HTC Supply Chain Brief

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By  Jeanne  Crump  HTC  Brief  |  January  2016  

Supply Chain Transparency: New Efforts in Battling Forced Labor and Human Trafficking

Executive Summary Forced labor and human trafficking within supply chains is a pervasive problem that is difficult to remedy. Monitoring a global corporation’s supply chain is a vast and complex process that requires considerable resources. In this brief, I examine the responses to and efforts in supply chain compliance from the governmental, corporate, and NGO sectors. At the governmental level, legislation in California and the United Kingdom has been adopted requiring certain companies to disclose their efforts in eradicating forced labor in their supply chains.  

NGOs are developing online tools consumers can use to identify products that may have been produced using forced labor. Research agencies are conducting independent assessments by interviewing at-risk workers on the ground and developing protocols for Social Responsibility Programs. But, existing auditing frameworks in monitoring worker conditions are largely inefficient and need to be improved. Corporations need to be held accountable in conducting assessments on their suppliers at every tier, not just the top one or two. And corporations could proactively provide public supplier lists so that independent assessments can be conducted more readily and easily. This brief does not aim to provide an exhaustive study of the NGOs or corporate strategies in battling labor abuses. Rather, it seeks to serve as an informative guide for both professionals and consumers on what is being done in achieving supply chain compliance and how compliance can be improved.  

Source:  Flickr  Creative  Commons  

Seek  Knowledge  |  Secure  Freedom  www.humantraffickingcenter.org    

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The Challenge of Monitoring Supply Chains Monitoring a corporation’s supply chain is no easy task. Major manufacturing companies and electronics distributors can have thousands of suppliers that operate multinational factories, and those suppliers may have hundreds of subcontractors from where raw materials are sourced. Tracing the origin of a product and its materials can be an enormous undertaking. There is lack of public data on corporations’ suppliers, so assessments are difficult to conduct because this information can be proprietary and companies are not willing to disclose it. In addition, the production and manufacturing process changes rapidly with improving technology. As explained in an extensive Huffington Post report, in the last 25 years, as global brands began monitoring their supply chains more effectively, the manufacturing and distribution process completely changed with new technologies.1 These changes have required new methods of monitoring supply chains. Workers’ rights also differ from country to country so enforcing laws on a global level is not feasible. As explained in Daire (2015), “The current global supply chain is based on a dispersed factory model where workers are spread across the world. Laborers have less leverage in this type of environment. Labor rights may be few in some countries.”2  

                                                                                                               1 Hobbes, Michael. “The Myth of the Ethical Shopper”, Huffington Post: http://highline.huffingtonpost.com/articles/en/the-myth-of-the-ethical-shopper/ 2 Daire, Seth. “Global Supply Chain: Neoliberalism and Labor,” 2015

Response from Above: Government and Corporate Initiatives Governments are working to provide consumers with information on the products they are buying. Most notable is the California Transparency in Supply Chains Act of 2012, which requires retail sellers and manufacturers doing business in the state with more than $100 million in annual worldwide gross receipts to disclose “their efforts to eradicate slavery and human trafficking from their direct supply chains for tangible goods offered for sale”.3 According to the US Department of Labor, it is estimated that the reporting requirement will impact about 3,200 companies.4 In addition, in 2015, the United Kingdom also enacted the Modern Slavery Act, which includes a Transparency in Supply Chains provision. Under the provision, commercial organizations exceeding worldwide gross receipts of $56 million5 who sell goods or services in the UK must prepare slavery and human trafficking statements for each financial year. 6 These statements must include steps the corporations have taken during the financial year to ensure that slavery and human trafficking are absent from their                                                                                                                3 Senate Bill No. 657, Chapter 556, “An act to add Section 1714.43 to the Civil Code, and to add Section 19547.5 to the Revenue and Taxation Code, relating to human trafficking.” 4 California Transparency in Supply Chains Act, United States Department of Labor, accessed Nov 10, 2015: http://www.dol.gov/ilab/child-forced-labor/California-Transparency-in-Supply-Chains-Act.htm 5 Global Supply Chain Law Blog, access Nov 10, 2015: http://www.globalsupplychainlawblog.com/international/the-uk-modern-slavery-act-or-the-uk-just-got-a-lot-more-like-california-or-a-domestic-anti-slavery-law-with-international-implications/ 6 Modern Slavery Act 2015, Part 6, Transparency in Supply Chains. Accessed Nov 10, 2015: http://www.legislation.gov.uk/ukpga/2015/30/part/6/enacted#section-54-2

