Thursday, January 24, 2019

Human Rights Without Chinese Characteristics and Global Production Chains Within China: Xinjiang and Badger Sportswear as a Harbinger of Dissonance in Human Rights Risk Management

What happens when the trajectories of Chinese Socialist Human Rights  and the emerging global consensus on business and human rights responsibilities in global production chains collide?  That is a question that used to be academic.  The more muscular development of the premises of Socialist Human Rights has been occurring at about the same time that the structures of business and human rights around key frameworks--the U.N. Guiding Principles for Business and Human Rights and the OECD Guidelines for Multinational Enterprises, long with its dispute mechanism have also become far more important in the way that enterprises manage compliance and risk in their operations everywhere. 

Recent events have suggested  what global trade might expect when these two great forces collide.
A US sportswear company has stopped using a Chinese supplier following concerns it was using forced labour in camps in Xinjiang. Badger Sportswear, a company based in North Carolina, said it would stop sourcing clothing from Hetian Taida in north-western China. The company said in a statement posted on its website on Wednesday: “Out of an abundance of caution and to eliminate any concerns about our supply chain given the controversy around doing business in north-western China, we will no longer source any product from Hetian Taida or this region of China.” (US clothing company drops Chinese supplier over Xinjiang forced labour concerns)
While the early years of developing consensus practices around supply chain human rights responsibilities had focused on the developing world, conflict and weak governance zones, it appears that such principles may be applied now to manage the supply chain practices of enterprises in all states.  

This post considers the consequences and implications of Badger Sportswear's decision to cease its relationship with a Xinjiang supplier.  Brief reflections follow.  

China has been developing its own Socialist Human Rights, one deeply embedded within the political and economic ideology of the Chinese state. These have begun to take distinctive form after the 19th Chinese Communist Party (CPC)  Congress and the official recognition of the new era of Chinese development. Socialist Human Rights is closely tied to national context, one that rejects the possibility of universal standards beyond general principles.
There is no universal road for the development of human rights in the world. As an important element in the economic and social development of each country, the cause of human rights must be promoted on the basis of the national conditions and the needs of the people of that country, and cannot be defined on the basis of a single authority. (UN Working Group on the Universal Period Review, National report submitted in accordance with paragraph 5 of the annex to Human Rights Council resolution 16/21-- China (A/HRC/WG.6/31/CHN/1) , ¶ 4).
Its rights based approach developed for the Chinese context has also been proffered to the rest of the world as an alternative basis for the ordering of international relations, including human rights: "China proposes to build a new type of international relationship featuring mutual respect, fairness, justice and win-win cooperation, to build a community with a shared future for mankind, and to provide a Chinese proposal for promoting the healthy development of the international cause of human rights." (Ibid., ¶10).  These efforts have been bearing fruit in the reconstruction of the normative basis for human rights within the architecture of the UN's Geneva baaed Human Rights Council (see, On the Internationalization of China's "New Era" Theory: Brief Thoughts on the UN Human Rights Council Resolution: "On promoting mutually beneficial cooperation in the field of human rights" (A/HRC/37/L.36)).

But China's approach has not gone criticized outside of China and with direct connection to Chinese self assessment before UN monitoring bodies (see,  Working Group on the Universal Periodic Review, Summary of Stakeholders’ submissions on China, Report of the Office of the United Nations High Commissioner for Human Right). Though that criticism itself has generated harsh responses from the Chinese state organs (e.g., China says UN criticism of human rights record is 'politically driven' ("“We will not accept the politically driven accusations from a few countries that are fraught with biases, with total disregard for facts,” said vice foreign minister Le Yucheng. “No country shall dictate the definition of democracy and human rights,” he said.")).

