Why Are Monitory Democracies Not Monitoring Supply Chain Slavery?

Peter Bengtsen explores how legislation in Europe is increasingly drafted to penalize companies for abuses in cross-border supply chains, while none of the new laws and proposals address how to credibly monitor for and identify abuses.

This is the second chapter in a forthcoming Global Policy e-book on modern slavery. Contributions from leading experts highlighting practical and theoretical issues surrounding the persistence of slavery, human trafficking and forced labour will be serialised here over the coming months.

After 20-30 years of voluntary efforts by Western brands to address forced labour, bondage, wage theft and other abuses in supply chains, these problems are still rampant. Companies are blamed for not walking their talk, and industry organizations are blamed for lobbying hard to avoid hard laws, but in the bigger picture our democracies have failed addressing the governance gap in regulating cross-border supply chains.

Now, after 20-30 years of abuse disclosures by corporate watchdogs and media, several Western democracies – and even the EU itself – are developing legislation to address the private sector’s failed supply chain due diligence. Promising parts of the new laws and proposals include the possibility of sanctions for companies and the recognition of remedy for victims, but a key part is missing: Who will monitor? How do we adequately and systemically monitor for supply chain abuses that goes beyond status quo, the flawed private audit efforts and the fragmented civil society efforts. How do we transcend that border?

Often overlooked or undervalued as part of the solution are the so-called corporate watchdogs, i.e. those civil society groups who continuously monitor corporate cross-border supply chains, and who have mushroomed in parallel with the last 20-30 years’ outsourcing of manufacturing to third countries. Such monitory organizations –which professor John Keane argues are key identifiers for our current ‘monitory democracies’ – are increasingly and successfully advocating for new laws to include sanctions and remedies but they should also advocate for credible cross-border monitory models as they hold extensive experience in this.

From soft to hard law: Increased adoption of extraterritorial legislation

For decades, borders have played a key role in shielding Western multinationals from forced labour and other abuses in their supply chains, as abuses take place in other jurisdictions with weak legislation and even weaker enforcement. When outsourcing gained speed in the latter half of last century, the soft law concept of Corporate Social Responsibility (CSR) was coined to emphasize the voluntariness for companies to address supply chains abuses abroad. International instruments equally build on voluntariness and lack enforcement mechanisms and some, like the UN Guiding Principles on Business and Human Rights, even highlight that ‘States are not generally required under international human rights law to regulate the extraterritorial activities of businesses domiciled in their territory and/or jurisdiction’.

Hence, in Western countries very little hard law exists that is focused on the governance gap of regulating corporate obligations to address forced labour and other human rights abuses in supply chains abroad. Disclosure laws such as the California Transparency in Supply Chains Act (2010) and the U.K. Modern Slavery Act (2015) emerged as a first ‘wave’ of legislation. However, they do not oblige companies to eradicate or even address abuses but to only disclose their efforts, and no clear sanctions or penalties exist. Scientific studies, field observations and, well, common sense agree on the inadequacy of such disclosure laws.

New and promising developments are now in motion, a second ‘wave’ of legislation. France, a frontrunner, adopted its corporate duty of vigilance law in 2017 with obligations for companies to not only identify but also adequately address supply chain abuses or else face sanctions and compensation claims. In at least 13 other European countries, there are pending proposals or campaigns right now, including Germany, Netherlands, Switzerland, Norway, etc.

If adopted, such legislation could place legal responsibility on European importers who source from foreign manufacturers using e.g. forced labour. Besides allowing for legal actions against, and penalties for, companies not playing by the rules, the emerging legislation is in many countries also expected to embrace some kind of remedy for victims due to companies’ failed supply chain due diligence. Such legislation is anxiously awaited, as existing laws so far have been used with little success to take European companies to court over human rights abuses in foreign countries in recent years. Only 2 out of 35 lawsuits since 2006 were successful for claimants according to a 2019 EU-report.

Not only European states but also the EU itself is moving forward, slowly. In February 2020, a comprehensive study on legislative options for supply chain due diligence was published by the Commission for the first time, recognizing the failures of voluntary measures. In March 2020, the Parliament decided that its trade and legal committees should jointly develop the Parliament’s position on due diligence legislation. In April 2020, the EU’s Commissioner for Justice announced that due diligence legislation will be introduced in 2021 and modelled after the French law.

