U.S. Customs and Border Protection (CBP) is expanding its lens for Uyghur Forced Labor Prevention Act (UFLPA) enforcement, putting more scrutiny on materials with connections to forced labor in the Xinjiang region of China beyond the original list of high-priority materials. This has increased the pressure on U.S. companies to fulfill their obligations as the importer to prove their products were not made with forced labor. Recent research has shown that the automotive industry can expect to be the next sector facing heightened scrutiny.
A new report, Driving Force: Automotive Supply Chains and Forced Labor in the Uyghur Region, names more than 200 automotive companies that have links to forced labor in the Xinjiang region. In particular, aluminum — a component of nearly every automobile — is being identified as a high-priority material for UFLPA enforcement. As a result of this research, the Senate Committee on Finance contacted major automotive manufacturers requesting information about their efforts to map their supply chain connections to China. The report also garnered coverage from The New York Times, which had previously investigated Xinjiang’s ties to electrical vehicle battery manufacturing. This regulatory and media pressure points to automotive manufacturing as the next hot topic in forced labor enforcement.
Let’s take a look at why the automotive industry is facing this escalating scrutiny and what automotive manufacturers and suppliers need to be aware of.
Automotive’s Complex Supply Chains Create UFLPA Risk
The Driving Force report summarizes a six-month investigation that analyzed public records for links to Uyghur abuses. The investigation included steel, aluminum, copper, nickel, batteries, electronics, tires, and other automotive parts.
“There was no part of the car we researched that was untainted by Uyghur forced labor,” said Dr. Laura T. Murphy, co-author of the report. “It’s an industry wide problem.” The challenge lies in the complementary nature of the materials processed in this region and their necessity in the automotive space. Currently, automotive manufacturers are especially reliant on Chinese companies with deep ties to Xinjiang, making them vulnerable to UFLPA enforcement.
The typical automotive supply chain is complex, and this makes them especially vulnerable to forced labor risks the deeper you dig. According to estimates by McKinsey and Company, the average automotive manufacturer has 250 tier one suppliers and as many as 18,000 suppliers in the full supply chain. This makes it difficult for a manufacturer to know with confidence they don’t have any ties to forced labor practices without additional support.
Download The UFLPA Handbook: How to Prevent Supply Chain Disruption to get a deep dive into the regulation and how to conduct reliable forced labor due diligence for your supply chain.
What Is the CBP Hunting For?
For the automotive industry, UFLPA enforcement will look different from what manufacturers saw in 2022.
The CBP treated 2022 as a testing period for UFLPA enforcement, focusing on silica-based products (including polysilicon), cotton and apparel, and tomato products. These materials were identified as being particularly high risk for connections to Xinjiang forced labor. The result was over two thousand shipments stopped at the border valued at more than $728 million USD. The solar panel sector, in particular, faced months-long disruptions in getting their products onto the U.S. market.
With a small list of priority materials, the CBP has highlighted that the U.S. market is exposed to a high level of forced labor risk.by As a result, the federal government has increased the UFLPA enforcement budget — the CBP was granted a 108% spending increase ($51 million USD), as well as 300 additional trade compliance personnel and support for new technology to speed up enforcement action.
For automotive manufacturers, this means the CBP will have the tools and expertise to drill down deeper into materials and seek out legal affiliations with sanctioned Xinjiang suppliers within their supply chains. This includes more scrutiny of trade compliance data, corporate registry data, beneficial ownership, and more research on human rights abuses like we see in the Driving Force report. The CBP will be looking for connections between your materials and where they are made, with the goal of stopping the flow of all goods linked to Xinjiang. And according to the latest research, automotive manufacturers have multiple exposure points in their supply chains.
Automotive UFLPA Compliance: Protect Your Business
Manufacturers should not only ensure they have conducted due diligence on their materials — they should also conduct deeper due diligence on any legal connections those suppliers have with the region. Should a shipment be detained at the border, they’ll need hard data and traceable documentation providing evidence their product is free of forced labor.
To accomplish this, manufacturers will benefit from a supplier screening program that works alongside their trade compliance processes to provide additional insights into supplier risk factors and connections to Xinjiang. The key is to think like the CBP and implement a similar approach and toolset: The information CBP auditors rely on is public information like corporate filings, Chinese-language government announcements, ocean import records, legal registries, etc.
This means manufacturers have access to the same data and can proactively assess their products for UFLPA compliance risks. This type of screening can enhance existing human rights compliance programs, like a code of conduct requirement for suppliers, by giving manufacturers deeper insight into the types of risks that CBP will be seeking.
Here’s how you can take the first steps in a UFLPA supplier screening process:
- Check legal registries for suppliers’ beneficial owners, and check if those owners are located in Xinjiang.
- Monitor the growing list of sanctioned Xinjiang entities (from U.S. Homeland Security).
- Create a workflow to continuously perform risk assessments and tagging of relevant information. This may require staff training and reallocation of responsibilities.
- Develop a communication strategy to document UFLPA risk data and action it with key stakeholders.
Partnerships Streamline UFLPA Compliance
Establishing a reliable and proactive supplier screening program is no small task. To be effective, it needs to be “always on” and monitor as many sources as possible. In addition, having expertise in human rights and the ability to monitor publications in multiple languages (in particular, Chinese dialects) will provide better supplier risk profiles.
Assent provides Enhanced Supplier Screening as part of our complete UFLPA compliance solution. This service provides expert analysis of the public domain, including beneficial ownership, adverse media screening, and denied parties lists, to ensure you have the full story behind your supplier’s sustainability risks. It saves your organization significant time by letting experts and automation handle the full-time work of monitoring your supply chain. You get proactive insights to help locate hidden UFLPA risks so you can choose the right suppliers and avoid delays at the border and loss of contract.
Learn more about Assent’s Enhanced Supplier Screening solution by downloading our short guide, Uncovering Hidden ESG Risks In Your Supply Chain. You can connect with us to discuss your UFLPA compliance strategy at info@assent.com.
