As we wrote in our publication in March 2023, the United States Customs & Border Protection's (CBP) expansive powers under the recently enacted Uyghur Forced Labor Prevention Act (UFLPA) were about to lay siege on automotive imports from China. Particularly concerning for U.S. automakers was the fragile supply chains that support the nascent EV industry in North America, as OEMs were again thrust into the political center ring that is U.S/China relations, just as they were in 2019 when the prior administration rolled out the 301 Trade tariffs. The only difference this time is that the "forced labor agenda" has bipartisan support. The Democrats rallying around labor and human rights and the Republicans on anything involving China, national security, and yes, even their hesitation to electrify the U.S. in a massive way. Over the last six months, we have learned a great deal about the CBP's ability to keep up and administer its powers under the UFLPA, as well as how the UFLPA could derail the EV transition, as suppliers and OEMs are faced with managing the risk of detentions of parts or even the stigma of sourcing from Chinese suppliers on the Entity List.

The UFLPA, signed into law in June 2022, took on greater meaning for the U.S. automotive industry earlier this year when the Forced Labor Enforcement Task Force (FLETF), the U.S. government inter-agency group responsible for designing the enforcement strategy for the UFLPA, confirmed that CBP would be enforcing the UFLPA beyond the "high-priority sectors" named in the law or in the Enforcement Strategy (i.e., cotton, polysilicon, and tomatoes).

The UFLPA creates a rebuttable presumption that goods mined, produced, or manufactured wholly or in part in Xinjiang or by an entity on the UFLPA Entity List are prohibited from U.S. importation under 19 U.S.C. § 1307. This means that the CBP and the Centers of Expertise and Excellence, who are tasked with enforcing the UFLPA at the border as goods arrive in the U.S. can draw a presumption that certain Chinese goods were either manufactured with forced labor from Xinjiang or the supply chain for the finished goods relied on forced labor from this Province in China. This presumption can be rebutted by the importer of records, but only after it provides clear and convincing evidence that the goods were not dependent on forced labor from Xinjiang Province.

But, what led to this interest in the Chinese auto industry as the next frontier for examining allegations of forced labor? For nearly two decades, Chinese automotive suppliers have been supplying OEMs and tier one and two suppliers in North America with quality and low cost options. And, U.S. OEMs and upper tier suppliers have been gladly receiving these automotive parts from an ever more sophisticated automotive supply chain, especially an EV supply chain that currently is more developed than those in Europe or North America. The UFLPA, like the 301 tariffs before it, however, has given another reason for OEMs and suppliers in the U.S. to evaluate their Chinese supply base. But, is this concern enough to avoid the realities that lithium batteries and related components are largely sourced from China, regardless of the battery supplier's country of origins.

Anyone familiar with the Chinese automotive supply chain realizes that most components are manufactured thousands of miles from the Xinjiang Uyghur Autonomous Region (XUAR), where attention on the UFLPA has focused – the XUAR is still a remote and largely undeveloped area on the western edges of the P.R.C. populated by ethnic minority groups, such as Uyghurs, Kazakhs, and Kyrgyzs. It is a region not known for its connection to automotive suppliers, especially those exporting products to the U.S. The XUAR, however, has become front and center in the battle for EV independence, but why?

It is likely not a coincidence that it may have something to do with researchers in the UK, who have published several reports directed at the U.S. automobile supply chain, tapping into their past reporting on human rights issues in XUAR. In December 2022, Sheffield Hallam University, located in the United Kingdom, published, "Driving Force – Automotive Supply Chains and Forced Labor in the Uyghur Region." While Sheffield had been reporting on the situation in XUAR for years, it was not until December 2022, that Sheffield decided to focus on the Chinese automotive industry. In its report in December, the researchers declared: "The world's largest steel and aluminum producers have shifted into the Uyghur Region under Chinese government subsidies and incentives. But tires, interiors, windshields, batteries and practically every other major part are also implicated. The auto industry cannot wait another day to trace their supply chains back to the raw materials. To do anything short of full tracing would be an enormous legal, ethical, and reputational risk." https://www.shu.ac.uk/helena-kennedy-centre-international-justice/research-and-projects/all-projects/driving-force

Sheffield University followed up its December publication in May 2023 with, "Products Made with Forced Labor in the Uyghur Region." In this edition, Sheffield claimed:

The automotive parts manufacturing market is expected to reach nearly US $2 trillion by 2026. China is one of the world's top auto parts suppliers, exporting upwards of US $45 billion worth in 2021. The United States automotive industry is particularly reliant on Chinese parts, receiving approximately a quarter (US $11.5 billion worth) in 2021. The manufacture of automotive parts is significantly exposed to forced labor with raw material inputs including aluminum, steel, and copper, whose connections to forced labor have been described in previous sections. There has also been an increase in production of other automotive component parts in the XUAR such as batteries (described above), electronics, car interiors, glass, and tires and wheels. Similar to other industries that have undergone rapid expansion, the PRC government has dedicated significant resources to moving the highly polluting and energy-intensive processing of these raw materials into the Uyghur Region." https://www.shu.ac.uk/helena-kennedy-centre-international-justice/research-and-projects/all-projects/evidence-briefs

By May 2023, CBPs ramped up efforts directed at the automotive industry was in full swing, and for all intents and purposes, seemed to be fueled by the reporting of Sheffield University. And, CBP was not alone in its reliance on Sheffield's reporting. In December 2022, Senate Finance Chairman Ron Wyden (R-Oregon) questioned eight major automakers over reports that their supply chains may include materials sourced from the Xinjiang region of China. Sheffield's December 2022 report was cited in the Senator's letter. https://www.finance.senate.gov/chairmans-news/senate-finance-committee-chair-wyden-expands-investigation-of-auto-supply-chain-links-to-forced-labor-in-xinjiang-china. Senator Wyden then followed up in March 2023, sending a second letter to automakers and tier 1 suppliers, requesting information about how these companies sourced materials and oversaw their supply chains. Sheffield's December 2022 report was again cited in the Senator's letter. https://www.finance.senate.gov/chairmans-news/senate-finance-committee-chair-wyden-expands-investigation-of-auto-supply-chain-links-to-forced-labor-in-xinjiang-china.

As reported by Axios in February of this year, Wyden is not the only member of Congress who has questioned the U.S.'s reliance on China. https://www.axios.com/2023/02/06/congress-ev-china-oversight-incoming. And, Senator Wyden is not the only member of Congress who has relied on Sheffield's reporting to support the concerns. In fact, Sheffield's reports have seemingly gained significant importance in supporting the U.S.'s policy towards China over forced labor issues and secure supply chains. And, while CBP and FLETF do not openly admit to relying on Sheffield's reporting, there are plenty of anecdotic reasons to believe the reporting is currently influencing decisions at the border.

For now, the trend towards ramping up concerns and legislative actions over forced labor in China does not appear to be waning in the U.S., but as Beijing continues to deny these allegations, the question for the industry continues to be unsettled: How will this impact the U.S.'s initiative to electrify? Time will tell.

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