Global supply chains structure a significant share of the global economy and support millions of jobs across sectors and countries. However, the fragmentation of production across different jurisdictions, extensive subcontracting, and asymmetric bargaining power between multinational enterprises and suppliers frequently leading to persistent decent work deficits, including low wages, unsafe or unhealthy working conditions, lack or violations of freedom of association, child labour, high levels of informality, and lack of social protection coverage. Supply chains are complex and opaque, allowing companies to avoid responsibility for labour abuses across their operations. Through their suppliers and sub-contractors, multinationals in practice dictate the terms and conditions of employment of millions of workers particularly in developing countries, in many branches, predominantly women. In a search for market opportunities, low labour costs have been considered by many companies as an important element of their competitive strategies. Likewise, many countries continue to use low wages and labour standards as a means to attract foreign direct investment, and in some cases even allow for lower wages or weakened labour standards in export processing zones (EPZs). The end result of all of such practices is persistent poverty and rising inequality. Corporate profits continue to grow while wages remain low, labour rights remain endemic, and workers’ purchasing power declines.
Some progress has been made over last decades in supply chain due diligence, with a number of countries adopting mandatory human rights due diligence legislation in response to demands by trade unions and civil society. Important international frameworks have also been developed, including the UN Guiding Principles on Human Rights, OECD Guidelines for Multinational Enterprises, as well as the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. However more needs to be done to ensure that corporations, including financial actors, are held responsible for their entire supply chains and held to account when they or their suppliers or other business partners are involved in business activities that violate rights. Strengthened governance at the international level, including through a binding UN Treaty on Business and Human Rights – currently under negotiation – will improve access to justice, effective remedy and reparation while strengthening international cooperation in cross-border cases. In addition, reforms to the global trade and investments architecture – including the ISDS system – would help to strengthen respect for labour standards within supply chains.
