US imports of auto parts face scrutiny under law on Chinese forced labor

US imports of auto parts face scrutiny under China's forced labor law

(Reuters) Electric vehicle batteries and other auto parts are the latest products to come under scrutiny as part of Washington's drive to eradicate U.S. ties to forced labor in Chinese supply chains, according to a Reuters document, agency statistics and sources.

So far, enforcement of the year-old US law banning imports of goods made in China's Xinjiang has focused mainly on solar panels, tomatoes and cotton clothing. But now the components, which can include lithium-ion batteries, tires and key automotive raw materials aluminum and steel, are increasingly being detained at borders.

 Increased scrutiny by U.S. Customs and Border Protection (CBP) of products destined for auto assembly plants could signal tough times ahead for automakers, which will need solid proof that their supply chains are not connected to a region where the U.S. believes Chinese authorities have set up workforce. camps for Uighurs and other Muslim minority groups.

Beijing denies any abuse.

More than a year of enforcement of the Uyghur Forced Labor Prevention Act (UFLPA) has already slowed the development of solar energy projects as held panel shipments languish in US warehouses. Installations of large solar power plants for utilities fell 31% last year due to limited panel supplies, according to the U.S. trade group. Solar Energy Industries Association, which said conditions have improved somewhat this year.

 Both solar power and battery-powered electric cars are critical industries in the Biden administration's efforts to wean the U.S. off fossil fuels and combat climate change. When shipments are detained, CBP will provide the importer with a list of examples of products from previous inspections and the type of documentation needed to demonstrate they are not made with forced labor, CBP told Reuters.

 The document, a recent version of which was obtained by Reuters through a public records request, was updated between April and June of this year to include batteries, tires, aluminum and steel, a CBP spokesman said. When the law began to be enforced last year, the agency primarily focused on three commodities designated as high priorities in the UFLPA statute: cotton, tomatoes and polysilicon, a raw material used in solar panels. "The timing of these changes does not reflect any specific changes in strategy or operations," a CBP spokesman said in a statement, adding that the list of eight product types "is not exhaustive."

 The agency did not specifically respond to questions about the increased inspection of car imports. It said it was targeting "where there are high risks in US supply chains". In a report to Congress last month on UFLPA enforcement, CBP listed lithium-ion batteries, tires and "other automotive components" among the "potential risk areas" it was monitoring.

 The expanded focus is reflected in CBP data, which shows that since February of this year, 31 shipments from the automotive and aerospace industries have been detained under the UFLPA. Base metal shipment holdbacks, which would include aluminum and steel, also rose from about $1 million a month at the end of 2022 to more than $15 million a month. CBP said it was unable to release additional information related to enforcement activities.

AUTOMAKER EXPOSURE

Although the car detentions are small compared to the more than $1 billion in solar panel imports that stopped at the border, they put the industry on alert, according to lawyers and supply chain experts. "It's a very complex supply chain, and of course a detention would be incredibly disruptive to an auto company," said Dan Solomon, an attorney at Miller & Chevalier who advises manufacturers on the potential risks of forced labor. In May, Solomon spoke about UFLPA compliance at a private event for auto executives in Detroit.

  "Manufacturers are definitely targeting that," he said.

The increased focus on carmakers follows a study by Britain's Sheffield Hallam University published in December that found nearly every major carmaker is exposed to products made through forced labor in Xinjiang. The report sparked an investigation into US Senate Finance Committee Chairman Ron Wyden, which his spokesman said is still ongoing.  "It is appropriate for CBP to investigate imports in this space," Wyden said in a statement.

'REAL RISK'

Of 13 automakers and suppliers contacted by Reuters, four — Mercedes-Benz USA, Volkswagen, Denso, Continental AG and ZF Friedrichshafen AG — said they did not have products detained under the UFLPA  "Under the UFLPA, we have further increased our due diligence on global media screening, risk analysis and supplier and buyer training on sustainability and human rights," a Volkswagen spokesperson said in an email. A Continental spokesman said by email that the company "is committed to and respects and actively supports human rights."

The automotive industry is a cornerstone of the U.S. economy and relies heavily on a global supply chain to provide consumers with high-quality vehicles. However, recent developments have shed light on the complex links between international trade and human rights concerns. The enactment of laws targeting Chinese forced labor has brought US auto parts imports into sharp focus, prompting industry stakeholders to rethink their supply chain strategies.

Understanding legislation

In response to mounting evidence of human rights abuses, the US government has taken a strong stance against products associated with forced labor, particularly from regions such as Xinjiang, China. The Uyghur Forced Labor Prevention Act and other related legislation seek to combat the use of forced labor in supply chains, challenging industries dependent on imported components.

Impact on the automotive industry

The automotive sector's dependence on a diverse range of parts, including electronics, textiles and metals, raises concerns about the possibility of forced labor damaging supply chains. US imports of auto parts have come under scrutiny as authorities seek to ensure that forced labor has no place in vehicle production. Industry players must now navigate the complex landscape of supply chain management to stay compliant with the evolving legal framework. US auto parts imports, Chinese forced labor, supply chain management, auto industry, Uyghur Forced Labor Prevention Act.

Mitigate risk and ensure compliance

With increasing regulatory scrutiny, automotive manufacturers and suppliers are under pressure to demonstrate their commitment to ethical sourcing. Companies can take several steps to mitigate risk and comply: Supply Chain Audits: Regular supplier audits can help identify any instances of forced labor within the supply chain. Companies can work with third-party organizations that specialize in ethical sourcing to ensure transparency. Diversification of suppliers: Over-reliance on a single supplier or region can increase the risk of forced labor involvement. Diversifying the supplier base can increase resilience and minimize exposure to unethical practices.

Traceability and transparency: Implementing technology-based traceability measures can provide a clear picture of the origin and journey of each ingredient, promote transparency and reduce the likelihood of damaged products entering the supply chain ethical sourcing practices, supply chain audits, supplier diversification, traceability, transparency.

Role of consumers and awareness

In an age where consumers are increasingly conscientious about the products they buy, the auto industry's response to the issue of forced labor plays a key role. As public awareness grows, companies that prioritize ethical sourcing and responsible manufacturing are more likely to gain consumer trust and loyalty.

Armed with information, consumers have the power to influence the choices of car manufacturers and suppliers. Companies that proactively address the issue of forced labor and transparently communicate their efforts can thus secure a competitive advantage in a conscientious market.

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The U.S. auto industry faces a critical situation as China's forced labor laws cast a spotlight on supply chains. Imports of automotive parts from the US are under increased scrutiny, forcing industry players to rethink their sourcing strategies and ensure compliance with evolving legislation. By taking proactive steps to audit, diversify suppliers and increase transparency, the sector can meet these challenges while maintaining consumer trust and ethical integrity. In this era of heightened awareness, the automotive industry's commitment to responsible practices will undoubtedly shape its future success. US automotive industry, responsible practices, regulatory compliance, supply chain strategy, consumer confidence.