Opinion of the European Economic and Social Committee on ‘Sustainable supply chains and decent work in international trade’

(exploratory opinion)

(2020/C 429/25)

Rapporteurs:

Tanja BUZEK (DE-II)

Referral	German EU Presidency, 18.2.2020
Legal basis	Rule 32(1) of the Rules of Procedure
	Exploratory opinion
Section responsible	External relations
Adopted in section	24.7.2020
Adopted at plenary	18.9.2020
Plenary session No	554
Outcome of vote (for/against/abstentions)	216/2/3

1.   Conclusions and recommendations

1.1.

Global supply chains (GSC) are key in economic activities across the world and in global trade with companies operating increasingly across borders. Multinational Enterprises (MNE) are their main drivers and Small and Medium Size Enterprises (SMEs) form important parts of it. They are ‘complex, diverse and fragmented’ with all the opportunities and risks that come along with it. Economic growth, job creation and entrepreneurship are also contested by evidence of negative implications for working conditions as well as for sustainability in some supply chains (1).

1.2.

The COVID-19 crisis has unveiled the worrying fragility and significant risks related to highly fragmented and undiversified supply chains. It exposed the vulnerability of workers, highlighting violations of human rights and adverse social, health and safety impacts of business operations in today’s supply chains around the globe.

1.3.

The COVID-19 pandemic teaches us that GSCs need to become more resilient, diversified and responsible. Trade will have to play a key role in promoting a sustainable economic recovery allowing companies to rebuild and re-organise their disrupted value chains. However, stronger instruments need to deliver on a socially and environmentally responsible business, trade and investment agenda.

1.4.

The EESC calls on the EU to collect more data on vulnerable supply chains, notably on the risks of disruptions of economic activities and the detection of human rights violations. It also stresses the urgency of assessing at global level how international labour standards address decent work deficits in GSC and of closing identified governance gaps.

1.5.

A second lesson is ‘policy’ and ‘genuine’ investment in sustainability. Ambitious actions need to ensure that GSCs contribute to a fairer economic and social model, based on sustainability and decent work. Actions must be consistent with international and European principles, notably in the Paris Agreement, the Sustainable Development Goals (SDGs), the International Labour Organization (ILO) fundamental conventions, the European Green Deal and the European Pillar of Social Rights. They must form core elements of the global, European and national responses to the COVID-19 crisis.

1.6.

The UN 2030 Agenda recognises trade both as an engine for inclusive economic growth and poverty reduction, and a contributor to the promotion of sustainable development. However, with limitations to global trade and investment in GSCs due to the COVID crisis as well as the already slowing pace of poverty reduction before the crisis, there is an urgent need to intensify reforms, increase investments, promote sustainable trade and GSCs, and to further integrate developing countries into an open global economy, for inclusive and sustainable growth.

1.7.

Human rights, sustainability and Corporate Social Responsibility (CSR) have become of increasing importance to the business community. Many companies actively implement the UN Guiding Principles on Business and Human Rights (UNGPs) and other relevant government-supported instruments, notably the Organisation for Economic Cooperation and Development (OECD) Guidelines for MNEs and the ILO Multinational Enterprise Declaration. These voluntary measures have led to some positive behavioural change towards respect of human rights in their business activities, but action for improvement is needed.

1.8.

It is vital for the EU and its Member States to act consistently at national, European, and international level, coordinating initiatives and closing identified gaps. The European Economic and Social Committee (EESC) calls on the European Commission (EC) to develop a European Action plan on human rights, decent work and sustainability in global supply chains, in agreement with the European Parliament (EP) and Council, and building on social dialogue and a multi-stakeholder approach.

1.9.

It must be ambitious, comprehensive and transversal to respond effectively to GSC realities. Its main objectives should be to promote responsible business conduct, to ensure the respect of human rights and EU social and environmental objectives in business activities and their supply chains, to support businesses and SMEs in adopting a responsible business conduct approach, and to ensure a level playing field for businesses.

1.10.

As a general framework for both policy and legislative initiatives, it should recognise the essential, different and complementary roles of the different actors in this area, notably the European institutions, Member States, international bodies, companies, social partners and stakeholders.

1.11.

National action plans should implement its objectives and be required to achieve minimum implementation standards of the UNGPs.

1.12.

Achieving multilateral progress sometimes starts with ambitious unilateral action. The EESC sees the EU as uniquely placed to take the lead on due diligence, in particular with a view to European companies’ global leadership. Calling on the EU and its Member States to secure more effective and binding international instruments, it reaffirms its support for a UN Binding treaty on business and human rights (2) and calls for an ILO Convention on decent work in supply chains (3).

1.13.

The EESC commends the EC for following its call for EU legislation on due diligence (4) to be at the forefront of the Action Plan. In order to level the playing field for European companies, a binding cross-sectoral legislative initiative on human rights due diligence and responsible business conduct should cover all companies established or active in the EU, as well as the public sector, and be responsive to the specific needs of and constraints on SMEs.

1.14.

It will be essential to require companies to put in place effective due diligence mechanisms as a preventive approach, but also to ensure effective remedies and access to justice as well as provide for effective enforcement, including through public monitoring, controls and sanctions. Its specific features, including corporate liability, will be followed by a dedicated EESC opinion (5).

