EU Human Rights Due Diligence: Lessons from the U.S. for meaningful supply chain impacts
EU mandatory human rights and environmental due diligence proposal
With mandatory human rights due diligence for businesses firmly on the political agenda in the European Union (EU), the critical question of what standards of care companies should be expected to meet, and how they should be sanctioned for failing to do so, becomes increasingly important.
Didier Reynders is rightly proud of the European Commission commitment to publishing draft legislation in 2021, noting that the scope and ambition of proposed mandatory corporate accountability will be unprecedented on a global scale. However, it will take rigorous consideration of the practicalities for companies, regulators and civil society in the EU, as well as source countries, for such a law to have real positive impacts. The risk of mere ‘virtue signaling’ is high. A brief overview of two existing frameworks illustrates a number of critical challenges for those developing and implementing a law that will be effective in addressing human rights and environmental abuses, provide remedy to victims and create incentives for companies to identify and prevent harms throughout their supply chains.
French Loi de Vigilance
As the first of its kind, the French Loi de Vigilance, which allows concerned parties to file a complaint for non-compliance and affected people/victims to bring a claim in civil law, is often looked to as a potential model for an EU-level human rights and environmental due diligence law. Yet, early indications of how French courts will adjudicate cases indicate that access to justice and remedy may remain difficult for victims, and the incentive for companies to change business practices is currently not as significant as first hoped. In the case of Total Oil regarding actions of a subsidiary in Uganda for example - the first lawsuit of its kind - proceedings were initially removed to the Commercial Court, a controversial ruling which was upheld at appeal by a French Tribunal de Grande Instance in December 2020. NGOs and observers argue it is not the appropriate venue to adjudicate serious human rights impacts and will fundamentally undermine the likely effectiveness of the legislation, compromising the spirit of the law if not the letter.
Aside from the chosen court, any legal mechanism that relies heavily on impoverished claimants from other jurisdictions bringing costly, complex cases in EU courts, risks becoming a meaningless token, unless the substantial barriers to entry are effectively addressed. It also exposes claimants to potentially existential threats - in the Total Oil case, the lives of Ugandan witnesses who testified in France in January have reportedly been threatened. If the EU is genuine about creating meaningful legislation which will hold companies to account for abuses, the framework in the U.S might offer some additional inspiration.
The U.S. framework: Trade Facilitation and Trade Enforcement Act
While the US Alien Torts Statute provides for judicial remedy for international harms, there is another critical legal element in the U.S. which gives powers to the U.S. Customs Authority to exclude products produced using forced labour from the US market. The Trade Facilitation and Trade Enforcement Act (TFTEA) framework builds on the 1930s Tarifs Act to focus either on goods imported by a specific company or, where sector-wide evidence of problems exist, to withhold release into the US market for whole categories of products from specific source countries. Notably this barrier to customs clearance relies on reasonable, but not necessarily conclusive, evidence of forced labour. Companies are then required to demonstrate through due diligence that the goods they import are not in fact produced with forced labour - while conclusive evidence allows for products to be seized. A number of recent cases in high-risk sectors with known forced and child labour problems demonstrate how such a law can bring about immediate change without the risks to claimants inherent in the French legal approach if left unaddressed.
In 2019 the Customs Authority prevented the import of tobacco and tobacco products into the U.S. from Malawi. The import block sent shockwaves through the tobacco industry and triggered a response among companies. One importer has since been granted an exemption from the order, after an assessment of its due diligence process which demonstrated that the company was meeting OECD Due Diligence standards and that the goods were not produced with forced or child labour.
More recently another investigation was opened in the cocoa sector in Ivory Coast, with indications that companies importing cocoa will need to meet similar due diligence standards in order to maintain U.S. market access in the medium- to long-term. The investigation may trigger a step change in business practices by companies that the voluntary Harkins Engel protocol - established to eliminate the worst forms of child labour from the sector - has failed to do since it was created 20 years ago.
While these cases created clear incentives for systemic change at the corporate level, neither of them included an element of direct remedy for harmed individuals. However a final example WRO issued in July 2020 against Malaysia's Top Glove Sdn Bhd and TG Medical Sdn Bhd has more to offer on that issue. The Order followed extensive inter-agency consultations which reportedly found evidence of forced labour practices, including debt bondage. According to CBP, these practices likely included recruitment fees paid by migrant workers to employment agents, which have become the subject of a $12.6 million deal for “remediation fees” which is to be paid directly to affected workers. It is notable also that a week after the WRO was issued, the Malaysian Government investigated the company, ultimately finding no evidence of forced labour practices.
Recommendations for the EU
While the French and US laws are both too new to judge conclusively, it is clear that they offer important and mutually supportive perspectives on the profoundly complex challenge of tackling human rights abuses in global supply chains. In developing an EU-wide legal mechanism, there should be consideration of all relevant legislative approaches; ultimately taking the strongest elements of each in order to develop an effective new legal framework.
- Burden of proof: U.S. powers restrict market access for products where there is reasonable evidence of problems, forcing companies to proactively demonstrate their ability to avoid those problems through supply chain due diligence in order to be granted exemption rights to import. By contrast European legislative models generally allow companies to import unless an external party can demonstrate that there is a conclusive reason why they should not. This, combined with the strongest data protections for importers in the world, risks EU companies being subject to extremely low levels of accountability.
- Material penalties for failure to tackle human rights abuses are needed to create incentives for real change: It is critical that the costs to businesses are not simply fines which can easily be absorbed in the cost of doing business and handed off to shareholders, but rather create a level of supply chain disruption which is proportionate to the value of the market.
- Investment in human rights: There is no need to make the business case or reassure companies human rights due diligence will not require investment. It is clear that a mandatory human rights due diligence law will create new responsibilities for European companies and cost money. Companies and regulators need to be committed to considering the triple bottom line, and resourcing at the government level will also be key.