- In 2023, strike cases were recorded in Chinese auto parts factories supplying for German multinationals. Causes include relocations, overdue payments and contaminated food.
- As the German Supply Chain Act came into force in 2023, the large German auto companies downstream have to ensure their suppliers comply with the human rights and labour rights standards.
- China Labour Bulletin followed up on a strike case by urging Volkswagen to investigate the potential labour violations, and the communication is ongoing.
The German Supply Chain Act (i.e. Act on Corporate Due Diligence Obligations in Supply Chains) came into force on 1st January 2023, providing a new tool to tackle labour grievances in Chinese suppliers of large German companies. The automobile industry is worth investigating, as it involves a large number of suppliers in multiple tiers, and multinationals like Bosch, Volkswagen, Daimler and BMW have updated their existing due diligence policies according to the Supply Chain Act.
In 2023, China Labour Bulletin (CLB) recorded 11 strike cases in auto suppliers in China. Four of the factories involved supply for German OEMs, and causes include relocations, overdue payments and contaminated food. CLB followed up on the strike case of the Aleph Electronics Factory (an automobile parts factory in Shenzhen) by urging Volkswagen (VW) to investigate the labour violations involved and ensure that no laws were violated. Contrary to the belief that large conglomerates like VW would dismiss the case of their suppliers as not within their control, VW’s human rights commissioner wrote back and said they would investigate. The communication is still ongoing.
CLB hopes to shed light on the supply chain of German auto OEMs and how the Supply Chain Act can be used to advocate labour rights. The EV transition will likely increase disruptions in the auto suppliers and workers will suffer if their rights are not guaranteed. The German Supply Chain Act as well as the corresponding promises of OEMs can be used to advocate just transition.
Worker grievances and strikes in auto suppliers in China
Among the four strike cases in suppliers relating to German OEMs, two concern factory relocations. For example, in March 2023, workers went on strike at a factory of the Shenzhen Kaizhong Precision Technology Co. Ltd – which produced for Bosch and Daimler. Workers said the factory was moving equipment and demanding workers to relocate to Heyuan, Guangdong. Workers who refused to relocate were barred from working overtime (overtime pay is a huge part of wages for manufacturing workers in general) and forced to resign. The factory did not announce plans on severance pay and calculation of length of service/seniority (which is subject to the legal requirements of China Labour Contract Law Art. 44, 46, 47). Workers gathered and put up banners to protest. According to a Douyin video by workers, the company employed many security guards even after negotiations were held and workers made some concessions. The final outcome is unknown.
Photo: Workers gathered and put up banners at Shenzhen Kaizhong Precision Technology Co. Ltd. Source: Internet
Other than relocations and payment problems, contaminated food and problematic management also triggered worker protests in auto suppliers. In November 2023, workers went on strike at Ningbo Jifeng Auto parts Co., ltd, which provides seating components and other parts to BMW, VW and Daimler. Workers protested that the food had maggots, and were dissatisfied with the rating system – which apparently affected workers’ income.
According to CLB’s observations, most of the strike cases concern the indirect suppliers of auto OEMs.
Brief introduction of German auto OEMs’ supply chain
According to a 2023 thesis by Zafer Ornek, the German automobile manufacturing supply chain consists of multiple tiers. At the top are the highly consolidated OEMs, including VW, Daimler and BMW. Then comes the direct suppliers that provide OEMs with pre-assembled complex modules. The direct suppliers cooperate closely with OEMs in R&D and designing and setting standards for components. The most prominent example is Bosch.
Then comes the indirect suppliers. An OEM can have more than 10,000 indirect suppliers. The indirect suppliers are not involved in the design and R&D processes with OEMs, and they produce for a limited number of markets. Therefore, they have less bargaining power and are more vulnerable to change in market conditions. They also tend to pay workers less and use informal workers.
Zafer Ornek’s thesis suggests that the indirect suppliers will be hit the most by the EV transition, as they have less resources to adapt and are less represented in institutional decision making processes.
Photo: Worawee Meepian/Shutterstock.com
As the EV transition intensifies, it is likely that more cases of closures and cost cutting relocations will happen in these indirect suppliers, and workers will likely suffer from lack of severance pay, overdue payments and degrading conditions. The German Supply Chain Act can be leveraged to ensure and enhance labour rights in these factories.
German supply chain act and company promises
Starting from 2023, the German Supply Chain Act (“the Act” in the following) applies to companies that have their central administration in Germany and have at least 3,000 employees in Germany (including employees posted abroad). Starting from 1 January 2024, the scope will be extended to companies with at least 1,000 employees.
The due diligence obligations of companies extend to the actions of all its direct and indirect suppliers. Section 9 of the Act in particular states that companies must set up complaints procedures for reporting of human rights or environment related risks/violations of the indirect suppliers. Upon such reports, companies should carry out risk analyses and lay out preventive measures. Bosch and the German OEMs (BMW, VW and Daimler) also made due diligence promises accordingly in their reports and supplier code of conduct.
