Is Your Supply Chain Susceptible to Forced Labor?

Is Your Supply Chain Susceptible to Forced Labor?
By Christopher S. Tang

When munching on a chocolate bar, sipping a cup of coffee, or putting on your cotton shirt, have you ever wondered if your favorite products may involve forced labor? Even when you are eating fruits and vegetables grown in America, would forced labor come to mind? If not, it should. In fact, we should pressure firms to take proactive steps to stamp out forced labor.

According to the International Labor Organization (ILO), over 28 million people worldwide were in forced labor in 2021, generating $150 billion for those bad actors in the global supply chains. Eighty-six percent of forced labor occurred in the private sector, and 3.3 million of those workers were children.

Lower-income developing countries are the most affected by forced labor, but high-income developed economies such as the United States, United Kingdom and several other European nations are not immune. Indeed, the U.S. Human Trafficking Hotline received roughly 1,400 labor-related alerts in 2020.

Earlier this year, the U.S. Department of Labor accused SL Alabama LLC, a Hyundai supplier, of violating labor regulations by employing child workers under age 16. A month earlier, Hyundai subsidiary SMART Alabama LLC was accused of similar violations.

U.S. imports most likely to involve forced labor include bananas, bricks, cocoa, coffee and cotton. In general, seasonal products with short life cycles that require unskilled or dangerous tasks are particularly prone to involve forced labor.

In 2021, Mars and Hershey were among the defendants in a lawsuit filed in Washington D.C. by civil liberties nonprofit International Rights Advocates (IRA) on behalf of child workers from Mali who were forced to harvest cocoa in Ivory Coast. A federal judge in Washington, D.C. dismissed the lawsuit in June 2022 on grounds that the plaintiffs failed to show a “traceable connection” between the defendant companies and the specific cacao farms in Ivory Coast where the plaintiffs worked. The plaintiffs plan to appeal, however, and the legal quagmire continues.

Even when a U.S. firm does not directly use forced labor, it may still be legally liable for such practices by downstream suppliers. In addition to bringing legal penalties, such practices can not only damage a brand but hurt business directly with consumer boycotts.

What can companies do to reduce this form of legal, ethical and reputational supply chain risk? Developing a plan to implement the United Nations Guiding Principles on Business and Human Rights is a good start.

We propose three additional suggestions:

  1. Use Blockchain Technology to Improve Global Supply Chain Visibility
    A 2021 McKinsey survey revealed that only 2% of companies had some visibility beyond the second tier of their supply chains. This lack of transparency and traceability increases the risk of having upstream suppliers that use forced labor.
    Blockchain technology can improve supply chain visibility. Walmart in China used a blockchain platform to track and trace upstream suppliers to reduce food safety risk. Levi Strauss publishes block-chain-secured data to fully disclose worker conditions at various upstream supplier sites.

  1. Monitor Upstream Suppliers’ Recruitment Agencies
    Forced labor often occurs when an upstream firm uses recruitment agencies. Without direct oversight, these agencies can falsify the ages of child workers or establish additional work arrangements hidden from the upstream firm. The web portal Recruitment Advisor provides independent reviews of labor recruitment agencies, conducted by the International Trade Union Confederation (ITUC).
    In addition to demanding that upstream firms use reputable recruitment agencies, U.S. firms should partner with nongovernmental organizations such as the Fair Labor Association (FLA) to conduct random audits to ensure compliance. For example, Patagonia works with FLA to establish measures for contract manufacturers to follow employment law and pay their workers living wages. Together, they have also set up audit mechanisms to monitor those practices.

  1. Establish Industry Consortium to Conduct Joint Audits
    It is costly to monitor and audit overseas suppliers directly, but firms within the same industry can form a consortium to conduct joint audits of their upstream suppliers to share the burden. Consortia can also help smaller firms cope with the complexity of establishing supply chain transparency.

After the collapse of Rana Plaza in 2013 that killed over 1,000 factory workers in Bangladesh, 166 apparel corporations from 20 countries in Europe, North America, Asia and Australia—along with Bangladeshi unions, NGOs and the International Labor Organization—formed the International Accord for Health and Safety in the Textile and Garment Industry, a set of binding commitments to ensure factory worker safety in Bangladesh. Since the inception of the accord, the number of factory fire incidents has declined significantly.

In the same vein, the 75 companies in the Responsible Mica Initiative have jointly developed a holistic, multi-stakeholder approach to eliminate child labor in mica mining. Mica is a mineral dust widely used in construction materials and electronics.

Supply chain opacity is an incentive for bad actors to exploit forced labor to extract more profits. But change is in the air, as supply chain due diligence is becoming the new normal of supply chain management. For example, the European Union is creating a law that holds firms—including U.S. firms that operate in Europe—liable for human rights violations in all tiers of their global supply chains.

Supply chain transparency supported by technology; on-the-ground audits conducted with the help of NGOs and other independent experts; and concerted efforts by consortia can curb forced labor and improve working conditions around the world.