Canada Probing Nike, Dynasty Gold for Using Forced Labor in China

Canada launched investigations of Nike Canada and Dynasty Gold this week after receiving complaints that both companies’ supply chains have ties to forced labor in China. A Canadian agency said it’s probing allegations that Nike has “supply relationships” with Chinese companies that use Uyghur forced labor and that Dynasty Gold, a mining company, benefited from Uyghur forced labor at a Chinese mine in which it had a majority stake.

The complaints were filed with Canada last year by a group of 28 human rights organizations and advocacy groups. The Canadian Ombudsperson for Responsible Enterprise, the country’s ethics watchdog, will publish recommendations after investigating the complaints.

Both Nike and Dynasty Gold denied the allegations. Nike told Canada it “no longer” has ties to the Chinese companies alleged to be using forced labor, adding that it conducts “ongoing diligence with our suppliers in China to identify and assess potential forced labor risks.” It also said it “strengthened our audit protocols to identify emerging risks related to potential labor transfer programs. Our ongoing diligence has not found evidence of employment of Uyghurs, or other ethnic minorities from” China’s Xinjiang region “elsewhere in our supply chain.”

Dynasty Gold said the allegations against it are “not supported by any evidence,” telling Canada that it “ended its mineral exploration activities in Xinjiang in 2008" and "no longer has operational control over the mine.” It said the alleged violations “arose more than a decade after” it left Xinjiang.

Canada said the complaint against Nike alleged the company has supply relationships with several Chinese companies that the Australian Strategic Policy Institute, a Canberra think tank, identified as using Uyghur forced labor, including Qingdao Taekwang Shoes Co. Ltd., Haoyuanpeng Clothing Manufacturing Co. Ltd., Esquel Textile Co. Ltd., Qingdao Jifa Group, Huafu Fashion Co. Ltd., and Texhong Textile Group. Esquel Textile is listed on the U.S. Uyghur Forced Labor Prevention Act Entity List.

The complainants said Nike is the “primary customer” of Qingdao Taekwang Shoes, which they say employs Uyghur workers, pointing to bills of lading that show Nike Canada imported at least three shipments from the company in July 2019. The complainants also alleged specific links between the sports apparel company and other Chinese companies accused of using forced labor, including Haoyuanpeng Clothing Manufacturing, which they say advertises a partnership with Nike.

Nike told Canada that Taekwang has since “stopped hiring new employees” from Xinjiang to its Qingdao facility and a third-party audit confirmed the facility no longer employs people from Xinjiang. The company also said it doesn’t have relationships with Haoyuanpeng Clothing Manufacturing, Qingdao Jifa Group, Changji Esquel Textile or “any of Esquel’s other facilities” in Xinjiang, “as was inaccurately reported by the Australian Strategic Policy Institute.”

“We have confirmed with our contract suppliers that they are not using textiles or spun yarn from” Xinjiang, Nike said.

But the complainants told Canada “there is no indication” that Nike “has taken any concrete steps to ensure beyond a reasonable doubt that forced labor is not implicated in their supply chain.” The Canadian corporate ethics watchdog said the bills of lading provided by the complainants “may warrant an investigation,” adding that it “appears that there is a conflict in the available information.”

Although Nike said the bills of lading cover shipments from an Esquel facility in Vietnam that hasn’t been accused of using forced labor, Canada said “the complex nature of garment supply chains may warrant investigation of the relationship between Nike and Esquel.” Canada added that it may investigate “the existence of due diligence processes adopted by Nike to ensure that its products are not manufactured using Uyghur forced labour,” even if the products are coming from factories outside of China.

“While Nike has provided its response to the ASPI report and its statement on forced labour, human trafficking and modern slavery,” Canada said, “it has provided limited detail about the nature and scope of its” human rights due diligence procedures, “including whether it uses fibre tracing technology.”

Nike pointed to recent efforts to strengthen its auditing and added that “traceability at the raw materials level is an area of ongoing focus.” The company said it’s “working closely with our suppliers, industry associations, brands and other stakeholders to pilot traceability approaches and map material sources so we can have confidence the materials in our products are responsibly produced.”

The company also said it’s working to find “solutions that will help preserve the integrity of our global supply chains,” noting that it didn’t lobby against the UFLPA as the legislation moved through Congress. “We will continue to collaborate with industry associations” along with “industry experts, partners, stakeholders and other organizations to understand, evaluate and address this critical global issue.”

Canada’s separate investigation into Dynasty Gold stems from allegations that the company’s mining operations in Hatu, Karamay -- a mining district in Xinjiang -- use Uyghur forced labor. The complaint said the gold mine is located near “re-education” centers and pointed to a 2021 Dynasty Gold press release in which the company said it employed Uyghurs at the mine.

Although Dynasty Gold told Canada it doesn’t have “operational control” over the mine, the complainants said “this does not remove the responsibility” from the company “to ensure that forced labour is not present in its mining operations abroad.” The complainants reached out to Dynasty Gold in 2021 to ask about its human rights due diligence practices, but they told Canada the company never responded. “In the absence of a detailed answer from DYG regarding its due diligence activities in the Hatu mine,” Canada said, the complainants believe it’s “likely that these risks have not been mitigated.”

Canada said Dynasty Gold’s lack of control over the mine might prevent it from identifying forced labor risks and taking actions to mitigate those risks. But if a company knows it “lacks the leverage” to mitigate any forced labor or human rights concerns, Canada said, the company must “consider ending the business relationship taking into account potential adverse consequences of its exit.” The country said it’s “not clear” that Dynasty Gold, while it was investing at the mine, “used its leverage to ensure" the mine didn't employ Uyghur forced laborers.

And although Dynasty Gold told Canada it ended its “mineral exploration activities” in Xinjiang in 2008, Canada pointed to two press releases that appear to contradict that, including one last year in which the company said it had “encountered challenges in the continuing operations at Hatu since 2008.” Canada also said the company’s website “continued to refer to its Hatu mine project until very recently.”

“DYG`s comments and the information submitted through DYG’s press releases do not indicate that DYG has terminated its activities in Xinjiang since 2008,” Canada said.

Canada also said Dynasty Gold “appears to have deliberately avoided participating in and cooperating” with the country’s probe. The ethics body said it tried “repeatedly to deliver the complaint” to the mining company over several months, but Dynasty Gold didn’t respond until it was “prompted to provide its comments” on the notices released by Canada this week.

Ivy Chong, CEO of Dynasty Gold, told us the allegations are “totally unfounded” and stressed that the company ended its operations in Xinjiang in 2008. “We don't understand on what evidence and basis that [Canada] conducts its investigation,” Chong said in a July 13 email.

The wages Dynasty Gold paid local workers when it did operate the mine “were almost doubled the local wages,” Chong said. “Everyone was happy working for us.”