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For legal and compliance executives at large brands and retailers, managing global supply chain risk has fundamentally changed. What was once primarily viewed as a reputational issue or a bullet point in an annual sustainability report has rapidly evolved into a hard-hitting trade, regulatory, and financial issue. The regulatory landscape surrounding forced labor has decisively shifted from transparency and disclosure mandates to strict enforcement mechanisms with severe operational consequences.
Consider the proposed trade actions from the Office of the United States Trade Representative (USTR). Following extensive Section 301 investigations into forced labor, the USTR has proposed sweeping new tariffs—ranging from 10% to 12.5%—on imports from dozens of trading partners that fail to effectively enforce prohibitions on goods produced with forced labor. For supply chain and compliance leaders, this is not a distant, theoretical threat; if implemented, these duties could become an immediate tax on your supply chain that directly inflates the cost of goods sold and threatens profit margins.
Simultaneously, the European Union Forced Labor Regulation (EUFLR), which will apply in full from 14 December 2027, establishes a sweeping ban on importing or making available any product made wholly or partly with forced labor. Unlike other EU legislation that simply required corporate reporting, the EUFLR is a regulation, which does not need member state transposing it in national legislation, explicitly risk-based and gives all member state authorities the power to block imports at the border, pull products from shelves, and order the disposal of affected goods.
In this volatile, high-stakes environment, proving that your supply chain is free of forced labor is essential to maintaining market access. It is important to note that authorities look at a product to placed on the market “whole and in part”. This means that a small component from a tier 4 supplier can prevent a product from entering the market. This is where a having a mature Supply Chain Due Diligence (SCDD) management system transitions from a best practice to an indispensable business safeguard.
The Business Reality: Walking the Compliance Tightrope
Managing global supply chain risk is like walking a tightrope. You are constantly balancing the need for business growth, cost efficiency, and operational speed against the risks of compliance and sustainability failures. If you are producing or sourcing products globally, the inherent risk that there is forced labor at some level in your supply chain is high. The challenge is for companies to put a reasonable risk-based level of controls in place that deliver measurable risk reduction and reduce the residual risk to an acceptable level.
Imagine your business is walking a tightrope suspended 1,000 feet over a gorge with no nets below you or lines tethering you to the tightrope. The inherent risk is incredibly high—a single misstep is deadly. Imagine sourcing from a country with high inherent risk for forced labor without reasonable controls in place. A major forced labor violation discovered in your multi-tier supply chain by Customs and Border Protection (CBP), can result in catastrophic financial penalties, detained, excluded, or seized inventory under the Uyghur Forced Labor Prevention Act (UFLPA), severe supply disruption and enduring brand damage.
Now, imagine taking that same tightrope and lowering it to just three feet off the ground with a foam mat underneath it. You are still walking the tightrope—the business must still navigate complex global sourcing networks—but the risk is now entirely manageable. A mature SCDD management system is what lowers the tightrope and softens the landing if you do fall. It is the comprehensive framework of policies, systems, and controls that reduces your risk of a catastrophic event to a tolerable level. As a compliance executive, your mandate is not the impossible task of entirely eliminating supply chain risk, but rather implementing the systematic controls necessary to bring that tightrope down to the ground.
The Strategic Shift: From Inherent to Residual Risk
Historically, companies have focused more on assessing the inherent compliance and sustainability risks in their supply chains – the risk of simply doing an activity within the context the location it operates in. This is the data that many risk platforms provide on ESG risk for a sector in a region or country. This is understandable because it is much easier to get inherent risk data for a topic like forced labor at a country level than to gain visibility into the management systems a specific supplier has to manage their forced labor risk. However, given the new forced labor regulations, large brands, retailers, and importers need to take a step back. They must look at the maturity of their own supply chain due diligence management systems. Pushing the responsibility to suppliers is not sufficient. Reactively developing bits and pieces of a supply chain due diligence program in response to new regulations is a plan doomed to fail.
To truly protect the enterprise, compliance leaders must pivot their focus from inherent risk to residual risk. They must look at the maturity of their own system and well as that of key suppliers. A widely reported example of this is the Volkswagen Group where thousands of vehicles were delayed at U.S. ports because of a Chinese subcomponent linked to anti-forced-labor concerns. This tiny subcomponent delayed delivery of approximately 1,000 Porsches, several hundred Bentleys and several thousand Audis creating significant financial damage.
Beginning to Implement a Defensible SCDD Management System
When a shipment is detained at the U.S. border, or when EU authorities launch an investigation under the new EUFLR, regulators and customs authorities look for evidence of “Reasonable Care” and intentional compliance based on risk-based due diligence. A mature SCDD management system provides a defensible record of controls, decisions, actions, and outcomes.