However, some EU parliamentarians favor a trade sanctions-based approach inspired by American legislation. In the US, the Customs and Border Protection (CBP) is mandated to issue import bans due to forced labour concerns. Its authority to seize shipments origins in the Tariff Act from 1930, though it was widely considered ineffective until 2016, when President Obama closed a loophole in the law. Since then, it has been increasingly and powerfully applied by the Trump administration, most recently in mid-July 2020 when imports from Malaysia-subsidiaries of Top Glove, the world’s biggest manufacturer of disposable gloves, was banned because of forced labour concerns. Three weeks later, Top Glove announced that it would refund up to €10 million in backdated recruitment fees to migrant workers in the hope that the US would lift the ban. Also, CBP has the authority to issue civil penalties against importers in the US, which was applied for the first time in August 2020, when CBP collected €500,000 from Pure Circle U.S.A. for stevia imports made with forced labour.

The missing link: Reliable cross-border supply chain monitoring

Hard law is helpful due to the anticipated business fear of reputational damage by a court case, but a key component is missing. Lawmakers and advocacy groups hail the obligations-by-law for companies, the possibility of sanctions and the recognition of remedy for victims. But no one touches how or who will bring the supply chain abuses into light. Who will monitor? The current wave of hard law initiatives does not give much space to this.

The French vigilance law includes no governmental monitoring mechanism to keep an eye on whether companies are adequately implementing the requirements. The Dutch child labour due diligence law (adopted in 2019 and expected to be replaced by a broader due diligence law in late 2020) mentions a kind of monitory body, but nothing has been decided yet about its creation, mandate, resources, etc. The German draft proposal is all about monitoring corporate paperwork, not consequences of practice. In the earlier disclosure laws from e.g. UK or Denmark, monitoring had no place at all. And so on.

How much will Western brands fear the risks of lawsuits with no adequate cross-border monitory system in place? How many cases will the few civil society groups with legal capacity bring to court per year? How long will court cases last, before penalties and remedies are decided? Why not discuss the benefit of workplace monitoring in itself, if done adequately? Monitoring has preventive and empowering aspects missed out by lawsuit-approaches.

Currently, it is possible to speak about three distinct – private, public and civil society – monitory approaches:

Today, within the soft law CSR-paradigm, private audit firms are used to assess conditions at suppliers. Audit firms assess if and how suppliers adhere to individual brands’ codes of conducts or to joint business-initiatives’ workplace standards. Audits are financed by companies, audit-firms are for-profit, the audit industry itself is a billion-dollar business. Social audits are increasingly scrutinized by civil society groups demanding transparency by, and liability of, corporate-controlled auditors. Hundreds of examples of audit failures exist, i.e. examples where serious labour abuses have been documented at suppliers who are already certified by auditors. I do that myself all the time. Scientific research into audit data (un)reliability is growing, see for instance this Cornell University project or the latest issue of ILR Review – the Journal of Work and Policy.

State borders were the reason for the growth of private audit firms within the CSR paradigm. Private auditors can cross borders and check conditions among foreign suppliers of, say, English companies. Public sector officials in e.g. England cannot do that. Labour inspectors have authority only to inspect workplaces within their national jurisdiction. Borders are also the key challenge faced by the US Customs and Border Protection, or progressive public prosecutors in e.g. the Netherlands, when they want to enter foreign soil to obtain documentation on forced labour in supply chains. Hence, such authorities rely to a large extent on media investigations, NGO reports, confidential information from journalists and activists.

Since the 90s, a multitude of corporate watchdogs has mushroomed in the shadows of the growing private sector CSR-discourse and ethical consumerism. Watchdogs come in different forms - investigative media, consumer networks, fact-finding civil society groups, online activists - and many aim to monitor global supply chains and disclose exploitation to the public, industry and policy makers. Since the 90s, watchdogs have barked and bitten, sometimes too loudly, sometimes too little, sniffing out violations missed by brands and their auditors.

