Tag: Volkswagen

The story so far:

German industry is back in the spotlight as it grapples with the challenges of balancing an increasingly intrusive Chinese business environment with the human rights concerns of its investors and governments. Recent issues involve Volkswagen (VW) -owned brands’ vehicles impounded in the U.S. due to Uyghur Forced Labour Prevention Act (UFLPA) violations. BASF, another German firm, accelerates Xinjiang petrochemical plant sales amid allegations of staff from a government-owned joint venture sharing evidence to Chinese authorities about the Uyghur communities. Similar concerns were raised in 2020 against Apple’s supplier Lens Technology, alleging resort to forced labour. The same year, the Australian Strategic Policy Institute in its report, alleged four instances of Apple’s links to forced labour from supply chains based in Xinjiang. The U.S. State Department and UN Human Rights Commissioner’s reports highlight Uyghur repression as genocide and potential crimes against humanity.

How do big corporations respond to such allegations?

Outright denial, or attempts to distance themselves from reports of illegality found by internal audits, have mostly been the standard response of multinationals with operations in China and their suppliers. For instance, VW has said that it had no knowledge of the component’s origin until links were traced to an indirect supplier, prompting the firm to notify U.S. authorities and raise the matter with its Chinese partner. In a separate case relating to the use of forced labour, VW claimed in December that its factory in Xinjiang was cleared of wrongdoing by an auditor. However, most of the staff from the consultancy firm distanced themselves from the findings, leading its owner to issue counterclaims.

BASF  has dismissed any evidence of the existence of forced labour in its supply chains while maintaining that the allegations were incompatible with its values. German media claim that audits carried out by BASF show that erroneous practices by its Chinese partner were pervasive.

As regards to Apple, it was one of many firms that faced criticism for lobbying the U.S. Congress to water down the provisions of the 2021 UFLPA. Rights groups say that Lens Technology was just one of five of Apple’s suppliers to resort to forced labour, Amazon and Tesla are some of the others. Meanwhile, Apple has backed Lens’s claim of the absence of any rights abuses, affirming its zero-tolerance policy on this matter, including surprise audits and termination of business with errant suppliers. 

How stringent is the U.S. law?

The 2021 Act aims to penalise domestic firms for human rights violations including torture, arbitrary detentions and forced labour of some one million Uyghur Muslims in the country’s north-western region’s so-called internment camps for over a decade. The U.S. law presumes that all inbound imports sourced from Xinjiang were produced using forced labour and labels them “high priority” areas.

One key provision in the UFLPA requires public companies to certify to the Securities and Exchange Commission (SEC) that their products are free from forced labour from Xinjiang. Companies were apprehensive that the latter provision could prove a headache, much like the one in the Dodd-Frank Act that obliges firms to declare that their products did not contain controversial minerals from Congo, posing a hurdle for gold imports. During the legislative stage, the Bill passed the House of Representatives 403-to-6 and even called out specific companies for inappropriate practices. Predictably, this triggered industry backlash in the Senate to dilute some of its provisions.

How has China dealt with the fallout from this controversy?

Beijing initially denied the existence of the internment camps or dismissed such claims as outright lies. The government has since played down the significance of these facilities as merely vocational training centres, designed to create employment and combat religious and separatist extremism in the Uyghur Muslim population. In response to the U.S. law, the Chinese government has moved detainees to other parts of the country and routed exports from outside Xinjiang. While Nike and H&M are among the firms that have been hit by the restrictions on the use of Xinjiang cotton, Chinese customers have in retaliation boycotted their products.

What is the status of the EU legislation?

Unlike the U.S. ban’s focus on imports from Xinjiang, the European Union (EU) has proposed a more comprehensive law targeting all products reliant on forced labour, including those made within the 27-member bloc. There is concern that country-focused bans could be viewed as discriminatory measures under World Trade Organization (WTO) rules. The law aims to apply the International Labour Organisation (ILO)’s definition of forced labour and concentrate enforcement on large companies. The EU trade officials are sceptical that a ban on imports is the best way to prevent rights abuses.

Meanwhile, a separate EU-wide Corporate Sustainability Due Diligence Directive, targeting social, environmental and human rights abuses in supply chains, has also stalled since 2022. The proposal would oblige companies to report and prevent abuses in the environmental and social governance arenas, and even empower civil society groups to mount legal challenges against any adverse impact. France has enacted a national law on the subject. But Paris has called for banks not to be held liable for the shortcomings of clients in the EU Directive, a clause some European parliament members insist is much needed in the enforcement of greater accountability on investment decisions.

A German proposal for national legislation on supply chain sustainability met with fierce resistance from different Ministries and multinationals. But Berlin used its rotating presidency of the EU Council in 2020 to table a proposal for the entire EU. Predictably, domestic objections found an echo on the EU stage, with the Free Democratic Party, a constituent in the ruling coalition calling the measure a “self-strangulation.”

When the forced labour Regulation and the due diligence Directive are in place, the EU would set yet another precedent in establishing governance standards for world bodies to emulate. VW’s current woes are likely to provide a major push in that direction.