Global Supply Chains and Labor Exploitation Risk during the COVID-19 Crisis   

As the world is battling the COVID-19 pandemic with enforced quarantines, manufacturing lockdowns and restrictions of movement, these measures are having an immense impact on workers across global supply chains. The International Labor Organization (ILO) estimates that the COVID-19 pandemic will eliminate about 195 million full-time jobs,^[1]Nearly half of global workforce risk losing livelihoods in pandemic – ILO especially among informal sectors and migrant workers, creating a population of desperate, unemployed workers competing for limited employment opportunities. This scenario increases the vulnerability to labor exploitation, including forced labor,^[2]Disruption to Global Supply Chains A Boon for Traffickers and as the COVID-19 crisis continues to evolve it is essential to elevate due diligence practices in procurement processes. This article attempts to highlight the scope of forced labor risks in global supply chains, the implications of COVID-19, and outline some basic due diligence measures for procurement practitioners to consider, including listing examples of available resources, training opportunities, reports, and tools.

 The UN Special Rapporteur has pointed out that while the COVID-19 pandemic has affected billions, the impact is much more severe for those in the informal economy, who due to the COVID-19 pandemic, risk being “pushed into exploitative jobs that are tantamount to slavery”[mfn]UN rights expert urges States to step-up anti-slavery efforts to protect most vulnerable during COVID-19[/mfn]. Unfortunately, the same measures that help governments “even the curve”, also lower the safeguards against labor exploitation, as on-site police and labor inspections are reduced, and with offices closed, the capacity of governments and NGOs to monitor is diminishediv. In this environment procurement practitioners are often unable to even perform standard on-site quality assurance of manufactured goods due to COVID-19 access restrictions, yet alone conduct meaningful labor or social audits at production facilities. 

When “the ship is sinking,” you no longer question the context in which the life jackets were manufactured. 

The COVID19 crisis and the surge in global demand for medical equipment and PPE, has further amplify the pervasiveness of labor violations on a global scale. The media has already reported on a surge in demand for cheap labor from manufacturers in medical chains, targeting migrant workersvi, and cases of workers locked up in factories to fill orders for masksvii. Other places migrant workers in crowded dorms and buses, stand shoulder to shoulder on 12-hour shifts, making physical distancing impossibleviii. Manufacturers have reportedly been underpaying workers and having them work seven days a week on a “voluntary basis”ix, to meet demand. Or are unwilling to carry the extra safety costs are shutting down during the day to avoid police scrutiny, and instead work during the night. Others are working in unsafe conditions, without proper pay, and are often subjected to verbal and physical abuse from their employers. Even governments may be tempted to relax import restrictions on critical medical equipment and PPE during the crisis, despite concerns with forced laborx.  

 

With the dramatic increase in unemployment, especially for low wage and informal sector workers, the balance of power has shifted toward employers, leading to lower wages and declining working conditions.  

Once the lock-down restrictions are lifted and economic production resumes, there will be even higher pressure to increase production rates to cover the back-log, and the incentives for companies to scale up production may lead to further exploitation, and unauthorized subcontracting to unethical producers. Those who work in sectors, where labor exploitation is frequent, may also face further exploitation because of the need to lower production costs due to economic difficulties, as well as due to less controls by the authoritiesxi. 

“Few of us may be aware that there are other workers, hidden in the depths of the supply chain, who may be toiling in slave-like conditions to make the supplies that enable these heroes to continue their work. Herein lies an ethical dilemma which we must confront”.xii  

As stated by the UN Sectary General, the pandemic has become far more than a public health emergency. It is an economic crisis, a social crisis and becoming a human rights crisisxiii. The most vulnerable, especially informal sector and migrant workers who often have no access to COVID-19 testing, health care, sick leave or the physical or financial ability to isolate. They are also facing the brunt of layoffs, because of the lockdowns and economic downturn, most often without any social protectionsxiv. Those without alternatives are vulnerable to labor exploitation, having no choice but to accept any job regardless of the conditions, or fall prey to loan sharks promising low interest loans increasing the possibility of debt-bondagexv. In this historic downturn, procurement practitioners need to be aware of the increased risk of labor exploitation and apply practices to detect, mitigate and remedy against such violations. 

