Major Automakers Being Queried for Potential Violations of Forced Labor Law

On December 22, 2022, the United States Senate Finance Committee (“Committee”) announced it is launching a probe into allegations of the use of forced labor against eight major automakers. The automakers are suspected of having supply chains linked to the Xinjiang Uygur Autonomous Region (“Xinjiang”) in China—an area where forced labor is widespread—in violation of U.S. federal trade and customs law.

The committee disclosed that letters were sent to the CEOs of eight large auto manufacturers in the U.S. (including foreign-owned manufacturers). The Committee stated in the letters that the automakers may have procured parts and materials from suppliers using forced labor in Xinjiang.

Pursuant to the U.S. Uyghur Forced Labor Prevention Act (“UFLPA”), any goods mined, produced or manufactured wholly or in part in the Xinjiang region of China are subject to a rebuttable presumption that they are made with forced labor and, therefore, prohibited from importation into the U.S. unless the importer can disprove the presumption of forced labor and be granted an exception.

The importance of the inquiry is underscored by Senator Ron Wyden (the Committee Chairman), who wrote that "[u]nless due diligence confirms that components are not linked to forced labor, automakers cannot and should not sell cars in the United States that include components mined or produced in Xinjiang."

Questions to Automakers Regarding Supply Chains

Senator Wyden sent the CEOs questions relating to the automaker’s conduct with regard to due diligence, actions taken to comply with UFLPA and past instances of goods being detained or seized by U.S. Customs and Border Protection (“CBP”). Specifically, the letters requested detailed information on whether:

• The automakers conduct their own supply chain mapping and analysis of raw materials, mining, processing and parts manufacturing to determine if the supply chain is linked to Xinjiang, including imports coming from third countries;
• The automakers ever terminated or curtailed, or threatened to terminate or curtail, a commercial relationship with a supplier or sub-supplier, including mines, mineral processors and any affiliated entities, because of links to Xinjiang or a failure to comply with supply chain due diligence and auditing; and
• Any shipment of goods to the automakers has ever been detained, excluded or seized by CBP under any provision of Section 307 of the Trade Act of 1930 or the UFLPA.

The companies have until January 13, 2023 to respond to the committee’s questions.

Notable in the questions and Wyden’s statement is the focus on mining and materials. In his announcement, Senator Wyden cited a report by the Helena Kennedy Centre for International Justice at Sheffield Hallam University that lists materials such as silicon, steel, copper and aluminum used extensively in the manufacture of automobiles, as potentially involving forced labor. Silicon is of particular importance because China produces roughly 70% of the global supply of silicon and the Xinjiang region alone may account for up to 50% of the world’s polysilicon. Silicon is a key component in the production of semiconductors, which are a key input in automobiles, together with other electronics.

Although this inquiry focuses on the automobile sector, it represents an escalation in the U.S. government’s fight against the use of forced labor and its determination to prevent suspect goods from entering the U.S. Further, given the nature of the raw materials of concern in this instance, particularly silicon, it is possible that investigations into other industrial sectors may follow.

How BDO Can Help

BDO can help clients by utilizing supply chain risk-based mapping to gauge whether current procedures and processes are effective in preventing products or component materials made by forced labor from appearing in U.S. supply chains—and assessing whether specific products are untainted by forced labor. With regard to Chinese-related supply chains, BDO’s staff is fluent in Mandarin and can work with suppliers in China to gather information to confirm they are able to document the provenance of material inputs to mitigate the risk of violations.