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supply chains or own business practices.7 It also requires, much like the California Transparency Act, that companies publish the statements on their websites in “a prominent place.”8 The U.S. Department of Labor has made a concerted effort to assist businesses in employing responsible practices. The Bureau of International Labor Affairs created a Reducing Child and Forced Labor Toolkit that can be accessed online and includes an eight-step process to help companies develop comprehensive and transparent social compliance systems.9

Source: www.dol.gov Some key recommendations include information on creating a supply chain map, which encourages businesses to conduct due diligence on second and third tier suppliers and identify where those suppliers are located. It also defines a social

                                                                                                               7 Ibid 8 Ibid 9 U.S. Department of Labor: http://www.dol.gov/ilab/child-forced-labor/

audit and explains how to conduct one within a company to identify violations of the code of conduct. It recommends independent third-party audits and a review by a certification body. Finally, the toolkit provides suggestions on developing a corrective action plan (CAP) when/if abuses are found.  Corporate Social Responsibility (CSR) programs within companies have also grown, with additional resources dedicated to investigating and disclosing efforts to eliminate forced and child labor from supply chains.

 Ford Motor Company’s CSR program is making an effort to document their supply chain and ensure human rights through the Code of Human Rights, Basic Working Conditions and Corporate Responsibility policy.10 Since 2003, Ford has used a third-party announced auditing format that “regularly” audits some of their Tier 1 suppliers.11 Twenty-one at-risk supply countries were included in the most recent audit out of 60+ supplying countries. Ford states it has a goal to audit 25% of their suppliers. The audits chronicle how well the suppliers are abiding by laws and “meeting Ford’s expectations.”12 The independent assessment uses a detailed questionnaire, a document review, factory visits, and management and employee interviews.  Clothing manufacturer and retailer GAP employs roughly 30 employees in the Gap Social and Environmental Responsibility department who collect data through                                                                                                                10 Ford Sustainability Report, 2013-2014: http://corporate.ford.com/microsites/sustainability-report-2013-14/supply-materials-trafficking.html 11 Ibid 12 Ibid

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announced and unannounced visits to nearly all of the company’s vendor factories (95-100% depending on year and region).13 The assessment consists of on-site worker interviews, age-verifying document reviews, and reports from local NGOs and trade unions. GAP uses the Code of Vendor Conduct (COVC) as the backbone for the assessment that details over 700 potential violations of Human Rights.14 These 700 markers are lumped into four categories: Management Systems, Labor, Environment, and Working Conditions.

 Responses from Below: NGO-Developed Tools to Assess Supply Chains The fight to end trafficking and forced labor has been largely advocated for by NGOs, independent research organizations, and academics. Much of the effort in battling forced labor in supply chains can be seen through the use of online tools that provide consumers information on the brands and products they are buying. For example, Made In A Free World is an online software tool that aims to locate and address slavery and child labor in the supply chain. Used by buyers and suppliers, the tool identifies “hotspots of risk” in supply chains and creates “a customized action plan” for businesses trying to combat the issue.15 Their method of doing so involves comparing a company’s purchasing data against a Global Slavery Database

                                                                                                               13 Gap CSR Report 2012: http://www.gapinc.com/content/csr/html/human-rights/forced-labor.html 14 Gap Code of Vendor Conduct: http://www.gapinc.com/content/attachments/sersite/COVC_070909.pdf 15 Made In a Free World official website: https://madeinafreeworld.com/business

comprised of over 54,000 goods, services, and commodities.16

 Products of Slavery, created by Anti-Slavery International, is an online visualization tool that shows on an interactive map the products that are likely to be produced using child or forced labor. Clicking on a specific location provides a brief description of the most prevalent forms of slavery found in that region, and the products most likely produced there using forced labor.

Source: Antislavery.org The site also provides a list of facts for each product, which includes references to academic articles and books, government reports, and other sources from where the data was collected.

