To Build Resilient Global Supply Chains, Incorporate Respect for Human Rights
In late November, U.S. Customs and Border Protection (CBP) issued a Withhold Release Order banning the import of sugar produced by Central Romana Sugar Limited after finding credible evidence that its products were being harvested using forced labor. Central Romana, which sells in the United States under the Domino brand, produces nearly 60 percent of the Dominican Republic’s sugar and 63 percent of the Dominican Republic’s sugar exports to the United States. The Dominican Republic is the largest importer of raw cane sugar to the United States, representing about 17 percent of U.S. imports under the U.S. quota system. Sugar prices are already up 14 percent since last year, with disruptions also hitting some U.S. markets, just in time for the holiday baking season. Central Romana also produces sugar used as an ingredient in products for Hershey’s and other companies.
This move by the U.S. government is the latest in a string of efforts to make, in the words of a top Department of Homeland Security official, forced labor a “top-tier” compliance issue. It is another shot across the bow for global industries that rely on or permit forced labor and other egregious human rights abuses in their value chains, reminding companies of the impact these abuses have on the reliability and sustainability of supply chains.
Some industries are already tackling the impact of human rights abuses in their supply chains. This issue came to a head for the apparel industry on April 23, 2013, when an eight-story industrial building outside Dhaka, Bangladesh, collapsed with more than 3,000 workers inside, killing 1,134. The day before, inspectors had noticed cracks in the building; shops and banks on the lower levels were evacuated, but garment factories operating on the upper floors, concerned about delivering on time to their international buyers, insisted that employees return to work—even threatening to withhold pay if workers failed to do so. In the aftermath of the Rana Plaza factory collapse—the most devastating disaster ever to hit the garment sector—over 170 brands signed the Accord on Fire and Building Safety in Bangladesh (known as the Bangladesh Accord), an industry-wide agreement to institute worker safety audits and inspections in their value chains. Many joined the Open Data Hub (formerly the Open Apparel Registry) to publicly disclose the individual factories from which they source—and do not source—products. While not a panacea, these measures have resulted in improvements in workplace safety in Bangladesh and elsewhere, such as a recent requirement that factories carry insurance to ensure compensation is available to workers who are injured on the job.
Other industries have been slower to recognize the risks they face from human rights abuses throughout their global supply chains, but they have not been immune from their effects. A 2019 tailings dam collapse in Brumadinho, Brazil—the result of years of failure to address identified safety risks—cost iron ore giant Vale more than $7 billion in compensation and took at least 70 million tons of iron ore production offline, as Vale was forced to halt production in multiple locations. The supply shock sent global iron ore prices up around 30 percent. Solar panel companies’ slow response in 2020 and 2021 to allegations that panels and components sourced from the Xinjiang Uyghur Autonomous Region (XUAR) of China are being produced with forced labor have resulted in more than 1,000 solar panel shipments being detained at the U.S. border in the last five months.
These examples provide a glimpse into the consequences when companies do not conduct adequate due diligence on the human rights risks in their global operations and in their sourcing—and the consequences of that failure on global supply chains. As U.S. industries, investors, and policymakers work to build more resilience into global supply chains for everything from critical minerals to everyday household goods, they should consider three ways that human rights impact global supply chains.
Human rights abuses lead to supply chain delays, cancellations, and disruptions.
Companies need to recognize how human rights abuses can adversely impact the flow of supply chains. Often these are serious workplace health and safety risks that can lead to unanticipated delays in production or shipping in the United States and around the world. The International Labor Organization (ILO) estimates that 4 percent of global GDP is lost each year due to poor working conditions and workplace accidents. The Covid-19 pandemic exacerbated this problem, with ineffective health precautions in many factories causing production disruptions. This was the case in the spring of 2020 in the United States, when tens of thousands of workers in the U.S. meatpacking industry (and their families and neighbors) were infected with Covid-19 as a result of inadequate workplace safeguards. While the meat industry used the threat of meat shortages to justify dangerous working conditions, plant closures associated with the resulting Covid-19 outbreaks reduced daily U.S. production capacity at cattle and hog facilities by up to 45 percent, with meat production falling 40 percent below 2019 levels by May 2020.
In June 2022, the ILO added the right to a safe and healthy working environment to its Fundamental Principles and Rights at Work, obligating member states to respect and promote this right alongside the four other fundamental labor rights. Governments fulfill this obligation by adopting robust workplace safety regulations and fully funding and empowering labor inspectors and law enforcement to ensure compliance. The U.S. Department of Labor’s International Labor Affairs Bureau (ILAB) provides technical assistance to foreign governments to support robust legal and inspection regimes. Companies should undertake their own assessments of worker health and safety risks in their supply chains through a comprehensive human rights due diligence process, not just relying on third-party audits (which have serious limitations) but engaging directly with workers and worker organizations. Failure to address worker demands for workplace safety, a living wage, and the right to freedom of association have driven some to leverage strikes and work stoppages to increase pressure on decisionmakers, causing additional supply chain disruptions.
