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Global supply chains: the role of law? A role for law!

International law lacks stringent mechanisms for ensuring worker protection in global supply chains. It is the responsibility of the wealthy nations which are home to major corporations to fill this legal gap.

Forced labour is a common feature of global supply chains. In June 2014, reports about the use of slave labour in the Thai fishing industry dramatically reminded the British public about the labour practices of many supply chains. This followed recurrent reports about the use of slave labour by suppliers in the textile industry, particularly in Bangladesh. These kinds of human rights abuses occur in a range of industries where production has been outsourced to suppliers in the developing world.

No binding international human rights law on companies

Anyone reading these reports will usually wonder if there is no international law on those issues. The answer is a bit tricky. Yes, international law addresses slave labour in treaties, conventions and declarations. For example, Article 4 of the United Nation’s Universal Declaration of Human Rights stipulates that ‘no one shall be held in slavery or servitude; slavery and the slave trade shall be prohibited in all their forms.’ However, the difficulty with forced labour in global supply chains is that traditional legal concepts and globalisation do not easily fit together. The transnational nature of global supply chains poses a challenge for law as it cuts across territorial borders.

The main reasons why law has so far struggled to adequately address human rights abuses in global supply chains are clear. First, law is very much a territorial concept and it is therefore primarily states that regulate forced labour. Many countries where the use of force labour in production is prevalent have bound themselves by international treaties to eliminate these issues. However, the problem in many jurisdictions of the developing world is that either the written law does not address those issues or the law enforcement mechanisms are weak. Moreover, international law is traditionally law between states. This means that it is the duty of those states that are signatories to international treaties against slavery to implement their commitments. Companies are not directly bound by international human rights law. 

Corporate law, corporate groups and supply chains

The use of forced labour constitutes both a crime and a tort. A crime is an unlawful act that is punishable by states. A tort, on the other hand, is a civil wrong that unfairly causes someone else to suffer loss or harm, for example, an injury due to negligence. The person who commits the tortious act is liable to the tort victim, who can recover damages for the loss or harm. Generally speaking, there is no vicarious liability (imposing responsibility in law on a superior person for the failure of a subordinate person) in criminal law. However, this concept is used in tort cases, for example the responsibility of an employer for the negligent acts of their employees in the course of their employment. It could, in theory, therefore also be used in order to hold multinational enterprises liable.

However, the idea of holding multinational companies liable for the human rights violations occurring in their global supply chains faces  challenges in company law. Companies are generally considered as entities separate from their owners. This means that an overseas subsidiary company, which is owned by a multinational company, is a separate entity in law even if it is wholly owned by its multinational parent. In English law, parent companies are not held legally responsible for the illegal acts (torts) of their subsidiaries—only the subsidiaries themselves are liable for their wrongdoing. This approach limits the responsibility of multinational enterprises as they can hide behind their subsidiaries. The increasing use of suppliers further exacerbates this issue, as these companies are not even owned by the Western multinational enterprises. 

Private corporate social responsibility regimes

Against the background of this legal vacuum, human rights abuses such as the use of forced labour have become a widespread feature in global supply chains. However, due to reputational concerns about negative publicity, most multinational companies have started to ‘voluntarily’ adopt corporate social responsibility (CSR) standards for their supply chain. Unfortunately, after more than a decade of such private CSR systems it is evident that not much has changed in practice. This situation raises serious questions about the effectiveness of this private CSR regime.

The main weakness of such private CSR regimes is that they lack publicly enforced sanctions in case of noncompliance. Although many multinational companies incorporate these CSR commitments into their contracts with their direct (first-tier) suppliers, this does not mean that the use of forced labour stops. As western buyers are responsible for not only the incorporation of these commitments into supply contracts, but also for their subsequent monitoring and enforcement, everything hinges on the vigour with which individual buyers carry out these tasks. Moreover, even if multinationals did their utmost to ensure compliance among their first-tier suppliers, with which they have direct contracts, evidence shows that most human rights abuses usually occur far below the first-tier suppliers. In other words, most human rights abuses are several degrees removed from the western buyers. They take place within the many layers of sub-contractors comprising global supply chains today. 

Criminal liability as part of a more effective CSR regime

The inability of the existing system to curb human rights abuses in global supply chains raises the question of whether there is anything that could be done through law in the home state of multinational enterprises. One stringent proposal is to make it a criminal offence for forced labour to exist anywhere in the supply chains of multinational enterprises. This idea was suggested in the UK during the drafting stage of the Modern Slavery Bill, but rejected by the government. Instead, the government is now introducing new duties on companies to report on what they are doing to prevent forced labour in their supply chains. The danger is that the reporting will remain a box-ticking activity as it lacks the threat of liability of a criminal offence.

Such an offence would apply English criminal law extraterritorially. The UK Bribery Act 2010 shows that such an extraterritorial criminal liability for corporations is possible. Section 7 of that Act criminalises the failure to prevent bribery by a person associated with it irrespective of where the bribery was committed. An associated person could also be a supplier. As this offence applies both to UK companies and overseas companies that carry out business in the UK, the only way that companies could avoid this liability would be by exiting the UK market entirely.

A similar offence for the use of forced labour could be modelled on Section 7 of this Act. It is likely that this would induce multinational enterprises to do more than at present to ensure that their suppliers and sub-suppliers do not use forced labour. The reasons are twofold. Most obviously, eliminating instances of forced labour would reduce the chances of being hauled before the courts. If that happens, however, proof that a company has instituted adequate due diligence mechanisms to prevent forced labour by its business partners constitutes a valid defence. Therefore, corporate criminal law could therefore improve the compliance with private CSR standards.

Admittedly, law alone will not be able to eradicate the use of forced labour in global supply chains. It does, however, have the potential to make an important contribution. The home states of multinational enterprises cannot be silent on those issues. In the absence of a binding international human rights framework imposed on companies, and in light of the weak law and/or law enforcement mechanisms in many countries of the developing world, it is time for the home states of multinational enterprises to lead the fight against forced labour in supply chains.

 

About the author

Andreas Rühmkorf is a Lecturer in Commercial Law at the University of Sheffield. His book Corporate Social Responsibility, Private Law and Global Supply Chains was published by Edward Elgar Publishing in 2015. Andreas is also a qualified German lawyer holding both the First and Second State Exam in law.

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