1.15.

Workers and trade unions must be part of the solution. Due diligence should explicitly cover trade union and workers’ rights, notably the right to collective bargaining and collective action, fair working conditions and remuneration, information and consultation, and health and safety at the workplace. These key human rights form an essential part of decent work.

1.16.

European cross-sectoral and sectoral social dialogue and national social dialogue should assist its implementation, including common initiatives and projects, guidelines, capacity building, agreements, support for companies in undertaking due diligence obligations and for trade unions in engaging in discussions and negotiations with the management.

1.17.

To deliver on its comprehensive and consistent approach, the Action Plan should also frame an ambitious revision of the non-financial reporting directive to include all companies, being responsive to the specific needs of and constraints on SMEs, and specific key performance indicators and targets. Legislative measures on board of directors’ duties at EU level to act in the interest of all stakeholders and for company activities to contribute to the achievement of social and environmental objectives.

1.18.

In the framework of the new recovery instrument Next Generation EU and of other EU funding, the EESC suggests specific conditionality and incentives being linked to the respect for human rights, decent work and sustainability objectives in companies’ activities and supply chains.

1.19.

Member States should ensure the full implementation and enforcement of the social clause in the public procurement directives. New EC proposals should ensure that public procurement procedures effectively support and promote human rights due diligence and responsible business conduct in business operations and their supply chains, including decent work.

1.20.

The Action Plan should also comprise non-legislative measures, including initiatives to raise awareness of consumers, investors, and other stakeholders, and incentives to responsible businesses, which go beyond the legal obligations and specific support to SMEs to introduce due diligence policies.

1.21.

Trade elements of the Action Plan objectives should be reflected in the new EU Trade Strategy Review. Trade and international investment agreements can boost and ensure a more even implementation of standards by both investors and governments. Foreign investors should be required to comply with due diligence before they can benefit from an international investment agreement. Free trade agreements (FTA) must promote best practices on how to include environmental and social criteria in public procurement, and in no way limit their application.

1.22.

The new Chief Trade Enforcement Officer (CTEO) must have stronger instruments to enforce Trade and Sustainable Development (TSD) commitments. A revamped Panel of experts should be able to trigger a treaty State-to-State dispute settlement mechanism, with possibilities for financial penalties or sanctions, and remedies for the aggrieved party (6). An independent labour secretariat and collective complaint mechanism should complement enforcement of TSD chapters (7). The impact of Domestic Advisory Group (DAG) recommendations on investigating TSD violations needs to be considerably strengthened. Fresh approaches to labour disputes should look into remedies against non-compliant companies and in addition look into a system inspired by the EU Anti-Dumping measures to cover Social Dumping.

1.23.

Leverage to secure ILO ratifications remains greatest during the agreement negotiations and before their conclusion; this should therefore materialise into the signed agreement. The ‘essential elements’ clause should be extended to cover ILO fundamental and up-to-date Conventions ratified by all EU Member States and the ILO be included in the implementation monitoring of its Conventions in FTAs (8). The EESC suggests linking tariff reductions with the effective implementation of TSD provisions.

2.   Background

2.1.

In this Exploratory Opinion, the German EU Presidency asked the EESC to put forward a range of initiatives to improve sustainability and to ensure respect of human rights and decent work in GSCs. The Presidency provided a detailed list of questions along the following lines: — How to frame and implement a European Action Plan to deliver on a comprehensive and ambitious strategy for decent work in GSCs, notably exploring the role of, and support to, social dialogue and civil society, — What should be the core features of a European due diligence regulation, and how to strengthen access to effective remedies for human rights violations in GSCs, — How to create a level playing field for European companies, considering their challenges and benefits, and how to contribute to GSCs’ resilience to crises such as the COVID-19 pandemic, — How to contribute to the common implementation of the SDGs and the UNGPs, including through minimum standards in Member States’ National Action Plans (NAPs), — How to strengthen the promotion of decent work in sustainable supply chains in trade policy, exploring notably a better enforcement of the sustainability chapters in free trade agreements (FTAs).

2.2.

The EESC has already made several relevant contributions. In 2016, it called on the EC to adopt ‘a comprehensive and ambitious strategy in order to promote with all its internal (access to EU public procurement, labelling etc.), and external policies (trade, development, neighbourhood policy etc.) decent work’ in GSC. It recommended to ‘include both, legislative and non-legislative measures, best practices, financial incentives, access to training, and capacity building for social dialogue and the trade unions’ (9).

2.3.

In 2018, the EESC urged the EC ‘to be more ambitious in its approach, in particular with respect to strengthening effective enforceability of the commitments in TSD chapters’ (10) and stressed the urgency of ILO Core Conventions’ ratification before the conclusion of a trade agreement. With respect to strengthening labour provisions, it recommended looking notably into the establishment of an independent labour secretariat and a collective complaint mechanism.

2.4.

In 2019, the EESC called on the European institutions to support the Binding UN treaty process and engage in the negotiations, agreeing on the necessary content of a binding treaty (11).

2.5.