 

Scale of the modern slavery problem in supply chains prior to the COVID -19 Pandemic 

 

Forced labor, as set out in the ILO Forced Labor Convention, refers to “all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily”xvi. A list of 11 indicators has been developed for defining and identifying forced labor, including deceptive recruitment, passport retention, debt bondage, excessive overtime, and employers taking advantage of workers’ vulnerable positions by intimidation, threats and morexvii. 

 

ILO estimates that 40.3 million people were in slavery worldwide in 2016, 24.9 million were trapped in forced labor, of which 16 million were in the private economy. Sadly, children represented 18 per cent of those subjected to forced labor exploitationxviii. To put the problem in context, during the past five years, 89 million people in the world have experienced some form of modern slavery for periods of time ranging from a few days to the whole five years.  

 

Most people enduring forced labor perform simple, low skilled, low paid, non-technological work, in sectors frequently using of agents or other middlemen to recruit workers, like agriculture, mining, textile manufacturing, leather work, which feeds into the global supply chains by taking advantage of the low-cost outputs. Based on cases of reported forced labor exploitationxix, the industry sectors that are especially vulnerable to forced labor, include: 

Highest prevalence	Industry by International Standard Industrial Classification
1	Construction industry
2	Manufacturing (including Computers, Mobile phones, Medical PPE)
3	Agricultural, forestry and fishing
4	Accommodation and food service activities (including Hotels, Conferencing, Catering)
5	Wholesale and trade (including shipping and freight forwarding)
6	Personal Services
7	Mining and quarrying

 

The Global Slavery Index 2018xx estimates the prevalence of modern slavery across the world and highlights exposure in several key manufacturing hubs in the global economy. The phenomenon of modern slavery is also present in economies like the UK, USA, Australia, and Canadaxxi. 

 

Overview of Estimated Modern Slavery Prevalence 2018 

Source: Global Slavery Index 2018xxii.  

 

Emerging legislation and Due Diligence Guidance 

 

Prior to the COVID-19 crisis, there was a firming global commitment on labor regulations and anti-slavery compliance. Regulations, such as the California Transparency in Supply Chains Act 2012, the US FAR (Federal Acquisition Regulation) Human Trafficking Rules (2015), US Trade Facilitation and Trade Enforcement Act, Section 910 (2016), UK Modern Slavery Act 2015, and latest the Australian Anti-Slavery Act 2018, are examples of an increased willingness by national governments to regulate in favor of “doing the right thing”. In April 2020, the European Commission also announced plans to develop a legislative proposal by 2021, that will require EU companies to conduct mandatory human rights and environmental due diligence on their operations and global supply chainsxxiii. 

 

This has implications for companies managing global supply chains, and in extension the procurement function. Procurement entities, and suppliers, are being tasked to proactively identify the human rights impacts of their procurement operations, and assess the effectiveness of their compliance programs and due diligence procedures.  

 

Walking the Talk – some first steps to help mitigate forced labor risks in your portfolio 

 

State your position as a company or organization: Organizational commitment is essential when embedding human rights due diligence and needs to involve the whole organization. Establish a policy framework, which clearly communicates to suppliers, your commitment, expectations, and reliance on their cooperation regarding preventing and mitigating forced labor.  

Ensure awareness of the issue and organize training: Conduct training for procurement practitioners to educate and raise awareness of forced labor issues, and what to look out for when designing tender criteria, evaluating bids, formulating contracts and otherwise engaging with suppliers. Training and collaboration should be extended to suppliers, so they understand your expectations.  

 

Know your supply chain by adopting a risk-based approach: Procurement practitioners can assess forced labor exposure using a risk-based approach, targeting spend categories and source locations that represent the highest risk of forced labor. For example, identifying procurement spend across high risk categories like construction, hotel services, cleaning, catering, security services, and mapping them according to country-specific forced labor ratings, highlights procurement segments that are more exposed and should be subject to enhanced due diligence. For more complex supply chains for goods, a multi-tier supply chain mapping exercise may be required.  

 

The next level of due diligence measures may include tools like supplier self-questionnaires, checking for controversy risks in the media, or even conducting a factory or social audit. Procurement practitioners can benefit from partnering with civil society organizations monitoring forced labor cases, and share supplier audits and lessons learned.  

 

Monitor effectiveness of your efforts – Report and communicate: Reporting on effectiveness of due diligence measures demonstrates transparency and willingness to improve. A simple way is to define and report on effectiveness of steps taken through a series of performance indicators and regular reporting schedules.  

