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Why organizations must address the issue of forced labor
In this episode, Brenda Brockman Smith, Executive Assistant Commissioner for Trade, U.S. Customs and Border Protection, and Daniel Dreyfus, EY Global Customs Leader, share their insights on forced labor.
The numbers regarding forced labor around the world are staggering. In 2016, the International Labour Organization (ILO) estimated that there are approximately 25 million people trapped in situations of forced labor around the world. The pandemic introduces additional risks, increasing the potential for exploitation. Apart from being an obvious human rights violation, forced labor can drastically undermine a brand and reduce its credibility, ultimately affecting shareholder value. Additionally, it can have a tremendous impact throughout the entire spectrum relative to supply chains, especially in the large and complex ones. Companies around the world are, therefore, looking for effective ways to ensure the integrity of their supply chains from threats such as forced labor.
Key takeaways:
US customs authorities are sending the economic message that goods made with forced labor are not acceptable in the US.
Consumers are becoming more involved in human rights issues and are demanding to know where products are from and how they were made.
Legislations regarding forced labor will need to evolve and become more effective.
Technology is going to be part of the answer to greatly reduce forced labor.
Data can be used to recognize the changes in trends that are indicative of a lack of compliance with a regulatory framework.
For your convenience, full text transcript of this podcast is also available.
Justine Greene
Hello and welcome to a brand new podcast series from EY Global Services, I’m Justine Green and with Global Trade experiencing such uncertain times, we’ll be looking at how organizations can respond to survive and grow. Each episode will be joined by guests to share their opinion and insight on our theme. Our focus this time is forced labor and its impact on supply chains. Joining me digitally from Washington, D.C. is Brenda Brockman Smith executive assistant commissioner for the office of trade U.S. customs and border protection. Hello Brenda.
Brenda Brockman Smith
Hello Justine.
Greene
And also from the Washington area, Dan Dreyfus, EY Global Trade and customs leader. Hello Dan.
Dan Dreyfus
Hello Justine, Hello Brenda, great to be with you.
Greene
Brenda, can you give us an idea of the scale of forced labor. Is it becoming more or less of a problem?
Smith
Justine, the, the numbers around forced labor around the world are staggering. In 2016 the International Labour Organization (ILO) estimated that there are approximately 25 million people trapped in situations of forced labor around the world. 58 percent of those individuals are women and girls and nearly 10 million of those people are children. The majority of the forced labor victims work in the private sector and industries like agriculture, mining and construction and they are a serious human rights abuse but also, directly threaten the economy by putting law abiding businesses in competition with entities that use forced labor to lower their production cost.
Greene
So, just summarize for us, what does the U.S. customs and border protection do?
Smith
Our efforts focused at forced labor are actually part of our larger homeland security and economic security mission. We are the agency in the United States that is responsible for securing the homeland and standing on the borders, regulating the flow of people and goods into the United States.
Greene
Now Dan, what sort of impact does forced labor have on supply chains?
Dreyfus
I think traditionally, the production of the brand, ultimately the value, the brand in the eyes of consumers and investors has really been a concern. The supplier contracts and N-tier supplier flow down requirements are an issue, so forced labor can really have an impact throughout that entire spectrum and continuum relative to supply chains especially in the large and complex ones. Forced labor can really undermine the brand and it reduces credibility, ultimately it reduces shareholder value and sad to say but ultimately that’s the big motivator for companies as a good of a corporate citizen as it everybody wants to be. I think right now in particular we’re living obviously such a strange time and a poignant time, the pandemic introduces even additional risks relative to forced labor, certainly increases the potential for exploitation so companies that have had pressures financially might hire or undertake practices they might not have otherwise. I’m not saying they will, but it offers an opportunity, especially in places where vigilance may not be what it is every where else. It reduces the very diligence itself in terms of responding to potential identified forced-labor issues, whether that’s restraints in terms of in person inspections, or checks that are not allowed during a pandemic or a lock down and then ultimately it also potentially increases exposure to already vulnerable demographics particularly maybe children and women and when we think about the pressures that households around the world have to recuperate and even generate income in these very trying times that offers opportunities for exploitation. All of those have significant potential impacts on supply chains.
Greene
So Brenda, how are U.S. customs and border protection working with other countries and organizations to help combat forced labor?
Smith
Customs and border protection has worked directly with our customs colleagues in the UK and in Australia, but we have also begun to work with colleagues in Canada and Mexico under the newly implemented US-Mexico-Canada agreement which replaced the NAFTA or the North American Free Trade Agreement. We believe that by using our customs authorities to get visibility into global supply chains but also to send the economic message that goods made with forced labor are not acceptable in the US and spreading that type of authority to other countries we will be able send a really strong message that our companies need to face a level playing field and that we need to protect those vulnerable demographics that Dan referred to.
