Low Numbers of Auto UFLPA Detentions Shouldn't Lead to Complacency, Lawyers Say

Morgan Lewis attorneys said that although the number of detentions by CBP under suspicion of Xinjiang content in the automotive and aerospace sector don't suggest there's a high risk of exposure to Uyghur labor in supply chains, importers should recognize that the issue of forced labor enforcement in the sector is not going away.

Carl Valenstein, a partner in the Morgan Lewis Boston office, said during a Sept. 20 webinar hosted by the firm that the Sheffield Hallam University "Driving Force" report last December (see 2212060054) said auto parts from China have a high risk of exposure to forced labor.

However, looking at the CBP Uyghur Forced Labor Act dashboard, he said, there have been 48 shipments detained, mostly from China, with a few from Thailand, and 10 of those have been denied entry. The total value was $4 million.

"It’s not really an impressive number of detentions," he said. "It doesn’t really support the proposition that it’s a widespread problem."

Valenstein acknowledged that advocates for Uyghurs would say that the low number of detentions is indicative of failings at CBP rather than the reality on the ground in China.

Whether it's pervasive or not, Valenstein said that among car parts companies and car manufacturers, "there’s a concerted effort to address this issue." He noted that questionnaires sent to suppliers -- criticized by advocates as wholly inadequate -- are the right place to start, given that a car company can have more than 1,000 tier 1 suppliers. "I think there’s a lot of criticism from naïve people who say: Well, you should know who you’re dealing with."

Government Affairs Manager David Mendelsohn said that scrutiny may spread beyond current priority areas to AI cameras and sensors, and there could be sanctions, not just UFLPA risk in those areas, since there is a desire to decouple for products that could be used for domestic surveillance.

"Cars are now rolling sensor platforms," he said, and added that given the escalation of rhetoric around electric vehicles and China in Congress, he wouldn't be surprised if outbound investment screening were to be applied to EVs, not just AI and semiconductors.

All the letters from Congress and rhetoric around forced labor enforcement in the auto sector makes supply chain managers question which companies they will be able to source from.

"By injecting that uncertainty into corporate decision-making, [advocates] do achieve certain objectives without legislating," he said.

Detentions of goods with suspected ties to Xinjiang are not the only risk for automakers, the lawyers said. There's also the possibility of Chinese retaliation if firms are too vocal about Uyghur abuses, consumer boycotts and reputational damage, increasing sanctions designations against Chinese officials involved in forced labor. They wondered if private right of action could become an issue down the road.

Letters from Congress have asked automakers and auto parts manufacturers how they make sure there is no Uyghur labor in their goods; have asked the SEC to prevent Shein, a fast fashion company, from listing on a U.S. stock market exchange; and have demanded answers from Ford about the structuring of its licensing agreement with CATL, an electric vehicle manufacturer from China.

Valenstein said the CATL letters struck him as guilt by association.

"I don’t know why, from a policy standpoint, that’s being the subject of an attack," he said. "You'd think you’d want to get as much advanced Chinese electric vehicle technology in the U.S. as we can."

Mendelsohn said domestic posturing on who is tougher on China is one aspect of the scrutiny, and said that the CATL letters, which mostly focus on eligibility for government subsidies through the Inflation Reduction Act, mention allegations of forced labor "almost like a sentencing enhancement."

Amanda Robinson, a Morgan Lewis partner in Washington, said, "It seems to me we’re heading for a hearing on the Xinjiang forced labor issue," which she thinks could cover fashion brands, solar imports and automotive parts.

When asked by International Trade Today if they expect an increase in UFLPA detentions in the auto sector, Valenstein said he didn't know, and said CBP has to make its case.

However, he thinks it's quite possible that advocates in Congress will say the administration is not doing enough to intercept suspect goods.

"They’re going to look at the same statistics I did and they’re not going to like those numbers," he said.