New Policy Brief - The Case for a Court of Arbitration for Business and Human Rights - By Antoine Duval & Catherine Dunmore

Two members of the Doing Business Right team, Antoine Duval and Catherine Dunmore have just published a policy brief feeding into the current debates on the use (and usefulness) of arbitration in the business and human rights context. More precisely, the brief makes the case for the creation of a single Court of Arbitration for Business and Human Rights. 

Here is the abstract: 

This policy brief makes the case for a single Court of Arbitration for Business and Human Rights (CABHR). It first highlights the challenges faced by victims of human rights violations caused or directly linked to the activities of transnational corporations (TNCs) in accessing effective remedy. It then discusses the opportunities and challenges in using arbitration to provide a remedy in the business and human rights context. If arbitration is to be used, we argue that it should be in the framework of a single CABHR, which could draw some inspiration from the structure and operation of the Court of Arbitration for Sport (CAS). The policy brief concludes by highlighting four core issues which stakeholders should focus on in the process of setting up a CABHR.

You can download the paper for free on SSRN.

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Doing Business Right Blog | Who is afraid of a binding treaty? Stumbling Blocks on the Accountability of Transnational Corporations by Sara Martinetto

Who is afraid of a binding treaty? Stumbling Blocks on the Accountability of Transnational Corporations by Sara Martinetto

Editor's note: Sara Martinetto is an intern at T.M.C. Asser Institute. She has recently completed her LLM in Public International Law at the University of Amsterdam. She holds interests in Migration Law, Criminal Law, Human Rights and European Law, with a special focus on their transnational dimension.

 

Since the adoption by the UN Human Rights Council of Resolution 26/9 in 2014, an Open-ended Intergovernmental Working Group (WG) is working on a binding Treaty capable of holding transnational corporations accountable for human rights abuses. Elaborating on the proposal presented by Ecuador and South Africa, the WG has been holding periodical sessions. In much trepidation for what is supposed to be the start of substantive negotiations – scheduled for October 23-27, 2017 – it is worth summarising and highlighting the struggles this new instrument is likely to encounter, and investigating whether (and how) such an agreement could foster transnational corporations’ (TNCs) human rights compliance.

Shortcomings of instruments already in place.

In past decades, corporations have come to acknowledge the need to go beyond their mere economic dimension, in view of their increasing impact on society as a whole. From the 1970s, they started to create a “private self-regulatory system”, today known as Corporate Social Responsibility (CSR).[1] The expression indicates a body of voluntary measures, aiming at tailoring enterprises’ operations on perceived societal needs.

Undeniably, the adoption of such codes and standards has played a role in advancing compliance of TNCs with human rights. However, there is a stark difference between CSR and  “business and human rights” (BHR) instruments: the latter endeavour to provide a broader coverage – both ratione materiae and ratione personae – with regard to the self-regulation of human rights violations by TNCs, thereby referring to relevant international standards. As examples of this, it is worth recalling, among others, the UN Global Compact, the ILO Declaration of 1998, the OECD Guidelines, and, ultimately, the UN Guiding Principles on Business and Human Rights of 2011 (UNGP). The major downside of these sources is to be found in their soft-law nature: they create no true legal accountability, nor are they currently enforced by courts.

It is worth reminding that the 2014 Resolution does not constitute the first attempt to negotiate a binding instrument on the matter: the 2003 Norms on Transnational Corporations, drafted by the UN Sub-Commission on the Promotion and Protection of Human Rights, were ultimately not adopted. This failure was mainly attributable to the lack of consensus around several concepts, which are essentially still contested today. 

The decision to re-engage in such a project largely relies on a rekindled consensus, triggered by the adoption of the UNGP. In fact, the UNGP has formed unprecedented agreement on relevant issues: it shaped common standards to which relevant stakeholders can refer when corporate interests and human rights collide.

Do we need new commitments?

The decision to pursue a binding agreement has not yet resulted in the abandoning the UNGP. The Human Rights Council keeps fostering and monitoring the implementation of the Guiding Principles in national law. Albeit slowly, States are adopting national action plans and a variety of other instruments, which aim at operationalising the UNGP. The new Dutch Agreement on Sustainable Garment and Textile or the 2015 UK Modern Slavery Act are examples of this trend. Thus, the question would be… do we really need a new Treaty?