 

As the international community moves forward towards the 2030 SDG Agenda, there is a renewed emphasis on supply chain management and the implementation of SDG 12: “Ensuring sustainable consumption and production patterns”. In addition, target 8.7 commits states to take immediate and effective measures to eradicate forced labor, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labor. Procurement practitioners can play a critical role in this effort and engage proactively to prevent a new surge of labor exploitation and modern slavery in the aftermath of the COVID-19 crisis.  

 

Helpful resources, including training, platforms, and mapping tools. 

 

In response to the global spread of COVID-19, the United Nations Development Programme (UNDP) has designed a simple and accessible tool, the Human Rights Due Diligence and COVID-19: Rapid Self-Assessment for Business (C19 Rapid Self-Assessment), to help businesses consider and manage the human rights impacts of their operations. This non-exhaustive list of potential actions allows for rapid, but continuous reflection on the human rights risks and impacts common to many industries. You can download the original version in PDF format in multiple languages on the UNDP’s website. For more information please go to: Human Rights Due Diligence and COVID-19: Rapid Self-Assessment for Business. 

 

On procurement, the Danish Institute of Human Rights also runs a project on Human Rights and Procurement, with a very useful and practical Toolkit on Human Rights for Procurement Policy Makers and Practitioners (March 2020).   

 

Examples of other COVID-19 related resources: 

• Verite provides a helpful Guiding Principles for Responsible Businesses for the COVID-19 Pandemic and a guidance note on COVID-19 and Vulnerability to Human Trafficking for Forced Labor. 

Examples of available Online Training Resources: 

• The London Universities Purchasing Consortium (LUPC), has developed a free online eLearning suite on Protecting Human Rights in the Supply Chain, developed especially for public procurement practitioners.  

 

Examples of available Risk Mapping Tools: 

• The WalkFree, Global Slavery Index, highlights the prevalence estimates of people living in modern slavery country-by-country in 2018. The national estimates are calculated using country-level risk factors of modern slavery, including a Vulnerability Model and a Government Responds Model.  
• The CSR Risk Check is a useful CSR risk assessment tool, giving you an overview of the issues, you may encounter in your organization or company, including earlier on in the production chain. The CSR Risk Check was developed by MVO Nederland and funded by the Dutch Ministry of Foreign Affairs.  
• The RightsDD Platform is a free and easy-to-use risk management tool built to help companies assess their own business operations for modern slavery risks.  
• The US Trafficking in Persons Report (2019), provides a detailed account of Human Trafficking incidents at country level on an annual basis.  

https://www.perkinscoie.com/images/content/2/3/231431/INSIGHT-There-Is-No-Social-Distance-in-Supply-Chains-Tainted-by.pdfExamples of Anti- Human Trafficking & Slavery initiatives: 

• The Business, Human Rights and the Environment Research Group (BHRE) undertakes research on the impact of commercial activities and business working methods on the enjoyment of human rights and the environment. 
• Know the Chain is a resource for businesses and investors who need to understand and address forced labor abuses within their supply chains. The organization benchmarks current corporate practices and provides practical resources that inform investor decisions and enable companies to comply with legal obligations while operating more transparently and responsibly. 
• Human Trafficking Risk Template (HTRT) is a free open-source industry standard template used to assist companies in their efforts to comply with major human trafficking and modern slavery regulations and improve their supply chain-related public disclosures. 
• OSCE on supply chain initiatives to prevent trafficking, notably around institutional procurement by states. Conference report September 2019: and May 2019. 
• Slavery Footprint –The Slavery Footprint platform, combines product data with consumer purchase data to provide footprints to close to 30 million people worldwide. They also created an online supply chain transparency tool, called FRDM. 

• Sedex is a global not-for-profit membership organization and a collaborative platform for sharing responsible sourcing data on supply chains.  
• Verité Forced Labor Commodity Atlas – Verité has developed a so-called Commodity Atlas, which provides up-to-date research and information on forced labor related to various commodities (i.e. gold, cotton, sugar, palm oil, etc.). A recent report is available here: Strengthening Protections against Trafficking in Persons in Federal and Corporate Supply Chains Research on Risk in 43 Commodities Worldwide.  
• The Ethical Trading Initiative (ETI) is a leading alliance of companies, trade unions and NGOs that promotes respect for workers’ rights around the globe.