Some watchdogs are nationally focused such as Danwatch, Swedwatch and Finwatch (focused on foreign supply chains to Denmark, Sweden, Finland). Others are industry-focused, for instance GoodElectronics, Clean Clothes Campaign and Fairfood (focused on the electronics, clothing and food industries at large). Yet others are issue-focused such as Transparency International, Human Rights Watch and Workers Rights Consortium. Many of these are small, under-funded civil society organizations but have achieved remarkable results in recent decades and are constantly on the heels of corporate misbehavior, despite the David vs Goliath setup.

The majority of watchdogs publicly disclose investigative results, but differ widely in corporate engagement. At one end of the spectrum, some engage in month-long brand dialogue behind closed doors to advice on and push for changes. At the other end, some prefer to only publish investigations and leave advocacy to others. The development or growth in this world of watchdogs comes in three waves – the first in 1960-70s, the next in the 90s and the third after 2000 – and is interesting in itself from a historical and perspective, which I write about elsewhere.

Each of these three monitory approaches – private, public and civil society – have merits and flaws, but it is safe to say that none of them are currently meeting the bar for an adequate, systemic and global monitory model.

Credible monitory models: Lack of attention or lack of imagination?

From a decade in the corporate watchdog business, I vary from cynicism to pessimism over the lack of systemic models on approaching and preventing labour abuses in global supply chains. It is far from rocket science to interview factory workers in, say, Asia and connect the dots to Western brands, but discussions about systemic models are remarkably absent, though direly needed. There must be more viable solutions out there compared to status quo. There must be a way for the current law-developments to pay more attention to monitoring.

Below, I share some simplified monitory model ideas that might fill the cross-border monitory gap. In brackets, I state the key operator of each model:

#1: The auditor liability model (private sector)

#2: The multitude model (civil society)

#3: The monitory model (civil society legitimized by individual governments)

#4: The mandate model (civil society legitimized by multiple governments)

For sake of simplicity in my outline below of these monitory models, I focus on four key monitory dimensions: To be reliable, cross-border supply chain monitoring needs significant a) independency, b) authority, c) transparency and d) capacity. Other perspectives could be chosen, possibly informed by impact studies of national labour inspection systems.

The models share one premise: A credible supply chain monitoring model should recognize workers and their local groups or unions as part of the solution. No supply chain monitory model will work if those whom it wants to help are not meaningfully involved in oversight efforts.

Let us however begin by taking a look at the current state of affairs, status quo, through the lenses of these four monitory dimensions.

#0: Status quo (not really a model)

If no credible and somewhat systemic monitory model is found, the status quo will rule, business as usual. Companies will carry on flawed private audits and corporate watchdogs will carry on underfunded, undervalued and ad-hoc investigations. No doubt, some watchdogs will build legal capacity for court cases (some are already doing so), while some lawyer groups will build capacity to conduct supply chain investigations. Hands might be joined. Eventually, lawsuits will be filed and verdicts will hopefully make an example.

Status quo in terms of the four monitory dimensions: The private auditor approach has capacity and some authority but fails because it doesn’t take seriously its lack of independency and transparency. Civil society watchdogs are often quite transparent and operate independently (at least from corporate control and financing which is a good starting point in this context), but, contrary to private auditors, watchdog organizations have little authority and little capacity (though sometimes do have major impact) and cover only a fraction of multinationals and manufacturers needing oversight. However, private sector-based and civil society-based groups can operate cross-border, while borders effectively bar public sector officials from entering another jurisdiction.

#1: The auditor liability model

…considers private audit firms as key players. The model seeks to improve cross-border monitoring by improving the existing and widespread use of private auditors in global supply chains. The idea is to hold auditors (or their contracting brands) legally responsible and hence face penalties for distorted audits. Legal liability could take several forms according to the European Center for Constitutional and Human Rights, a proponent of the model:

• Contractual liability: When brands contract auditing firms, they can define quality standards for the audits. If brands are held legally liable for supply chain abuses, they might consider this as an incentive to emphasize quality definitions and auditor requirements, and even sue auditors in cases of faulty audits.
• Criminal liability: Governmental judicial systems can hold audit firms legally accountable for faulty audits, especially governments from the brand’s or the audit firm’s home country.
• Tort liability: Legislation allowing tort claims to be filed against audit firms due to personal injury among workers in audited factory is also an avenue for this model.