A robust system goes far beyond sending a generic, static Code of Conduct to your tier-one vendors. It requires an integrated approach that evaluates and strengthens your internal controls and supports increasing supplier maturity across foundational areas:
1. Dynamic Policy Commitment
A clear stance against forced labor must be incorporated into both internal policies and supplier agreements. More important, the implementation of the policies must be adaptable to the residual risks identified. GenAI tools can dynamically help tailor your Supplier Code of Conduct and communications to address specific legal jurisdictions and business types, subject to appropriate human review. Standard or outdated carbon copy implementation no longer works in this diverse risk context. In addition, suppliers must have strong internal policies relevant to the unique conditions imposed by their country, industry and their dynamic risk context.
2. Risk Assessments
In conversations with large brands and retailers, too often they are not aware of the true forced labor risks in their supply chain. Many large companies still have limited comprehensive visibility of their Tier 1 suppliers, especially if they have de-centralized procurement. Suppliers in Tier 2, Tier 3 and beyond remain a mystery far too often. Yet it is Tier 2 and beyond where regulators and customs authorities may choose to focus. The inclusion of “in whole or in part,” in the regulations is a critical element, not to be overlooked. It might the subcomponent that prevents your product from entering the market.
Companies face the challenge of “not knowing what they don’t know” in two important areas. First is the lack of supply chain visibility we have discussed. The second is a lack of awareness of the evolving labor conditions in the sourcing countries. Two quick examples:
- Industrial products manufacturer sourcing in Japan thought the risk of forced labor was low. What they didn’t know is that with the rapid increase in high-tech manufacturing jobs, the domestic workers were leaving for the cleaner, higher paying jobs at the IT product factories. Migrant labor was filling the gap.
- Retailer sourcing luxury goods from Italy thought the forced labor risk was low. What they didn’t know is that luxury good production uses multiple tiers of sub-contractors that often use undocumented migrant workers.
This underscores the importance of conducting a forced labor risk assessment. Having a mature risk assessment process is a critical element in a supply chain due diligence program and one that regulators and customs authorities will check for to see if you are taking reasonable steps with evidence that risks were identified, evaluated, prioritized, and addressed. Cascading the risk assessment process to your key suppliers is the next step, but you can’t skip doing it yourself.
How SCDD Protects Market Access and the Bottom Line
For legal and compliance executives, the narrative surrounding forced labor must shift definitively from reputational cost-avoidance to the preservation of market access. The proposed USTR Section 301 tariffs demonstrates that failing to ensure a clean supply chain carries immediate, quantifiable financial penalties. In a similar vein, the EU Forced Labor Regulation poses an existential threat to European market access for any brand caught sourcing tainted goods.
Investing in a mature SCDD management system is no longer optional; it is a critical business imperative. These systems provide the verifiable data, evidence, operational control and granular visibility required to satisfy stringent customs inquiries, avoid costly tariffs, and navigate an increasingly protectionist global trade environment. By focusing on residual risk, companies can prioritize their resources effectively, directing compliance interventions, corrective action and supplier improvement where they will have the most significant impact.
The days of treating supply chain due diligence as a siloed sustainability exercise are over. As the U.S. considers tariffs to enforce labor standards and continues to enforce market access restrictions of UFLPA, and the EU prepares to aggressively purge its market of forced labor products, the regulatory net is tightening. For large brands and retailers, relying on outdated inherent risk models is a gamble that most likely will result in detained shipments, hefty financial penalties, and lost market share. Lowering the compliance tightrope is not just about avoiding regulatory fines and actions; it is about securing the operational resilience and market access necessary to thrive in the modern global economy. The practical question is whether your current controls, evidence, and supplier improvement processes could withstand a border detention or regulatory inquiry today.
Author Bio
Craig Moss | Executive Vice President, Measurement, Ethisphere
Craig Moss is the Executive Vice President of Measurement at Ethisphere and a leading expert on using management systems to improve compliance and risk management performance within companies and across supply chains. He is responsible for developing and delivering programs designed to help companies and their supply chains measure and improve their compliance programs on topics including data protection, anti-corruption and cybersecurity. He has designed and led numerous programs helping Fortune 500 companies and private equity firms around the world to implement management systems to reduce supply chain risk and improve performance.
Patrick Neyts | CEO, VECTRA International, Guest Contributor
With over 30 years of experience in ESG programs, Corporate Codes, and Responsible Business practices across 11 industry sectors and 40 countries.
