National – Supply Chain Transparency

The pandemic has shattered many things, and people. It broke supply chains – the terribly complex international networks of suppliers and producers that make the global marketplace work.

The result: rampant inflation, product shortages and panicked multinationals rushing to bolster their supply chains. Second result: this scramble to rebuild supply chains can weaken the ability (or the resolve) of multinationals to ensure that their suppliers are not selling them products contaminated with child labor or forced labor.

And that, according to a new report on legislative approaches to child labor and forced labor in supply chains, means Canada must get its act together now, not later, on legislation to purge supply chains. such human rights violations before they become the system.

“… major supply chain disruptions caused by climate change and the COVID-19 pandemic are not only responsible for slowing the economic recovery, but [are] also weakening the ability of companies to ensure that their supply chains are not supported by child labor or forced labor,” the report — Supply Chains Transparency and Due Diligence Legislation to Prevent Child and Forced Labor — compiled by the International Center for Criminal Law Reform and Criminal Justice Policy, and supported by the CBA Law for the Future Fund.

Beyond narrow import bans on products from specific regions (Russia, Xinjiang in China), the global push for legislative approaches to human rights abuses in supply chains is going through two large channels.

There are disclosure laws that require companies to report where their supply chains are exposed to human rights abuses and what they are doing to prevent them. These laws, such as the UK Modern Slavery Act and the Australian Modern Slavery Act, impose no obligations on companies beyond the duty to report. The logic is that regular public reporting will cause consumers to support companies with clean supply chains and punish those that don’t.

And there are due diligence laws, which impose an obligation on transnational corporations to actively eradicate human rights abuses in their supply chains. These laws, which may cover a wide or narrow range of human rights violations, are more common in Europe. French duty of vigilance law goes further than most in providing for civil liability – individuals can seek damages in French courts from companies that fail in their due diligence obligations.

And then there’s Canada, a country with a checkered track record on human rights in corporate supply chains and no dedicated laws on forced/child labor in the supply chain, despite multiple attempts since 2009. Several private members’ bills on the subject have emerged in recent years and Federal Labor Minister Seamus O’Regan has promised legislation in the near future.

As with human rights laws in the supply chain elsewhere, Canada’s current legislative options fall into two broad categories. Closest to the finish line is S-211, which was in second reading in the Commons at the end of May. It is a linear disclosure law focusing on child/forced labor, with an added provision to prohibit imports of goods “produced, in whole or in part, by forced or child labor”.

Bill C-262, sponsored by NDP MP Peter Julian, passed first reading in March. It is a due diligence bill that would impose a ‘duty to avoid’ human rights abuses in supply chains on affected companies, coupled with broad liability ‘for any harm resulting” from a company’s failure to prevent such violations.

Human rights advocates tend to dismiss disclosure laws like S-211 as nothing better than corporate image polishing efforts. “The report-only approach has been a total failure wherever it’s been tried,” says Emily Dwyer, policy director at the Canadian Network on Corporate Accountability. “It hasn’t curbed corporate abuse at all.

“Canada is at a crossroads here. If it settles for something like S-211, it’s just catching up with the failed ideas of 2015.”

Yvon Dandurand, co-author of the International Center for Criminal Law Reform and Criminal Justice Policy report and emeritus professor of criminology at the University of the Fraser Valley, says he opts for a more “cautious” approach. While he thinks supply chain human rights laws should have “real world consequences” for bad actors, he questions whether it’s plausible to come up with “stringent” new requirements for Canadian transnationals – especially now, with so many supply chains in disarray.

“The corporate sector will make representations to government that now is not the time to do that, that anything that further limits supply chains would be a bad idea at this time,” he says.

William Pellerin, international business associate at McMillan LLP, says lawmakers also need to keep in mind what companies know and can know about their overseas supply chains.

“Even the most conscientious companies are often powerless to cover the whole chain,” he says. “You can hire outside experts to do an audit, but even then there can be gaps. When a product crosses a national border, it’s tracked. But when it moves from one region to another another within a country, it’s not. So you just don’t know.”

Judy Fudge, LIUNA Enrico Henry Mancinelli Professor of Global Labor Issues at McMaster University, says she’s heard this argument before and isn’t convinced.

“If a supplier provides poor quality products at the wrong price, there are penalties,” she says. “But these companies can’t protect workers in their supply chains because those supply chains are too complex?”

Several factors could influence the direction of the federal government. The first is corporate lobbying, particularly from the extractive sector. “It may be more difficult to introduce [a due diligence law] in Canada, where historically corporations seem to have had so much influence,” says Hayli Millar, associate professor of criminology at the University of the Fraser Valley and co-author of the report.

Fudge says another factor could be the role of the NDP, which now has influence over the Trudeau government through its confidence and supply agreement. The party has made it clear through C-262 that it wants to take a much tougher line against corporate bad actors.

In addition, Canada rarely manages to set the rules of the game in international markets and many of its trading relationships. The European Commission’s draft regulation on human rights and environmental due diligence, published earlier this year, would oblige large EU companies – and certain non-EU companies doing business in Europe – to identify and prevent violations of human rights and the environment in their supply chains. Companies that dropped the ball would face both administrative penalties and civil liability.

It is an ambitious and aggressive approach to the problem. Assuming it is eventually adopted by EU member states, it doesn’t matter to Canadian companies operating in Europe what Ottawa decides to do. Many of them would have to adapt to European rules or find customers elsewhere.

“The EU will end up adopting something new. It’s just a matter of rigor,” says Fudge.

“By delaying new legislation for so long, the [federal government] may have backed into a corner.”

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