The EP Legal Committee has recently asked the EESC for an Opinion on Corporate Due Diligence and Corporate Accountability (12). Several EP resolutions had called for binding due diligence legislation and other initiatives to ensure the respect of human rights in business operations and in GSCs.

2.6.

The EU Council has stressed the importance of effective access to justice for victims of human rights abuses in due diligence implementation, recognising corporate respect for human rights as ‘indispensable to sustainable development and achieving the SDGs’ (13). It concluded that ‘doing business in a responsible way may ultimately create a competitive advantage’ (14).

2.7.

Following the study presentation by the Directorate General for Justice and Consumers (DG JUST), in April 2020, European Commissioner Didier Reynders committed to put forward a binding cross-sectoral legal initiative on human rights due diligence and responsible business conduct, covering companies’ supply chains, including liability and sanctions and based on a comprehensive definition of human rights, including also workers’ and trade unions’ rights (15).

3.   Global supply chains: status quo and the impact of the COVID-19 crisis

3.1.

Operations in GSCs play a key role in economic activities across the world and in global trade. Multinational companies and their supply chains employ hundreds of millions of workers and these networks make up 80 % of global trade (16). According to ILO 2013 data, 453 million or more than one-fifth of jobs were linked with GSCs, an increase by 53 % over the preceding decade (17). Digital technology, environmental and social governance and sustainability trends will have multifaceted effects in a ‘decade of transformation’ to come for international production (18).

3.2.

‘International trade is an engine for inclusive economic growth and poverty reduction, and contributes to the promotion of sustainable development’ (19). With the limitations to global trade and investment in GSCs due to the COVID crisis as well as the already slowing pace of poverty reduction before the crisis, there is an urgent need to intensify reforms, increase investments and promote sustainable trade and GSCs. International organisations and agencies strengthen the evidence of key roles in poverty reduction. Development banks stressed the critical role of trade and that the further integration of developing countries into an open global economy will be essential for achieving the goal of ending extreme poverty by 2030. For instance, the development of rural markets and their fair integration into global markets can become an increasingly important source of income for the rural poor. Further evidence shows the importance of decent and productive jobs, sustainable enterprises and economic transformation in poverty reduction.

3.3.

GSCs are ‘complex, diverse and fragmented’, with some MNE having over 100 000 direct suppliers. They bear opportunities and risks. They have contributed to economic growth, job creation and entrepreneurship and can contribute to a transition from the informal to the formal economy (20), which is favourable to developing countries. With the increasing amount of global trade and investment occurring through GSC as well as outsourcing and cross-border coordination of global production by lead corporations, business operations have significant social impacts (21).

3.4.

The length of supply chains and duration of relationship with suppliers are multifaceted business choices, based on the most interesting business relationships, proximity to consumer markets, logistics, skills, etc. However, systematic contracting out is also a by-product of the competition and economic drivers in a business model where GSCs too often organise themselves around the cheapest cost. Moreover, this pursuit of labour cost efficiency by companies does not necessarily translate into benefits for economies, workers, stakeholders and the wider society.

3.5.

The current framework on business activities and human rights is mostly made of non-binding instruments. Violations of human rights, including workers’ and trade union rights, continue to occur in companies’ operations, comprising multinationals, their supply and subcontracting chains. It is furthermore difficult to trace their negative impacts. Specific liability frameworks in subcontracting chains already exist in EU law and have been introduced for example in public procurement, posting of workers and migration legislation.

3.6.

The COVID-19 crisis has unveiled the worrying fragility and significant risks related to highly fragmented and undiversified supply chains and exposed the vulnerability of workers who keep them operational. Large-scale disruptions showcased the necessity to strengthen the reliability and resilience of GSCs, in particular in key regions and sectors, both within the EU internal market and with third country governments.

3.7.

The EESC suggests to collect or process more data on vulnerable supply chains, both with respect to risks of disruptions of economic activities and detecting human rights violations. The annual FTA implementation report could serve as platform for regular information.

3.8.

UN General Secretary António Guterres referred to the COVID-19 pandemic as a public health emergency, turning into an economic and social crisis and ‘a human crisis that is fast becoming a human rights crisis’ (22). ‘Civil society has exposed the failure of many governments to protect their citizens and of many businesses to respect human rights in accordance with the UNGP. Workers are routinely forced to work without adequate equipment to protect them from contracting the disease, are denied paid sick leave when they get sick or need to self-isolate and are laid off without notice or compensation’ (23). Inter alia, risks have been highlighted with regard to the presence of forced labour in companies active in the supply chains for the production of gloves and other personal protective equipment purchased in Europe and in the US (24).

3.9.

The UN Working Group on Business and Human Rights has recognised in a significant statement the necessity to take a ‘sustainable people-centred path’ in the fight against COVID-19. It ‘must not result in lower standards — or even be used as a pretext by governments and business actors to circumvent international human rights commitments’. Making real progress on the UNGP's implementation will ‘better prepare us for the next crisis, not least when turning our collective attention to the climate crisis and other human rights challenges stemming from injustices and growing inequalities’ (25).

3.10.

