Where Governments Fall Short in Combating Forced Labor in Supply Chains — And How They Can Improve
By: Alexis Bateman
Tags: Supply Chain, Regulation, Thought Leadership, Labor, Sustainability

Media reports detailing abuses suffered by the Uyghur people in the Xinjiang region of northwestern China cast a spotlight on society’s long-running failure to eradicate the use of forced labor from supply chains.

Companies’ efforts to tackle the problem through improved supply chain visibility and the introduction of audit programs are laudable and have deterred some bad actors. However, this scourge will not be rooted out until its perpetrators face stiff penalties that are strictly enforced — and that requires a legislative framework that is much more punitive than the one currently in force.

A problem not to be underestimated

The International Labour Organization defines forced labor as “all work or service which is exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily.” Such penalties can include violence, manipulated debt, the keeping of identity papers, or threats of illegal immigration reports. At its worst, forced labor involves modern slavery and human trafficking where victims are taken from their home countries and restrained from leaving foreign worksites. Such crimes create “living and working conditions contrary to human dignity” (ILO, 2012).

Forced labor is found in many industries globally, including apparel, mining, palm oil, seafood, and others. But the scope of the violations in Xinjiang and the extent of the corporate ties to these operations — primarily in the fashion apparel business — should further amplify the issue for every company.

It is tempting to write off the outrage caused by these crimes as isolated, short-lived, and low on corporate agendas. However, this view is short-sighted as incidences of forced labor are widespread globally and may be found in any supply chain.

Increasingly, companies — global fashion brands in the case of the Uyghur people abuses — are being held responsible for their role in these violations in media reporting and NGO campaigns.

In the first MIT CTL–CSCMP State of Supply Chain Sustainability report, practitioners were surveyed on their companies’ commitments to socially responsible supply chains. Addressing labor issues, including the use of forced or child labor, was cited as the highest priority goal for companies. The likely reason is that these are often regarded as “zero-tolerance issues” for companies.

But giving worker rights a high ranking is one thing — investing in measures to eradicate violations is another. Respondents in the above survey reported that while social issues were top of mind, the level of investment devoted to addressing these issues was ranked significantly lower. This telling gap could be one reason why such violations persist in supply chains.

Achilles’ heel of existing laws

Another reason is that legislation designed to combat labor abuses in supply chains is inadequate.

For example, a bill passed recently in the US House of Representatives in response to the Uyghur forced labor controversy would ban imports from the Xinjiang region. While this legislation might encourage companies to rethink their sourcing strategies, it would do little to solve the larger forced labor problem. If Xinjiang — or any other region — is placed off-limits by the government, companies will simply switch to another region for the production capacity they need, leaving root causes of the problem unaddressed. Moreover, abuses may be occurring in the alternative sources of supply.

Another drawback of this legislative approach is that political maneuverings can blunt its effectiveness. The Xinjiang bill referenced above illustrates this drawback, in that the legislation may be saddled with an additional purpose: to further America’s ongoing trade war with China. This may take away from the legislation’s focus on curbing human rights abuses and drive companies to leave China for other countries with cheap costs — and, quite possibly, forced labor — thus failing to address forced labor not only in Xinjiang but also elsewhere.

New legislative approaches offer hope

Still, legislation can be an effective weapon in the fight against forced labor if designed to promote real change. Some examples point the way. For instance, the California Supply Chain Transparency Act (2010) and the UK Modern Slavery Act (2015) require companies to exercise due diligence when evaluating suppliers and to report their findings.

Although these laws represent a step in the right direction, they lack teeth because there are no provisions for meaningfully punishing noncompliance through penalties. Legislation currently in the pipeline could take this important step.

In July 2020, the US Congress introduced the Slave-Free Business Certification Act, which will require large companies to audit and report on instances of forced labor in their supply chains. If this act passes, it will make noncompliant companies liable for civil damages of up to $100 million and punitive damages up to $500 million.

This legislative effort in the US piggybacks on more recent regulations in this area. The French Corporate Duty of Vigilance Law (2017), which applies only to French companies, allows victims and other concerned parties to bring forced labor violations and failures to report before a judge and can result in fines of up to €30 million. The Netherlands Child Labor Due Diligence Law (2019) also imposes fines for failure to report.

Research sheds light on legislation

To help companies and lawmakers understand and build on these positive developments, the MIT Sustainable Supply Chains Initiative at the Center for Transportation & Logistics and the Luxembourg Centre for Logistics and Supply Chain Management, part of the MIT Global SCALE Network, are examining the various types of regulation in place and how companies are preparing to manage compliance for these regulations.

Forced labor has been a part of global supply chains since the inception of international trade. But as the complexity of supply chains has increased in line with the growth in trade volumes, such abuses have become more visible. It’s time for governments worldwide to step up to the plate with meaningful and effective laws.

For more information on the research described above and opportunities to participate in the project, please contact Alexis Bateman at hickmana@mit.edu.