 Similarly, Free2Work helps consumers “learn how your favorite brands are working to address forced and child labor.”17 Free2Work assigns grades from “A” to “F” to each brand based on the likelihood that their products are made with forced or child labor. They classify company efforts (which are self-reported in an evaluation tool created by Free2Work) in four main categories: policies, monitoring,

                                                                                                               16 Ibid 17 Free2work.org

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transparency, and worker rights.18 In addition to the evaluation they also assess a company’s own publications alongside independent reports and third party data, such as audit findings and NGO reports. They grade brands and companies sourcing from high-risk areas more strictly than those sourcing from low risk areas. Free2Work draws risk data primarily from the U.S. Department of Labor’s List of Goods Produced With Child Labor or Forced Labor.19 They then use the U.S. Department of State Office to Monitor and Combat Trafficking in Persons ‘Trafficking in Persons Report’ Tier Placements as a secondary source of risk information.

 Providing tools for businesses to effectively monitor risk in their supply chains is also a growing field among NGOs and research agencies. Know the Chain is an online source that produces and compiles resources for businesses and investors who need to understand and address forced labor within their supply chains. Know the Chain serves as a database for briefs, factsheets, online courses, and learning modules developed by agencies such as the United Nations, International Labour Organization, and US Department of State to help companies operate responsibly. Ethical Trading Initiative (ETI) is an alliance of companies, trade unions, and NGOs that promote workers’ rights around the world. They work to bring together corporate, trade union, and voluntary sector members in an alliance to adopt the ETI Base Code of Labor Practice20, which is

                                                                                                               18 Ibid 19 Ibid 20 http://www.ethicaltrade.org/about-eti/what-companies-sign-up-to

based on the standards of the International Labour Organization (ILO). In addition to the code, they support initiatives around the world that raise workers’ awareness of their rights, and mobilize workers to negotiate with management. Their alliance of member companies report annually on their efforts and results they are achieving. Verité is a leading research agency that conducts social and environmental auditing programs, investigates systems that place workers in vulnerable positions, provide training on supply chain compliance, and consults for companies and governments to improve working conditions and develop social responsibility strategies.21 Through Vertité’s supply chain accountability program, audits are performed through worker interviews and surveys “that offer insight into on-the-ground working conditions.”22 They also conduct Foreign Worker Assessments that aim to capture conditions at workplaces that employ foreign contract or migrant labor. A specific audit conducted is in the electronics sector against the Electronics Industry Citizenship Coalition (EICC) Code of Conduct.23

Assessment Although recent legislation has been enacted to address supply chain transparency, can these efforts make a difference in battling forced labor? It is too early to assess whether the UK Modern Slavery Act has had any influence, but the                                                                                                                21 verite.org/services 22 Ibid 23 http://www.eiccoalition.org/standards/code-of-conduct/

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California Transparency Act may have a peer-pressure effect, causing more corporations to develop and promote CSR programs to satisfy both shareholders and consumers. According to a 2014 research study conducted jointly by the American Bar Association and Arizona State University that analyzed the supply chain policies of 79 Fortune 100 (U.S. based) companies, 66 percent had publicly available policies related to human trafficking and 76 percent had policies related to forced labor.24 According to the study, “the fact that many, although not all, of the companies researched have publicly available policies on these issues is a positive sign.” Yet, the study also notes that the policies companies adopt vary widely and may not all be effective. It was found that 21 percent of companies were using only internal monitoring systems, 5 percent using only external monitoring, and 68 percent using both internal and external monitoring.25 In addition, when problems are discovered, nearly half of the companies provided general remediation, while only 3 percent described approaches that provided remediation to individual victims. Ethical auditing is described as a thorough formal examination of the labor practices of a particular workplace or company. It is a verifiable process to understand, measure, report on, and help improve an                                                                                                                24 “How Do Fortune 100 Corporations Address Potential Links to Human Rights Violations In A Globally Integrated Economy?”, joint project of American Bar Association, McMain Institute for International Leadership, Arizona State University, and School of Politics and Global Studies, Arizona State University, 2014 25 Ibid, pg 3

organisation’s social and environmental performance.26 But, auditing and other types of monitoring pose the risk that they can be manipulated, which makes it difficult to describe actual labor conditions.27 In addition, auditing frameworks may omit the need to inspect labor issues, and may just pertain to efficiency and product quality.28 Labor abuses, specifically those relating to trafficking or forced labor, may be overlooked or simply not noticed for a lack of training and awareness. Furthermore, the frequency of audits is typically limited to once a year, with potential of another unannounced visit. Much can be missed in one or two visits. Lastly, auditing can be an expensive process for smaller businesses. Apple, for example, spent over $250,000 for a Fair Labor Association audit.29 In 2013, The Guardian published “Slaves in the Supply Chain: 12 ways to clean up the business.” Genevieve LeBaron at the University of Sheffield urges for companies to stop relying on audits.30 She explains,