Photo: VW report released in 2023
The following list juxtaposes sections of the Act with the companies’ corresponding and additional promises:
- section 2 (2) no. 8 on wage: All four companies promised to pay a living wage. Moreover, BMW and Daimler prohibit unauthorised wage deductions and withholding wages, and state that payment of the contributions are mandatory if statutory social insurance exists
- section 2 (2) no. 6 on freedom of association: All four companies promised to honour workers' freedom to form representative bodies and bargain collectively, including the right to join trade unions. VW and Daimler add that if this right is constrained by law, alternative and lawful provisions for employee representation should be sought. Moreover, VW and BMW explicitly protect the right to strike
- section 2 (2) no. 11 on use of security forces: All companies prohibit harassment, abuse, and punishment with violence in a general sense. BMW, VW and Daimler state that hiring of private and public security forces should be banned if that leads to violations of human rights.
- section 2 (2) no. 5 on occupational safety and health: All companies demand the introduction and operation of an effective occupational management system. VW also specifically promises adequate working and living conditions, for example ensuring that all facilities for consumption, preparation, and storage of food comply with minimum hygiene requirements.
- section 2 (2) no. 12: prohibits any act or omission that could seriously impair a protected legal position in a particularly severe manner, based on a reasonable assessment of all circumstances. This could include violations of labour laws in the supplier country that have a significant impact on human rights or environmental standards.
- section 8 on complaints procedure: all four companies have whistleblower systems and VW outlines its provision for workers’ access to internal and external support, including lawyers and ombudspersons. BMW includes the measure that they may temporarily suspend business relations with companies that refuse to implement corrective measures.
Although the Act is ambiguous about whether joint ventures are regulated, the reports of some German companies include clauses that require or seek compliance of joint ventures in protecting labour rights. For example, VW’s report released in 2023 says,
We have sustainably integrated the topic of business and human rights into the Group’s established compliance management system[...]In the case of non controlled companies (with Chinese joint ventures), an individual analysis is made with regard to the overall compliance management system (including human rights, where applicable) in cooperation with our respective companies via our internal contacts. We rely on the cooperation of these companies here.
For more details of the due diligence promises of the four companies, readers can refer to this spreadsheet (which is based on the companies’ supplier code of conduct and reports and could be non-exhaustive). The green highlighter indicates that a company has promises in respective areas and further remarks are added for each company.
The Aleph case: an example of leveraging the Supply Chain Act
With the new Supply Chain Act at hand, CLB followed up on the strike case of the Aleph Electronics Factory – an automobile parts factory in Shenzhen supplying for Bosch and German OEMs. CLB urged VW to investigate the labour violations involved and ensure that no laws were violated.
The strike started on 27 October 2023, upon the factory’s moving some production equipment. Workers at Aleph feared that the factory was going to relocate without proper announcement and layoff compensation. Workers soon united to voice their discontent against the factory management. Later, management’s announcements acknowledged the factory did try to remove equipment without giving any explanation to workers and that it had “historical social security nonpayment issues”, but only agreed to repay contributions owed within the last two years (which goes against the labour law). The management threatened workers with dismissal and seemed to deploy private forces to beat up workers.
Photo: Workers strike at Aleph Electronics Factory. Source: Internet
CLB found that the local Shenzhen labour bureaus and federation of trade unions went to the factory after the strike broke out. However, workers said online that they were not represented by trade unions in their negotiation with management. The strike ended on 4 November, with many issues remaining unresolved.
After workers were forced to stop the strike and the local union failed to support them, CLB tried to seek intervention by utilising the supply chain due diligence legislation. On 8 November 2023, we wrote to Volkswagen’s human rights officer. We listed the potential labour violations at Aleph and asked Volkswagen to investigate and remedy them.
First, if there was an enterprise union at Aleph but it was not elected by workers, it might have violated China’s Trade Union Law and section 2 (2) no. 6 of the German Due Diligence Act (which requires companies to respect freedom of association).
Second, the “factory protection brigade” set up by the management might have suppressed workers’ freedom of association and even damaged workers’ life and body. This violates section 2 (2) no. 11 of the German Due Diligence Act.
Third, as Aleph admitted to not paying social security, CLB suggested Volkswagen investigate the duration and scope of the nonpayment and rectify the problem.
Volkswagen’s human rights officer quickly responded to CLB the following day, saying they had opened a case file for the Aleph incident upon receiving CLB’s information. On 16 November, the company sent CLB a second letter, agreeing that the German Due Diligence Act had potentially been violated. For more details on CLB’s approach in leveraging companies’ promises and the Supply Chain Act, readers can refer to CLB’s new report.
The Aleph case led CLB to believe that dialogues with brands using the recent German Due Diligence Act to address issues in Chinese factories is a path worth pursuing. We anticipate that China’s workers will become more aware of the law. The official union and workers' representatives will be able to use it readily. In cases of violations in China’s auto suppliers involving German OEMs, first-tier suppliers or other covered entities, workers' representatives can use this law to engage with stakeholders. This process should lead to investigations and negotiations for the better protection of workers under domestic and foreign laws.
This article is a collaboration between China Labour Bulletin and the SOAS student placement program, with contributions from Erica Smith.