Was That Christmas Toy Made by Children or Slaves?

Inhale near a mall and the Oriental Trading Company will put you on its mailing list. OTC, in case you’ve haven’t inhaled near a mall over the past 15 years, is a mail-order catalog warehouse operation selling kids’ toys at ridiculously inexpensive prices. “Wow,” you may ask yourself as you flip through the garishly-colored catalog, “how can they sell a dozen stretchy plastic flying frogs for only $3.99?”

How, indeed? I can’t give you a firm answer to that question, because I don’t have a firm answer. But think along with me for a moment. After all the machinery costs and maintenance costs and materials costs and design costs and shipping costs and the corporate profit (never forget the profit), what’s left to give? Labor costs, or as we non-economist people put it, “money paid to workers.”

They don’t call the Oriental Trading Company the “Oriental Trading Company” for nothing. Despite significant transportation costs across the Pacific Ocean, the Oriental Trading Company cuts costs by having its toys manufactured in Asian countries where “labor costs” are very low. Asian countries like China.

If you want to find out for sure where those flying frogs are made, I invite you to call the Oriental Trading Company at 1-800-875-8480. That’s what I just did. Yes, the chirpy operator told me, “that product is made in China.” When I asked at what factory or at what location within China the product was made, she responded that “we do not have that information, and we have no way of finding out.”

Is there any way for us to get information about the specific factory in which a toy is made? Is there a way for us to find out more detailed sourcing information?

If we know the nation in which a product is produced, we can at least look up country-specific information. Two months ago, the Department of Labor quietly released a report that the Congress requires by law but that the Bush administration had spent years stalling. It is named, prosaically but accurately, the The Department of Labor’s List of Goods Produced by Child Labor or Forced Labor. In that report (see page 44), the Department of Labor singles out toys made in China, concluding that “there is a significant incidence of forced labor and/or child labor in the production” of toys in China. Putting kids to work in your factory sure is a handy way to keep wages down. Using slaves is even cheaper.

Now, I just mentioned that Congress by law requires the Labor Department to name countries and industries employing slave labor and child labor; that’s how we know that the toy industry in China is tainted with these practices. But when Congress passed disclosure laws in 2005 and 2008, it stopped short of requiring the U.S. government to discover and disclose what particular companies operating in those countries use child labor or slaves to keep costs down. As the Labor Department notes, “The identity of specific firms or individuals using child labor or forced labor was beyond the statutory mandate.”

So there we have it. Those cheap stretchy flying frogs, sold by the dozen, are indeed made in China, where “labor costs” are low and where the Labor Department has concluded “there is a significant incidence of forced labor and/or child labor” in the production of toys. The Oriental Trading Company isn’t inclined to tell me where in China those flying frogs were produced. And because the “statutory mandate” of Congress doesn’t include a report naming the factories and corporations that are involved, I can’t tell you definitively whether or not the Oriental Trading Company exploits child labor or slaves in its factories in order to sell stretchy flying plastic frogs at the cost of just $3.99 a dozen.

This might change in the future. S. 1631, a bill introduced by Democratic Senator Max Baucus and Republican Senator Chuck Grassley, adds the sort of reporting requirements we might need to better assess the Oriental Trading Company’s flying frog toy. Section 308 of the bill would add new prohibitions against the importation of goods produced through forced labor. I encourage you to read Section 308 for yourself; for purposes of brevity here is a summary of S. 1631 Section 308 prepared by the Senate Finance Committee:

SECTION 308: PROHIBITION ON IMPORTATION OF GOODS MADE WITH FORCED OR INDENTURED LABOR OR BY BENEFIT OF HUMAN TRAFFICKING

Section 308(a) of the Act amends section 307 of the Tariff Act of 1930 as follows:

Section 307(a) of the Tariff Act, as amended, prohibits the importation of goods produced (1) with convict labor, forced labor, or indentured labor under penal sanctions; (2) by means of coercion; or (3) by an individual being subjected to a severe form of trafficking in persons as defined in section 103 of the Trafficking Persons Protection Act of 2000.