The EESC has called for reviving trade flows to build on strong commitments of social and labour standards and their effective enforcement. The disruption of supply and production processes has demonstrated the importance of having occupational health and safety measures in place and effectively enforced, and to keep workers safe and healthy to supply the world with goods and services. The ratification, implementation and enforcement of ILO core conventions on freedom of association and collective bargaining constitute a key gateway to ensure safe and decent working conditions, together with all ILO core and up-to-date Conventions (26).

4.   Point of departure: Main existing international instruments and definitions

4.1.

There are several international instruments dealing with transnational supply chains. They provide definitions of responsible business conduct, due diligence mechanisms and companies’ obligations with regard to their supply chains, as well as States’ roles, obligations and commitments to ensure the respect of human rights, including effective prevention, controls, remedies and sanctions.

4.2.

17 Sustainable Development Goals (SDGs) form the core of the UN 2030 Agenda for Sustainable Development. The organisation of GSCs and the role of the private sector, are key to promoting and achieving its goals and targets, including ‘sustainable economic growth and productive employment (Goal 8), building inclusive and sustainable industries (Goal 9), reducing inequalities (Goal 10), ensuring sustainable production and consumption (Goal 12), and strengthening partnerships for sustainable development (Goal 17)’. SDG 9 and 12 focus specifically on supply chains, SDG 17 on company behaviour.

4.3.

The 2011 UNGPs highlight the ‘States’ duty to protect against human rights abuse within their territory and/or jurisdiction’ and to ‘set out clearly the expectation that all business enterprises domiciled in their territory and/or jurisdiction respect human rights throughout their operations’. Companies’ responsibility to respect human rights requires them to ‘avoid causing or contributing to adverse human rights impacts through their own activities’ and ‘to seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts’. ‘Business enterprises should have in place policies and processes’, including ‘a human rights due diligence process to identify, prevent, mitigate and account for how they address their impacts on human rights’, as well as to actively engage in ‘the remediation of any adverse human rights impacts they cause or to which they contribute’. According to the UNGP commentaries with regard to adverse impacts which occurred that the business enterprise has not caused or contributed to, but which are directly linked to its operations, products or services by a business relationship, ‘the responsibility to respect human rights does not require that the enterprise itself provide for remediation, though it may take a role in doing so’ (27). In addition, the UNGP commentaries state that business enterprises conducting due diligence ‘should not assume that, by itself, this will automatically and fully absolve them from liability for causing or contributing to human rights abuses’ (28). The UNGPs stress the role of public procurement in promoting the respect of human rights and the possibility of responsible disengagement as last resort option as key in supply chain management.

4.4.

Several ILO instruments and initiatives deal with supply chains and decent work, including with Member States’ and companies’ responsibilities. The ILO concept of decent work covers four strategic goals: — promoting jobs creation, skills development and sustainable livelihoods, — guaranteeing rights at work and in particular for disadvantaged and poor workers, — extending social protection for men and women in order to provide adequate compensation in case of lost or reduced income, and access to adequate healthcare, — promoting social dialogue through the involvement of strong and independent workers’ and employers’ organisations.

4.5.

The 2016 ILO Resolution on decent work in GSCs touches upon the role of governments in requiring companies to implement due diligence processes within their supply chains, in ensuring the respect of human rights and in promoting responsible business conduct, including through public procurement policies.

4.6.

Based on the UNGP and its due diligence process, the Tripartite Declaration of Principles on MNE and Social Policy clarifies that ‘this process should take account of the central role of freedom of association and collective bargaining as well as industrial relations and social dialogue as an ongoing process’.

4.7.

Mandatory upon its member countries, the OECD Guidelines for MNE provide detailed guidelines for responsible business conduct and recommend risk-based due diligence and require states to establish NCPs with the objective to promote adherence to the Guidelines, including awareness-raising and receiving complaints in case of their violation. The EESC had previously called on Member States to ensure National Contact Points (NCPs) are ‘independent and structured so as to involve the social partners as members of the NCPs, or the NCP oversight committee. They should be adequately trained, staffed and funded’ (29). In the context of its supply chains, enterprises should ‘seek to prevent or mitigate an adverse impact where they have not contributed to that impact, when the impact is nevertheless directly linked to their operations, products or services by a business relationship. This is not intended to shift responsibility from the entity causing an adverse impact to the enterprise with which it has a business relationship’ (30). ‘In the context of its supply chain, if the enterprise identifies a risk of causing an adverse impact, then it should take the necessary steps to cease or prevent that impact. If the enterprise identifies a risk of contributing to an adverse impact, then it should take the necessary steps to cease or prevent its contribution and use its leverage to mitigate any remaining impacts to the greatest extent possible’ (31). In any case, this is without prejudice to any liability established by the EU or states for companies with regard to human rights violations and other adverse impacts in their activities and supply and subcontracting chains, including for violations of due diligence obligations.

5.   Levelling the playing field for European companies

5.1.

Many companies are committed to and involved in individual initiatives that have led to behavioural change towards respect of human rights in their own business activities. Sectoral initiatives include amfori, Together for Sustainability, Chemie3 and Bettercoal. European companies enjoy a good reputation beyond Europe with respect to their commitments and contributions to sustainable development through their local presence. However, these voluntary measures have not brought about the full behavioural change needed (32).

5.2.

