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By Temisan Fanou, MA candidate, McMaster University School of Labour Studies
January 10, 2022
Recent human rights investigations have found substantial evidence that Uyghurs and other ethnic minorities in China’s Xinjian Uyghur Autonomous Region are being detained in re-education camps and subjected to state-imposed forced labour in factories, among other human rights violations.
In response to these revelations, the Canadian federal government has taken steps to block goods made with forced labour in Xinjiang from entering the supply chains of Canadian companies. In July 2020, the government amended the Canada Customs Tarrif to prohibit the importation of goods produced wholly or in part by forced labour. Further, Canadian companies doing business with Xinjiang entities must now sign an Integrity Declaration, and the government has released an advisory on the risks of doing business with Xinjiang-related entities with guidance for due diligence best practices.
Despite these efforts, a recent investigation of international shipping records conducted by the Toronto Star and the Guelph Mercury Tribune found that nearly 400 shipments originating from Chinese manufacturers on the United States’ list of companies subject to sanctions due to their links to the use of forced labour in Xinjiang (“Entity List”), had been sent to Canadian companies since 2018.
Most of these shipments contained household appliances such as refrigerators, freezers, air conditioners, and dehumidifiers, and were destined for well-known retailers including Best Buy, Home Depot, The Brick, and Costco. The shipments also included train and bus components en route to Bombardier and OC Transpo, Ottawa’s public transit agency.
The results of this investigation provide important insights for Canadian policymakers seeking to prevent forced labour in supply chains. More specifically, they demonstrate some of the pitfalls of current governance frameworks with respect to audits, contracts, and worker agency.
When journalists from the Star and Tribune approached the Canadian companies identified in the shipping records for comment, many of them claimed that their Chinese suppliers were subject to audits and that these audits had not found any evidence of forced labour.
For example, The Brick received shipments from Chanhong Meiling, a Chinese manufacturer which was implicated in the Australian Strategic Policy Institute’s (ASPI) report “Uyghurs for Sale”. The Brick’s response was that it “has conducted audits or has reviewed third-party audits” of Changhong Meiling as recently as November 2020, and it “is satisfied that no forced labour is used in the production of Brick product.”
Similarly, when asked about its decision to import train component parts from KTK Group, another Chinese firm named in the ASPI report, Bombardier said that it had “conducted its own investigation and found no evidence supporting [ASPI’s] allegations”. It also claimed to have “confronted KTK Group about the allegations to ensure they were complying with the Bombardier’s supplier code of conduct” and that it was “satisfied” with KTK’s response.
These companies’ reactions highlight the challenge of regulating supply chains through voluntary, private governance mechanisms, such as supplier audits (1). Most multinational corporations (MNCs) have complete control over their audits; they decide who conducts the audits, how the audits are designed (and which portions of the supply chain are audited), the timing of audits, the frequency of inspection, and whether audits will be announced or unannounced.
Further, these arrangements are often governed by confidentiality agreements and companies do not have to disclose the auditing firms they use or any information about the way their audits are conducted. Consequently, Canadian consumers have no way to objectively assess the claims from The Brick and Bombardier that their Chinese suppliers are not using forced labour. Although there are many other reasons to doubt the effectiveness of audits in detecting labour exploitation, this lack of independence and transparency is particularly troubling because governments are increasingly relying on MNCs to conduct human rights due diligence and identify problems in their supply chains.
However, in most cases they do not have access to the data that companies rely on to substantiate their claims of untainted supply chains. In its recent advisory on Xinjang, Global Affairs Canada noted that “third-party audits are an important part of due diligence but may not be a sufficient source of information” and “encouraged” companies to work with NGOs and industry groups. This reliance on an encouragement rather than a legal obligation represents another example of states “outsourcing governance” of global value chains (2). It is also reflected in Ottawa’s continued resistance to calls from advocacy groups and MPs to impose a blanket ban on all goods from Xinjiang.
In its comments to the Star, Bombardier made another claim in defense of its position: the shipments that it received came from KTK Seats France, a subsidiary of KTK Group, which is not on the U.S. government’s Entity List. Similarly, the City of Ottawa (which also received shipments from KTK for its public transit agency, OC Transpo) declared that it is not a party to subcontractor agreements and thus it does not have any contracts with KTK Group. It noted that contractors who are engaged by the City bear the responsibility of ensuring that sub-contractors such as KTK Group adhere to the City’s Supplier Code of Conduct.
