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  May 17th, 2016 | Written by

Corporate Dependence on Outsourcing is Resulting in Modern-Day Slavery

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  • The UK’s Modern Slavery Act mandates transparency in supply chains.
  • California law requires retailers and manufacturers to disclose company verification of slavery in their supply chains.
  • UK study shows poor compliance with supply chain anti-slavery law.

Outsourcing manufacturing overseas has become a central feature of today’s globalized economy. Large corporations, relentless in their pursuit of new markets, new technologies and lower production costs, have grown increasingly reliant on complex global supply chains to manufacture their goods. In most industries, large companies now rely on a series of contractors and suppliers in a range of countries to produce and transport their products.

Today’s global supply chains link individual workers with large and small companies across national, political and cultural boundaries. Companies do not generally own or operate the factories in which their goods are produced and they may contract with hundreds, sometimes thousands, of different suppliers annually. However, this dependence on outsourcing has also led to a rise in modern-day slavery. Whether or not corporations directly oversee their work environments, they have a responsibility to ensure that slavery is not occurring in their supply chains.

In the last year, a steady stream of media reports has exposed the deplorable conditions in which Thai fisherman are enslaved on boats catching seafood for export to the U.S. market. Some of the practices alleged to be occurring in the Thai fishing industry include torture, chaining of workers, and the killing of those who seek to escape illegal fishing vessels. In the last year, two major companies – Costco and Nestlé- were accused of relying on slave labor to get their products to market and were sued in California courts. Neither Costco nor Nestlé was accused of expressly engaging in such practices; rather, the accusations concerned their business relationships with companies that are sourcing seafood from suppliers that do engage in such practices. These lawsuits have served as a wake-up call to companies that turning a blind eye to dangerous working conditions in corporate supply chains will expose the company to commercial and reputational risks – not to mention it’s just the wrong, inhumane thing to do.

While outsourcing is a central and necessary feature of today’s globalized economy, too often it prizes low cost and fast production over respect for basic worker rights. However, increasing acknowledgement of companies’ responsibility to respect human rights is making it more difficult for businesses to disassociate themselves from the dangerous working conditions that are too often a feature of their global supply chains. The supply chains of products as varied as chocolate, palm oil, diamonds, coffee and cell phones all suffer from well-documented human rights risks for workers. Furthermore, human rights responsibilities cannot be compartmentalized to a particular company or within particular geographical boundaries because direct and indirect corporate linkages that permeate global supply chains exacerbate the issues.

One way to begin to address these issues is to shine a light on the problem. Last year, the United Kingdom passed the Modern Slavery Act, which mandates transparency in supply chains. The law requires companies to prepare an annual statement describing steps that they have taken to ensure that slavery and human trafficking are not present in their operations or in any of their supply chains, and to share related information on their websites. The UK legislation was modelled on the California Transparency in Supply Chains Act — also the basis of the lawsuits against Costco and Nestle. Since 2012, large retailers and manufacturers doing business in California have been required to disclose on their websites the extent to which the company engages in verification of product supply chains to address risks of slavery, forced labor and human trafficking.

While useful steps, neither of these regulatory responses attaches any financial penalties for companies not complying with the legislation. Early analysis (published this year by the UK-based Core Coalition and the Institute for Human Rights and Business) indicates that the first statements published (as required by the legislation) by companies under the UK law show poor compliance with its basic procedural requirements. Such results suggest that supply chain reporting requirements that are too broadly framed and do not couple transparency with any penalty for non-compliance are not the most effective mechanisms for achieving the type of transparency that will be converted into accountability.

Each company along a supply chain has a responsibility to respect human rights. When and how such responsibility might be limited and the most effective mechanism for ensuring greater respect for human rights issues are questions that all companies confront in today’s globalized world. Legislating for greater transparency and monitoring of supply chains are necessary first steps to instituting more positive business practices, but reporting requirements should be coupled with financial penalties. This is where government comes in. Ensuring workers are treating fairly is not just the responsibility of the private sector, but rather should be viewed as a shared responsibility of all stakeholders.

Multi-stakeholder initiatives such as the Fair Labor Association which bring companies and NGO’s together are also an effective way of improving poor business practices that affect an entire industry. Companies must seek to engage directly with suppliers about their labor practices and, where possible, lock in long-term sourcing arrangements to award progressive suppliers. Many large companies based in the U.S. and Europe have the capacity to influence their suppliers’ practices. They just need to find the willingness to act – and governments must do their part to make them accountable. Companies such as Costco and Nestle that profit from these vast global human supply chains should not be immune from assuming both legal and ethical responsibility for the way in which the workers producing their goods are treated.

Justine Nolan is an Associate Professor of Law at UNSW Australia and a Visiting Scholar at the NYU Stern Center for Business and Human Rights. She is the co-editor of the newly published textbook, Business and Human Rights – From Principles to Practice (Routledge, April 2016).