A recent study (33) by DG JUST presents an effective and comprehensive analysis of the status quo, where ‘only just over one-third of business respondents’ indicated due diligence undertakings on human rights and environmental impacts, the majority of which is only for first-tier suppliers. It stresses the need for a European cross-sectoral binding legislation on human rights due diligence and responsible business conduct. The current crisis has even reinforced the support for action.

5.3.

Given their important experiences in implementing effective and ambitious due diligence policies, often on the basis of agreements concluded with trade unions, European companies would indeed benefit from levelling the playing field and from fair competition, based on common minimum standards applicable also to companies established in third countries and active in the EU. The good reputation of the ‘EU brand’ of doing business is also based on its regulatory environment of high standards.

5.4.

There are various EU laws relevant to the management of supply chains and the respect of human rights and decent work, notably the Non-financial Reporting Directive 2014/95/EU of the European Parliament and of the Council (34) on larger public-interest companies report on their activities’ impacts and risks, as well as their policies, if any, to reduce them, including due diligence processes. With regard to specific sectors, the Timber Regulation (EU) No 995/2010 of the European Parliament and of the Council (35) and the Conflict Mineral Regulation (EU) 2017/821 of the European Parliament and of the Council (36) established due diligence requirements for companies’ supply chains.

5.5.

Various national laws have also recently introduced due diligence, most notably the French corporate duty of vigilance law (37). It provides an ambitious national legal framework, requiring large companies to define, publish and implement a vigilance plan to identify and prevent human rights violations and negative environmental impacts in their activities, in the activities of the companies they control directly or indirectly and in the activities of subcontractors and suppliers with which they maintain an ‘established business relationship’. It includes a liability framework holding companies to account when breaches of their due diligence obligations result in harm or human rights violations.

5.6.

This existing fragmented legal framework negatively affects businesses who then have to comply with different sets of rules. They suffer from unfair competition, legal uncertainty and administrative costs, which should be avoided. A growing number of businesses and investors are thus calling for mandatory due diligence instruments (38).

5.7.

In addition, the status quo does not reward responsible companies, because of the lack of common minimum requirements, of comparable processes, of adequate incentives by public authorities, of effective enforcement of existing rules, and of awareness amongst investors, stakeholders and consumers.

6.   A European Action Plan on human rights and decent work in global supply chains

6.1.   Creating an effective regulatory framework

6.1.1.

Decent work, respect for human rights and sustainability in global value and supply chains are high on the political agenda of global, European and national institutions, and of increasing importance to the business community. However, it urgently requires a more effective and consistent regulatory framework to achieve those goals and to promote global and EU social and environmental objectives, fair competition between economic operators and to support European economic activities.

6.1.2.

Building on initiatives already undertaken by many European companies and confirming their global leadership in this area, it is paramount to develop an ambitious, comprehensive and transversal strategy that effectively links initiatives and closes identified gaps. ‘Voluntary and binding measures are not mutually exclusive, but must complement each other’ (39).

6.1.3.

A European Action Plan should be designed as a general framework for legislative and non-legislative initiatives on human rights, decent work and sustainability in companies’ activities and supply chains. It needs to recognise the essential, different and complementary roles of the different actors in this area, notably the European institutions, Member States, international bodies, companies, social partners and stakeholders. To ensure its success, all actors need to be fully involved in achieving the objectives of the Action plan that should be developed on the basis of social dialogue and a multi-stakeholder approach.

6.1.4.

Main objectives should be to promote responsible business conduct, to ensure the respect of human rights and of EU social and environmental objectives in business activities and supply chains, to support businesses and SMEs in adopting a responsible business conduct approach and to ensure a level playing field for businesses. A preventive approach of mandatory due diligence should result in less human rights violations. With all companies having to follow the same basic set of rules, this would also allow for comparable processes for consumers.

6.1.5.

A broad definition should cover human rights, including workers’ and trade union rights, and build on a range of international instruments (40), most notably ILO conventions. Rights include, amongst others, freedom of association and the right to collective bargaining and collective action, information, consultation and participation rights, decent working conditions, occupational health and safety, fair wages, social security coverage. In the fight against child labour and forced labour, the EC ‘zero-tolerance approach to child labour’ must be followed by effective and ambitious actions. The Action Plan should further cover wider responsible business conduct, notably social and environmental impacts, corporate governance, anti-corruption, fair tax policy and tax transparency. To take concrete steps towards sustainable supply chains, it is important to implement concrete measures at local level, where companies need to evaluate local legislation and agreements when engaging outside the EU. By acknowledging the importance of government enforcement of labour rules, notably through inspections, governments at national and local levels have to play their full role (41).

6.1.6.

Coordination between EU and national level is key. National action plans to be developed in cooperation with national social partners and civil society, should be closely linked with the NAPs for the implementation of the UNGPs and recognise the role of the OECD Guidelines and NCPs, which should be ‘independent and structured so as to involve the social partners as members of the NCPs, or the NCP oversight committee. They should be adequately trained, staffed and funded’ (42). The European Action plan could also include minimum standards in different areas to ensure a full and effective national implementation of the relevant international instruments. At EC level consistency and coordination between the different policy areas and Directorates General in charge, notably of Justice, Finance, Trade, or Employment, and the EEAS is necessary.