This model believes that the stronger legal liability, the better. However, with increased legal liability, brands and auditors will hardly disclose supplier relations or abuses voluntarily to the public, so legally required transparency is a premise, or an obvious addition, to this model. A proper move would be to amend EU regulation so import-export information and traceability of products is public accessible, Vice-President of the European Parliament and chair of its working group on responsible business conduct Heidi Hautala recently told me. In the US, such customs data is already available to the public.

To summarize, the belief is that the reliability of private audits could increase with increased authority and transparency, although the model still lacks independency.

Next, I focus only on civil society models as the private sector’s track record for adequately addressing supply chain abuses is far from convincing and the risk of corporate capture in private sector models is always omnipresent

#2: The multitude model

…considers civil society organizations as key players. The model seeks to improve cross-border monitoring by increasing the capacity and legitimacy of the current multitude of corporate watchdogs. In recent decades, such organizations have been a driving force behind the incremental developments in cross-border supply chain due diligence. Had no watchdogs disclosed widespread forced labour in Southern India’s apparel industry, corporate and consumer attention would still be nil. Had no watchdogs revealed systemic debt bondage in Malaysia’s manufacturing industries, corporate attention would still be nil. Unless challenged, few companies proactively tackle supply chain abuses.

Corporate watchdogs investigate, disclose and monitor working conditions, but always too little and often too late. Most are chronically underfunded (as opposed to the billions of dollars in the private auditor model #1), and most are chronically undervalued (by authorities, by industry and sometimes also by themselves) and relatively unknown to the public.

Developing this model should encompass considerations on recognition, capacity and quality assurance:

Recognition: Governments, and the private sector in the ideal world should recognize that such civil society organizations possess on-the-ground insights, apply impactful approaches and obtain credible documentation. Often on a much lower budget than audit firms. Also, corporate watchdogs should consider themselves as a much more important part of the solution than currently. Many watchdogs lobby for stronger legislation, penalties for brands, liability for auditors, transparency in supply chains, but accept status quo for their own monitory roles.

Capacity: Models for increased long-term funding of select watchdogs needs developing, which should allow for coverage of many more supply chains compared to status quo. Models could be national, sector-specific or much else. What if it was possible to channel a few percentages of the private sector’s total global auditor-payments into watchdog-payments instead?

Quality assurance: Governments should develop oversight mechanisms to control the controllers (the watchdogs) and of course disengage or replace if they don’t fulfill contractual requirements. Already now, Western governments have well-developed labour inspection systems that could provide oversight of watchdog organizations. Already now too, governments spend billions on public procurement (12% of GDP on average in OECD countries) and some countries such as Sweden are working seriously towards controlling the audit efforts of their suppliers that could be built on, contrary to the self-reporting paper-exercise-only in other countries.

To summarize, this model believes that independency is key. Monitory organizations should not receive payments from, or have contractual relations with, companies they monitor. The belief is that the adequacy of civil society monitoring organizations could increase due to an increased authority and capacity, while maintaining their independency and transparency.

#3: The monitory model

...considers civil society organizations as key players, like model #2. The model seeks to improve cross-border monitoring through a limited number of corporate watchdogs, contrary to the multitude in #2. The specific and specialized watchdogs could be new or experienced organizations, or a branch of these. Developing this model should focus on legitimacy, capacity and quality assurance:

Legitimacy: Could Western states contract specialized watchdogs to monitor supply chains abroad? Could e.g. Denmark’s government contract a Danish civil society organization to monitor workplace conditions of Danish companies’ foreign suppliers? Could such monitoring build on a formal agreement between states? Free Trade Agreements already require signatories to implement international human and labour rights conventions although the implementation has plenty of room for improvement. Could EU and Vietnam, or Germany and Malaysia bilaterally, or EU and ASEAN, etc., agree on a mandate for select German/Western civil society monitory organizations to operate in Malaysia/etc.? And the other way around, allowing Vietnamese/Asian monitory organizations to operate in Europe.