Certainly, the prospective instrument cannot constitute a mere repetition of its predecessors.[2] Thus, a successful drafting requires the identification of shortcomings of the previous legislation, to be developed and specified. Three main issues have been identified:[3] the question of monitoring mechanisms and remedies; the development of extraterritorial clauses establishing State responsibility for TNCs incorporated under their laws; the actual extent of the due diligence obligation designated by the UNGP (especially in Principles 15 and 17).

Moreover, delegates have to take into account the lack of consensus, which has immediately marred Resolution 26/9: notwithstanding the intense lobbying carried out by numerous NGOs, several States are opposing the formation of a new Treaty. In particular, the EU argues against its usefulness, deeming the implementation of the UNGP sufficient to tackle the problem, without undergoing further lengthy negotiations. This vision is endorsed by some scholars, who believe that the adoption of effective domestic measures, rather than an international Treaty, could better tackle the problem.[4]

Furthermore, there are still major disagreements on some basic concepts and theoretical foundations. Therefore, delegations will need to agree on a precise and coherent framework; to take a normative stance on some key issues; to identify the right level of abstraction, agreeing on the grade of depth, precision, and prescriptiveness these rules ought to have; and, probably, to limit the content and scope of the treaty, leaving aside aspects which would be better tackled on the national level.[5] Of course, this is easier said than done. From the reports of the first and second sessions of the WG, it appears clearly that, even when delegations agree on the desired result, discrepancies on the means still remain. 

Ultimately, if not solved, these disagreements could lead to two possible outcomes: either negotiations will bog down, or meaningful instances and the identification of precise obligations will be sacrificed on the altar of compromise. In the next sections, I will review what I consider the burning issues and choices ahead for the negotiators.

Would there be a catalogue of rights?

There are two contrasting views on this issue. On one side, the inclusive approach – i.e., the decision to protect all human rights, without further specification – has the undoubted perk of averting the possibility of undue prioritization of social and political rights over social and economic rights. On the other, it is a risky tactic, since quantity might prevail over quality: the category of rights covered will be inflated, thereby potentially resulting in an overall lower standard of protection.

Moreover, including a catalogue inside the Treaty could have two main advantages: with regard to TNCs, it could provide better guidance on the actual obligations they are supposed to implement;  more generally, it could be a way of developing the interpretation of certain rights, which still rely on quite vague concepts (e.g. standard of living, the concept of ‘living wages’, etc.).[6]

Which enterprises?

Drawing on the text of the Resolution, some have argued that the new Treaty will focus merely on TNCs, narrowing the scope of UNGP. Some delegations (in particular, the EU), have strongly criticised this stand, submitting that even local companies and State-owned companies can violate human rights. Thus, a restricted scope would ultimately result in discrimination not only between different companies, but between victims, who will have different access to remedies depending on the perpetrator.

Ultimately, this issue boils down to the need to adopt a definition of TNC susceptible to include all the actors of the supply chain.[7] Nonetheless, it is still unclear whether the proposed instrument will include such a definition. Instead, some delegations have proposed to include all enterprises within the scope of the Treaty, but to provide for more specific norms for TNCs.

Imposition of direct obligations upon TNCs

This question essentially depends on whether TNCs are to be considered as subjects of international law. The complex and lengthy literature on this matter falls outside the scope of this post.[8] However, this much debated issue cannot be easily dismissed, since its answer establishes the existence of international legal personality and, ultimately, of responsibility of TNCs.

The growing consensus on the legal personality of corporations under international law is mainly based on an application, by analogy, of the reasoning of the ICJ in Reparations of Injuries. The argument is further supported by the existence, in international law, of rights enjoyed by corporations, especially in the context of Investor-State Dispute Settlement (ISDS). Logically, an entity provided with legal rights should be also capable of being bound by legal obligations.

Furthermore, it is believed that UNGP already attached legal personality to TNCs. However, the Human Rights Council has clarified that the second pillar of the Principles, i.e., the responsibility of TNCs to respect human rights, does not per se entail a legal obligation, but more of a moral and social responsibility. 