                                                                                                               26 SedexGlobal.com http://www.sedexglobal.com/ethical-audits/ 27 Plambeck, Erica and Terry A. Taylor. “Supplier Evasion of a Buyer’s Audit: Implications for Motivating Supplier Social and Environmental Responsibility,” Stanford University 28 MetricSteam: http://www.metricstream.com/insights/Supplier_Audits_Supply_Chain_Governance.htm 29 “A Trip to the iFactory: ‘Nightline’ Gets an Unprecedented Glimpse Into Apple’s Chinese Core,” ABC News, Feb 20, 2012 30 Young, Holly. “Slaves in the supply chain: 12 ways to clean up business,” The Guardian, 2013: http://www.theguardian.com/global-development-

“The fact that many, although not all, of the companies researched have publicly available policies on these issues is a positive sign.” –ABA and ASU Study.

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“The pathways of audits are currently built around products-not-people so they tend to miss the areas of the labor supply chain that pose the most risk.” LeBaron concludes that although the power of auditing is limited, corporate social responsibility initiatives and legislation continue to rely on them as regulatory instruments. Aidan McQuade, director of Anti-Slavery International commented in this discussion that many of the factories in Bangladesh where workers lost their lives have been ‘ethically audited’ as have many of the factories in India where people are enslaved. He continues, “The purpose for which ethical auditors are generally employed is to find nothing,”31 meaning they are inefficient and faulty.

                                                                                                                                                                                   professionals-network/2013/dec/10/how-to-tackle-supply-chain-slavery 31 Ibid

This is not to say all audits and auditors are ineffective or corrupt. As explained by Kevin Bales, co-founder of Free the Slaves, those who say audits are misused or untrustworthy are really referring to a larger group of companies or institutions

that conduct commercial audits. These companies might normally conduct financial audits, and are now offering ethical audits as well in order to keep their clients. Bales continued, “Some of these [companies] are trying to do the right thing, but have put themselves in the tough position of wanting to help their clients avoid problems while being hired to identify these problems.” With sparse data on companies’ suppliers, independent assessments can be difficult to conduct without the cooperation of the corporation. First-hand data is also difficult to acquire. Few research agencies have been able to employ field staff to interview workers. Therefore the industry itself is left with a handful of reports based on the same data sources, such as the DOL’s List of Goods Produced With Child Labor or Forced Labor (cited as a source by many of the NGOs and research agencies supplying consumers with information on products). Organizations creating their own auditing tools rely on companies to self-report, which can result in omission of information and biased or skewed reporting. NGOs that are working to uncover labor abuses in the supply chain, such as

“The pathways of audits are currently built around products-not-people so they tend to miss the areas of the labor supply chain that pose the most risk”- Genevieve LeBaron, University of Sheffield

Kevin  Bales,  shown  above  speaking  at  a  Human  Trafficking  Center  event  on  November  13th,  2015  at  the  University  of  Denver,  says  not  all  audits  and  auditors  are  ineffective  or  corrupt.    

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Free2Work, have a commendable mission, but according to Claude d’Estrée, Director of the Human Trafficking Center, there is serious concern over how they go about the process of grading companies and products. Most NGOs do not have the capacity to send staff to factories to invest these claims first-hand. Most NGOs rely on secondary data or self-reporting evaluations by the companies they are grading.  Finally, there is little data available on remedial strategies to address labor abuses when they are found. Further research could be conducted on industry approaches to improving workers’ conditions and on the impact independent auditors are making with a people-focused framework. The onset of CSR programs and legislation demanding transparency is a positive sign.