That trajectory of development appears to present challenges to Chinese autonomy in the construction of its own approach to human rights where Chinese state organs or its enterprises participate in global production.  The issue in those areas, of course, is that Chinese principles and implementation standards may not be compatible to those imposed on or adopted by non-Chinese enterprises operating some or all of their production in or through China. I have suggested the contours of that contradiction and the challenges it may pose to states like Cuba (and China) in other work.
It is becoming increasingly impossible for Cuba to have it both ways--a free hand in applying its own ideological framework internally, while at the same time conforming to a different set of rules in global markets. First, even in its state to state relations, Cuba is finding it hard to avoid efforts to incorporate global standards into economic activity within Cuba that involves foreign partners.. . . Second, Cuba may have little choice but to comply with international standards, as those are applied outside of Cuba, when Cuba engages in economic activity abroad. (Cuba's Caribbean Marxism: Essays on Ideology, Government, Society, and Economy in the Post Fidel Castro Era (Chapter 11 on "Reform and Global Corporate Social Responsibility") introduction available here)
These contradictions are now beginning to show themselves in the investment decisions of non-Chinese firms.  The context is the highly controversial (outside of China) policy of the Chinese authorities  in the Xinjiang Autonomous Region.  Chinese human rights self assessment has noted this:
"Xinjiang has been carrying out “Year of Building People’s Livelihood” initiatives continuously since 2013, accounting for more than 70 per cent of its annual public budget expenditure. In 2017, the per capita disposable income of urban and rural residents in Xinjiang increased by 8.1 per cent and 8.5 per cent respectively, and urban and rural residents’ per capita housing area reached 85 square metres and 105 square metres respectively. The 15 years’ free education programme has been implemented in southern  Xinjiang, along with 3 years’ free bilingual preschool education in rural areas. (National report submitted in accordance with paragraph 5 of the annex to Human Rights Council resolution 16/21-- China (A/HRC/WG.6/31/CHN/1) , ¶ 75)
 But the view from state organs in the UNited States has been quite different (The Congressional-Executive Commission on China (CECC): Release of 2018 Annual Report; Making a Case for 'Crimes Against Humanity' Against China, and Text of Proposed “Xinjiang Uyghur Human Rights Act of 2018”.). That view finds echoes in other places outside of China as well.
Germany called on China to “end all unlawful detentions in Xinjiang,” while Iceland and Japan expressed concern about the rights of minorities in Xinjiang. Several states urged China allow UN observers into Xinjiang. The US called on China to abolish all internment camps in the far western territory and release the “possibly millions” detained there. Chinese delegates said internment centres were not re-education camps but vocational centres that offered free training in the law, language, and workplace skills. (China says UN criticism of human rights record is 'politically driven').
The U.K. has also become a vocal critic of Chinese state practices in the Xinjiang Autonomous Region. "British diplomats who visited Xinjiang have confirmed that reports of mass internment camps for Uighur Muslims were “broadly true”, the foreign secretary, Jeremy Hunt, has told parliament." (UK confirms reports of Chinese mass internment camps for Uighur Muslims).

This puts business enterprises in an awkward position.  From the perspective of the Chinese state there is nothing in its policies that suggests any need for human rights due diligence assessments with respect to business activities generally in China or more specifically in the Xinjiang Autonomous Region.  But enterprises outside of China, worried about both compliance throughout their operations and the mood of non-Chinese consumers and investors, worry that the continued and quite heated controversy over Xinjiang policy can affect their worldwide operations.  And int he West, the risk of liability extends where companies worry about being held complicit in the activities of the Chinese states by their own home governments or buy states in which they have substantial operations.

Beyond the difficulties of Specific Instance actions under the OECD Guidelines, and pressure by groups arguing that certain Chinese investment might breach a company's responsibility top respect human rights under the UNGP, companies might also fear investor action. Companies might worry that at some point investor activists, especially sovereign wealth funds, might begin to put pressure on them where they have operations that might expose them to scrutiny or adverse investor or consumer decisions.  The Norwegian Pension Fund Global and other European funds  have not yet but could develop positions in which Chinese activities might expose companies to exclusion from investment universes of these funds, or require potentially substantial reporting if they are put under observation (discussed here).