Greene
Well many people around the world are becoming more aware of how the products they buy are produced, the question for both of you, what impact to consumer expectations having?
Smith
So Dan, I’ll go ahead and start. We, I’ve been just overwhelmed by the increasing awareness of the buying community. Consumers are asking a lot of questions about where products come from, in some cases it’s because they’re concerned about environmental impact and climate change in other cases such as this one, it’s because they’re concerned about human rights and we’re really encouraged by the engagement of consumers who are marrying their buying power with the authorities of the US government to send the message that unfair or forced labor is unacceptable.
Dreyfus
To build off what Brenda just mentioned, really the sophistication that consumers are acquiring so their expectations are likely to continue into get more sophisticated, they’re better informed, they’re demanding and likely even more prone to ask for information. We’ve seen that with fair trade and non-GMO production and labeling requirements and requests obviously and to Brenda’s point, obviously country of origin and providence of the product, how it was produced, everything has become really central to it as consumers really become better informed and ultimately are driving change.
Greene
Ok, well coming next what can organizations do to respond and improve the situation?
Greene
So Dan, how much more does the private sector need to pay attention to the problem of forced labor?
Dreyfus
The majority of companies especially importers, and it’s probably not a fair characterization but I’ll put it that way, have an interest in ensuring the integrity of their supply chains from all threats including forced labor. That’s a perspective that I think most going concerns are going to have. Their reputations and abilities to grow, if not continue as going concerns really depend on paying attention and close attention going forward.
Greene
Brenda, with many businesses left reeling from the COVID pandemic, could there be consequences if their investments in social compliance are compromised?
Smith
I think banking the decision to invest in social compliance for many companies becomes harder to sustain under such economic pressure, but I think the risk of not continuing that investment and not continuing the commitment to social compliance following the rules, supporting workers in compliance with various regulatory regimes is really critical.
Greene
And Brenda talking then enforcement, what more can be done? I understand the U.S. customs and border protection has taken its first penalty.
Smith
We have. We’re very pleased it was a long term investigation that lead to a penalty on some Stevia, the natural sweetener that were being made produced by prison labor. We also were able to issue what is known as a finding which is a harder hitting enforcement action following on a withhold release order. The message really that we are trying to convey with that penalty and with that finding is that we will not hesitate to continue our investigations despite a very active set of allegations under a pandemic response and that there are serious costs to pay whether it is monetary cost as goods aren’t allowed into the US or brand and reputational cost that result from being called out in a CBP enforcement action.
Greene
And Dan the UK modern slavery act oblige big businesses to report what they’re doing to tackle modern slavery in their supply chains but 40 percent didn’t comply with the act so are modern slavery laws around the world too ineffective?
Dreyfus
So the short answer is yes but and I think that this is really a highly complex area as you’ve heard in the points that Brenda has brought up and that the discussion here. Ultimately it’s not an issue that’s gonna be resolved through the legislation alone and I think legislation will need to evolve around the world so despite forced labor being as an issue that’s been around for many many many years a long long long time, country specific and internal directives are sometimes catching up, many countries don’t have them yet or don’t have the means to enforce them the way they need to so maybe they’re ineffective. I think the sophistication of global supply chains really does make it challenging for both countries and companies to understand everything that happens along so there could be unintended consequences of providing legislation that may be viewed as too strict because legislation is different in each country and that application is something that supply chains need to account for along the way so it could really have unintended consequences and impacts on the supply chain. Legislation does need to evolve to have more of an incentive for companies to comply that’s clearly a commercial perspective that may not be something that everybody shares, but also for companies to really help drive solutions to force labor, that’s something that is really incumbent on the commercial sector to help solve and drive out altogether.
Greene
We’ve seen many organizations this year accelerating their use of technology, let’s get both your thoughts on how technology and tools like AI could help identify force labor in the supply chain. Brenda.
Smith
What we really need to look at is how can we use the data to recognize when trends and patterns are changing in a way that indicates a lack of compliance with a regulatory framework, including potential labor abuses or forced-labor indicators. We do our investigations for forced labor around the eleven ILO indicators of forced labor which can really lend itself to providing sort of a quantitative framework for assessing the trade data that we already receive. We have not yet started to apply our initial capabilities for AI to the forced labor challenge but we are using a risk based methodology to do our investigations and our hope is that in the future we will be able to fairly directly use AI tools and algorithms to detect where there is a high risk of forced labor.
Greene
And Dan.