Leading research agencies such as Verité are making efforts to collect data directly from workers. Such data can be powerful when it reaches consumers or government bodies. Online tools such as Products of Slavery are giving consumers easy access to information on the products they are buying. Corporations such as Apple are setting examples by making concerted efforts to improve workers’ rights and transparency. Still, more needs to be done to end abuses and improve auditing tools to include labor abuse in the framework. Large corporations need to be held accountable for putting resources into monitoring their supply chains and ensuring basic human rights for all workers they directly or indirectly employ.

References

“A Trip to the iFactory: ‘Nightline’ Gets an Unprecedented Glimpse Into Apple’s Chinese Core,” ABC News, Feb 20, 2012 California Transparency in Supply Chains Act, United States Department of Labor, accessed Nov 10, 2015: http://www.dol.gov/ilab/child-forced-labor/California-Transparency-in-Supply-Chains-Act.htm Daire, Seth. “Global Supply Chain: Neoliberalism and Labor,” 2015 Ethical Trade Initiative official website: http://www.ethicaltrade.org/about-eti/what-companies-sign-up-to EICC Coalition Code of Conduct: http://www.eiccoalition.org/standards/code-of-conduct/ Hobbes, Michael. “The Myth of the Ethical Shopper,” Huffington Post: http://highline.huffingtonpost.com/articles/en/the-myth-of-the-ethical-shopper/ Ford Sustainability Report, 2013-2014: http://corporate.ford.com/microsites/sustainability-report-2013-14/supply-materials-trafficking.html

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Free2work official website: www.freetowork.org Gap Code of Vendor Conduct: http://www.gapinc.com/content/attachments/sersite/COVC_070909.pdf Gap CSR Report 2012: http://www.gapinc.com/content/csr/html/human-rights/forced-labor.html Global Supply Chain Law Blog, access Nov 10, 2015: http://www.globalsupplychainlawblog.com/international/the-uk-modern-slavery-act-or-the-uk-just-got-a-lot-more-like-california-or-a-domestic-anti-slavery-law-with-international-implications/ How Do Fortune 100 Corporations Address Potential Links to Human Rights Violations In A Globally Integrated Economy?,” joint project of American Bar Association, McMain Institute for International Leadership, Arizona State University, and School of Politics and Global Studies, Arizona State University, 2014. Made In a Free World official website: https://madeinafreeworld.com/business MetricSteam: http://www.metricstream.com/insights/Supplier_Audits_Supply_Chain_Governance.htm Modern Slavery Act 2015, Part 6, Transparency in Supply Chains. Accessed Nov 10, 2015: http://www.legislation.gov.uk/ukpga/2015/30/part/6/enacted#section-54-2 Plambeck, Erica and Terry A. Taylor. “Supplier Evasion of a Buyer’s Audit: Implications for Motivating Supplier Social and Environmental Responsibility,” Stanford University: http://haas.berkeley.edu/faculty/papers/taylor_evasion.pdf, 1 Senate Bill No. 657, Chapter 556, “An act to add Section 1714.43 to the Civil Code, and to add Section 19547.5 to the Revenue and Taxation Code, relating to human trafficking.” SedexGlobal.com http://www.sedexglobal.com/ethical-audits/ U.S. Department of Labor: http://www.dol.gov/ilab/child-forced-labor/ Verité offiical website: www.verite.org/services Young, Holly. “Slaves in the supply chain: 12 ways to clean up business,” The Guardian, 2013, Accesed Nov 10, 2015: http://www.theguardian.com/global-development-professionals-network/2013/dec/10/how-to-tackle-supply-chain-slavery  

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About the Human Trafficking Center The Human Trafficking Center (HTC) is a nonprofit research and advocacy organization committed to using academic rigor and transparency, sound methodology, and reliable data to understand forced labor and human trafficking. Our aim is to provide research that improves inter-organizational cooperation and accountability, influences anti-trafficking policy, and raises public awareness about the problem. We also partner with academics, students, legislators, NGOs, and international organizations to provide the public balanced information about human trafficking. The HTC is housed within the Josef Korbel School of International Studies at the University of Denver and is comprised of M.A. candidates and faculty. Visit us online at humantraffickingcenter.org or on social media: facebook.com/humantraffickingcenter and Twitter @du_htc Jeanne Crump is the Research Projects Manager at the Human Trafficking Center and a M.A. Candidate of International Development at the Josef Korbel School of International Studies. She can be reached directly at [email protected].