  Globalization has had undesirable effects on the labor standards embedded in
the products we consume. This paper proposes an ex-ante evaluation of supply
chain due diligence regulations, such as the EU Corporate Sustainable Due
Diligence Directive (CSDDD). We construct a full-scale network model derived
from structural business statistics of 30 million EU firms to quantify the
likelihood of links to firms potentially involved in human rights abuses in the
European supply chain. The 900 million supply links of these firms are modeled
in a way that is consistent with multiregional input-output data, EU import
data, and stylized facts of firm-level production networks. We find that this
network exhibits a small world effect with three degrees of separation, meaning
that most firms are no more than three steps away from each other in the
network. Consequently we find that about 8.5% of EU companies are at risk of
having child or forced labor in the first tier of their supply chains, about
82.4% are likely to have such offenders at the second tier and more than 99.1%
have such offenders at the third tier. We also profile companies by country,
sector, and size for the likelihood of having human rights violations or child
and forced labor violations at a given tier in their supply chain, revealing
considerable heterogeneity across EU companies. Our results show that supply
chain due diligence regulations that focus on monitoring individual
buyer-supplier links, as currently proposed in the CSDDD, are likely to be
ineffective due to a high degree of redundancy and the fact that individual
company value chains cannot be properly isolated from the global supply
network. Rather, to maximize cost-effectiveness without compromising due
diligence coverage, we suggest that regulations should focus on monitoring
individual suppliers.
