Trade law gets serious about labour exploitation

On Monday 23 August 2021, the Senate passed the Customs Amendment (Banning Goods Produced by Forced Labour) Bill 2021. The Bill, if made into law, would prohibit the importation of goods manufactured using forced labour.

Undoubtedly, this is the big issue in trade flows at present. In his Second Reading Speech when the Bill was introduced, Senator David Van (LP, Victoria) starkly framed the depth of the problem:

There are an estimated 40 million men, women and children in modern slavery today and it can be found in almost every country in the world, according to the International Labour Organization… With increasing globalised trade, it affects almost every business through those interconnected supply chains. This is not just limited to one region; this is a whole-of-world problem…

The Bill does not have government support, so it is likely to flounder in the House of Representatives, which is not surprising. While its goals are virtuous, the Bill lacks important legal detail, including any explanation as to how, when, and why goods might be considered to have been produced through the use of forced labour. Nor does it include any express form of appeal rights for affected persons. And, curiously, while the Bill addressed the practice of forced labour as defined under para 270.6 of the Criminal Code 1995, it was silent to other distinct practices covered by the Code, which include slavery, debt bondage and servitude. Thus, the Bill lacked certainty, accountability and was possibly too narrow to address the myriad permutations of modern slavery.

But the fate of the Bill is not the end of matters. The Bill was supported by both the Greens and Labor in the Senate, clearly emphasising the political will to do something. That will is reflected internationally as well. G7 leaders recently agreed to boost the use of multilateral institutions and domestic means to eliminate forced labour from global supply chains. Individual countries are getting in on the action, such as the ongoing practice in the United States of seizing goods considered to be produced via forced labour.

The Government is presently considering the recommendations of the Senate Foreign Affairs, Defence and Trade Legislation Committee following its review of another labour rights proposal, the Customs Amendment (Banning Goods Produced By Uyghur Forced Labour) Bill 2020. The Committee recommended a broad rethink of the way the Australian government addresses the issue of forced labour in supply chains.

Modern slavery reporting obligations

On 10 December 2018, the Modern Slavery Act 2018 became law in Australia. The Modern Slavery Act imposes reporting obligations for Australian entities, and certain foreign entities, with an annual consolidated revenue of more than $100 million. Each financial year, reporting entities need to submit a ‘modern slavery statement’ to the Australian Border Force explaining:

  • the risks of modern slavery practices in the operations and supply chains of the entity; and
  • the actions taken by the entity to assess and address those risks.

These statements are then placed on a publicly accessible register. This is essentially a ‘sunlight is the best disinfectant’ approach, making the reporting entities somewhat responsible for, or at least responsive to, the activities that take place within their supply chains. A reporting entity that does not report, or that continues to cite the same risks year after year, without demonstrating any positive action to address those risks, can expect to face criticism in the court of public opinion. Reputational damage in the age of social media can have significant financial implications. Growing awareness of the links between cheap goods and human exploitation, and modern notions of sustainability, are powerful incentives for ethical investment and principled consumer spending.

The Modern Slavery Act does not create any direct liability for sourcing products made through forced labour. Nonetheless, its operation is due to be reviewed this year. This may lead to amendments, such as a lowering of the monetary threshold for reporting entities and the creation of penalties for non-compliance with reporting obligations.

Seizure of goods at the border

The Senate Foreign Affairs, Defence and Trade Legislation Committee review of the Customs Amendment (Banning Goods Produced By Uyghur Forced Labour) Bill 2020 is something of a legislative roadmap in this area, should the Government consider it worthy of their attention.

Similar to the Bill, the Committee recommended that there be a prohibition on the importation of any goods made wholly or in part with forced labour. It appears the Committee envisaged this would be implemented in a three-pronged manner:

  • First, the government would establish and maintain a list of products or companies considered to be at high-risk of being associated with forced labour.
  • Secondly, Australian Border Force would be empowered to issue warnings, in the form of ‘rebuttable presumptions’, with respect to specific goods, companies or regions with a particularly high risk of being associated with forced labour.
  • Thirdly, prospective importers would have the right to provide evidence to show that their products were manufactured in a legitimate manner, thereby overcoming the ‘rebuttable presumption’.

The Government is yet to accept the Committee’s recommendations, however there is great momentum both domestically and internationally for action to be taken.

What should you be doing to comply?

There has always been an ethical and reputational impetus for Australian businesses to ensure their supplies are not procured through human misery. While regulation has lagged somewhat, the Modern Slavery Act was a solid step in the right direction. It is likely to be supplemented by new rules prohibiting forced labour imports in the near future.

It is still unclear what form these new rules will take, but Australian businesses should ensure that they are not wrongfooted when the new rules are announced. The heightened awareness of modern slavery is having knock-on effects for companies and their advisors. Since the introduction of the Modern Slavery Act, we have been called upon to advise foreign entities conducting business in Australia as to whether the complicated financial threshold rules make them ‘reporting entities’ under Australian law. We have also incorporated due diligence obligations and labour warranties in all our clients’ international vendor and supply agreements and advised on the kinds of activities companies should undertake to fulfil their reporting obligations. Some companies are trying to gain a business advantage by making forced labour accusations against their competitors, another area of concern in which we have been consulted.

The effort and expenditure of compliance will protect your business, and it is also the right thing to do. Action should not be ignored or delayed.

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.

© Moulis Legal 2021

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