6.2.   Framing a binding European due diligence legislation

6.2.1.

The EESC welcomes that the EC follows its recommendation (43) to propose EU legislation in this area and calls for a European Action Plan to have at its forefront a binding cross-sectoral legislative initiative on human rights due diligence and responsible business conduct, taking into account the findings of the study commissioned by DG JUST and in line with the commitment by EU Commissioner Reynders.

6.2.2.

In order to avoid unfair competition and an uneven playing field, it should cover all companies established or active in the EU and their activities, including their whole supply and subcontracting chains, as well as the public sector, and be responsive to the specific needs of and constraints on SMEs. This follows the UNGP approach of covering ‘all enterprises regardless of their size, sector, operational context, ownership and structure’ (44). Companies should abide by high standards of responsible business conduct that cover human rights, environmental and social impacts, corporate governance, anti-corruption and fair taxation.

6.2.3.

Based on the main steps of due diligence processes identified by the relevant UN, ILO and OECD instruments, companies should be required to map and assess actual and potential adverse impacts, act upon the findings (ceasing operations which are causing adverse impacts), develop and implement a due diligence plan to prevent any potential risks and the materialisation of negative impacts, establish an early-alert mechanism, verify and monitor effectively and in a transparent manner the implementation of the due diligence plans and report on its implementation. The due diligence process through which they meet their responsibilities should be proportional to the severity of potential impacts and their operational context.

6.2.4.

The legal instrument should be based on a preventative approach but ensure at the same time effective remedies and access to justice for victims and their representatives, including trade unions and human rights defenders. Public monitoring of company obligations and legal consequences in case they are not respected are key. Its specific features, including corporate liability, will be followed up by a dedicated EESC opinion (45). However, any EU initiative in this area should not prejudice or limit joint and several liability mechanisms or other liability frameworks at international, European or national level.

6.3.   Key role of social partners and civil society

6.3.1.

Social dialogue should play a key role in due diligence and in responsible business conduct, ensuring the respect of human rights in companies’ activities and supply and subcontracting chains. Any Action Plan and legislative initiative should be based on its value and of collective bargaining and ensure respect of workers’ information and consultation rights. These elements are unfortunately not addressed in the DG JUST study.

6.3.2.

Companies and trade unions can negotiate, at the relevant level, agreements to define the concrete application of the obligations included in the directive. This underlines the good practice and positive contribution of several existing agreements on due diligence processes. In addition, workers’ representatives should be informed and consulted for the definition of the due diligence plan and its implementation.

6.3.3.

European cross-sectoral and sectoral social dialogue should help to deliver improvements in those areas, by including common initiatives and projects, guidelines, capacity building, agreements.

6.3.4.

Previous experiences have shown how initiatives based on social dialogue can bring important steps forward in terms of decent work in GSC. The Accord on Fire and Building Safety in Bangladesh was signed in May 2013 as a legally binding agreement between over two hundred mostly European garment brands and retailers and two global unions, namely IndustriALL and UNI Global Union, as well as several local trade unions and witness signatories.

6.3.5.

The Action Plan should include also measures to raise awareness amongst consumers and investors on the importance of social and environmental impacts of companies, promote instruments to allow the comparability of companies’ performances and better identify those which are putting forward effective responsible business conduct strategies. All initiatives should be based on the involvement of stakeholders, including social partners and NGOs, which can act as multipliers of information and contribute to raise awareness about positive and negative behaviours.

6.4.   Measures to complement a European Action Plan

6.4.1.

Revision of the non-financial reporting directive. Supporting an ambitious revision to include all companies in the personal scope that is also responsive to the specific needs of and constraints on SMEs. The material scope should be better defined for non-financial reporting to be comprehensive, comparable and effective. Considering that reporting is a key element in due diligence mechanisms, it should be consistent with the respective legal initiative and include specific key performance indicators and targets (e.g. on the basis of the Paris Agreement and of SDGs), as well as for it to be based on the UNGPs and other relevant international instruments.

6.4.2.

Board of Directors’ duties, sustainable corporate governance and company law. Supporting legislative measures on directors’ duties at EU level to act in the interest of all companies’ stakeholders and for companies’ activities to contribute to the achievement of social and environmental objectives. Furthermore, identifying other legislative and non-legislative measures to promote more sustainable, forward-looking, and long-term oriented corporate governance and company law.

6.4.3.

Public funding and public support. Proposing specific conditionalities and positive incentives linked to the respect for human rights, decent work and sustainability objectives in companies’ activities and supply chains for the access to public and EU funding and support, in particular in the context of the COVID-19 EU and national economic recovery plans.

6.4.4.

Public procurement. Ensuring the full implementation and enforcement of the social clause in the public procurement directives by Member States and putting forward proposals for public procurement procedures to effectively support and promote human rights, due diligence and responsible business conduct in business operations and their supply chains, including decent work. This could be achieved inter alia through a revision of the public procurement directives, capacity building for contracting authorities and exchange of best practices, including their promotion through FTAs.

6.4.5.