The inclusion of direct obligations on TNCs to respect (or even protect) human rights has the purpose to avert the so-called “race to the bottom”, namely, a situation in which the State is too weak to uphold human rights in its territory and finds itself incapable of resisting to the pressure of TNCs, fearing a negative impact on their economy.[9]

Nonetheless, the idea remains quite controversial, especially because there is no general rule in international law providing for responsibility of TNCs. Therefore, a Treaty would need to set up an all-comprehensive construction which would deal both with primary and secondary rules.[10]

Thus, it might be considered more appropriate to maintain the regulatory focus on States. Indeed, there is an inherent value in keeping them at the centre of the system: since the States which are major supporters of the Treaty also have a poor human rights record, one wonders whether the focus on TNCs will lead to a blame game between different subjects.[11] However, this does not mean that a satisfactory result cannot be achieved by mean of indirect obligations on TNCs, which would result in a direct responsibility of States. This could be put into practice by providing for precise due diligence obligations to be implemented, probably, with the help of extraterritorial clauses.

Due diligence obligations

There are mainly two dimensions of due diligence which are relevant in this context. On the one hand, a due diligence obligation stemming from international law would provide ground for States’ responsibility for its breach, in case of a violation perpetrated by TNCs incorporated under their domestic law; on the other hand, due diligence might be required from TNCs for acts of other entities which are part of their supply chain.

At the outset, it is important to stress that State responsibility will be broader or narrower, depending on the degree of due diligence a State is asked to exercise. Since there is no general obligation of due diligence in international law,[12] the Treaty would have to provide for it: this will allow to cover the conduct of private entities, whose acts cannot be traced back to the State by means of a rule of attribution or by using the framework of complicity. Thus, most likely, these new obligations would serve the purpose of clarifying the level of control a State must exercise on the conduct of private actors in any given moment.

Without denying the need for new rules on the matter, it would be hard to conceive that a single instrument could carry out such a task with the sufficient degree of precision effectiveness requires. A decision will have to be taken on what a State could reasonably be expected to exercise control over, presumably drawing from the landmark case Velásquez Rodríguez (Inter-American Court of Human Rights), and on the obligation posed by art. 2(1) International Covenant on Civil and Political Rights (ICCPR). Of course, this does not take away States’ international obligation to provide remedies for violations perpetrated by private actors on their territory. This issue will be further discussed below.

As far as the second dimension is concerned, UNGP already provided for a due diligence obligation for TNCs. However, for it to become prescriptive and operational, the extent of this duty would need to be further clarified. Corporations have already a wide set of responsibilities under national laws as domestic legal systems provide for different legal obligations (from tax to labour, from environment to anti-discrimination). Responsibility for a breach of those obligations is reflected in different types of liability. However, defining the scope of responsibility of TNCs has become increasingly difficult also in domestic law. This is largely due to the maze of different subsidiaries, suppliers, and (sometimes even illegal) subcontractors a parent company might have.[13]

In order to appraise that, one should take a step back to consider the much-debated question of the corporate veil, i.e. the obstacles created for accountability by the doctrine of separate personality, and the distinction between different legal entities. This veil exists even between a company and its shareholders, as clearly affirmed by the ICJ in Barcelona Traction, and even more so between different companies. However, the ICJ in the very same judgement (§38-39) has held that the veil can be lifted in some circumstances, such as when the privilege given by the doctrine of separate personality has been abused. This reasoning has slowly been expanded in order to create direct liability of the parent company in case of breach of due diligence with regard to other legal persons belonging to its supply chain.[14] In this way, it will be possible to avoid the problem of undercapitalisation of subsidiaries or suppliers, which are often unable to pay compensation when a case is decided against them.

Up until now, the notion of due diligence has been accompanied by very vague concepts, as, for example, the one of sphere of influence.[15] This notion reflects the idea that the more the company is powerful and influential, the stronger responsibility it has vis-à-vis human rights, because it will be able to leverage the entity in its supply chain committing the abuse.[16] The envisaged Treaty will need to provide legal certainty on how this concept will be operationalized, and how far this due diligence obligation extends. While it is feasible to conceive of a due diligence obligation of the parent company toward its subsidiaries, it becomes harder and harder the more the network of contractors and subcontractors expands.

Extraterritoriality

Were the delegates to agree upon the actual scale of the due diligence obligation required, the putative ruling against the parent company for a breach of due diligence could have some extraterritorial effects against the subsidiaries. Extraterritorial clauses would entail the direct jurisdiction of foreign States on companies incorporated in another State, provided that there is a link between the two actors.[17] The possibility of including such extraterritorial clauses in the Treaty would be revolutionary, since it would challenge one of the core principles of human rights jurisdiction, i.e. territoriality. Moreover, such a provision could be subject to criticism, because of its possible impact on the sovereignty of the host State.

