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Globalising justice in supply chains: extraterritorial responsibility

November 9, 2018

Our recent report, Seeing Through Transparency, explored the impact of transparency in supply chains legislation on working conditions. It found that whilst such legislation is a useful step forward in improving corporate responsibility for global impacts, much more is needed to close the accountability gap in supply chains. One step which needs to be explored is the concept of ‘extraterritorial responsibility’. This enables companies to be held legally accountable for their impacts in other countries. These might be direct or indirect, via subsidiaries or suppliers over whom they have significant control. Essentially, it addresses a fundamental asymmetry in our markets: we have seen the globalisation of capital and production, but responsibility for working conditions has largely remained local. Last month, US judges made a decision which could help to address this and significantly improve the ability of people used as slaves in global supply chains to secure justice.

A slave-based supply chain

The judges have ruled that a lawsuit may proceed against multinationals Nestle and Cargill for aiding and abetting the use of child slaves on suppliers’ cocoa plantations. This is significant because the companies involved had previously argued that it should not be heard as the abuse took place outside the US.  The suit, brought by former child slaves, alleges that employees in the US offices of these corporations approved payments of personal spending money to farmers to ensure they would continue to provide cocoa at such low prices that it could only have been produced using slave labour. Additionally, the farms were “regularly” inspected by employees from US offices who reported back to the US offices authorising these payments, yet the abuse did not stop. The former child slaves were forced to work for up to fourteen hours a day and were not paid. The judgement damningly states that the heart of the complaint “is that defendants depended on—and orchestrated—a slave-based supply chain.”

The case is being brought under the Alien Tort Statute (ATS) which allows non US citizens to bring claims in the US for violations of international law, including human rights obligations. The Nestle Cargill decision is important not solely because it may lead to justice for those wronged in the name of cheap chocolate and corporate profit, but also because it highlights a mechanism by which the corporate accountability vacuum can be filled.

Recognising the power structures in global supply chains

Globalisation of supply chains means that the stages of the production cycle are often far removed from the markets in which those products are eventually sold and where the eventual sellers’ headquarters may be located. The length of these supply chains, and the multiplicity of nodes in them, can make it seem that the brand at the top of the chain must have little responsibility for, or power over, the labour conditions at the bottom. But this is frequently not the case.

As the judgement in the Nestle Cargill case describes, “because of their economic leverage over the cocoa market, [the lead brands] effectively control cocoa production in the Ivory Coast.”  Corporations can implicitly set the conditions of workers around the world by dictating the cost and timeframe by which they want goods supplied. Additionally, requirements they place on suppliers from a responsibility point of view – for example, using social audits to identify whether or not freedom of association is being allowed – can further shape workers’ experiences. Of course, all these points can also be true for parent-subsidiary relationships.

Going beyond disclosure mechanisms

In this context, we need to go beyond mere disclosure mechanisms, such as section 54 of the UK’s Modern Slavery Act which requires large companies to report on what, if anything, they are doing to tackle slavery in their operations and supply chains. We need, instead, to pierce the conceptual ‘corporate veil’, the term which means that companies are responsible solely for their own actions, rather than those of others. But of course no company operates in a vacuum, and the most powerful corporations have significant impacts on the working conditions and environments of people around the world. Extraterritorial legal responsibility, like the kind the cocoa workers are trying to secure, is one way to begin unstitching this falsified veil. It could also have an incentivising effect on corporate behaviour: knowing that they could face costly and reputationally damaging suits due to supply chain abuse would markedly improve corporations actions in relation to suppliers and the demands they place on them.

In the UK, such lawsuits have thus far focused on parent-subsidiary relationships rather than company-supplier. In October last year, the case Lungowe and Ors. v Vedanta Resources Plc and Konkola Copper Mines Plc in which over one thousand Zambian citizens brought charges against the mining giant for pollution and its attendant negative consequences saw a major shift in the understanding of this area: the court found that parent companies can have a legal duty of care to non-employees of subsidiaries, i.e. that they could be held liable for the community impacts of actions of their subsidiaries.  This was so significant that the legal firm Hogan Lovells stated, “in 2018, we expect to see the increased use of transnational tort and parent company liability by victims of alleged human rights violations.”  However, two other cases in recent years against Unilever and Shell have been thrown out of court due to the inability to prove those businesses have legal responsibility for the violations which took place.

The law is catching up with transnational human rights impacts

Clearly, extraterritorial responsibility is a complex but increasingly relevant topic. Alongside the developments in national law outlined above, the United Nations is now taking steps to address the global accountability gap. In 2014, after much campaigning, it finally adopted a resolution to begin work on an international legally binding treaty on transnational corporations and human rights. A draft was presented in July this year and work on the treaty continues, but it will not be passed without a fight: business bodies have stated that the draft raises “issues of significant and genuine concern to the international and regional business community and they do not provide a sound basis for a possible future standard on business and human rights.”  Whatever the fate of the Nestle Cargill case and the potential binding UN treaty, the legislative space is catching up the transnational nature of corporate impacts which may, in time, be to the benefit of workers around the world.