(Pix credit HERE)

The issue is not legal violation--but risk management and compliance (e.g., A Convergence of the Discourse of Business and of Human Rights?--The Turn to Oversight of Risk and Risk Cultures in Enterprise Management).  In the case of Badger Sportswear there appeared to be no question of legal compliance in their sourcing from Xinjiang facilities either under Chinese or U.S. law. The issue centered around their own internal governance systems--their domestic legal order for their production chain (on the domestic legal orders of supply chains see, e.g.,  Are Supply Chains Transnational Legal Orders?; and Economic Globalization and the Rise of Efficient Systems of Global Private Lawmaking).  Badger worried that the relationship violated its own internal Global Sourcing Policy.  That determination would have required careful balancing following the processes of human rights due diligence under the UNGP (¶¶17-22), had Badger thought to undertake its responsibilities fully in compliance with international standards (something that it was not required to do as a matter of law but which might have been treated as important under their compliance-risk management parameters).

Badger's Global Sourcing Policy  consists of a compilation of a number of key principles

Badger Sportswear is committed to a high standard of business ethics and complying with the laws and regulations of the countries in which it operates. When differences or conflicts in standards arise, we expect the highest standard be applied. We select partners who share this commitment and fully comply with our business codes of conduct and standard requirements as outlined below.


Badger Sportswear business partners must adopt and adhere to our commitment to providing a safe and healthy work environment for all employees. Workplaces are to adhere to all applicable national and international labor and social security laws, regulations and safety standards, report accidents, injuries and unsafe equipment, practices or conditions.


Badger Sportswear prohibits business partners from engaging in forced labor, including prison, bonded, indentured, and other forms of forced labor.


Employers shall recognize and respect the right of employees to freedom of association and collective bargaining.


Badger Sportswear prohibits business partners from using child labor. Badger Sportswear defines child as any person employed under the age of 15 (or 14 where the law of the country permits), or under the age for completing compulsory education, or under the minimum age for employment in the country, whichever is higher.


Employers shall not require workers to work more than the regular and overtime hours allowed by the law of the country where employed.


Every worker has a right to compensation for a regular work week that is sufficient to meet the worker’s basic needs and provide some discretionary income. Employers shall pay at least the minimum wage or the appropriate prevailing wage, whichever is higher, comply with all legal requirements on wages, and provide any fringe benefits required by law or contract.


Badger Sportswear expects that every employee shall be treated with respect and dignity. No employee shall be subject to any physical, sexual, psychological or verbal harassment or abuse.


Badger Sportswear will not tolerate harassment or discrimination by its business partners in hiring and employment practices, such as compensation, advancement, discipline, termination or retirement. There shall be no discrimination based on gender, race, color, ethnicity, religion, sexual orientation, disability, social group, age, or political beliefs.


Badger Sportswear expects all partners to provide a safe and healthy workplace setting to prevent accidents and injury to health arising out of, lined with or occurring in the course of work or as a result of the operation of facilities. Badger Sportswear expects all partners to follow all applicable environmental laws and regulations. We encourage all operations to act responsibly and minimize adverse effects on the environment and natural resources, and help to ensure the health and safety of the public.


Badger Sportswear is committed to providing customers with the highest quality and value in our products. Our partners are expected to share this commitment and must enforce required operation practices necessary to meet our standard of quality.
The issue arose, as these things tend to do, when a highly visible and influential news outlet reported on the possibility that Badger's local supplier was using labor from camps that Chinese authorities had established to implement their policy objectives in Xinjiang. "Last month the New York Times reported that Badger had received a container of T-shirts from Hetian Taida, a company in Xinjiang shown on state television to have been using workers from re-education camps holding Muslim minorities"  (US clothing company drops Chinese supplier over Xinjiang forced labour concerns). 

