The writer is founder and CEO of supply chain risk management company FRDM.

Back in 2012, I was working in partnership with the White House and US State Department to drive consumer awareness of slavery in supply chains. We launched an app called Slavery Footprint which tells people how many slaves are required to support their lifestyle. The app went viral, reaching hundreds of millions of consumers worldwide. The White House responded to consumer outcry by closing a loophole in the Smoot-Hawley Tariff Act of 1930 which prohibited imports made by slaves or children but still allowed those goods to be imported if they couldn't be sufficiently provided domestically. 

This set a legal precedent that has helped the passage of several supply chain due diligence laws. In 2022, US Congress used the closing of this loophole to pass the Uyghur Forced Labor Prevention Act (UFLPA), which is aimed at addressing labour exploitation of Muslim Uyghurs in Xinjiang, China. UFLPA imposes a high standard: it prohibits outright the importation of goods produced or manufactured in Xinjiang, unless the importer can demonstrate they were not produced using forced labour. US Customs and Border Protection is taking a strict approach to enforcement and is actively mapping importers’ supply chains for any connection — direct or indirect — to Xinjiang. 

In less than two years, it has detained goods valued at more than $3bn — ranging from work gloves to solar panels— with importers being required to prove that no forced labor was used anywhere in the supply chain. The government’s latest data update in April shows that $667m worth of those goods had been denied entry and another $677m was still being reviewed.  

Different tactics

In April, the EU parliament passed its own ban on goods made with forced labour. Both UFLPA and the EU ban share the common goal of combating human rights abuses in supply chains, and require importers to send back or destroy goods that cannot prove a clean supply chain. But they differ in scope and focus, and the EU’s rules could set a new global standard in tackling forced labour. 

Both require companies to employ enhanced due diligence to protect delivery of shipments. That means ensuring the goods they are importing are not being produced with forced labour anywhere in the supply chain. This requirement has driven companies to begin overhauling their supply chain risk management systems, including the addition of software to identify and mitigate hidden risks deep in their supply chains.

But the EU ban goes further than UFLPA in several ways. The US legislation targets forced labour specifically in China, whereas the EU ban has a global scope. Industries and countries known for their prevalence of forced labor will be targeted. This could include products made with palm oil from Malaysia or cosmetics produced with mica from India. Since forced and child labour is usually found at the primary extractives level of production, deeper analysis down to the commodity level of these supply chains will be required. 

Another difference is that the EU can impose financial penalties for companies found to be in violation of the prohibition on goods made with forced labour, similar to the penalties in Germany’s Supply Chain Act. This creates an additional severity not reflected in the UFLPA, which simply refuses the entry of goods that violate the law.

More on ESG in developing countries:

• Supply chain ESG laws face uphill battle
• We must prove that FDI empowers women
• The Laotian PPP transforming the lives of rural women

New normal

The EU’s forced labour ban is just the latest in a wave of supply chain regulations. Each supply chain due diligence law passed in the last five years has increased in severity and reporting requirements. These laws make mapping risk in supply chains a new standard operating procedure. But over 90% of companies have never done so.

A 2021 global study by Deloitte found that less than 6% of companies have visibility beyond their tier-one suppliers. Retooling supply chain risk management systems requires investments in new solutions like artificial intelligence-powered risk mapping software. While new requirements lead to new costs, there is growing evidence that investment in responsible sourcing has the potential to add to companies’ shareholder value. Responsible supply chains are the new normal, and the EU’s ban is now the gold standard that other countries will be looking to.

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