Governments across the world are committing to eliminating forced labor and other social and environmental abuses from the supply chain. In recent years, Germany, France, the U.K., and The Netherlands have all passed acts mandating supply chain due diligence, and other countries have introduced similar legislation. While the specifics and strength of each law vary, collectively they’re part of a decisive global push for a more responsible supply chain. With millions of people around the world working in unsafe conditions and heightened concerns about water pollution and other environmental abuses, the need for these laws is clear.
This summer the United States enacted its monumental supply chain due diligence law the Uyghur Forced Labor Prevention Act, which empowers U.S. Customs and Border Patrol to seize any imported merchandise goods suspected of containing forced labor. Canada, which had been criticized for being slow to respond to forced labor in the supply chain, has proposed its own due diligence law which could go into effect as early as next year.
Meanwhile, the European Union is moving closer to its own sweeping supply chain law. Proposed earlier this year, the Corporate Sustainability Due Diligence Directive (CSDD) would require European companies with more than 500 employees to work to eliminate environmental abuses and human rights violations from their supply chains. As the EU’s Justice Commissioner Dadier Reynders remarked when he introduced the draft legislation, “only companies that do not harm the environment and fully respect human rights should operate in the EU.” If adopted, the EU law could go into effect as soon as 2024.
To comply with these laws, enterprises need to begin mapping their suppliers to make sure that no forced labor is involved at any link in the supply chain. “If you’re not yet convinced that now is the time to map out your supply chain and get a due diligence process into place, you should be,” commented Compliance Podcast Network host Gwen Hassan. “Now is the time to get ahead before you’re caught flat-footed on this.”
To give businesses a sense of the scope of recent regulations that could impact their sourcing operations, here is a list of the global supply chain laws that are either in effect or could pass soon.
Status: In effect since June 2022
The UFLPA bans the importation of goods or materials made wholly or partly in China’s Xinjiang region. U.S. Customs & Border Protection has the power to detain and seize goods and impose fines unless retailers can produce “clear and convincing evidence” that no forced labor at any point in the supply chain was involved in producing any goods.
Enforcement: U.S. Customs and Border Protection is responsible for enforcing the law, and the agency has indicated it is a top priority – so much so that its budget is increasing to cover enforcement. Any imported goods suspected of using forced labor are subject to a withhold release order. Importers have 30 days to respond to rebut the presumption that challenged goods were made with forced labor, otherwise those goods will be sent back or destroyed.
This sweeping New York law would require all fashion companies with global revenues over $100 million to disclose their environmental and social due diligence policies and processes. Fashion companies would have to make a good-faith effort to make at least 50% of their supply chains, with particular focus on suppliers associated with higher social and environmental risks. Companies would also be required to create regular reports outlining their sustainability efforts.
Enforcement: Failure to comply could result in penalties from the New York Attorney General. The current proposal allows companies a three-month window to remedy issues identified by the AG. Fines could be up to 2% of a company’s annual revenues.
Status: In effect since 2015
In 2015, the U.K. became the first country to require large businesses to report on their initiatives to eliminate modern slavery from their supply chains. The law, which has inspired similar acts in other countries, requires businesses to publish annual statements detailing their efforts.
Enforcement: Although there are no criminal sanctions for failing to comply with the law’s reporting requirements, the government can file injunctions to force operations to publish statements on their efforts.
Status: In effect since 2019
Modeled after the U.K. act of the same name, Australia’s Modern Slavery Act requires entities to report on forced-labor risks in their supply chain and their annual efforts to reduce them. Currently the act applies to businesses with a minimum annual consolidated revenue of $100 million.
Enforcement: The law imposes no penalties, but there have been proposals to toughen the law and extend it to businesses that report under $100 in annual consolidated revenue.
Status: Pending, nearing final approval
In response to growing consumer concerns and criticisms that the country has been slow to respond to modern slavery, Canada’s Senate is moving forward with its own proposed supply chain reforms, which could go into effect as soon as 2023. The law would require businesses to prepare annual reports on their efforts to prevent forced labor and child labor in goods imported to Canada. The report must highlight risks the entities have identified in their supply chain, and it must be distributed to the entities’ shareholders. The reports will be made available to the public in an online registry.
Enforcement: Businesses that do not comply with requirements would be subject to fines of up to $250,000.
Status: In effect since 2017
France became one of the first countries to pass a supply chain responsibility law in 2017. The Duty of Vigilance law (Loi de Vigilance) requires large companies to create due diligence plans that identify and map the social and environmental risks within their businesses as well as their supply chains, then develop risk mitigation measures.
Enforcement: Courts can hold companies liable for damages that result from their failure to properly implement an adequate risk-mitigation plan. Companies are also subject to civil penalties.
Status: Effective starting in 2023
Germany’s due diligence law, formally titled the Act on Corporate Due Diligence Obligations in Supply Chains (or Lieferkettensorgfaltspflichtengesetz), requires all companies operating in Germany with 3,000 or more employees to implement a supplier risk management system starting in 2023. In 2024, the act will be expanded to apply to companies with 1,000 or more employees. Companies must establish preventative measures to weed out child labor, poor working conditions and certain environmental abuses at all levels of their supply chain.
Enforcement: Companies found in violation could be fined up to 2% of their annual revenues and be excluded from public tenders for up to three years.
Status: Adopted; exact date of implementation TBD
Adopted in 2019, this Dutch law will require companies to develop plans to eliminate child labor from their supply chains. The act imposes substantial administrative fines and criminal sanctions for non-compliance. The implementation of the law has been pushed back to give companies time to investigate their supply chains, but once it goes into effect penalties will be heavy – and they’ll apply to all Dutch companies, regardless of size.
Enforcement: In addition to heavy fines, the law allows for criminal sanctions and even imprisonment for non-compliance.
Status: Passed, implementation TBD
Passed in 2021, this Norwegian act requires large enterprises to follow OECD Guidelines for Multinational Enterprises and to report on their due diligence efforts. Individuals may request information from these enterprises about how they are responding to human rights risks.
Enforcement: Companies may be fined for violating the act.
Status: Non-legally binding guidelines
While not a law, the Japanese government has published guidelines for companies on how to prevent human rights violations. The guidelines urge enterprises to exercise due diligence and establish human rights policies based on the United Nations Guiding Principles on Business and Human Rights.
Enforcement: These guidelines are not legally binding.
More than ever, businesses need transparency into their extended supply chain, and that requires having the right technology in place. TradeBeyond creates crucial visibility for brands and retailers. The system’s traceability tools allow companies to map their supply chains to the Nth tier, while its responsible sourcing platform provides a complete solution to manage all suppliers – from vendors to factories to raw material providers – and to ensure their compliance with environmental, social and governance (ESG) requirements.
TradeBeyond’s supplier relationship management platform CBX Partner mitigates the risk of compliance violations by monitoring suppliers’ audit and inspection statuses, automatically preventing merchandisers from placing orders with non-compliant suppliers. At every step, TradeBeyond ensures your company is living up to its environmental and social standards.
To learn more about how TradeBeyond can help your business stay ahead of tightening global regulations, contact us today.
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