’s ties with cotton from the Xinjiang Uyghur Autonomous Region of China, which is also blocked from the U.S. market, played a role in the decision. Neither did he respond to a query about the upcoming rollout of the Uyghur Forced Labor Prevention Act, which will create a “rebuttable presumption” that all products made wholly or in part in Xinjiang are made with forced labor unless “clear and convincing” evidence deems otherwise. Li-Ning has publicly declared that it uses and will continue to use cotton from the region, where reports of forced labor by persecuted Muslim minorities are rampant.

Repeated requests for comment to Way of Wade, a label that retired Miami Heat star Dwyane Wade founded with Li-Ning, have gone unanswered. Way of Wade opened a U.S. e-commerce store in August. As of Friday, shoppers could still check out the label’s knit hoodies, jackets and sneakers. Other American basketball players who endorse Li-Ning include CJ McCollum of the New Orleans Pelicans, Evan Turner of the Portland Trail Blazers and Michael Carter-Williams of Orlando Magic. U.S. lawmakers previously urged members of the National Basketball Players Association to reconsider their ties with brands that willingly use Xinjiang cotton, including Li-Ning.

When asked about CBP’s actions at a press briefing in Beijing on Wednesday, Foreign Ministry spokesperson Zhao Lijian said he wasn’t aware of the “specific situation” but that China “firmly opposes all forms of ‘long-arm jurisdiction’ and unilateral sanctions.”

Earlier this month, Norges Bank Investment Management’s $1.3 billion sovereign wealth fund sold off its stake in Li-Ning after denouncing the “unacceptable risk that the company contributes to serious human-rights violations” in Xinjiang, where concerns over the detention of more than 1.8 million Uyghurs, Kazakhs and ethnic minorities in so-called reeducation camps have continued to mount. Beijing, which initially denied that the camps existed, now refers to them as voluntary vocational training centers designed to counter terrorism and extremism.

Li-Ning has been the beneficiary of a consumer-led backlash against Western brands that have distanced themselves from Xinjiang cotton because of forced labor worries. Founded in 1990 by a champion gymnast of the same name, the company has a market capitalization of roughly 133.3 billion Hong Kong dollars, or $17 billion.

At the height of the consumer backlash last spring, China Lining, Li Ning’s upmarket fashion subsidiary, saw a 92 percent increase in its Tmall sales, while those of Adidas and Nike’s tumbled by more than half, according to data from Morningstar. In the third quarter, Li-Ning’s sales at physical stores jumped by more than 20 percent, and its e-commerce business registered a “mid-thirties [percent] growth” on a year-on-year basis, it said in an investors’ note in October.

For the year ended Dec. 31, Li-Ning’s revenue increased by 56 percent to 22.57 billion yuan ($3.55 billion), it said in its financial filings on Friday. Its gross profit margin expanded by 3.9 percentage points to 53 percent, and its operating profit margin ticked up by 7.6 percentage points to 22.8 percent.

Commenting on the numbers, Chinese Communist Party tabloid Global Times said Li-Ning’s profits have soared because of “growing consumer support amid Western sports brands’ crackdown on cotton” from Xinjiang. “The rise of Chinese sportswear brands comes amid a market loss of prestige for Western brands, which used to dominate the Chinese market,” it added.