Capacity: Could specialized watchdogs (e.g. Denmark-based) join hands with its national (e.g. Danish) labour inspection system in some way? For training, quality-assurance, legitimacy or other reasons? Could specialized watchdogs (e.g. a select one or few in Sweden) join hands with like-minded watchdogs in other countries (e.g. in other Nordic countries)? Often, watchdogs cover the same suppliers, because their target brands source from the same foreign suppliers. Time and costs could be saved by cooperating. Models for increased long-term funding of select specialized watchdogs needs developing, which should allow for coverage of many more supply chains than currently. Models could be national, sector-specific or much else, cf model #2.

Quality assurance: See considerations in model #2.

To summarize, like model #2, this model believes that the adequacy of civil society monitory organizations could increase due to an increased authority and capacity, while maintaining their independency and transparency. Also, this model allows for closer relations between the few select Western civil society organizations and Western states to increase authority and capacity, maybe at the expense of some independency. However, the potential loss of independency differs from model #1 in that it relates to public sector and not private sector engagements.

On a very limited scale, the monitory dimensions of this model have parallels to the setup of the Worker Rights Consortium. It is a US-based labour rights monitory organization that assists around 150 American university and college members with enforcing binding labour standards adopted by the universities to protect workers abroad, who produce apparel with university logos for international brands with which the universities have entered license-agreements. It is governed by a board of Directors comprised of 1/3 representatives from universities, 1/3 representatives from a national student ngo and 1/3 labour rights experts.

#4: The mandate model

…considers one newly formed international civil society organization as key player. The model seeks to improve cross-border monitoring by establishing an independent, transparent and capable monitory organization that gets its mandate from an international treaty or convention like the International Committee of the Red Cross does from the Geneva Conventions. This organization should be civil society based and not part of intergovernmental organizations like the UN or its ILO agency to avoid politicization and compromization. The model components should cover:

• How to establish and govern such an international labour inspectorate, and how current civil society organizations, including unions, could affiliate with it if they can subscribe to its objective.
• How to agree on its specific mandate, including how to build on existing international conventions and protocols about trafficking, forced labour, labour rights, etc.
• How to ensure its operational freedom and protection, including a right of initiative, i.e. a right to not coordinate (at least in details) its activities with authorities in the territories it operates.

This model believes that authority and independency is key. It emphasizes one civil society organization as key player unlike model #2 and #3, although all sorts of affiliations are thinkable between this new body and current monitory organizations who share common basic principles and objectives.

Credible monitoring should prevent abuses and empower workers

After 20-30 years with increasing disclosures of abuses in cross-border supply chains, but absolutely no legislation to adequately address the problem, the current due diligence law development in Europe is a positive step towards filling the governance gap.

Legal sanctions against companies could reduce exploitation in supply chains, but we need to discuss how the law proposals in European states and the EU could take monitory mechanisms better into account, possibly along the lines of the multitude, monitory, mandate or auditor liability models I have outlined above, building on the decades of experience by corporate watchdogs as well as encompassing workers or worker groups properly in the oversight efforts.

Credible and systemic cross-border supply chain monitoring would serve a threefold purpose by:

1. Having a preventive effect on worker abuses by employers, and empowering worker groups involved in workplace monitory systems.
2. Increasing the pile of labour abuse evidence, which would inform the work of groups who are building lawsuits against companies covered by the new due diligence laws or sharing evidence with relevant authorities who have mandate to act, e.g. the American Customs and Border Protection agency.
3. Distributing more equally and fairly the monitory attention to all companies covered by the new laws. In a lawsuit paradigm, the few companies taken to court receive most of the attention, while the majority fly beneath the radar.

The current laws and proposals focus on supply chain human rights abuses, not labour abuses. Many abuses and violations of labour rights will not qualify for attention within this new wave of laws. Still, if properly implemented, these laws could help improve working conditions and (in)directly empower workers.

Now is a good time, and about time, to increase attention - and kick-start our imaginations - on how to adequately and systemically monitor cross-border supply chains for modern slavery and other abuses.

Peter Bengtsen is an investigative journalist and historian of ideas. He leads on-the-ground investigations into cross-border supply chains and has featured in The Guardian, The Observer, The Diplomat, Der Spiegel, Le Monde diplomatique. Next to this, he is affiliated with the Centre for studies of Cultures and Literatures of Slavery at the University of Aarhus and the Department of Philosophy and History of Ideas at the University of Aarhus.

Image: ILO via Flickr (CC BY-NC-ND 2.0)