Apple Chief Executive Tim Cook visited the White House on Tuesday to talk about the NSA. The spy agency has had a run of bad publicity, especially regarding its global surveillance network. If the public freaks out too much about spy tech, that could erode faith in technology in general, which could make people think twice about buying such things as iPads and iPhones, which would be bad for Apple’s (AAPL) bottom line. But another initiative by President Barack Obama could cost Cook sooner and in a more direct way, courtesy of the company’s much-vaunted supply chain.
Friday is the deadline for corporate suppliers of the world’s biggest consumer—the U.S. government—to have a say in new regulations aimed at ending indentured servitude overseas. The rules stem from an executive order Obama signed last year, called “Strengthening Protections Against Trafficking In Persons In Federal Contracts.” The President’s dictate is unequivocal on one key point: If a company wants to keep the government as a customer, it must stop hiring overseas workers who had to buy their jobs.
You read that right: Workers actually buy jobs. As Bloomberg Businessweek reported in November, foreign workers recruited from some of Asia’s poorest corners often go deep into debt to pay brokers for a crack at jobs on consumer-electronics assembly lines. These factories are in Malaysia and other countries that rely almost exclusively on migrant labor for production. For years Apple has ordered its suppliers to keep such fees below one-months’ net pay at a factory, but its audits last year turned up $6.4 million in overcharges.
While Apple has said it led the electronics industry in limiting abuses stemming from excessive fees (and ordering refunds after audits), Obama’s administration now appears ready to change the conversation. The debate is no longer, How much is too much? It’s, Why should foreign migrants have to buy these jobs at all? (Apple declined to comment on what it thinks the new rules could mean for its business.)
Procurement lawyers in Washington say the ban applies all the way down the supply chain. It even applies to contractors selling what are known in government-speak as COTS items—commercial off-the-shelf goods. (Although the compliance requirements likely will be less stringent for these contractors, the ban on job-buying still applies).
Other technology companies are already concerned about the ban, and Apple should be too. Washington is a huge and growing business for Apple. The company has a dedicated online store tailored for government buyers, including simplified ways for federal contractors to purchase Apple gear with government-issued SmartPay credit cards. According to IDC Government Insights, which tracks government spending, iPads and iPhones have become commonplace equipment at NASA, the National Oceanic and Atmospheric Administration, the Fish and Wildlife Service, the U.S. Geological Survey, and the Bureau of Alcohol, Tobacco, Firearms, and Explosives. Peter Oppenheimer, Apple’s chief financial officer, highlighted government sales during a conference call with analysts in July.
The government has been using procurement rules to help achieve some larger goal for ages. To cite a recent example: Obama’s June pledge that the government get 20 percent of its electricity from renewable sources by 2020.
Whether the process works this time remains to be seen. Depending on the particulars—and we won’t know those for a while—the new rules could force manufacturers to shoulder more of the costs of filling factories with cheap labor. Today those costs often fall on the workers and their families; shifting the burden would probably increase prices all the way up the supply chain.
Hey, someone has to pay for your new gadget.