Yet Badger also effectively undertook a form of UNGP human rights due diligence in response to receipt of reports that the Xinjiang facility operated by Hetian Taida Apparel Co., Ltd., was being operated contrary to its  Global Sourcing Policy. Rather than undertake the investigation themselves, Badger  chose to outsource its internal compliance.  The reasons were risk reducing--a third party with a good reputation would reduce the possibility that an internal investigation would have been discredited as self serving.  Badger chose Worldwide Responsible Accredited Production (WRAP) to conduct the review.

The review revealed no violation of policy ("we found those operations to be consistent with our Global Sourcing Policy"(Badger Sport Sourcing Update)).  One might have thought that would have concluded the matter,.  But their due diligence revealed more; and the company saw in what was revealed potential risk and compliance challenges.  That is, in the risk mitigating language of Badger, that  "historical documentation provided by Hetian Taida regarding their prior facility was insufficient to conclude with certainty that it had met Badger’s Global Sourcing Policy. " (Badger Sport Sourcing Update). It is not clear what that means in plain English--one would imagine that it took several lawyers and business officials some time to craft such obtuse language.  But the point was clear enough: it was too risky to do business there. That risk took two forms.  The first was a risk that the information provided by local suppliers was unreliable and that (reading between the lines) there was no grantee that political conditions would improve that situation. More important from a risk perspective, however, was the implied assessment that no matter what the evidence showed, popular sentiment among key consumer and investor stakeholders about Badger activity in Xinjiang might adversely affect their operations ("and to eliminate any concerns about our supply chain given the controversy around doing business in Northwestern China" (Badger Sport Sourcing Update)). 

This, then, is the global context in which the consequences of Chinese policy may play out.  The calculation is economic rather than political; but it points in the direction of markets and finance rather than on production costs to manufacture.  That calculus makes sense--one can (at sometimes great cost) move production, but customers and financial relationships are much harder to substitute. For China, like Cuba, in this context of dissonance among different views of human rights compatible behaviors, political choices will have economic effect.  For China, the solution may well be found in its Belt and Road Initiative--that building a its own global production chains that can serve as a hedge against these  sorts of actions. But that comes at a cost as well.

The Badger Sport ware Update follows below


Badger Sport Sourcing Update

Recent media reports contained serious allegations that a facility located in Northwestern China operated by one of Badger’s third-party suppliers was acting in a manner inconsistent with our Global Sourcing Policy.

Upon hearing these press reports, we immediately suspended ordering, receiving or shipping any product from the supplier, Hetian Taida Apparel Co., Ltd., and launched a multi-faceted investigation. This process included internal reviews and an investigation conducted by outside legal counsel working with a global forensic accounting firm.

Our investigation is now complete. With respect to the current Hetian Taida facility in the Aidelaisi Industry Zone, we found those operations to be consistent with our Global Sourcing Policy and the certification by Worldwide Responsible Accredited Production (WRAP), an independent, non-profit team of global social compliance experts dedicated to promoting safe, lawful, humane, and ethical manufacturing around the world. However, historical documentation provided by Hetian Taida regarding their prior facility was insufficient to conclude with certainty that it had met Badger’s Global Sourcing Policy.

Therefore, out of an abundance of caution and to eliminate any concerns about our supply chain given the controversy around doing business in Northwestern China, we will no longer source any product from Hetian Taida or this region of China. Furthermore, we will not ship any product sourced from Hetian Taida currently in our possession. Given this supplier only accounted for approximately one percent of our total annual sales, we do not expect any interruption in our service levels.

We take extremely seriously any allegations of a supplier not complying with our Global Sourcing Policy. We strive to adhere to the highest manufacturing standards, as we have done for the past 47 years without issue. We are committed to upholding our mission of "Quality for All", which has helped Badger become the trusted supplier to team dealers, decorators and apparel wholesalers throughout the U.S.

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