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The U.S. and United Kingdom have led the way in imposing strictures against forced labor, or at least compelling companies to disclose its presence in their supply chains. Now, other countries are following suit. Similar rules are being contemplated, proposed or put into practice in France, Spain, Germany and the Netherlands, to name a few, according to attorney Markus Funk. He co-chairs the Supply Chain Compliance & Corporate Social Responsibility practice at the firm of Perkins Coie LLP.
It’s not as if countries were unaware of the problem until now. More than 20 million children around the world are subjected to commercial sexual and labor exploitation each year. The U.S. State Department issues an annual Trafficking in Persons Report that surveys the problem and proposes ways to fight it. In addition, nearly two dozen bills addressing the issue have been introduced in the U.S. Congress this year alone, according to Perkins Coie.
Now, the crisis appears to have reached a tipping point with regard to international awareness. Whether the response will have any real impact is an open question, however.
Funk divides current and proposed compliance measures into two camps. One simply mandates disclosure by companies of any products that were made with forced labor, as a means of informing consumers about the goods they purchase. (Examples include California’s Transparency in Supply Chain Act, and the U.K.’s Modern Slavery Act of 2015.) The other approach proscribes the activity, in the form of enacting laws and regulations on government contracts. In that category, there’s also the recent adoption by France’s National Assembly of a Corporate Duty of Vigilance law. It requires multinational firms doing business on French soil to enact mechanisms that prevent human-rights violations and environmental damage within their supply chains.
Under the stricter measures imposed in the U.S., confiscation of a foreign worker’s passport is enough to qualify as a forced-labor situation. Employees must be free to leave the job at all times, notes Funk. “The scope of law is really broad, and the requirements are heavy,” he adds. “You essentially need to certify that products are free from the taint of trafficked, slave, and other forms of forced or coerced labor.” Failure to comply could result in a prison sentence.
The criteria by which a company is subject to such laws vary from country to country. U.S. law mandates compliance for companies with more than $100m in global income. The California law considers a company’s leverage and market power over suppliers. In the U.K., the jurisdictional threshold is £36m. In France, it’s based on employment — 5,000 or more employees if the company in question is incorporated within the country, and 10,000 if it merely sells products in France but isn’t registered there.
Still in the formative stages are similar laws in Germany, Spain and the Netherlands. Funk says those initiatives are likely to be proscriptive in nature — in other words, they’ll have teeth.
Can multinational companies meet the requirements of these new measures? It all depends on whether they’ve achieved visibility throughout their supply chains. The efforts of many companies today begin and end with first-tier suppliers, according to KnowTheChain, which helps businesses and investors to understand global labor risks.
In a new report, KnowTheChain examines the three business sectors that it says present the highest risk of forced labor in their supply chains — information and communications technology, food and beverage, and apparel and footwear — then ranks the performance of 60 companies within those sectors. While identifying compliance leaders such as Hewlett-Packard Co., Unilever and Adidas, it concludes that the majority of companies across all three sectors “still have a long way to go.” (Belle International, Monster Beverage Corp. and Keyence Corp. were among the companies to score lowest in KnowTheChain’s latest evaluation.)
Part of the problem lies with the laws themselves. Federal acquisition regulations are unclear as to how far up in the supply chain a company needs to go, when reporting on the possible presence of forced labor. Funk points out that most Fortune 200 manufacturing companies have some 9,000 direct suppliers. Even gaining visibility at that level is “an exceptional challenge,” he says. “To achieve 100-percent complete supply-chain visibility, all the way back to the procurement of raw materials that are incorporated into your products (or your supplier’s products), can be borderline insurmountable.”
The range of products that are affected by various measures against forced labor is immense. The International Labour Organization lists some 170 goods that are presumed to be made with forced labor, Funk says. They include any electronics products and toys from China, as well as bricks from Argentina. And while the U.S. is not a signatory to ILO’s Forced Labor Convention of 1930, the list of goods cited by that agreement can still be used for purposes of identifying the practice in global supply chains.
In addition, there’s the U.S. Securities and Exchange Commission’s reporting rule on the use of conflict minerals from the Democratic Republic of Congo, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. But President Trump’s efforts to weaken or eliminate Dodd-Frank, along with recent court rulings that absolved companies of the requirement to disclose conflict minerals in their products, make that rule’s efficacy questionable at best.
What we’re left with is a lot of confusion, unsettled laws and roadblocks to achieving the desired level of supply-chain visibility. But none of this should stop companies from striving to eliminate all forms of forced labor from their supply chains. First, because it’s the right thing to do. And second, because the reputation of carefully nurtured brands could be at stake, in a time of unprecedented sensitivity over corporate social responsibility.
Funk advises his clients to thoroughly map their supply chains, conduct risk analyses to understand the scope of their potential legal liability, and ensure that the relevant employees, vendors and agents in the field are complying with both the companies’ expectations and legal requirements. True, the job can be tough, the laws are less than clear, and issues within complex global supply chains are likely to emerge anyway. “But that — whether from a legal-risk or brand-protection perspective — is not a sufficient reason to ignore the compliance requirements and simply do nothing,” he says.