Dreyfus
There is no one set of tools that companies use so there are some important ones that are coming to the fore but more importantly there’s no single system that these companies use, either within their own supply chains or across that can really be more acutely addressed or perhaps enhanced through a single AI application. I think we also have to account for the importance of social media and how AI can interact with social media to help identify things that are not necessarily items that a company is going to find out on its own or a country, this would be social sentiment, this could be whistle blower types of postings that the don’t make it through official channels, etc. that need to be considered.
Greene
Alright well to round off this podcast we’ll look at some potential outcomes next.
Greene
Well, with global trade experiencing volatile times, what can we as members of the public do to support action against forced labor? Brenda, your feelings on this.
Smith
I think two things, Justine, really need to be a focus, one is the continued prioritization by governments around the world to ensure not only that they are holding importers accountable but that in fact they support fair labor practices in their own countries. The second piece is really consumer action, both Dan and I have referred a number of times to the opportunities that consumers have to ask questions. There’s a saying here in the US about an educated consumer being the best customer. The consumers should directly ask the brands what the circumstances are around the production of the goods that they like. If they don’t like the responses they get, they can then make an informed decision on what businesses to support and essentially use their wallets to vote.
Justine
Now Dan, what advice do you have for companies to help identify the issues that we’ve been discussing and then become more socially responsible.
Dreyfus
So sharing intelligence with industry partners, I think once upon a time competitive intelligence, and it still is for sensitive data, was off limits to share with others, but helping supply chain participants understand what they find in a given place can really help undermining the abilities for forced labor to become an endemic issue in certain places, it could even really kind of take away the base that draws to it, cumbersome companies to it in a way that we haven’t seen before. Continued innovation is a huge piece, we talked a little bit about technology, so investing in technology and the right technologies, seeking automated solutions that help understanding local issues, interpreting local laws, and country specific considerations and legislation in a way that really helps drive decision making and the supply chain is gonna be a very important thing that companies will need to do.
Greene
And finally a question for you both, what does the picture look like for the next five to ten years in relation to forced labor in the supply chains?
Smith
Justine, I think if the picture from the last five years is anything like what we can expect going forward, I think what we’ll see is not only US customs and border protection continuing to increase its investigations and enforcement actions taken on forced labor. I think many of us recognize that trade really is a force for good, it can lift people up, it can raise living standards but in order to do that, those vulnerable populations can not be taken advantage of so that the rest of world benefits. We also are likely to see additional testing technologies that will help agencies and organizations like CBP establish the country of origin where goods actually came from, so we know that they were produced under clean conditions. We’re going to see a very different landscape ten years from now, or at least I hope we see a very different landscape ten years from now.
Greene
And Dan.
Dreyfus
I hope that there are more examples like the USMCA in terms of the inclusion of provisions that ultimately address forced labor that become a bit more prevalent as countries and regions, and blocks look to both reinvigorate, reestablish or even perhaps negotiate new types of agreements. I think ultimately technology is going to be part of the answer in what happens to whether we eradicate it, greatly reduce it in the next five to ten years or what we do, I’m not exactly sure what that outcome is going to look like but there’s an opportunity to really rend us under a lot of the practices that lead to forced labor and some of the conditions. I think governments and companies need to be vigilant of the use of technology against them which is also a big focus of many customs and administrations and trying to understand how bad actors are going to leverage technology whether it’s either disinformation or providing false information or something that otherwise tries to mask issues like forced labor. I hope that the ultimately, what happens though is that there’s a greater corporate conscience and urgency around really addressing some of these issues and helping companies at large side to side whether sharing information, whether it’s really helping to expose issues that are happening and other supply chains because it is counter to competitiveness ultimately and undermines the credibility as well as the integrity of supply chains. I do hope that we see great strides in those regards and then obviously the role of multinational organizations such as the World Customs Organization, the World Trade Organization, the ILO and others that Brenda’s already mentioned are going to be critical and hope that they continue to evolve and really help carry the message forward as well as the ability to counteract forced labor as a major issue in impacting global movement of trade.
Greene
Well that rounds off this addition of our podcast. I do hope you found our conversation interesting and valuable. Thanks to both our guests for sharing their insights on this important topic. Brenda, thank you for joining us.
Smith
It was my pleasure Justine, nice talking to you.
Greene
And Dan, thank you to you too.
Dreyfus
Thank you very much, my pleasure, good to be here, thank you.
Greene
Next time we’ll continue to explore global trade and we’ll be joined by more guests. Also do subscribe to this series so you won’t miss an episode. From me, Justine Green, Brenda and Dan, it’s thanks for listening, goodbye.
