“Several thousands” of vehicles from German luxury brands including Porsche, Bentley, and Audi have been detained at U.S. ports following the discovery of a Chinese subcomponent violating U.S. anti-forced labor laws. The parent company, Volkswagen Group, had sourced a key electronic component through a supplier further down the company’s supply chain and was unaware of the part’s origin from “western China” until notified by the supplier in mid-January of this year. U.S. Customs and Border Protection prohibits the import of products that have been made with forced labor in Xinjiang and other areas in China under the Uyghur Forced Labor Prevention Act of 2021 (UFLPA).

Volkswagen had previously commissioned an audit carried out by a Chinese law firm, which had found “no indication of forced labor” at its distribution plant located in Urumqi, the capital of China’s Xinjiang region. The plant is part of a joint venture between Volkswagen and SAIC Motor, a major Chinese automaker. A Human Rights Watch report released earlier this month has noted that foreign automakers in China are at an “increased risk” of acquiring aluminum produced by victims of forced labor in Xinjiang. On Wednesday, February 14, 2024, a spokesperson from Volkswagen stated that the company is now examining “a reorganization of its activities in the Chinese region of Xinjiang in light of possible human rights violations.”

Although this can be considered a large detainment of vehicles, it does follow a series of investigations launched by the US Senate and Finance Committee earlier in March. The committee sent a letter to the CEO of Volkswagen Group of America, Inc. requesting whether Volkswagen monitors Chinese suppliers, specifically trying to understand how Volkswagen assess and mitigates risk of subcomponents which could originate from the Xinjiang region.

This incident highlights the impact of tensions between the U.S. and China on global trade, particularly concerning human rights and forced labor. The incident also underscores the increased difficulties businesses currently face in maintaining ethical operations and effective compliance amidst evolving regulatory environments.

Crowell & Moring, LLP continue to monitor this development and the potential impact to businesses and consumers moving forward.