Senate Finance Committee Investigation Finds Automakers Shipped Cars and Parts Made by Chinese Company in Violation of UFLPA

On May 20, 2024, the Senate Finance Committee Chair, Ron Wyden, announced results of a two-year Democratic staff investigation, the results of which were released in the report “Insufficient Diligence: Car Makers Complicit with CCP Forced Labor” published the same day. In a statement on the matter, Wyden remarked “[s]omehow, the Finance Committee’s oversight staff uncovered what multibillion-dollar companies apparently could not: that BMW imported cars, Jaguar Land Rover imported parts, and Volkswagen AG manufactured cars that all included components made by a supplier banned for using Uyghur forced labor.”

The investigation found that BMW, Jaguar Land Rover, and Volkswagen Auto Group (“VW AG”) imported components or cars with components made by a parts supplier banned for using Uyghur forced labor in violation of the Uyghur Forced Labor Prevention Act (“UFLPA”). We previously published a blog post discussing US guidance and the various provisions of UFLPA on June 27, 2022.

Overview of the UFLPA

On December 23, 2021, the UFLPA was enacted to strengthen America’s commitment to combating forced labor in China. The UFLPA created a rebuttable presumption that goods mined, produced, or manufactured wholly or in part in Xinjiang or by an entry on the UFLPA Entity List are made with forced labor and therefore prohibited from importation into the US. Pursuant to the UFLPA, importers can overcome this presumption by presenting clear and convincing evidence that the respective good was not produced or manufactured in any capacity with forced labor. This evidentiary standard extends beyond the immediate factory to the components, subcomponents, and raw materials.

Despite the enactment of the UFLPA, automakers have been slow to implement oversight systems to adequately adapt their supply chains to ensure that parts originating in Xinjiang and other identified entities are not used in cars and trucks imported to the United States.

Summary of Investigative Report Findings

The report centers around the addition of a parts supplier to the UFLPA Entity List on December 11, 2023 for participating in Uyghur forced labor programs. Following reports in 2020 and 2022, by the Australian Strategic Policy Institute and Sheffield Hallam University respectively, the parts supplier had been linked to government-sponsored labor transfer programs, including transfers of hundreds of Xinjiang people in as early as 2018.

Despite these reports, the addition to the UFLPA Entity List, and formal written notice by a direct supplier explicitly stating the parts supplier’s components were being banned from importation to the US pursuant to the UFLPA, the report found that both BMW and Jaguar Land Rover continued to import components and vehicles containing such components into the US. The report further noted that in April 2024, both BMW and Jaguar Land Rover denied sourcing parts from the parts supplier in responses to questions from the Senate Panel regarding compliance concerns.

The investigation report specifically highlighted how BMW allegedly shipped over 8000 vehicles containing the banned component to the US even after the parts supplier for the component was added to the UFLPA Entity List in December 2023. According to the report, BMW appeared to have stopped its imports only after the Senate Finance Committee repeatedly questioned it about components supplied by the parts supplier and their relationship to the entity.

Jaguar Land Rover, which also received a letter from its direct supplier regarding the parts supplier’s addition to the entity list in January, told the Senate Finance Committee that its North American subsidiary was unaware of the parts supplier’s connection to the automaker and the banned component’s integration in their vehicles. Jaguar Land Rover allegedly continued importing the banned components until the direct supplier reiterated the information to them in April 2024.

VW AG was also mentioned in the report for manufacturing cars that contained banned components from the parts supplier. The company, however, voluntarily disclosed to US customs agents that cars then in transit to the US contained the banned component following notification from the direct supplier of the parts supplier’s addition to the UFLPA Entity List. To address the issue, the automaker arranged to replace the part in US ports before they entered the country.

VW AG has been confronted with additional issues arising from the UFLPA in recent months. In February 2024, US customs reportedly blocked thousands of Porsche, Bentley, and Audi vehicles made by VW AG under the UFLPA. Since 2013, VW AG has partnered SAIC Motor Corp., a Chinese state-owned entity, to construct and operate a vehicle factory in Xinjiang. While recent reporting indicates that the Xinjiang VW AG factory employed Uyghur forced laborers, VW AG told the Senate Financial Committee that an outside firm audited the facility and found it free of forced labor in 2023 but declined to provide Congress a full copy of the audit.

Investigative Report Recommendations

The investigatory report recommends the Department of Homeland Security (“DHS”) and Customs and Border Protection (“CBP”) take a number of actions to strengthen enforcement of the forced labor ban in auto supply chains, including:

• Speeding up work by the DHS Forced Labor Enforcement Task Force to identify facilities in Xinjiang using forced labor and to add them to the UFLPA Entity List;
• Updating the list of high-priority sectors for UFLPA enforcement;
• Improving information-sharing regarding enforcement of UFLPA; and
• Providing clearer direction about what kinds of audits are necessary to detect forced labor in supply chains and comply with federal laws.

Key Takeaways

The investigative report highlights the level of scrutiny that manufacturers and distributors need to abide by in order to comply with the demands of the UFLPA. Modern vehicles, for example, have thousands of components, and the banned component at issue in the report was a small component integrated several layers down into the supply chain for production of a vehicle. In a statement following the report, Wyden specifically noted that he would call on CBP to step up enforcement and crack down on UFLPA violators. To ensure compliance, manufacturers and distributors should be making deliberate and focused efforts to ensure that they are actively monitoring the UFLPA Entity List and related communications along with bolstering their compliance teams and systems. Further, manufacturers should diligence their suppliers and labor sources at all levels of the supply chain, especially as the US government increases enforcement of the UFLPA.

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