Commentary on Political Economy

Wednesday 21 June 2023

Volkswagen, BMW, Mercedes face Xinji­ang forced labour com­plaint

Investors seek an independent audit of Volkswagen’s plant in the region

Three top Ger­man car­makers have been hit by alleg­a­tions of forced labour in their Chinese sup­ply chains, in one of the first offi­cial com­plaints against domestic com­pan­ies to be brought under Ger­many’s sup­ply chain law.

The European Cen­ter for Con­sti­tu­tional and Human Rights, a non-profit organ­isa­tion based in Ber­lin, said yes­ter­day it had filed a com­plaint with Ger­man reg­u­lat­ors against Volk­swa­gen, BMW and Mer­cedes-Benz alleging links with forced labour in the north-west Chinese region of Xinji­ang.

The com­plaint was filed under a Ger­man law that came into effect at the start of 2023, which requires that large com­pan­ies ensure that human rights and envir­on­mental issues in their sup­ply chains be mon­itored and addressed.

Pen­al­ties range from a fine of up to 2 per cent of total annual global sales and exclu­sion from gov­ern­ment con­tracts for up to three years.

European com­pan­ies oper­at­ing in Xinji­ang face polit­ical and reg­u­lat­ory pres­sures at home and abroad, as a wave of advocacy groups start to bring legal cases in European courts over products made in Xinji­ang.

The US has banned imports from the region.

Loom­ing reg­u­lat­ory scru­tiny adds to the con­tro­versy over Volk­swa­gen’s fact­ory in Xinji­ang. Human rights pro­test­ers were among those dis­rupt­ing the car­maker’s annual gen­eral meet­ing last month, while investors deman­ded an inde­pend­ent audit of its Xinji­ang plant.

“The pres­ence of the fact­ory in Urumqi alone is suf­fi­cient to estab­lish a high like­li­hood that the com­pany may be receiv­ing labour trans­fers of Uyghur work­ers,” the com­plaint against VW alleged, refer­ring to the state-sponsored forced labour pro­grammes that Beijing is accused of admin­is­trat­ing.

The com­plaints against Mer­cedes-Benz and BMW centred around a few indir­ect and dir­ect sup­pli­ers based in or near Xinji­ang, which the ECCHR said were likely to have been at risk of using forced labour.

The car­makers’ rela­tion­ship with CATL, which pro­duces nearly a third of all elec­tric vehicle bat­ter­ies, was singled out, as the Chinese bat­tery maker last year began to expand its foot­print in Xinji­ang.

All three com­plaints claimed that raw mater­i­als com­ing out of Xinji­ang, such as cop­per, lith­ium and alu­minium, car­ried an espe­cially “high risk” of being linked to forced labour.

Volk­swa­gen, BMW and Mer­cedes-Benz declined to com­ment on the com­plaints, stat­ing that they had yet been con­tac­ted by Ger­man reg­u­lat­ors. Mer­cedes-Benz said that “whenever conji­ang cerns are raised, we push sup­pli­ers for cla­ri­fic­a­tion” and that it reg­u­larly car­ried out spot checks with sup­pli­ers in China. BMW said it was “con­tinu­ously” mon­it­or­ing sup­pli­ers’ com­pli­ance with its stand­ards and “con­sist­ently” invest­ig­at­ing poten­tial breaches.

Volk­swa­gen has a minor­ity stake in the joint ven­ture that oper­ates the Xin­plant, which is con­trolled by Chinese state-owned SAIC Motor.

CATL and SAIC Motor did not respond to requests for com­ment.

The cases will now be reviewed by the Ger­man Fed­eral Office for Eco­nomic Affairs and Export Con­trol, which said it would take “the neces­sary time”. The author­ity said it had received 10 com­plaints or tips relat­ing to sup­ply chain prob­lems in the past six months.

European com­pan­ies oper­at­ing in China face con­flict­ing reg­u­la­tions. While EU mem­ber states are rolling out laws to com­pel com­pan­ies to con­duct cor­por­ate sup­ply chain due dili­gence, China has made doing so highly dan­ger­ous with its anti-espi­on­age law and crack­down on con­sultancy and audit­ing firms. Earlier this year, US due dili­gence firm Mintz was raided partly as a res­ult of its work in Xinji­ang.

“As long as there are no cred­ible and effect­ive due dili­gence mech­an­isms in place, com­pan­ies should cease their busi­ness activ­it­ies in the Uyghur Region,” said Miriam Saage-Maass, legal dir­ector at ECCHR.

Unfettered access to Xinji­ang has been impossible since the gov­ern­ment enacted a high-secur­ity crack­down on Uyghur and other Turkic Muslims, sur­veilling and tail­ing journ­al­ists who enter the region. Last year the UN con­cluded that there had been “large-scale arbit­rary deten­tion” in the region, and that atro­cit­ies there might even amount to crimes against human­ity.

Earlier this year, Volk­swa­gen’s China head Ralf Brandstätter announced that its Xinji­ang plant was no longer pro­du­cing cars, and that there were no plans to resume pro­duc­tion; instead, it qual­ity-checks cars for sale in the region.

Brandstätter vis­ited the Xinji­ang fact­ory in Feb­ru­ary, and said Volk­swa­gen did “not see any evid­ence of human rights abuses at the plant”.

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