B. Mandatory corporate due diligence legislation

“Once an instrument of global action is created that can impede the flow of goods from nations that violate minimal labour standards, it will be used as a protectionist instrument by industrial countries, as with other measures in the past (…) . Second, (…) international action to stop child labour in the production of traded goods will simply drive children into the nontraded sector, which could be worse for them.”

B. Mandatory corporate due diligence legislation

In recent years, legislative developments have been taking place in a growing number of countries, which have introduced or are considering the introduction of legislation on mandatory human rights and environmental due diligence. A number of recommendations may be made to this regard:

An overarching human rights due diligence framework, accompanied by specific guidance, performance standards and key performance indicators for certain industries with widespread child labour in supply chains

Amongst the laws and legislative proposals on mandatory human rights due diligence requirements in Europe, certain ones are issue-specific (e.g. the Dutch Child Labour Due Diligence Act), while others provide for a horizontal framework for all human rights and environmental issues (e.g. the French Duty of Vigilance Law). In a recent study for the European Commission on Due Diligence Requirements through the Supply Chain (TorresCortés et al., 2020), stakeholders voiced a strong preference for an overarching framework as it was felt that a focus on a specific issue, sector or commodity would create fragmentation and could detract companies’ attention from other potentially more salient human rights or labour rights issues for the specific company (Torres-Cortés et al., 2020, p. 142). In addition, the overall preference emerged for a regulation which would apply regardless of size of the company but which takes into account the specificities of the sector, and the size of the company in the implementation. However, it is recommended that specific guidance in relation to certain industries in which widespread issues of child labour exist in supply chains (e.g. cocoa, cotton, etc.) be issued in order to assist companies in the implementation of their due diligence duty (Brack, 2019).

Due diligence obligations to reach entire value chains

Amongst the examples of laws and legislative proposals on mandatory human rights due diligence, certain aim to reach the entire supply chain (e.g. the Dutch Child Labour Due Diligence Act), whilst others cover part of the supply chain (e.g. the French Duty of Vigilance Law) and others mostly focus on first-tier suppliers (e.g. the Draft German Lieferkettengesetz).

In a recent letter addressed to the German Ministers on the Draft German Lieferkettengesetz, John Ruggie, the author of the UN Guiding Principles on Business and Human Rights, noted that:

Although the draft law defines the concept of supply chain broadly to include the entire value chain, the specific obligations on companies to proactively identify risks and take action to address them apply only to the company’s own operations and its direct suppliers — that is, to Tier 1 suppliers. In contrast, the UNGPs and the OECD Guidelines cover the full spectrum of value chain actors, for the simple reason that Tier 1 suppliers typically are not the biggest source of the problem. True, this can vary by industry sector, but for a significant number of German companies this is not where the most severe risks will lie – for example, in footwear and apparel, food and beverages, automobile parts, and others. A focus on Tier 1 alone would lead companies to focus on relationships that are less likely to pose significant human rights risks, while ignoring others (beyond Tier 1) where the probability of such risks is higher (Ruggie, 2021).

As a result, it is crucial – in line with the international standards such as the UNGPs – that the due diligence obligations extend to entire value chains.

Responsible purchasing practices on the part of companies

Companies’ purchasing practices may significantly contribute to breaches of labour and human rights standards in global value chains, and may also have adverse effects on child labour outcomes. The interpretative guide on the corporate responsibility to respect human rights issued by the Office of the High Commissioner for Human Rights (OHCHR) mentions an example illustrating the situation in which a company may contribute to adverse human rights impacts:

Changing product requirements for suppliers at the eleventh hour without adjusting production deadlines and prices, thus pushing suppliers to breach labour standards in order to deliver (OHCHR 2012, p. 17).

Indeed, purchasing practices such as cut-throat cost negotiations, cancelled orders and delayed payments, can trigger an increase in business pressure resulting in worker layoffs, worker overtime, as well as a decline in worker productivity. Sudden changes to orders are commonplace in the garment industry, and especially recently as markets recoiled due to COVID-19 (Lewis, 2020). Last-minute changes to purchase agreements is also common in the cocoa industry (Niava & Bayer, 2018). The common cocoa-industry practice of “revolving” (in which orders are deliberately placed over and above what any given supplier can handle, only to cancel them last minute) weakens a supplier’s business and negotiation position (ibid).

The centrality of responsible purchasing practices is also acknowledged in the resolution of the European Parliament (2020/2129(INL), Considerant 1). It is therefore recommended to include in mandatory human rights due diligence legislation requirements for companies to examine their own purchasing practices, as is the case in the example of the Draft German Lieferkettengesetz. 59

59 See Letter from John Ruggie to German Ministers regarding alignment of draft supply chain law with the UNGPs (Ruggie, 2021).

Meaningful stakeholder consultation throughout the due diligence process

A stakeholder mapping along entire value chains will reveal not only employee groups but also communities that have a stake in the enterprise or outcomes. In order for such stakeholders not to become “externalities, ” or, in the worst cases, collateral damage to the operations, stakeholder consultation throughout the due diligence process is necessary.

Dissuasive sanctions and strong enforcement mechanisms

Experiences of transparency legislations with weak enforcement mechanisms such as the UK Modern Slavery Act of 2015 have shown that the lack of strong enforcement mechanisms and deterring sanctions can be associated with widespread issues of non-compliance (Bright, 2021). Existing legislation and legislative proposals on mandatory human rights due diligence legislation usually opt for one of the following two enforcement mechanisms –which are often presented as an either-or question – either the public regulatory authority or judicial enforcement mechanisms. It is suggested that both are needed as they play on different levels. The public regulatory authority is helpful to ensure the monitoring of the compliance with the law and to clarify some aspects of the law, as shown by the French experience with the Duty of Vigilance Law. In this respect, the recent report to the French Government on the implementation of the law mentioned that it is currently impossible to establish a reliable list of companies who are subject to the law, and that several areas of legal uncertainty remain. A public regulatory authority could help clarify these areas of uncertainty, and this is the reason why the report recommended to nominate a public authority that would be in charge of: (i) monitoring the promoting and implementation of the law; (ii) contributing to the harmonisation of corporate practices; and (iii) promoting sectorial and multi-party approaches. In addition, the public regulatory authority can be empowered to exclude companies from the award of public procurement contracts (such as in the case of the Draft German Lieferkettengesetz) which could play an important dissuasive function and incentivise compliance by companies of their due diligence obligations. However, even in cases where the public regulatory authority has the authority to give sanctions such as administrative fines to companies (as is provided in the Dutch Child Labour Due Diligence Act and in the Dutch and German draft laws), the money of the fine does not go to the victims and, as such, it simply does not provide compensation to the victims for the harm suffered. In this respect, judicial mechanisms can play a key role in enhancing access to remedy for victims and overcoming recurrent barriers faced by claimants in concrete cases (Marx et al., 2019).

Coordination through the Chief Trade Enforcement Officer (CTEO)

The EU will also have to consider how to ensure proper coordination between government agencies and how to provide technical assistance and support to businesses wanting to remedy situations of child labour in their supply chains. To these ends, the office of the Chief Trade Enforcement Officer (CTEO) could play a critical role.