Labour Protections in Global Supply Chains: Strengthening Policy and Enforcement

The OECD report analyzes labour rights in global supply chains, assessing trade agreements, voluntary sustainability initiatives, and supply chain laws. It highlights gaps in enforcement and coordination, calling for a balanced, multi-instrument approach to protect workers while maintaining economic sustainability.

Research produced by the OECD Trade and Agriculture Directorate with contributions from researchers at institutions including the International Labor Organisation (ILO) and various academic bodies, examines labor rights protection within global supply chains. Authored by Alexander Jaax and Elisabeth van Lieshout, the report explores how labor conditions vary across different production stages and assesses the effectiveness of policy instruments designed to uphold worker rights. With international production increasingly fragmented, products consumed in high-standard labor markets often rely on labor from countries with weaker enforcement mechanisms. The report systematically analyses three major policy instruments—preferential trade agreements (PTAs) with labor provisions, voluntary sustainability initiatives (SIs), and supply chain sustainability laws (SSLs)—to determine their reach and effectiveness.

Worker Rights Mapping: A Complex Global Picture

Using input-output techniques, the study maps worker rights across supply chains, focusing on freedom of association, contractual rights, and gender inclusiveness. The findings show significant variation across industries and supply chain stages, highlighting the need for a multi-dimensional approach. Textiles and electronics emerge as sectors with high levels of employment embedded in OECD final demand but sourced from countries with weaker worker protections. While higher-tier suppliers tend to operate under better conditions, lower-tier suppliers in developing economies face fewer safeguards, making them particularly vulnerable. The study finds that in the textiles sector, more than half of the labor embodied in the final demand of OECD countries is sourced from abroad but remains uncovered by any preferential trade agreement. The analysis highlights the difficulty of ensuring that labor rights are upheld at every stage of production and emphasizes the need for stronger, more coordinated policy measures.

Trade Agreements and labor Rights: Limited but Evolving

PTAs with labor provisions have gained prominence, particularly in agreements involving OECD members. However, despite the increasing inclusion of labor clauses, their actual coverage of supply chain employment remains limited. While PTAs have the potential to establish legally binding commitments between nations, they are often weakened by poor enforcement mechanisms. Dispute resolution procedures within these agreements are rarely invoked for labor rights violations, and even where they exist, their impact is constrained by political and economic considerations. The study finds that PTAs between non-OECD countries are far less common, further reducing their effectiveness in regions where labor rights abuses are most prevalent.

The effectiveness of PTAs in improving working conditions remains a subject of debate. Some studies suggest that PTAs contribute to modest improvements in labor rights, while others argue that they serve primarily symbolic purposes without substantial enforcement. Given that trade agreements primarily regulate national policies rather than individual firms or supply chains, their effectiveness in addressing specific labor rights violations remains uncertain. Despite these limitations, PTAs provide a legal framework that could be strengthened through better monitoring, enforcement, and integration with other policy tools.

Sustainability Initiatives: A Voluntary Approach with Gaps

Voluntary sustainability initiatives (SIs) have become widespread, particularly in sectors like agriculture, textiles, and electronics, where consumer and investor pressure has encouraged firms to adopt social sustainability standards. These initiatives are often industry-led and can be effective in promoting compliance among participating firms. However, their voluntary nature means they lack enforceability, and their impact depends largely on corporate willingness to participate. The study finds that while large multinational enterprises integrate these standards into their business models, small and medium-sized enterprises (SMEs) in developing countries often struggle to comply due to financial constraints or limited access to information.

The effectiveness of SIs in improving working conditions remains mixed. Some initiatives, particularly those with strong independent monitoring and certification processes, have succeeded in raising standards in supply chains. However, others have been criticized for lack of transparency, weak enforcement, and inconsistent impact. While SIs may be concentrated in the very sectors where labor rights issues are most acute, their overall coverage remains uncertain. Without broader participation and stronger monitoring mechanisms, SIs alone are unlikely to drive systemic change in global supply chains.

Supply Chain Sustainability Laws: A New Era of Regulation

The most recent and arguably the most ambitious approach to safeguarding worker rights is the introduction of supply chain sustainability laws (SSLs). These laws impose due diligence obligations on companies, requiring them to monitor and address labor rights violations in their supply chains. Early examples, such as the UK Modern Slavery Act (2015) and the US Trade Facilitation and Trade Enforcement Act (2016), focused primarily on forced labor. However, more recent laws, including France’s Loi de Vigilance (2017) and Germany’s Supply Chain Due Diligence Act (2021), have expanded to cover broader labor rights protections. The European Union’s Corporate Sustainability Due Diligence Directive (2024) represents a major step towards harmonized corporate accountability across member states.

Despite their potential, these laws pose several challenges. Companies face significant compliance costs, and there is a risk that SMEs and suppliers in developing countries may be excluded from global supply chains if they cannot meet stringent due diligence requirements. Additionally, the effectiveness of these laws depends on robust enforcement mechanisms, which vary across jurisdictions. Some laws rely on reporting obligations and administrative fines, while others incorporate stricter judicial enforcement and market bans on non-compliant goods. The study finds that while SSLs have the potential to drive substantial improvements in worker rights, their success will depend on how well they are implemented and enforced across different economies.

The Road Ahead: Strengthening Policy Coordination

The report emphasizes the need for a well-balanced mix of policy instruments to improve worker rights along supply chains. While PTAs provide a legal framework for international cooperation, their impact is limited by weak enforcement. Sustainability initiatives, despite their potential, suffer from low participation rates and lack of oversight. Supply chain laws, though more forceful in their regulatory approach, present challenges related to enforcement and unintended economic consequences. The study calls for better coordination among governments, businesses, and civil society to create a more coherent and effective regulatory landscape.

A key concern is that poorly designed policies could lead to unintended consequences. If compliance requirements become too costly or complex, multinational firms may withdraw from high-risk markets rather than invest in improving conditions, potentially worsening the situation for vulnerable workers. Regulatory fragmentation across different jurisdictions could also increase costs for businesses operating globally. The OECD report urges policymakers to take a holistic approach that balances worker protections with economic sustainability. Given the growing complexity of global supply chains, future policies must be sector-specific, adaptable, and grounded in empirical research. Further studies are needed to assess the long-term impact of these instruments and to ensure that labor rights improvements translate into meaningful change for workers worldwide.