The new Trade Facilitation and Trade Enforcement Act makes it illegal for the U.S. to accept imported goods made through forced labor. The U.S. government has a list of more than 400 goods produced using child or slave labor that can serve as a guide for companies assessing their supply chains. However, according to Pierre-Francois Thaler, co-founder and co-CEO of supplier rating technology provider EcoVadis, companies looking to truly tackle slave labor in their supply chains and establish long-term sustainability initiatives need to dig deeper and do their due diligence beyond checking the government’s list.
Thaler also identified some holes in the new trade act and thinks it can actually hinder, not help, a mature organization that actively audits suppliers for forced labor. We asked Thaler about his take on the Trade Facilitation and Trade Enforcement Act and what specifically it lacks. Thaler also shares some insights on how companies can effectively tackle forced labor in their supply chains and gave some examples of initiatives that are creating positive competitive incentives for companies to adopt best practices and outperform competitors.
Spend Matters: Do you see the Trade Facilitation and Enforcement Act as an effective law to rid supply chains of forced labor?
Pierre-Francois Thaler: The act certainly has good intentions, but isn’t a truly effective strategy for making real, long-term sustainability improvements. Regulation by itself doesn’t improve working conditions around the world, and skepticism remains around what sorts of tools and resources the Department of Homeland Security will have at their disposal to enforce the new law. The Tariff Act, which the new trade act is a provision of, has always had a clause preventing slave labor, but was rarely enforced. This conveys that either the government doesn’t prioritize the issue, or supply chains are too opaque for regulators to develop truly effective legislation to enforce the law with the utmost confidence.
This is why private sector initiatives are absolutely necessary to generate long-term sustainability improvements. Procurement teams need to voluntarily and actively vet and monitor suppliers to get a truly holistic picture of the supply base. With the supply chain representing a large part of a company’s sustainable footprint, without an active commitment from businesses around the world, we don’t stand a chance of making real progress in fighting sustainability issues — whether it’s human trafficking, forced labor, climate change, environmental concerns or sub-par working conditions.
For example, the Corporate Human Rights Benchmark and KnowTheChain recently announced rating systems to benchmark the performance of large companies on human rights issues in their supply chains. Both of these new benchmarking initiatives are designed to create a positive competitive incentive to outperform the industry and peers.
SM: How do you think specifically the new trade act hinders, instead of helps, organizations’ supply chain risk management efforts?
PFT: The act is more of a hindrance than a help for mature organizations that already vet and monitor their suppliers for forced labor. If any part of a company’s supply base is on this list of 400+ goods, the organization could face legal ramifications despite solid evidence that its supply chain is slavery-free. For businesses that have worked for decades to create their own comprehensive sustainability initiatives, this act could set back their progress by forcing them to find new suppliers not in a country on the black list, instead of continuing to support sustainable suppliers that might be located in vulnerable areas.
At this point, the government has not laid out any firm regulatory guidance for enforcing the new act, so companies that have actively worked to rid their supply chains of forced labor don’t know if their sustainability initiatives will be sufficient for their goods to pass through U.S. customs, and still face the very real possibility of legal ramifications if their goods are seized. The U.S. government needs to create and enforce consistent sustainability guidelines so businesses can really understand where they are not compliant and can take appropriate measures.
SM: You mentioned the U.S. government’s list of goods that it believes are produced through child or forced labor. Do you see the list as useful at all for companies to begin determining if their supply chains contain forced labor?
PFT: Any tool available to help companies perform risk assessments should be leveraged, but this particular list should only be used by businesses just beginning their sustainability journey. An unfortunate consequence of the new law is that businesses can claim “due diligence” without actually monitoring their supply chains. They can simply check goods off of a list and deem themselves compliant if supply doesn’t come from a region on the blacklist.
This approach is ineffective and won’t solve sustainability challenges in the long run because there will always be “false positive” suppliers that are not on the blacklist but do have forced labor in their supply chains, and “false negative” suppliers who are blacklisted but do not use forced labor. Due diligence initiatives that vet individual suppliers, leverage a wide range of third-party resources including auditing tools and industry standards, and stakeholders, including non-governmental organizations (NGOs), government standards, community and industry peers remains the most effective way to diligently monitor for and stop forced labor.
Companies that rely solely on government administered lists should look to Malaysia as a clear example of why this is not enough. The Obama administration only recently upgraded Malaysia’s status as a human trafficking violator months after human trafficking camps were found in Malaysia. To make real progress in eradicating worldwide labor issues, much more than government lists are needed.
SM: What steps can an organizations take to ensure their supply chains are free of child and forced labor?
PFT: Companies must invest in sustainable procurement programs to promote supplier capacity development, to create shared value, meaning the benefits of the business trickle-down throughout the rest of the supply chain communities, and to ensure a truly slavery-free supply chain. Given that the causes of slavery are rooted in ineffective social, political and economic systems, there is real opportunity for sustainable businesses to promote shared value by improving working conditions with non-predatory employment at a fair wage.
Such efforts can only be effective when key stakeholders, such as NGOs with extensive local knowledge, are involved in developing industry best practices and sustainability standards. Purchasing organizations must also deploy a supplier performance management model that uses tools to proactively monitor and vet suppliers, and encourages suppliers to go beyond “checkbox” compliance by rewarding them for implementing sustainable practices.
SM: What are leading supply chain organizations doing today to mitigate risks like forced labor in their supply chains?
PFT: Organizations with mature sustainability programs often implement a supplier performance management model, which encourages and rewards suppliers for incorporating a holistic approach to sustainability instead of continuing to re-evaluate the same underperforming and non-compliant suppliers.
Industry initiatives are also a collaborative way for businesses to prevent sustainability issues in the whole supply base. Railsponsible, the rail industry’s initiative focused on sustainable procurement, and Together for Sustainability (TfS), the chemical industry’s global audit program, are two examples of competitors coming together to better their supply chains. Working together — with suppliers, industries, governments — often leads to better results for everyone.
SM: What risks do companies face when they do not properly tackle these supply chain risks and adhere to the Trade Facilitation and Enforcement Act?
PFT: The specific risks are still to be determined. The U.S. government has not presented guidelines around how forced labor allegations will be evaluated, what will happen to goods seized by customs or how companies can appeal seized goods.
Even once the appeal process is revealed, if a company’s goods are taken and it petitions the seizure, those petitions are rarely responded to. For example, the U.S. government recently relaxed its stance on the status of forced labor in Uzbekistan despite evidence to the contrary, and a response letter to the Department of State signed by various NGOs made no progress in reversing the decision. Even when the government does have clear guidelines in place, the issue of global forced labor is so complex that it will be a long time, if at all, before businesses can expect a response to their appeals.
In addition to legal ramifications, companies put brand reputation at risk when they don’t take proactive measures in fighting slave labor. Sustainability-concerned customers have steadily grown in numbers over the past few years, with millennials being twice as likely to buy from sustainable brands. Companies are at risk of a tarnished brand reputation if they fail to meet sustainability standards and these failures are made public, as they likely will be with this new act.
For this act specifically, the list only calls out countries and goods, not specific companies, so consumers would have to do some investigating to find out if their favorite brands are on the list. However, it is only be a matter of time before someone does make a list of companies that are in violation, and goods begin to be seized at customs. Then, businesses who are noncompliant will face serious brand reputation issues, which can be more costly than any legal fines the government puts in place.