Netherlands: Pioneering Dutch Law Raises Global Standards For Eliminating Child Labor In Supply Chains – Understanding The Dimensions Of Compliance

Last Updated: 11 June 2019
Article by Isa Mirza
Most Popular Article in Netherlands, June 2019

The Dutch Senate recently adopted the Child Labour Due Diligence Act, a new measure with far reaching implications for the sourcing, manufacturing, and consumption of products that contain inputs from the bodies of child laborers.

The new law is the product of protracted negotiations that have taken place over several years in the Dutch Parliament. The Dutch House of Representatives approved the legislation in February 2017 with 82 of the chamber's 150 Members of Parliament in favor. The Christian Democrats, People's Party for Freedom and Democracy, and the Party for Freedom, voted against the House motion. In May 2019, the Dutch Senate finally approved the bill with amendments, with 39 of the 75 Senators voting in favor. Given the amount of time taken to pass the measure into law, the original statutory date of effect – January 1, 2020 – will now most likely need to be extended to 2022.

Similar to other efforts under French and U.K. law, the new measure will require all companies legally domiciled in the Netherlands to conduct investigative research to determine whether child labor is occurring in their supply chains and establish a concrete course of action for rectifying it. Critically, the law will also apply to any international company that delivers products or services to the Netherlands twice or more per year, meaning global manufacturers that conduct significant end-user business within the Netherlands will be required to conduct more circumspect human rights due diligence on their operations.

Pursuant to the new law, Dutch companies not only have to determine whether there "is a reasonable suspicion" that their first supplier is free from child labor but also, where practicable, whether child labor occurs further downstream in their production chain.

What the research on child labor and the possible plan of action should look like is also to be further defined through a Dutch General Administrative Order, which will set guidelines for subsequent regulations from the ministries that have implementing jurisdiction over the new law. This will partly be developed based on a manual of the International Labour Organisation and the International Organisation of Employers – the so-called ILO-IOE Child Labour Guidance Tool for Business. The General Administrative Orders shall be established by the Dutch Government and possibly amended and finally assessed by the Dutch Parliament. One outcome of the subsequent regulations anticipated by analysts is a potential exemption for certain smaller companies who may be unduly burdened by the new reporting requirements.

Fashioned in the same spirit as the new Dutch law, the U.K. Modern Slavery Act – which went into effect in October 2015 – is applicable to any company that conducts any part of its business in the United Kingdom and has gross worldwide revenues of 36 million Sterling Pounds or more per year. Companies governed by the MSA are required to publish an annual "slavery and human trafficking statement" that reflects actions they have taken during the previous financial year to ensure that their business operations, and supply chains, are free from forced labor and human trafficking.

This statement would need to be approved by the covered company's board of directors, signed by a director, and published on the company's website. Although the exclusive punitive remedy for failure to comply is an action brought by the U.K. Secretary of State for judicial injunctive relief, subsequent failure to comply with the injunction could subject companies to contempt of court punishable by an unlimited fine.

The reporting standards imbued in the Child Labour Due Diligence Law go a significant step further than the U.K. Modern Slavery Act, requiring companies to engage in a fulsome due diligence process that categorically affirms child labor inputs are not a part of its supply chain. As part of this, companies covered by the Act will be required to closely research and investigate their operations to definitively determine if there is reasonable potential that child labor has contributed to their goods, supplies and/or services.

If the company determines by way of its investigation that child labor was involved in the production of the goods or services, it must adopt and implement a plan of action. A joint action plan that ensures affiliated companies exercise due diligence that is developed by or among one or more social organizations, employees' organizations or employers' organizations and approved by the Dutch Minister for Foreign Trade and Development Cooperation would meet the conditions of this requirement.

Businesses covered by the statute that do not submit a due diligence statement will be subject to a nominal fine of €4,100. Companies whose reporting standards do not satisfy regulatory standards (which will likely be described with greater precision in regulations) will be fined, and the maximum penalty for failure to comply with the underlying provisions of the law will be set at imprisonment of the company's director and a fine of €750,000, or 10 percent of the company's annual turnover.

