Game Changing Trade Regulations in US Shake Up Corporate Supply Chain Responsibility

FORUM2016Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

In July 2015, The New York Times published an article about forced labor on Thai fishing boats. In the article they follow the story of Lang Long, a man who was shackled by the neck, working for 3 years as a slave at sea. He was one of the many Cambodian migrant boys and men working on Thai boats that supply fish to consumers worldwide. The men featured in the article are fortunately now free, but many slaves are still involved in the production of goods for global supply chains.

Indeed modern slavery is endemic within global supply chains. In recent conversations I had with some sourcing directors of large multinational enterprises, they admit that if you look closely and deeply enough, in every major global supply chain you are likely to find modern slavery. This has fuelled political moves to fight slavery in supply chains and also created serious challenges for companies dedicated to responsible sourcing.

In previous articles I have covered some of the innovative regulatory initiatives taken to promote supply chain responsibility (e.g. the UK Modern Slavery Act, the proposed law on due diligence in France, the Swiss referendum for a due diligence, and the EU non-financial reporting directive). Currently 8 Parliaments in the EU are calling on European Parliament to follow the French example.

Some recent developments in the United States may have even more impact on supply chain responsibility with global trade implications.

This February, President Obama signed in the Trade Facilitation and Trade Enforcement Act (H.R. 644). Section 910 of this law strengthened restrictions on the import of goods into the United States produced with forced labor, closing a loophole that existed in the Tariff Act of 1930 which allowed import of such goods if the product was not made in high enough quantities domestically to meet the U.S. demand.

This law accompanied two other moves to tackle modern slavery, particularly in the fishing industry, by the Obama administration. In addition to the new act, the administration has also enacted the Port State Measures Agreement which bars foreign vessels from accessing ports if suspected of illegal fishing. Furthermore the National Oceanic and Atmospheric Administration, which regulates fishing, announced new reporting requirements aimed at developing a better understanding among US companies of where seafood imports are sourced from.

While regulation is important, enforcement is arguably even more so. Indeed the Trade Enforcement Act is already being enforced. Recently the U.S. Customs authority issued two “withhold release” orders, preventing goods from entering the country because of suspicions that they were made using forced labor.

The first order came on March 29th against imported soda ash, calcium chloride, caustic soda, and viscose/rayon fiber that was manufactured or mined by Chinese company Tangshan Sunfar Silicon. U.S. Customs and Border Protection (US CBP) believes that these products were made by forced convict labor. The second order, on April 13th, was against imported potassium, potassium hydroxide, and potassium nitrate that is believed to be mined and manufactured by the same company using convict labor.

According to CBP Commissioner Kerlikowske: “CBP will do its part to ensure that products entering the United States were not made by exploiting those forced to work against their will, and to ensure that American businesses and workers do not have to compete with businesses profiting from forced labor.”  The Business & Human Rights Resource Center is tracking enforcement of the Act on their site.

These orders are an important part of enforcing the new ban and ensuring criminals that profit from human trafficking are not supported. Effective enforcement of this provision also provides incentives to business to protect their supply chains from forced labor to guarantee all of their imports are cleared for entry into the United States.

Recently Turkmenistan News (ATN) and International Labor Rights Forum (ILRF), partners in the Cotton Campaign, filed a complaint with the US CBP. The complaint concerns the import of cotton goods made using forced labor from Turkmenistan by companies, including retail giant IKEA. The government of Turkmenistan engages in a practice where annually farmers are forced to deliver cotton production quotas and thousands of citizens are required to pick cotton or are faced with a penalty. The complaint calls on U.S. Customs to classify cotton goods, such as the IKEA products, from Turkmenistan as illicit, issue a detention order on all imports of them, and direct port managers to block their release into the United States. CBP has yet to respond.

If the U.S. government and American businesses set a precedent that forced labor will not be tolerated, other countries are likely to follow suit. However, how U.S. government follows through on implementing the new ban, is essential to this effort.

child labor

Furthermore, given the extensive pervasiveness of modern slavery in global supply chains companies must be armed with tools to protect themselves and their supply chains from liabilities under these regulations.

Strong supply chain due diligence processes should in my opinion be an accepted defence under these new laws. This should include the notion that supply chain responsibility means often not ‘cut and run’ from risky suppliers, but ‘stay and improve’. Else these regulations could have devastating negative impacts on livelihoods of legitimate businesses operating in high risk areas. The OECD has provided guidance to companies in designing such due diligence processes. The OECD Guidelines for Multinational Enterprises (the OECD Guidelines) recommend that companies carry out supply chain due diligence to identify, prevent, mitigate and account for all adverse impacts that they cover, which include child labour and forced labour issues. For negative impacts arising within a company’s supply chain the Guidelines recommend that companies acting alone or in cooperation with others use their leverage to influence the entity causing the impacts to prevent or mitigate the harms.

