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HomeIndustriesVolkswagen Likely to Wind Down Its Xinjiang Investments over Forced Labor Concerns

Volkswagen Likely to Wind Down Its Xinjiang Investments over Forced Labor Concerns


illuminated dashboard of a Volkswagen Touran. Getty Images

Turns out if you hassle a multinational company enough for benefiting from morally repugnant business practices, it will respond appropriately.

Back in December, German automaker Volkswagen announced that a self-commissioned audit of its factory in China’s Xinjiang region had found “no indication” of forced labor there.

Then, last week, VW announced it was in discussions with one of its main joint venture partners in China, the state-owned Shanghai Automotive Industry Corporation, in the wake of allegations of human rights violations at their joint venture in Xinjiang.

“The companies are examining ‘the future direction of the J.V.’s business activities in Xinjiang,’ VW said, adding that “various scenarios are currently being examined intensively.’”

Then later that same day, the Financial Times reported that 1,000 Porsche, several hundred Bentley and several thousand Audi automobiles – all brands owned by VW – had been impounded at U.S. ports because they contain a Chinese-made component that breaches American labor laws. The company reported the issue to U.S. authorities itself, after learning from a Chinese supplier that its autos included parts made by a company on an American sanctions list for using forced labor in Xinjiang.

This chain of events suggests the Uyghur Forced Labor Prevention Act (UFLPA) – the U.S. law that bans the import of goods even partially made by persons made to work as part of the Chinese government’s indoctrination programs in the Xinjiang Uyghur Autonomous Region (XUAR) – is working, writes the New York Times, “as American customs officials have gained experience in investigating whether imports from China violate” the law.

This is not to say that international businesses are fully divesting from China. While the Times article notes that Germany-based BASF, the world’s largest chemical manufacturer, is winding down its Xinjiang operations partly because of “recently published reports related to (its) joint venture partner contain serious allegations that indicate activities inconsistent with BASF’s values,” a Wall Street Journal report says the company has plans to invest approximately $10.7 billion in China by 2030. VW, meanwhile, has not announced any plans to leave the country.

Their continued presence anywhere in China, however, is likely to face persistent questions over the use forced labor along China’s intentionally opaque industrial supply chains. As the Alliance for American Manufacturing wrote in a January letter to the U.S. Department of Homeland Security, which administers U.S. customs enforcement, the Chinese government’s use of “labor transfer programs” undercuts the UFLPA’s enforcement and enforcement methods should be updated to reflect that:

We believe that several factors seriously undermine the effective enforcement of the UFLPA. The first of these is that companies transfer forced laborers from the XUAR to other regions in the People’s Republic of China, complicating DHS enforcement of the presumptive ban on forced labor products from the XUAR. Thus, there is an urgent need to expand the UFLPA Entity List to include numerous companies and entities located outside the XUAR because of the affiliation to companies and entities in the region, particularly those involved in the seafood, gold, and critical minerals industries.”

This won’t be the last update in the developing saga of western disinvestment in Xinjiang, or American attempts to ban imports made by forced labor there. The concern over ethically tainted products is one of the driving forces behind the effort in Congress to update the de minimis rule that allows Chinese fast fashion giants to annually import millions of packages into the U.S. duty- and inspection-free. AAM is closely watching both stories.  


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