Incentives. Proposing initiatives to offer support for companies which go beyond the legal obligations with regard to responsible business conduct and positive environmental and social impacts. Those could include, for example, support to develop specific policies and instruments, promotion of networks of sustainable companies, capacity building for social partners’ initiatives.

6.4.6.

Synergy with the international trade and investment agenda. Foreign investors should be required to comply with due diligence before they can benefit from the coverage of an international investment agreement. Similarly, Parties to a FTA should guarantee that companies resident on their territories do comply with due diligence requirements. Canada, for instance, enhanced its Corporate Social Responsibility Strategy by focusing on Canadian companies’ behaviour abroad and created a multi-stakeholder Advisory Body. In April 2019, the first Canadian Ombudsperson for Responsible Enterprise was appointed, with a mandate to review and report publicly alleged human rights abuses arising from Canadian companies’ operations in mining, oil and gas and garment sectors abroad, including recommendations for trade measures for companies (46).

6.4.7.

The Action plan should be attentive to a wider range of elements, notably tax transparency, including country-by-country reporting and fair tax behaviour, sustainable finance and obligations for investors. The conflict minerals Regulation and of the timber Regulation could be assessed with a view to the necessity to revise or reinforce them.

7.   Trade to deliver on decent work and effective enforcement

7.1.

Trade constitutes an important transversal element in the implementation of the objectives of a European Action plan, linking it with third countries and the multilateral angle. The new EU Trade Strategy Review urgently needs to reflect this. The EU has the largest trade network in the world, giving bilateral trade agreements a particular important leverage that needs to be used effectively before their conclusion and throughout their implementation and enforcement.

7.2.

The EU-Vietnam negotiations showcased the progress the EU can achieve on improving labour conditions when engaging with a partner country. However, years after FTAs were concluded, we still witness a lack of progress in compliance with TSD commitments in some partner countries, most notably in the years long EU-Korea labour rights’ dispute over non-ratification of fundamental and up-to-date ILO Conventions. This evidences that the highest leverage to secure core ILO ratifications remains during the negotiations and before their conclusion; this should therefore materialise into the signed agreement.

7.3.

Trade is not the driver of climate policy but can become a key enabler. Making the Paris Agreement an ‘essential element’ for all future comprehensive trade agreements, meaning to suspend them in case of non-compliance, is a positive step that should be extended to cover ILO fundamental and up-to-date Conventions ratified by all EU Member States. As the recognised body at international level, ILO should be involved in monitoring the implementation of ILO Conventions in FTAs (47).

7.4.

The EESC has previously recommended both that there should be a specific clause to promote the SDGs in all future mandates for TSD chapters, and for the reform of the World Trade Organization (WTO) to establish rules that ensure countries respect and implement the SDGs. Here, the EU and its Member States should use their leverage and advocacy throughout the various WTO committee structures, especially covering those new areas such as trade and decent work.

7.5.

TSD chapters form an increasingly important part in all new-generation EU FTAs but effective enforcement and enforceability must now become key to realising these commitments, not least to ensure a level playing field for EU businesses abroad. The impact of DAG recommendations on investigating TSD violations needs to be considerably strengthened.

7.6.

The EESC further encourages the EC to look into new approaches to labour dispute settlements that would allow for an ad hoc international dispute settlement panel to impose remedies on a noncompliant facility. A rapid process is already in use for EU Anti-Dumping measures and could be extended to Social Dumping. In line with the French and Dutch non-paper (48), the EESC suggests in general for the effective implementation of TSD provisions to be linked to a staged implementation of tariff reduction.

7.7.

The EESC calls for a revamping of the current TSD expert panel mechanism where trade lawyers, but also labour, climate or human rights experts, could investigate complaints under TSD chapters. Should such panels find violations, it should trigger a treaty State-to-State dispute settlement mechanism, with possibilities for financial penalties or sanctions, and remedies for the aggrieved party (49). In this respect, the EESC had also suggested an independent labour secretariat and collective complaint mechanism (50).

7.8.

The new CTEO needs to lead the way on enforcement of commitments ‘in particular […] related to TSD chapters and social and environmental concerns arising in relation to other chapters in trade and investment agreements’ and must start ‘timely, effectively initiated investigations, backed by adequate resourcing and include a clear role for recognised stakeholders, both to submit complaints and to participate in any subsequent public hearings’ (51).

7.9.

Businesses play an important role by ensuring compliance with labour and social rights, by supporting and implementing laws that protect workers’ rights and through decent standards agreed with trade unions both in their direct operations and throughout their supply chains. The EESC called on the EC to develop CSR clauses with solid commitments and in line with the UN and OECD instruments (52). This would ensure trade agreements support good business behaviour, and prevent social dumping and undercutting social standards.

7.10.

Trade and international investment agreements play a key leverage role in an even implementation of these standards both by investors and governments. A recent OECD report (53) lists numerous existing or emerging initiatives at national and regional levels. This variety of regulations is a challenge as some approaches are horizontal, others issue-specific. They affect businesses differently due to diverse thresholds and scopes. Even OECD countries have varied reporting standards. There is a clear case for a level playing field: upward convergence between all the applicable standards would guarantee legal certainty and fair competition for all.

8.   Closing the governance gaps: Importance of EU global leadership

8.1.