Section 307(b) of the Tariff Act, as amended, permits the Secretary to impose civil penalties on persons who violate this section. The Secretary may also prohibit a person who repeatedly violates this section from importing any good into the United States or exporting any good from the United States.

Section 307(c) of the Tariff Act, as amended, defines key terms used in this section.

Section 308(b) of the Act establishes an Office for Labor Enforcement within ICE that coordinates enforcement of this section. The Office shall be headed by an Assistant Director of Labor Enforcement who is appointed by the Secretary of Homeland Security, in consultation with the Secretary of Treasury, and reports to the Director of ICE. The Assistant Director of Labor Enforcement must (1) oversee U.S. laws relating to enforcement of this section; (2) oversee ICE investigations relating to enforcement of this section; (3) coordinate Federal government efforts to enforce this section; (4) coordinate efforts with foreign governments to prohibit the exportation of goods to the United States that violate this section; (5) prepare and publish in the Federal Register a list of producers of goods prohibited under this section; and (6) submit a report to the Senate Finance and House Ways and Means Committees that contains information on matters such as the volume, value, and description of goods seized under this section.

Forced or indentured child labor is included in Section 308 under the definitions of 307(a).

In public hearings on S. 1631 taking place toward the end of last month, representatives of two large importing corporations spoke before the committee, but neither made a recommendation or even a mention of Section 308 in his prepared remarks. Does that mean that corporations importing goods for American consumers have no position on Section 308?

Perish the thought; of course they have a position. They just don’t want to talk about their position in public, because their concerns are precisely about unsavory corporate practices being made public. They’d prefer to discuss this matter privately and internally. In a September trade memo, the Hong Kong Trade Development Council noted the provisions of Section 308 and anticipated difficulties for Chinese products if the bill passes in current form:

The Department of Labor published on 10 September a list of 122 products from 58 countries that are believed to be made with child or forced labour. The list includes a range of products made in mainland China, namely artificial flowers (forced labour), bricks (child and forced labour), Christmas decorations (forced labour), coal (forced labour), cotton (child and forced labour), electronics (child and forced labour), fireworks (child and forced labour), footwear (forced labour), garments (forced labour), nails (forced labour), textiles (child labour) and toys (child and forced labour). The list also includes key products from several large U.S. suppliers, including garments from India, Thailand, Malaysia and Jordan; cotton from Brazil, Egypt, Pakistan, Turkey and Uzbekistan; footwear from Bangladesh, Brazil and India; textiles from Bangladesh; and leather goods and accessories from India….

Perhaps a more pressing concern for Hong Kong and mainland Chinese exporters is the risk that the DOL list becomes a point of reference or even a sort of “black list” used by consumer groups and non-governmental organisations to pressure U.S. businesses to refrain from sourcing any of the listed goods. In addition, Congress could conceivably take steps in the future to assess specific sanctions on products included on the list or to otherwise expand labour-related enforcement efforts. For example, a provision included in a customs reauthorisation bill (S. 1631) that was introduced in the Senate on 6 August would expand existing prohibitions on the importation of goods made with forced, convict or indentured labour, including forced or indentured child labour, to include goods made by means of coercion or by persons subjected to a severe form of trafficking in persons. Specific penalties for violations of this law are provided in the amount of (1) three times the value of the violative goods for the first violation and (2) six times the value of the violative goods for the second and subsequent violations. In addition, any person determined to have engaged in a pattern or practice of violative actions would be banned from importing into or exporting from the U.S. The legislation would also mandate the establishment of an Office for Labor Enforcement within ICE to co-ordinate enforcement of the import prohibitions described above and oversee any investigations that are carried out.

HKTDC’s “pressing” worry is that the list may become publicized, that American consumers may take notice of child labor and slave labor, and that consumers may begin to exert pressure for government action. This is why public hearings are an inadvisable venue for getting Section 308 erased. People would notice if corporations asked in public. No, the chosen avenue for corporate pressure is lobbying behind closed doors.