It is probably right that extraterritorial clauses will have a greater deterrent effect on TNCs. However, clarifying the link between the forum State and the State of incorporation, or between the two companies, will be essential in practice. Particularly, while in the case of subsidiaries thresholds and standards can be borrowed from other fields of law (e.g. competition law, consumer law), an effective control test might need to be developed in order to capture the required link between a company and another contractor.[18]  Although the Maastricht Principles on Extraterritorial Obligations might provide guidance, they seem overly vague for this purpose.

Thus, the Treaty will probably need to phrase the extraterritoriality question as a conflict of jurisdictions. An international binding instrument governing the relationship between different jurisdictions on the matter would ensure cooperation between States, while limiting the above-mentioned possible disruptive effect of extraterritorial clauses. This would obviously have a direct impact on the issue of access to remedies 

Remedies

During the negotiations, some have advanced the idea of a new international body to monitor compliance. Yet, the enforcement of the prospective instrument will most likely rely on domestic courts. The current hurdles to access to justice for victims of human rights violations are largely related to jurisdictional issues, lack of recognition of foreign judgements, and extensive use of the principle of forum non conveniens. Therefore, obligations dealing with procedural matters regarding remedies are of the upmost importance to a successful Treaty.

One might discuss whether to criminalise certain conducts: perpetration of certain human rights abuses is deemed to be criminal in nature, and, hence, linked to the remedies attached to criminal liability. However, the interplay between corporations and criminal law is still uncertain even in some domestic jurisdictions.

Conclusion

In conclusion, there are a number of key issues which will define the impact of the future Treaty and be at the heart of the upcoming negotiations.

First, who is primarily responsible for the human rights violations of a TNC broadly speaking (including subsidiaries and subcontractors)? The home State, the TNC, or both? The answer provided will most likely condition the practical bite of the Treaty and the ease or difficulty to enforce the obligations it will set out.

Second, the definition of core concepts, such as ‘due diligence’ and ‘sphere of influence’, is an important semantic battleground. They will define the scope of the responsibility of TNCs and States and the extent to which they are deemed responsible for activities occurring outside of their immediate (contractual or territorial) surroundings.

Finally, the capacity of victims to access remedies will be crucial to the practical effect of the new Treaty. This could entail the recognition of the extraterritorial nature of due diligence obligations and the potential responsibility of States vis-à-vis third country nationals.

 


[1] B. Sheehy, Understanding CSR: an empirical study of private regulation, in Monash University Law Review, 2012, 105

[2] K. Mohamadieh, Approaching States’ Obligations Under a Prospective Legally Binding Instrument on TNCs and Other Business Enterprises In Regard to Human Rights, in South Centre Policy Brief, October 2016, 1

[3] O. De Schutter, Towards a legally binding instrument on business and human rights, in CRIDHO Working Paper 2015/2 2015, 17

[4] S. Mc Brearty, The Proposed Business and Human Rights Treaty: Four Challenges and an Opportunity, in Harvard International Law Journal, 2016, 12

[5] K. Mohamadieh, Ibid., 3

[6] S. Mc Brearty, Ibid., 13

[7]  K. Mohamadieh, Ibid., 2

[8] See also N. Gal-Or et al., Responsibilities of the Non-State Actor in Armed Conflict and the Market Place, Brill Nijhoff, The Hague, 2015; M. Karavias, Corporate Obligations under international law, Oxford monographs in international law, Oxford, 2013.

[9] L. Mc Connell, Assessing The Feasibility Of A Business And Human Rights Treaty, in International and Comparative Law Quarterly, 2017, 162

[10] L. Mc Connell, Ibid., 151

[11] S. Mc Brearty, Ibid., 14

[12] R. P. Barnidge, The Due Diligence Principle Under International Law, in International Community Law Review, 2006, 92

[13] O. De Schutter, Ibid., 20

[14] O. De Schutter, Ibid., 19

[15] The concept was first used in the 2003 Draft Norms and it is still used in current negotiations

[16] O. De Schutter, Ibid., 21

[17]  K. Mohamadieh, Ibid., 4

[18]  K. Mohamadieh, Ibid.

