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6 Jun 2022

Tom Wills, BHRRC

Imagining international trade agreements which support more responsible business

One of the topics on the agenda when G7 leaders meet in Germany later this month will be sustainable global supply chains. In a report commissioned in advance of the meeting by the German government, the OHCHR recommends G7 states should “focus attention on integrating international standards for responsible business throughout trade policy”.

This is a laudable aim. Trade agreements have typically been an engine for liberalisation and deregulation. They have created opportunities for easier and cheaper trade and have avoided imposing duties on business. When trade agreements are mentioned in the United Nations Guiding Principles on Business and Human Rights they are cast as a potential obstacle, with the warning:

“States should maintain adequate domestic policy space to meet their human rights obligations when pursuing business-related policy objectives with other States or business enterprises, for instance through investment treaties or contracts.”

This emphasis on policy space is understandable. The investor-state dispute settlement (ISDS) clauses in many trade agreements provide corporations with a means through which to challenge government policies, even when those policies are designed to protect human rights or the environment. Indeed, we have highlighted the risk of ISDS being used to derail future corporate accountability legislation.

However, there is also scope for trade agreements to actively raise the standards expected of business - using the prizes of lower tariffs and greater market access as incentives to drive change. Indeed, a more optimistic trading model is tentatively emerging which offers some guidance to states aiming to follow the OHCHR’s recommendation.

For example, the trade deal signed between Indonesia and the EFTA states (Iceland, Liechtenstein, Norway and Switzerland) which came into force in November 2021, contains a ground-breaking provision on palm oil. The deal offers lower tariffs on imports of Indonesian palm oil, but only on the condition that importers can prove their product meets sustainability criteria. This is a flawed model (relying on discredited certification schemes such as the RSPO) but nonetheless is the first time a trade deal has contained enforceable provisions seeking to create more sustainable supply chains.

The EU’s trade deal with the Mercosur bloc, agreed in principle but yet to enter into force, contains a similarly ground-breaking provision: to benefit from tariff reductions, traders of chicken eggs will have to demonstrate their products meet certain animal welfare standards.

The approach these deals take to supporting sustainability and animal welfare could easily be extended to human rights. The US-Mexico-Canada trade agreement includes a mechanism – covered in greater depth by Daniel Rangel in this blog series – for cutting specific factories out of certain trade deal benefits if their management violates core labour rights. This ‘Rapid Response Mechanism’ is already starting to produce results for workers in Mexico.

A more comprehensive approach to supporting corporate respect for human rights is found in the Morocco-Nigeria Bilateral Investment Treaty. This innovative agreement requires investors seeking to benefit from the Treaty to conduct a social impact assessment of their activities. As well as rewarding transparency and responsible business practice with greater opportunities to trade, the Treaty also includes a mechanism to hold investors accountable under civil law if their “acts or decisions lead to significant damage, personal injuries or loss of life in the host state”. This agreement goes further than any other in incorporating something similar to a human rights due diligence requirement into the text of a trade or investment deal.

These examples all include the possibility that businesses failing to meet a required standard will be excluded from accessing the advantages of a trade agreement. As such, they go beyond approaches such as the EU’s ‘Trade and Sustainable Development’ chapters, found in all EU trade deals since 2009. These chapters commit governments to upholding human rights but lack any effective enforcement. As a result, these chapters have never been successfully invoked to protect rights, and have been criticised by civil society groups as “legitimising an unsustainable approach to trade”.

There is no reason why G7 governments and others cannot build upon the modest precedents mentioned in this blog, creating innovative trade policies which support business respect for human rights, as per the UN Guiding Principles. The UN Working Group on Business and Human Rights has explicitly supported this approach, recommending that states “bring together trade and investment actors to set principles for creating trade and investment frameworks that respect human rights and the environment”. This would be a helpful complement to the new generation of domestic laws – including the French Duty of Vigilance law, the German Supply Chain Act and the forthcoming EU Corporate Sustainability Due Diligence Directive – which seek to hold corporations accountable if they abuse rights.

Tom Wills is Project Manager – Trade and Corporate Accountability at the Business & Human Rights Resource Centre

Trade and corporate accountability

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