The OECD Guidelines are referenced in the statutory guidance of the UK Modern Slavery Act, which note that “they provide principles and standards for responsible business conduct in areas such as employment and industrial relations and human rights which may help organisations when seeking to respond to or prevent modern slavery.’’

In addition to general recommendations the OECD has developed more detailed guidance on how these expectations can be responded to in specific sectors. For example the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the global standard on mineral supply chain responsibility, provides a 5 step framework for due diligence to manage risks in supply chains of minerals including forced and child labour in the context of artisanal mining. This Guidance is now the leading standard for avoiding child and forced labour in mineral supply chains and has been integrated as an operating requirement in the DRC, Rwanda and Burundi.

The FAO and OECD recently jointly developed a Due Diligence Guidance for Responsible Agricultural Supply Chains which also provides due diligence recommendations to manage risks related to forced labour and child labour in high risk agriculture sectors including palm oil and cocoa. Such approaches could be applied in the context of the Thai shrimping industry as well. Lastly the OECD is also developing a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains, which provides specific recommendations for addressing risks of forced and child labor. This Guidance will be launched later this year and will be relevant to migrant workers in textiles factories

Regulation of global supply chains to combat forced labour is becoming increasingly common and impactful. Recent developments in the EU followed by new regulations and enforcement by the US customs authority are putting pressure on companies to monitor their supply chains more closely than ever. As the US and EU represent that world’s most important consumption markets these pressures will extend to companies globally, and have already been felt by Chinese and Swedish enterprises in the context of the recent US detention orders.

Supply chain due diligence and transparency will be increasingly important tools for global companies in safeguarding themselves from liability in light of these new regulations. The OECD has developed guidance on supply chain due diligence processes which address a range of issues including forced labour. In order to strengthen their global supply chains, companies would do well to step up and speed up implementation of due diligence in their global supply chains.

Useful links:

Global Forum on Responsible Business Conduct, 8-9 June

Roel Nieuwenkamp maintains a blog where all of his articles are archived. Please visit

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3 comments to “Game Changing Trade Regulations in US Shake Up Corporate Supply Chain Responsibility”

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  1. Patricia Almeida Ashley - 31/05/2016 Reply

    Dear Roel,

    For me, it is surprising and, somehow, astonishing, a proposal of banning products by means of the decisions of a government agency – the U.S. Customs and Border Protection – in a nation that mostly value freedom and market rules for rationality of choices made by people and companies. I think it is uncoherent in a liberal economy in which the State is expected to be absent of regulating markets.

    Would not be better for USA to signal taxation by means of a penalty in price of imported goods from countries which allows in their own nation forced labour or/and exploited natural resources or/and pollution affecting the common goods of humanity?

    Then, if so, the consumers would have access to better information in prices in markets for those goods compared to others produced in countries where national regulations prevent companies to exploit natural resources, labour or cultures in lower degrees than the internatonal treaties and agreements defines. Also, if so, the globalization would need to demand sources from nations where there are institutional conditions for protecting life, natural resources and human dignity.

    From Brazil, we see so many disruptions in the purpose of effective functions of government agencies which show me that the State solution to interventions by banning or blocking the entrance of goods one by one have not been effective (there are always ‘I know who can change the decision’ or ‘I shall find a way to disguise the origin of the product’).

    I believe that information of prices by means of True Price (see proposals on the True Price) are best ‘educators’ to markets, once individual rationality or fragmented one by one banning decisions may not have the effect of providing a clear information to consumers and suppliers.

    There are global tools already available (as the OECD Responsible Business Conduct for MNE, the GRI, the UN Agenda 2030, the ILO guidelines) and even with them no effective large scale trend for global markets. In a time where democracies and capitalism are driving their marriage into a divorce (see Buying Time – The delayed crisis of democratic capitalism, de Wolfgang Streeck – Verso, Londres, New Left Books, 2014 (original: Berlin, 2013), we either shall move to capitalism with no democracy or democracy with no capitalism.

    Human rights, dignity of human life, protection of nature are non negotiable. It is every one responsibility, especially the States which should insert these requirements in every, every, every international trade and investment agreement, not a side option as the TPP is proposing (and other treaties).

    Kind Regards
    Patricia Almeida Ashley

  2. Charles Kovacs - 31/05/2016 Reply

    I was pleased to read about President Obama signing a law in February to restrict the importation of goods produced by forced labor. Better later than never, I suppose, as I can remember that as early as the late 1950’s legislation was proposed in the US against goods made by “slave labor” in the USSR and the PRC. These were opposed by most of the Great and the Good and by all good progressives and did not become law for a long time, if ever – Mr. Obama’s action suggests the latter.
    With regard to the responsibility of the importing corporations, the article implies that they have a responsibility to avoid not only slave, but also convict, and child labor. Due diligence may create a legal defense, but not a moral one. If a supplier is found to engage in immoral employment practices, the best response, especially to safeguard corporate reputation, is surely to find a clean one.

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