Before the Dutch Government promulgates actual regulations that flesh out in detail the statute's defining features, it would be premature for companies to embark on a formal, comprehensive due diligence effort. In the interim, however, CSR compliance officers can move forward on measures that prepare their respective company for the Act's forthcoming compliance process. As an obvious first step, companies should conduct a review of their operations, business units, and product sources to ascertain whether they materially fall under Dutch jurisdiction and the Act's definition of end-user consumption in the Netherlands.

Based on its findings, the company may want to draft a plan of action that accounts for the possibility of conducting a more systematic investigation into the potential employment of child labor and the resource burden on the company of any attendant investigative work, subsequent due diligence assessment, and any ameliorative actions called for by the former. Defining the parameters of this process well ahead of the Act's full enforcement will provide companies at the leading edge of human rights best practice with myriad advantages and make the impact of the measure's learning curve less overwhelming over the long term.

Companies should also monitor the corollary of the Child Labour Due Diligence Act with respect to potential new legislative energy in the United States. The U.S. Congress over the past few years has been busy advancing a passel of new measures designed to eradicate human trafficking and modern slavery. Positively, these legislative initiatives have been endorsed with relatively broad bipartisan comity. However, while child labor has figured to some extent into this framework, penalties aimed at U.S. companies in violation of child labor standards have been more anodyne in comparison to European jurisdictions.

In December 2018, Congress passed H.R. 2200, the Frederick Douglass Trafficking Victims Prevention and Protection Reauthorization Act of 2018. Section 133 of H.R. 2200 made small but potentially significant clarifications and enhancements to the List of Goods Produced by Child Labor or Forced Labor that is issued and updated periodically by the U.S. Department of Labor's International Labor Affairs Bureau. If subsequent regulations lead to an enhanced and possibly augmented List, it could bear consequence for due diligence by companies.

Ultimately, however, the List and the associated changes to the List that were made law under H.R. 2200 hold no real consequence for companies. As the Department of Labor itself has pointed out, the ILAB List is not intended to be punitive and carries no direct legal risks. U.S. manufacturers are encouraged to use the List as a reference tool for carrying out human rights risk assessments and due diligence/mapping exercises in their global supply chains, designing effective monitoring mechanisms, and strategic plans for remediating any violations.

Due to the Democrat Party's improved position in Congress, there may be new efforts to hold companies operating under U.S. legal jurisdiction to greater account, and penalties for non-compliance could be included as part of any new legislation that emerges. On June 6, the Washington Post published a long investigative article detailing how international chocolate manufacturers were systemically failing to self-enforce the eradication of child labor in their cocoa supplies. The pledges made by these companies to wipe out child labor by a determined date are not realistically achievable and are falling far short of stated goals, the article blithely concluded.

Previously, Congressman Eliot Engel (D-NY) introduced legislation to create a federal labeling system that would indicate whether child slaves had been used in the growing and harvesting of cocoa. Instead, the legislation's labeling standards ended up manifesting themselves in an agreement with chocolate companies, now known as the Harkin-Engel Protocol. The overarching tenants and spirit of the Protocol have never been realized, and the chocolate companies that were party to the agreement contend that the standards contained therein set them up to undertake an impossible task. Incidental to the Child Labour Due Diligence Act, the Netherlands imports $2.55 billion worth of cocoa beans annually. The United States, meanwhile, is the largest importer of cocoa and one of the top consumers of cocoa-based products.

After the Democrat takeover of the House in November 2018, Engel was appointed Chairman of the House Foreign Affairs Committee, which exercises primary congressional jurisdiction over the implementation and enforcement of international child labor standards. Engel has made public comments indicating that the Committee will draft new legislation to address child labor and supply chain compliance, and may hold hearings on the matters this year.

In short, passage of the Child Labour Due Diligence Act marks a new inflection point in the continuum towards more ethical, equitable, sustainable, and compassionate global supply chains. Companies affected by the Act will have much to consider as the legislation is implemented through regulations. As European countries continue to advance the cause and set more stringent expectations for corporate compliance, greater pressure will be exerted on other industrialized nations that have an outsized impact on the world's supply chain footprint, with a particular eye towards the United States.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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