Global Auto Supply Chain Faces Serious Forced Labor Allegations

A report issued this week alleges that most of the global auto industry is tainted with forced labor and is significantly tied to China’s Xinjiang Uyghur Autonomous Region (“Uyghur Region”). The report, written by a number of researchers from Sheffield Hallam University (“SHU”) in the United Kingdom, claims that the supply chains of major international auto manufacturers—including Volkswagen, Audi Group, Honda, Ford, General Motors, Mercedes-Benz Group, Toyota, Tesla, Renault, NIO, and Stellantis Group—are deeply intertwined with forced labor practices in the Uyghur Region.

Specifically, the report states that many auto manufacturers worldwide use parts and raw materials that are sourced directly or indirectly from the Uyghur Region, including iron, steel, aluminum, and copper, as well as other automobile elements like tires, seat cushions, batteries, electric components, and more.

The link between those car manufacturers and the Uyghur Region is alleged to be due to suppliers who either extract raw materials from Xinjiang and/or participate in Chinese government programs that allegedly force workers from the Uyghur Region to relocate to other parts of China and work in automotive-related industries. Explicitly, the report concluded that the Chinese government has “deliberately shifted” the mining, processing, and manufacturing of raw materials and auto parts into the Uyghur Region, thus forcing international supply chains to be captive to forced labor.

By relying on “publicly available sources, including corporate annual reports, websites, publicity campaigns, government directives and state media, and customs records,” the report concluded that “in sum, … practically all parts of the car are exposed to Uyghur forced labor.” The report, however, has not been exempt from criticism because of its methodology being overly ambiguous.

The report’s authors reached out to the car makers they investigated and received replies from 13 companies either denying links to the Uyghur Region or promising further investigation of their suppliers.

Key findings of the report include:

• 96 mining, processing, or manufacturing companies relevant to the automotive sector operating in the Uyghur Region, including at least 38 that have documented engagement in state-sponsored labor transfer programs.
• Over 40 automotive-sector manufacturers in China that are sourcing from Uyghur Region or from companies that have accepted Uyghur labor transfers across China.
• More than 50 international automotive parts or car manufacturers (or their joint ventures) that are sourcing directly from companies operating in the Uyghur Region or from companies that have accepted Uyghur labor transfers across China.
• More than 100 international automotive parts or car manufacturers have some exposure to forced Uyghur labor-made goods.

Timing of the Report and Potential Impact of the Uyghur Forced Labor Prevention Act (“UFLPA”)

The SHU report comes during a time when actions by many countries against forced labor in China are on the rise. In the United States, CBP targeted 2,398 entries that were valued at over $466 million in 2022 since the UFLPA went into effect in June prohibiting the importation of certain goods from China made with forced labor. These measures have led U.S. companies to take a closer look at their supply chains to make sure their imported products are compliant and to minimize the risk of detention.

The UFLPA established a rebuttable presumption that any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Uyghur Region, or produced by certain entities identified, are not entitled to enter the United States.

In its UFLPA compliance guidance for importers, CBP identified a list of high-priority sectors for enforcement which covers: apparel, cotton and cotton products, silica-based products (including polysilicon), tomatoes, and downstream products (e.g., textiles, garments, solar cells).

CBP has indicated that UFLPA enforcement efforts are expected to increase in the upcoming year. Similarly, the European Union proposed a new law in September 2022 that prohibits the importation of forced labor-made products. If adopted next year, EU member states will be required to detain, seize or order the withdrawal of any product that is suspected to be made with forced labor.

Although the auto industry study was issued by a non-government organization (“NGO”), the U.S. Customs and Border Protection (“CBP”) and the Department of Homeland Security (“DHS”) have emphasized that they have relied in part on NGO reports when investigating forced labor practices. Specifically, a prior study funded by the U.S. Agency for International Development — issued by SHU alleged to be one of the main sources relied upon by CBP when issuing Withheld Release Orders (“WRO”), citing specifically SHU’s reports  “In Broad Daylight: Uyghur Forced Labour and Global Solar Supply Chains,”, as well as “Laundering Cotton: How Xinjiang Cotton is Obscured in International Supply Chains” that preceded CBP’s Withhold and Release Orders (“WROs”) on silica-based products and cotton respectively.

What Can Auto Parts Companies Do as Due Diligence?

It is yet unclear whether SHU’s auto industry report will lead to new WROs or increased scrutiny of auto parts imports in the context of the UFLPA. While CBP’s UFLPA compliance guidance provides an overview of the enforcement process and general steps companies can take to avoid having products held up at ports, the reality is that each supply chain is unique and presents different challenges.

Due diligence measures which companies can take now as part of an internal assessment include a review of:

• Whether suppliers are on the UFLPA targeted entity list;
• Complete sample shipping entry package of a recent importation (CBP Form 7501, invoice, bill of lading, packing list);
• Bill of materials;
• Purchase order;
• Production steps and records (including raw materials procurement to finished products);
• Transportation documents between suppliers (including raw materials suppliers);
• Sourcing contracts with suppliers;
• Customs-Trade Partnership Against Terrorism (“CTPAT”) certification, if the importer is certified (CTPAT can provide an exception to the rebuttable presumption).

In short, auto parts suppliers can accelerate their efforts to trace their supply chain and minimize the risk of potential forced labor allegations and product detentions.

Clark Hill’s International Trade & Automotive teams are ready to assist companies in ensuring compliance with U.S. forced labor regulations. Clark Hill attorneys lead the auto industry in guiding clients through the relentless disruption that is always present in a global economy and supply chain through unmatched client service, innovative thought leadership, and strategic industry collaborations. Our automotive clients rely on us to help them navigate the road ahead with clarity and confidence. To connect with a Clark Hill attorney, please contact Automotive practice chairperson, Linda Watson, or International Trade practice chairperson, Mark Ludwikowski.