Many Thai suppliers that sell to foreign brands have received an email like this. The customer attaches a Supplier Code of Conduct to be "signed and acknowledged by the end of the month," together with a self-assessment questionnaire. Many companies sign at once, because it looks like general ethics: no forced labor, no bribery, care for the environment.
The principles are not the problem. The problem is the contract terms that give the code binding force, which are often hidden in the purchasing terms or on the back of a purchase order, and which can expose the company to more risk than it intended. This article focuses on the contract side. For the labor side, where auditors most often find gaps, see foreign customers asking you to follow RBA standards.
Why foreign customers are getting stricter
Customers in Europe and the United States are subject to laws that increasingly require them to oversee their own supply chains, for example:
- The EU Corporate Sustainability Due Diligence Directive (CSDDD), a human rights and environmental due diligence law, which was amended in 2026 to apply to very large companies and is due to start applying in 2029
- The EU Forced Labour Regulation, which starts to apply in December 2027. Products found to have been made with forced labor at any stage of the chain may be banned from the EU market
- The supply chain laws of certain countries, such as Germany, and US Customs forced labor measures
These laws do not apply directly to Thai companies, but customers pass the obligations on through contracts. What binds a Thai company is therefore the contract, not foreign law.
How a code becomes a contract
A code on its own is usually not written as a contract, but it is given effect through other documents. The channels we see most often are:
- The main sales contract or supply agreement, which says the supplier must comply with a code that is attached or published on a website
- General Terms of Purchase printed on the back of a purchase order or referred to by a link. When the company accepts the purchase order or ships goods under it, it is likely to have accepted those terms as well
- An acknowledgment and acceptance form in which an authorized signatory states that they "have read, understood and agree to comply"
- A self-assessment or supplier portal that requires you to click to accept conditions before use
Thai courts decide these questions under the offer and acceptance rules of the Civil and Commercial Code. We have not found a Supreme Court judgment that deals directly with a supplier code, but in practice you should treat every document you sign or click to accept as binding, and read it before you accept.
Contract terms to read carefully
1. Unlimited indemnity. A clause saying the supplier must indemnify "all losses" arising from non-compliance with the code may include fines the customer incurs in its own country, recall costs and reputational damage. Ask for a cap, limit the indemnity to direct damage caused by the company’s own breach, and exclude indirect damage.
2. The right to inspect the factory without notice. The customer, or an auditor it appoints, may ask to see every kind of document and interview employees at any time. Ask for reasonable advance notice unless there is a credible allegation, inspections during business hours, confidentiality terms, and a clause on who pays for repeat inspections.
Payroll records, health data and employee interviews are personal data. Disclosing them to an auditor needs a legal basis and notice to the employees. Sensitive data such as health data is subject to stricter conditions, and if data is sent abroad it must meet the PDPA’s transfer conditions. See PDPA and employee data.
3. Immediate termination for a breach of any part of the code. Ask for a cure period before termination, except for serious breaches that are clearly defined, and for the customer to remain obliged to pay for goods already delivered and goods being made under outstanding orders.
4. Flow-down obligations to our own suppliers. Some contracts make the company warrant that every supplier in the chain complies with the code, and to be liable in their place if they breach it. Change this to a reasonable-efforts obligation, such as passing on the requirements, obtaining confirmations and auditing on a risk basis, instead of a guarantee of results.
5. Foreign law and foreign courts. If a dispute arises, the company may have to defend the case abroad. A foreign court judgment has no direct effect in Thailand. The winning party must sue again in a Thai court, using the judgment as evidence. A foreign arbitral award, however, can be enforced in Thailand because Thailand is a party to the New York Convention, and there are procedures under the Arbitration Act B.E. 2545 (2002). Know what each option means before you agree.
6. “As amended from time to time.” This wording lets the customer change the code unilaterally, and the company is bound by the new version without signing again. Ask for advance notice of changes, time to adjust, and the right to object or terminate if a change requires a large additional investment.
If a term is genuinely unfair, how far does the law help?
- A disproportionately high penalty. The court can reduce it to a reasonable amount under Section 383 of the Civil and Commercial Code, but once it has been paid, the right to ask for a reduction is lost, so object in writing before paying
- Standard-form contracts. The Unfair Contract Terms Act B.E. 2540 (1997) provides that a term that gives the party who set the contract an excessive advantage is enforceable only to the extent that it is fair and reasonable in the circumstances. It applies to contracts in which one party sets the important terms in advance, but a contract genuinely negotiated between businesses may fall outside it
Both are remedies after a dispute has arisen. They take time and are uncertain. Negotiating before signing is always the better value.
How to negotiate without losing the customer
- Separate the code from the contract terms. You can accept the principles of the code while negotiating the indemnity, inspection and termination terms
- Send a letter asking for clarification or an exemption item by item, with reasons and an alternative proposal. Large customers usually already have a process for receiving these
- Answer truthfully. In the self-assessment, for items you cannot yet meet, state your plan and timeline. An overstated answer can later become a warranty that you breach
- Coordinate internally. Make sure sales, HR, purchasing and accounting know what has been promised, because the code’s obligations are spread across every department
Documents to keep
- The code and purchasing terms in the version in force on the signing date, with the date, because links on a customer’s website can change
- The letter requesting clarification or an exemption, and the customer’s reply
- The self-assessment you submitted
- Audit reports, corrective action plans and evidence of correction
- Evidence that the requirements were passed on to the company’s suppliers and contractors
- Training records for employees and supervisors on matters the code covers
Further reading
- Foreign customers asking you to follow RBA standards: what HR changes Thai suppliers need to make
- Making business contracts watertight: 6 points to check before signing
- Anti-bribery controls within the organization
- PDPA and employee data
📌 See more: Contract drafting and review · Business law
If a customer has sent you a supplier code or purchasing terms to sign and you want to know which terms to ask to change, consult our lawyers. We will point out the risky terms and help draft the clarification letter to your customer.
This article is general information and is not legal advice for any specific case.