These responses reveal the way in which efforts to regulate forced labour in supply chains can be stymied by the doctrine of privity of contract. Under this fundamental common law principle, only those who are parties to a contract are bound by its terms and can enforce its obligations. This allows companies to disclaim liability and responsibility for forced labour occurring within their supply chains where there is no direct contractual relationship. If there is no contract between Bombardier and KTK Group, the former cannot be held liable for the use of forced labour in the factories of the latter, despite the clear relationship (and shared supply chain) that may exist between KTK Group and KTK Seats France.
Privity represents a major challenge for policymakers in removing forced labour from supply chains, as both lead firms and large suppliers will often have tangled webs of subsidiaries and subcontractors that effectively limit their liability and make it difficult to trace their due diligence obligations (3).
The investigative report by the Star and Tribune notes, citing a U.S. Senate Bill, that “efforts to vet supply chains for forced labor [in Xinjiang] are unreliable due to the extent of forced labour and the mixing of involuntary labour and voluntary labour in the region”. Aside from this very brief recognition that not all workers in Xinjiang are forced labourers, the report portrays Uyghur workers as victims with no active role in the monitoring process and no meaningful participation in demanding their own rights. There are several problems with this portrayal.
Firstly, it reflects a conception of modern slavery as an outcome of market failure that can be solved by the media or other watchdogs shining a spotlight on the issue, rather than an intrinsic feature of global production networks (GPNs) (4).
Secondly, it reinforces the notion that market incentive is the strongest tool for achieving corporate reform, and that the most viable way to eliminate forced labour is for consumers in developed countries to demand products made under decent labour conditions (5).
This promotes the imbalance of power in global supply chains, as buyers and consumers are empowered to impose their understanding of what is in the workers’ best interests through paternalistic codes of conduct and compliance monitoring. Under this “new social accountability contract”, workers are excluded from an active role in the protection of their rights, since they are not generally party to monitoring agreements nor do they play an active role in the monitoring process, and they must rely on lead firms (which may be complicit in their exploitation) for protection (6).
This view of workers as powerless victims is unlikely to generate effective Canadian policy that can improve working and living conditions in China’s factories. In fact, the last major uprising by Uyghurs, which occurred in 2009, was sparked by attacks on Uyghur migrant workers at a toy factory in southeast China. Even under an extremely repressive regime, workers are not completely devoid of agency. The key to real change in Xinjiang and elsewhere is the empowerment of workers by supporting their rights to associate and organize, and by reducing the power imbalance between the top and bottom of the supply chain.
Notes
(1) Mark Anner (2021). Three labour governance mechanisms for addressing decent work deficits in global value chains. International Labour Review, 160(4), 611-629. DOI: 10.1111/ilr.12209
(2) Frederick W. Mayer & Nicola Phillips (2017). Outsourcing governance: states and the politics of a ‘global value chain world’, New Political Economy, 22:2, 134-152, DOI: 10.1080/13563467.2016.1273341
(3) Andreas Rühmkorf, “Towards sustainable supply chain networks: Mandatory human rights due diligence as a new governance tool?” in Roger M Barker and Iris H-Y Chiu (eds.), The Law and Governance of Decentralised Business Models: Between Hierarchies and Markets (Routledge, 2020).
(4) Nicola Phillips & Fabiola Mieres (2015). The Governance of Forced Labour in the Global Economy, Globalizations, 12:2, 244-260, DOI: 10.1080/14747731.2014.932507
(5) Freeman, R & Elliott, KA. Can Labor Standards Improve Under Globalization? Washington, D.C.: Peterson Institute, 2003.
(6) Jill Esbenshade (2012). A Review of Private Regulation: Codes and Monitoring in the Apparel Industry. Sociology Compass, 6, 541-556. DOI:10.1111/J.1751-9020.2012.00473.X
This project is supported by the LIUNA Enrico Henry Mancinelli chair in Global Labour Issues at McMaster University, held by Judy Fudge, and by funding from the Social Sciences and Humanities Research Council.