A European due diligence standard is an indispensable step to ensure the respect and enforcement of human rights and decent work in supply chains. It would contribute to the implementation of the UNGPs, the ILO Tripartite Declaration and the OECD Guidelines. It would also complement national initiative taken to reach the SDGs, notably with regard to the eradication of child labour and forced labour.

8.2.

It would further contribute to establishing more reliable, sustainable and well-managed supply chains, thus increasing resilience and management effectiveness in times of crisis. This would be particularly important for example with regard to health and safety at the workplace.

8.3.

European actions need complementary improvements of the international normative framework to deliver global policy coherence. Achieving multilateral progress sometimes starts with ambitious unilateral action. The EESC sees the EU as uniquely placed to take the lead on due diligence, in particular with view to European companies’ global leadership.

8.4.

The EESC calls on the EU and its Member States to deliver real progress towards more effective and binding instruments at international level, accompanied by renewed initiatives to promote the effective implementation of the existing instruments and frameworks. These have to include support for an UN Binding treaty on business and human rights (54) and call for the establishment of an ILO Convention on decent work in supply chains (55), in line with the 2016 International Labour Conference discussion and be based on the ILO core and up-to-date Conventions and the ILO Declaration on Principles and Rights at work. The EESC sees an urgent need for a Global Survey to analyse how international labour standards address decent work deficits and to close any identified gaps.

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(1)  ILO, Decent Work in Global Supply Chains, Report IV, 2016.

(2)  OJ C 97, 24.3.2020, p. 9.

(3)  OJ C 303, 19.8.2016, p. 17.

(4)  OJ C 47, 11.2.2020, p. 38.

(5)  EESC opinion on Mandatory due diligence (Exploratory opinion Council/EP) (INT/911, September 2020) (see page 136 of this Official Journal).

(6)  See footnote 3.

(7)  OJ C 227, 28.6.2018, p. 27.

(8)  EESC opinion on Implementation of Free Trade Agreements 1 January 2018-31 December 2018 (REX/525, July 2020) (OJ C 364, 28.10.2020, p. 160).

(9)  See footnote 3.

(10)  See footnote 7.

(11)  See footnote 2.

(12)  See footnote 5.

(13)  Conclusions of the Council (10254/16) of 20 June 2016 on Business and Human Rights.

(14)  Conclusions of the Council (8833/16) of 12 May 2016 on The EU and Responsible Global Value Chains.

(15)  Speech by Commissioner Reynders in the webinar on due diligence organised by the EP Responsible Business Conduct Working Group on 29 April 2020.

(16)  UNCTAD, World Investment Report (2013).

(17)  ILO World Employment and Social Outlook (WESO) report in 2015.

(18)  UNCTAD, World Investment Report (2020).

(19)  The 2030 Agenda for Sustainable Development, point 68.

(20)  See footnote 1.

(21)  See footnote 3.

(22)  António Guterres, COVID-19 and Human Rights: We are all in this together, April 2020.

(23)  What are the avenues for corporate liability for COVID-19-related human rights abuses?, Business & Human Rights Resource Centre, 16 June 2020.

(24)  Malaysia medical glove manufacturers see surge in orders due to COVID-19 amid forced labour concerns, Business & Human Rights Resource Centre.

(25)  Statement by the UN Working Group on Business and Human Rights, Ensuring that business respects human rights during the COVID-19 crisis and beyond: The relevance of the UN Guiding Principles on Business and Human Rights.

(26)  See footnote 8.

(27)  UNGP Principle 22, commentary.

(28)  UNGP Principle 17, commentary.

(29)  See footnote 7.

(30)  OECD Guidelines, part II, point A.12.

(31)  OECD Guidelines, part II, commentary 18 and 19.

(32)  See footnote 15.

(33)  Study on due diligence requirements through the supply chain, 2020.

(34)  OJ L 330, 15.11.2014, p. 1.

(35)  OJ L 295, 12.11.2010, p. 23.

(36)  OJ L 130, 19.5.2017, p. 1.

(37)  French Law 2017-399 of 27 March 2017on the Due diligence of parents companies and of contracting undertakings.

(38)  Call of investors representing USD 1,3 trillion and List of public business statements & endorsements, both Business & Human Rights Resource Centre, 2019.

(39)  See footnote 4.

(40)  Including the International Bill of Human Rights, as well as the European Convention on Human Rights and European Social Charter. It should furthermore build on the EU Treaties and the Charter of Fundamental Rights of the EU as well as national instruments and legislation in the area of human rights.

(41)  See footnote 7.

(42)  See footnote 7.

(43)  See footnote 4.

(44)  UNGP para 14.

(45)  See footnote 5.

(46)  See footnote 4.

(47)  See footnote 8.

(48)  Non-paper from the Netherlands and France on trade social economic effects and sustainable development, May 2020.

(49)  EESC opinion on A post-COVID-19 emergency: the design of a New Multilateral Matrix (own-initiative opinion) (REX/529, July 2020) (OJ C 364, 28.10.2020, p. 53).

(50)  See footnote 7.

(51)  See footnote 7.

(52)  See footnote 7.

(53)  OECD report, 2020.

(54)  See footnote 2.

(55)  See footnote 3.