(Bloomberg)—The U.S. has again labeled Alibaba Group Holding Ltd. one of the world’s largest destinations for fake goods, a major embarrassment for a Chinese e-commerce titan trying to shake off its reputation as a haven for counterfeiters.
The U.S. Office of the Trade Representative on Wednesday restored Alibaba to its annual Notorious Markets blacklist—just four years after the Chinese company managed to get off.
“We are very disappointed by the USTR’s decision,” to include Alibaba’s Taobao unit on the list, “which ignores the real work Alibaba has done against counterfeiters,” Michael Evans, president of Alibaba Group, said in a statement.
Alibaba suggested its new designation could have been influenced by politics. President-elect Donald Trump has been very critical of U.S.-China trade agreements, threatening to rip them up and impose high tariffs on Chinese imports. Over the weekend, he accused China of stealing an underwater drone from the U.S. Navy in an “unprecedented act.” China’s state-run English-language newspaper, China Daily, warned Monday that Trump’s inexperience in diplomacy might lead to confrontations between the two nations.
“Our results speak for themselves,” Alibaba said in a statement. “Unfortunately, the USTR’s decision leads us to question whether the USTR acted based on the actual facts or was influenced by the current political climate.”
Alibaba CEO Daniel Zhang subsequently sent an email to the company’s anti-counterfeiting team acknowledging disappointment with the USTR decision, but not because Alibaba has failed to do its part. “We are disappointed today, but not because we didn’t fight hard enough. It is because even though we gave it our all and then some, the United States Trade Representative has returned Taobao to the ‘Notorious Markets’ list,” he said in an email that Alibaba Group made public.
“Our efforts and investments into anti-counterfeit was never motivated by some list, and neither will it have any bearing on our continual fight against counterfeit moving forward,” Zhang added. “In all that we do, we are guided by our mission to ‘make it easy to do business anywhere,’ to ensure and promote fairness on our Taobao marketplace, and to serve the 400 million consumers that love our retail marketplaces.”
The U.S. agency warned last December that Alibaba needed to do better if it wished to avoid the designation, reserved for websites and markets where there’s large-scale copyright infringement. Re-joining the global name-and-shame list damages Alibaba’s credibility in the U.S., where its shares trade and it’s trying to cultivate relationships with retailers, brands and entertainment companies. Shares of Alibaba were down 0.3% to $89.57 at 3:24 p.m. in New York.
Alibaba has argued it’s doing all it can to combat piracy. In October, the company said it had tightened policies against copyright infringement and made it easier for brands to request fakes be removed. It took down 380 million product listings and closed about 180,000 stores on its Taobao platform in the 12 months to August, the company said in a letter to the USTR.
Still, investors have grown more skeptical about Alibaba’s ability to expand in the U.S. since its record-breaking 2014 initial public offering. The company controlled by Jack Ma, China’s richest man, continues to grapple with accusations it doesn’t do enough to eliminate counterfeits, particularly on Taobao, which caters to small merchants. As Alibaba seeks to bring in more than half its revenue from overseas, winning the trust of foreign brands will be key to expansion.
“While recent steps set positive expectations for the future, current levels of reported counterfeiting and piracy are unacceptably high,” the USTR said in its report. “Not only do counterfeit and pirated goods pose a grave economic threat to U.S. creative and innovative industries,” they undermine the Chinese and global market for legitimate U.S. products.
Alibaba makes money from Taobao through advertising, with third-party merchants posting products for sale such as toys, food and medical equipment. Since those goods aren’t in Alibaba’s possession, independent verification can be difficult. The website has even come under official scrutiny at home. In one of the higher-profile incidents, the State Administration of Industry and Commerce issued a so-called “white paper” accusing Alibaba of allowing merchants to co-opt famous brands and sell fake wine and handbags.
While the company protested and the agency withdrew the document, the incident became a touchstone for brands such as Gucci and Yves Saint Laurent, owned by Kering SA, which is suing Alibaba for allowing copyright infringement. Alibaba has said the case has no merit. The American Apparel & Footwear Association, which counts Levi Strauss & Co. and Under Armour Inc. as members, is another vocal critic.
Alibaba’s struggle with fakes and questionable products is part of a larger issue in China, where piracy is rampant and knock-offs flourish. Over time, a growing middle class will demand higher quality, placing the onus on Alibaba to clean up its act. Signaling the urgency of the issue, Alibaba in 2015 appointed former Apple Inc. cybercrime and counterfeits investigator Matthew Bassiur to oversee its international efforts to combat piracy.
The USTR’s action compounds Alibaba’s woes in the world’s largest economy. Alibaba revealed in May 2016 that it’s under investigation from the U.S. Securities and Exchange Commission for its accounting practices. The regulator is looking at data reported from Singles’ Day, held Nov. 11 and Alibaba’s biggest annual shopping promotion, and how it consolidates results from affiliates including logistics partner Cainiao Network.
The SEC’s inquiries come amid accusations that Singles’ Day totals include sales faked by third-party merchants, or transactions that weren’t paid for. Vice chairman Joseph Tsai has said the company is cooperating and sharing facts with an investigation it voluntarily disclosed.Favorite