Unsustainable and abusive business models hurt workers and communities.
Policymakers and companies should look closely at unsustainable and abusive business models that seemingly facilitate faster-moving supply chains at the expense of workers and communities. The Covid-19 crisis exposed companies founded on unsustainable business models that depend on systems of abuse to keep their supply chains running. Factories for UK-based retailer Boohoo, for example, allegedly forced sick workers to work and denied pay to workers who wanted to self-isolate in order to keep up with a 42 percent increase in sales from March to December 2020. Boohoo is one of a set of “ultra-fast” fashion brands that pride themselves on churning out the latest clothing trends to consumers in a matter of weeks, if not days. Popular Farms, one of the largest rice-processing businesses in Nigeria, flouted government directives and forcibly held over 100 workers in a rice mill to capitalize on surging prices during the initial months of the outbreak. In both cases, supply chains were kept afloat by pressure for high-speed delivery that placed unreasonable pressure on workers and factories, one of the Shift Project’s 24 business model red flags that indicate a high risk of abuse.
Industries that utilize sourcing models such as just-in-time delivery and pricing models that discount labor costs may be at particularly high risk of disruption, as are industries that rely heavily on vulnerable populations such as migrant workers. By one estimate, more than half of global high seas fishing would be unprofitable without subsidies or artificially low labor costs. Companies whose commercial success relies on these approaches should carry out specialized risk analysis to understand the potential for abuse and disruption as a result of their business model. Government efforts to build more resilient supply chains, including by “nearshoring” or “friend-shoring,” should also take these factors into consideration, recognizing that supply chain disruptions can stem from business models themselves as well as conditions in specific sourcing locations.
New regulations will interrupt supply chains due to human rights concerns.
Finally, companies and investors should be aware of and adapt to new regulatory models that close off markets due to human rights concerns. Expanding legislative and policy efforts in the United States and other major market states to end the use of forced labor and other egregious abuses have raised the economic cost and supply chain implications for companies that ignore these human rights concerns. In FY 2022, CBP detained over 3,000 shipments at U.S. borders over concerns that they were made in whole or in part with forced labor, up from less than 1,500 in FY 2021 and only 12 in FY 2019.
Seventy-five percent of participants in a February 2022 U.S. Fashion Industry Association survey indicated that they had shipments detained due to CBP Withhold Release Orders connected to Chinese cotton; the same proportion of companies had to shift sourcing as a result of forced labor concerns in their supply chain. An August 2022 Bloomberg headline announcing that solar panels are piling up at the U.S. border could be a sign of challenges to come if companies do not take urgent steps to map their global supply chains and attendant human rights risks.
Import bans are not the only legal risk for companies with abuses in their global supply chains. In the last three years, the United States has utilized export control regulations to prevent the sale of goods to countries and entities known to abuse human rights or undermine democracy. Last week, the Treasury Department issued the first ever Global Magnitsky sanctions based on allegations of forced labor (and the first Global Magnitsky sanctions against a NASDAQ-listed company, Pingtan Global)—freezing the company’s assets in the United States and forcing U.S. persons to sever all financial ties.
These efforts are not just ramping up in the United States but also reflect global trends. At the G7 in 2022, leaders committed to accelerating work on advancing resilient, sustainable supply chains through both mandatory and voluntary measures. While they did not explicitly link abusive labor practices with global supply chain disruptions, they did nod to this issue by calling for a “values-led trade policy” to help address chronic risks and acute shocks to global markets. In March 2022, the European Commission released a draft directive that would require EU and some EU-affiliated companies to assess and mitigate human rights and environmental risks throughout their supply chains or face administrative penalties and civil liability. The directive expands upon a French law that has been in place since 2017 and a German law that goes into effect in January 2023. Japan has issued guidelines to its companies on mitigating forced labor risk and has hinted that binding regulations may be forthcoming if companies do not comply. By working with like-minded countries through the Export Controls and Human Rights Initiative, the United States is contributing to countries working together to limit the export of goods to abusive regimes and companies. Likewise, the 2020 United States-Mexico-Canada Trade Agreement requires Mexico and Canada to adopt and implement import regulations comparable to the U.S. Tariff Act.
Governments, companies, and investors working to address supply chain disruptions need to take human rights concerns into consideration when crafting solutions to build resilience. As the U.S. government’s efforts to affect supply chains transition from an ad hoc response to disruption and then to sustained engagement (including through the establishment of supply chain management offices at multiple U.S. departments and agencies), incorporating a human rights lens into the assessment of high-risk sectors and supply chains will be critical to understanding and addressing the full scope of risk. Funding and capacity-building for effective government health and safety regulations, supporting worker organizing and worker’s voices, and strategically deploying enforcement tools to disincentivize abuse can all help prevent supply chain disruptions across the full range of products Americans rely on every day.
Marti Flacks is the Khosravi Chair in Principled Internationalism and director of the Human Rights Initiative at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Catherine Zou was a research intern with the CSIS Human Rights Initiative.