Uncover the importance of UFLPA compliance in your supply chain by understanding why thousands of Volkswagen vehicles have been impounded at U.S. Customs.
Volkswagen vehicles, including those under its brands such as Audi, Porsche, and Bentley, have been linked to forced labor in China. The U.S. Customs and Border Protection has impounded thousands of imported luxury cars from these brands after a part in the vehicles was found to have violated the Uyghur Forced Labor Prevention Act (UFLPA). UFLPA compliance prohibits goods imported from western China’s Xinjiang region, where Uyghurs and other ethnic minorities have been subjected to mass detention and forced labor.
The banned part is a small electronic component that is part of a larger control unit, which is currently being replaced—a process that may take until the end of March 2024. Until then, the impounded vehicles will continue to be held. How did one small part cause such a huge supply chain disruption for Volkswagen? In this blog, we’ll cover what went wrong for Volkswagen, the numbers behind UFLPA detainments, and actionable steps that automotive companies can take to handle supply chain ESG compliance in the future.
Problem #1: UFLPA Compliance
The issue stems from the use of an electronic part suspected of breaching the UFLPA. Electronics—like Volkswagen’s control unit part—are especially susceptible to being stopped by customs. According to the UFLPA Statistics Dashboard, from June FY2022 (the effective date of UFLPA) to February FY2024, electronics have been the number one shipment detained by U.S. customs. These 3,381 shipments total over $2 Billion USD. Of those shipments, 51% were released.
Learn more about the other industries that have been affected in our blog: Which Industries Have Been Impacted by UFLPA?
Problem #2: Automotive Supply Chains and Forced Labor
For the same period, 61 automotive shipments were detained, totaling $3.96M. In contrast to electronics, a staggering 85% of all automotive shipments were denied access. And, of the automotive shipments detained, almost 100% came directly from China.
According to a report from December 2022, forced labor is particularly a concern in the automotive industry. The report states, “…practically all parts of the car are exposed to Uyghur forced labor in one way or another.” This includes raw materials such as steel, aluminum, and copper, as well as automotive parts like hood decals, brakes, tires, seat cushions, batteries, electronic components, and more.
Sidney Johnson, a seasoned supply chain veteran in automotive and Resilinc board member, shared his thoughts on what automotive procurement professionals need to do to address forced labor:
“Forced labor has been a persistent issue in automotive. Every couple of 2-3 years, some big news comes out. When that happens, automakers dig in and do a good job getting their arms around the issue. However, there is an opportunity for them to do more by strategically assessing ongoing risks. Automakers need to be more proactive about drilling down into the supply chain—and looking ahead for the potential risks of the future.”
Read more in our blog: Forced Labor in the Automotive Supply Chain: What Car Companies Can Do.
Problem #3: Lack of Supply Chain Visibility
On a broader level, the problem comes from a need for more visibility into the sub-tier supply chain. According to the Financial Times, Volkswagen was unaware of the origin of the part—which came from an indirect supplier—but alerted US authorities as soon as the supplier notified them the part came from Western China.
A Volkswagen spokesman told the Wall Street Journal, “One tiny part. We really try, but this shows how challenging it is to really know everything that is happening in complex supply chains.” Resilinc data mirrors his sentiment: 85% of supply chain disruptions occur in the sub-tier supply chain, where companies have the lowest visibility.
What is Volkswagen doing to fix these problems?
Volkswagen is working to rectify the situation, which may include the termination of a supplier relationship if serious violations are confirmed. The company is also in discussions with its joint venture factory with Chinese automaker SAIC about the future direction of its business in the Xinjiang region.
An audit commissioned by Volkswagen found no indication of forced labor at the joint venture factory in China’s Xinjiang region. Still, the issue of forced labor within Volkswagen’s Chinese supply chain remains sensitive, and the company faces mounting pressure from human rights groups and investors over its operations in the region.
The Importance of UFLPA Compliance in Automotive Supply Chains
Automotive supply chains face a number of forced labor risks due to the intricate nature of automotive supply chains. Electronic components, polysilicon, metals, and other automotive parts have a high risk of sub-tier ties to forced labor in China’s Xinjiang region, as seen by the latest UFLPA Dashboard statistics. Outside of UFLPA, cobalt—a leading component in electric vehicle batteries—is also tied to forced labor in The Democratic Republic of Congo. Learn more in our Special Report: The Future of Cobalt Mining: Top Trends and Forced Labor Compliance.
To navigate these ever-present pitfalls, automotive companies must conduct due diligence, expand visibility into their multi-tier supply chains, and be prepared to address supply chain ESG compliance. This is where a combination of multi-tier mapping down to the part-site level and supplier risk assessments can help give companies the visibility they need.
How Your Company Can Ensure UFLPA Compliance
The first step to ensuring UFLPA compliance is performing due diligence. Automotive companies must do this by mapping their supply chains. The best method is to use a combination of AI and supplier-validated Multi-Tier Mapping to gain visibility down to the site-part level. Automakers should look for warning signs that suppliers may have ties to the Xinjiang region, such as operating near internment camps or nonstandard hiring practices, such as hiring through government recruiters.
Resilinc has the tools to give automakers the critical visibility they need. Our partner for UFLPA is Kharon, a leading provider in research and data analytics, global trade compliance, sanctions, and other commercial risks. Thanks to Kharon’s extensive database of high-risk suppliers in the Uyghur region, we can pinpoint suppliers with ties to forced labor in our sub-tier mapping down to the part-site level.
Using Resilinc’s hybrid approach to mapping, it’s possible Volkswagen could have avoided this entire supply chain disruption. Want to protect your company’s automotive supply chain against future disruptions? Learn more about Resiilnc’s supply chain ESG compliance solutions.
