U.S. Senate Committee Expands Alleged Forced Labor Probe Involving Major Automakers to Suppliers

On March 28, 2023, the United States Senate Finance Committee (Committee) questioned five top suppliers to eight major U.S. automakers about potential forced labor in the supply chain linked to the Xinjiang Uygur Autonomous Region (Xinjiang or XUAR) in China (for prior coverage, see the alert dated January 6, 2023). 

The Uyghur Forced Labor Prevention Act (UFLPA), which became effective in June 2022, prohibits the importation of goods tainted by forced labor and creates a rebuttable presumption that goods and raw materials from the Xinjiang region have been made with forced labor. The statute requires importers to demonstrate due diligence, effective supply chain tracing and supply chain management measures to ensure that any finished goods from XUAR or goods from any country if they use raw materials from XUAR were not made using forced labor. Organizations that are unable to document that their goods and materials used in the making of those goods are free of forced labor face risks of costly border seizures, potential monetary penalties and reputational damage. 

Notably, the new line of questioning is directed at “Tier 1” suppliers and appears to be geared toward how they and lower tier suppliers manufacture, source and import products and components for these automakers. (Tier 1 suppliers are those that directly provide to the automotive Original Equipment Manufacturers (OEM) and receive components from Tier 2 suppliers, and so on.) The questions include: 

• Does the Company conduct its own supply chain mapping and analysis of raw materials, mining, processing, and parts manufacturing to determine if its supply chain is linked to Xinjiang? (emphasis added)
  • If so, please describe the extent of supply chain mapping and analysis, and specifically indicate if these efforts include sub-suppliers, including mines, mineral processors, and any affiliated entities.
• Has the automaker 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 its use of raw materials, mining, processing, or parts manufacturing linked to Xinjiang? (emphasis added)
• Has any shipment (import) of any goods ever been detained, excluded, or seized by U.S. Customs and Border Protection (CBP) under any provision of Section 307 of the Trade Act of 1930 or the UFLPA?

Visiting every supplier and “sub-supplier” facility and/or factory is likely not a realistic endeavor for the OEM and Tier 1 suppliers under scrutiny. Our experience is that most Tier 2 and Tier 3 suppliers (i.e., those in the mid-market and manufacturing and/or sourcing in China) will be tasked with providing evidence—either to their customers, CBP or both—of the referenced “mapping” and evidence that business practices are free from forced labor. Such mapping exercises are similar to the processes/procedures for conflict minerals certification. 

However, the UFLPA also requires organizations to assess the lower tiers in the supply chain, implement change at the enterprise level (e.g., updating and adhering to processes and procedures) and monitor such changes. In particular, importers must provide evidence of objective, third-party assessments of their suppliers (and, if needed, of their suppliers’ suppliers) to overcome the legal presumption of forced labor that the UFLPA imposes. General “social responsibility” audits will not be acceptable to CBP. 

The Chairman of the Committee, Senator Ron Wyden (D-Oregon), further wrote: “I recognize that Tier 1 suppliers rely on complex supply chains to source thousands of parts from across the world. However, this complexity cannot cause the United States to compromise its fundamental commitment to upholding human rights and U.S. law.” Comments were due to the Committee by April 11, 2023.

As noted in our previous trade alert, what is notable in the line of questions and Wyden’s statement is the focus on mining and raw materials. The report cited by Senator Wyden in his announcement lists materials such as silicon, steel, copper and aluminum as potentially involving forced labor. Silicon is of particular note because China produces roughly 80% of the global supply. The Xinjiang region alone may account for up to half of the world’s polysilicon, an essential component in the production of semiconductors, which in turn are a key input in automobiles, electronics and industrial machinery.

How BDO can help

BDO can help clients assess their supply chain risk and confirm that current procedures and processes are effective in preventing products or component materials made by forced labor from appearing in U.S. supply chains. Through a new teaming arrangement with the world’s leading software solution for supply chain mapping (Sourcemap) and a collaboration with an outside law firm in China, BDO offers a full range of services to “prove the negative.”