David Sirota notes the reporting of importers’ discontent in an article from Inside U.S. Trade. You can’t read the article directly; it’s kept hidden for subscribers only. But if you register for the “three articles free” trial subscription, you can read the article’s full text. Jamie Strawbridge spoke to corporate lobbyists on condition of anonymity, and he reports their plan, which I excerpt here:

There is no coordinated lobbying push yet on the issue, but these groups are examining the ramifications of the bill’s provisions, especially in light of the bill’s requirements that a newly created office in the Department of Homeland Security (DHS) annually report to Congress on the volume and value of goods made with child labor, forced labor or convict labor that have been stopped at the border.

Business sources say this reporting requirement could cause DHS to more actively seek out imported products made with child labor, forced labor or convict labor. The new office would reside within the U.S. Immigration and Customs Enforcement Agency (ICE), which is a part of DHS….

One source said trade associations will have to determine in coming weeks whether to lobby the Finance Committee on this issue, but said they are still mulling the scope of the potential problem. The Finance Committee is hoping to hold a markup of the bill before the end of the year and has engaged in intensive consultations with private-sector stakeholders over the last month, sources said.

Sources conceded that this was a sensitive issue because industry groups do not want to be seen as opposing strict measures guarding against human rights abuses. However, one source did expect a push from lobbyists closer to the Finance Committee markup of the bill, and speculated that U.S. industry groups and foreign governments could form ad hoc coalitions to help send a united message….

If these lists formed any kind of basis for stepped up ICE enforcement, it could lead to some limited disruption in global supply chains.

You read that right: American business groups are concerned they’ll be hampered if they have to comply with prohibitions against production using slavery and child labor — and they’re going to be lobbying before the end of this year to take these prohibitions out.

Remember those stretchy flying frogs? You’ve got to wonder what the importer of those frogs thinks of all this. The Oriental Trading Company is owned by none other than the Carlyle Group, a global private equity firm headquartered in Washington, DC that weaves its fingers deeply into our government, spending almost half a billion dollars a year on lobbyists. Are Carlyle Group lobbyists going to participate in this last-minute lobbying effort? If you’d like, you can call the Carlyle Group in Washington, DC (202) 347-2626 and ask them about their planned deployment of lobbyists. You can ask; don’t expect an answer.

There are some people from whom you should expect an answer: they are the members of the Senate Finance Committee who will be marking up this bill before “Santa” comes down your chimney with flying plastic frogs. The following are the names and contact numbers of senators on the Finance Committee:

Senate Finance Committee Democrats:

Max Baucus of Montana: 202-224-2651
John D. Rockefeller the Fourth of West Virginia: 202-224-6472
Kent Conrad of North Dakota: 202-224-2043
Jeff Bingaman of New Mexico: 202-224-5521
John Kerry of Massachusetts: 202-224-2742
Blanche Lincoln of Arkansas: 202-224-4843
Ron Wyden of Oregon: 202-224-5244
Chuck Schumer of New York: 202-224-6542
Debbie Stabenow of Michigan: 202-224-4822
Maria Cantwell of Washington: 202-224-3441
Bill Nelson of Florida: 202-224-5274
Robert Menendez of New Jersey: 202-224-4744
Thomas Carper of Delaware: 202-224-2441

Senate Finance Committee Republicans:
Chuck Grassley of Iowa: 202-224-3744
Orrin Hatch of Utah: 202-224-5251
Olympia Snowe of Maine: 202-224-5344
Jon Kyl of Arizona: 202-224-4521
Jim Bunning of Kentucky: 202-224-4343
Mike Crapo of Idaho: 202-224-6142
Pat Roberts of Kansas: 202-224-4774
John Ensign of Nevada: 202-224-6244
Michael Enzi of Wyoming: 202-224-3424
John Cornyn of Texas: 202-224-2934

If you see that one of the senators listed above is from your state, call that senator now and ask him or her to keep the language in Section 308 from being taken out or diluted when the bill is marked up. If neither of your senators is on the Finance Committee, fear not: there’s a general Senate Finance Committee number you can call. Call (202) 224-4515 and make your position in favor of transparency on slavery and child labor made plain.