Forced labour and trade implications for Malaysian companies
Updated: Jun 18
After China, Malaysian companies have the highest number of Withhold Release Orders issued against them by the US Customs and Border Protection. The trade implications are harsh on the Malaysian economy considering the United States of America is Malaysia’s third-largest trading partner with an export value of RM142.24 billion (11.5%) and an import value of RM74.87 billion (7.6%) in 2021 alone. (Source: MATRADE)
What is a Withhold Release Order?
Section 307 of the US Tariff Act authorises the US Customs and Border Protection to issue a Withhold Release Order against imported goods that are suspected to be produced by means of forced labour. Independent parties may submit a petition enclosing evidence of forced labour (See the International Labour Organisation's 11 forced labour indicators). The evidence should "reasonably, but not conclusively" indicate the prevalence of forced labour in the production of said goods. What's interesting and bold is the low standard of proof, which some view as intentional to make this enforcement tool accessible for NGOs or parties with no deep pockets to file a petition against large companies. The US Customs and Border Protection then acts on a petition by making an evaluation and if there is reasonable suspicion that the said goods are prohibited under the US Tariff Act, a Withhold Release Order will be issued to seize the goods at all entry ports to the US. The affected company must disprove the evidence or take steps to eliminate the presence of any of the 11 indicators of forced labour to the satisfaction of the US Customs and Border Protection for the Withhold Release Order to be lifted.
8 Malaysian companies have been issued with Withhold Release Orders since September 2019, 6 of which are currently active. Source: US Customs and Border Protection website
Malaysia is resident to some 2.96 to 3.26 million migrant workers, 1.23 to 1.46 million of which are deemed irregular (Source: World Bank). Migrant workers are hired in 6 approved sectors: manufacturing, plantations, agriculture, construction, services and domestic work. Irregular and regular workers alike face challenges in salary deductions from high recruitment fees, poor housing accommodation, long working hours and uncompensated overtime, and poor health and safety conditions.
6 medical supplies companies and 2 palm oil companies were affected by the Withhold Release Orders. Source: US Customs and Border Protection Website
The palm oil industry and medical supplies industry in Malaysia has been hit particularly hard by the Withhold Release Orders. During the Covid-19 pandemic, workers in the medical supplies industry worked longer hours under harsher health and safety conditions to meet global demands. Malaysian company Supermax Corporation Berhad recently won a £316 million contract to supply 88.5 million gloves to the National Health Service (NHS). However, the company is now being investigated by the UK government, after a Withhold Release Order was issued against the company in the US. In response to a Withhold Release Order issued in 2020, Top Glove Corporation Berhad has pledged to remediate workers in the sum of RM136 million. Apart from trade implications, the Withhold Release Order also derailed Top Glove's IPO in Hong Kong. Malaysian Palm Oil companies are not spared. Sime Darby Plantations, the world's largest oil palm planter by land size, recently pledged remediation plans involving an estimated RM82 million to current and former migrant workers over its labour practices.
Malaysian companies affected by the Withhold Release Orders are taking serious steps to eliminate forced labour from their supply chains. Remediation programs, modern slavery statements, pledges to ethical hiring, and engagement with ethical supply chain consultants are on the rise. It seems companies with stronger adherence to established ESG standards will be more competitive, and continue to retain key trade contracts in this new climate.
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