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Doing Business Right Blog | The Dutch Agreement on Sustainable Garment and Textile. Taming transnational supply chains via corporate due diligence.

The Dutch Agreement on Sustainable Garment and Textile. Taming transnational supply chains via corporate due diligence.

The six months between 2012 and 2013 represented a turning point for the garment industry. On 24 April 2013, the Rana Plaza building collapse in Bangladesh killed more than 1100 workers. Just a year before, more than 350 garment workers died in two factory fires in Pakistan and Bangladesh. These three tragedies, among the deadliest industrial disasters in recent times, generated a previously unseen level of outrage to which followed a considerable mobilisation by civil society, business communities, States, and international organisations. Apart from the horror stemming from the loss of lives, mostly of young women, the three catastrophes were particularly shocking for Western audiences as they exposed our ignorance and even complicity. It turned out that we - the consumers – turn a blind eye to the working conditions, including health and safety, of garment workers. Thereafter, it was impossible to ignore that well-known brands we regularly purchase were connected to these production sites, which were regular suppliers of many European and American clothing companies.

A certain consensus has since then coalesced around possible means to avoid the reoccurrence of such tragedies, which has pivoted on the concept of corporate due diligence in investigating the impact of their operations and taking measures to protect human rights. Due diligence relies heavily on corporate practice in defining and implementing strategies limiting their negative impact. Initiatives at the national level such as the Dutch Agreement on Sustainable Garment and Textile can be seen as interesting attempts to constrain into a more structured frame the due diligence process. The question, as usual, is whether this is enough.

Changing supply chain and novel transnational regulatory approaches

In Twenty-First century capitalism, manufacture spans across the globe in global value chains. Corporations in Western countries are connected to myriads of suppliers and contractors responsible for different steps in the production process. In the garment industry, retailers in the Global North are connected through a network of contractual relations to independent entities across the world which, in turn, often subcontract production and assembly to other firms and producers all the way down to those responsible for the production of inputs such as cotton and other fibres. The retailer has little influence on all these entities, and its control remains often indirect at best. Global value chains make it difficult for companies to structure their relations with their suppliers in a way which limits the negative impact linked to their activities. In addition, also single States are impotent in the regulation of diffuse supply chains if they want to limit their negative impact on human rights, labour rights, and the environment. Indeed, the contribution from countries where production is located is essential, especially for the enforcement of labour and health and safety standards. Also corporations are required to step up their efforts in dealing with their partners in the supply chain.

The several regulatory efforts initiated in the aftermath of the Rana Plaza illustrate a novel multi-actor, multi-level, and less top-down approach to the regulation of transnational business conduct which aims at overcoming the jurisdictional constraints of State rules. The proliferation of global value chains and their increased impact coincided with a process that, under international law at first, switched the consensus about which actors should be responsible for regulating supply chains, and by means of which tools. This process culminated with the United Nations Guiding Principles on Business and Human Rights, that affirmed the principle of corporate responsibility to respect human rights. Corporate due diligence was chosen as a regulatory strategy to ensure the protection of human rights. Due diligence is a continuous process which requires enterprises to assess actual and potential human rights impact directly linked to their activities. Companies must design strategies to proactively minimise and correct their negative impact.  Transparency in the form of communication of corporate impact to external stakeholders is an important component of due diligence. Companies are expected to regularly report about the effects of their operations and the corrective response taken in order to build trust of all actors involved, including workers, consumers, NGOs, and even investors.

It is within the framework of these principles that the many public and private regulatory efforts that followed the Rana Plaza disaster must be understood. As initiatives in the area of garment have proliferated, a peculiar form of ‘division of labour’ began to take shape at the transnational stage. On the one hand, initiatives involving trade unions, business actors, States and international organisations such as the ILO, have addressed worker safety in Bangladesh,[1] and compensations and reparations for the families of the victims.[2] On the other hand, States aimed at improving working conditions in Bangladesh through programs focused on training and capacity-building.[3] Other initiatives took a ‘global’ approach by creating mechanisms capable of harnessing business conduct generally, and not just in a specific country. Crucial OECD work has focused on the practical implementation of due diligence procedures. Thus, the OECD Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector constitutes one of the first sector-specific implementing document of the OECD’s set of standards for responsible business conduct - the OECD Guidelines for Multinational Corporations, the first version of which dates back to 1976. 

Enter the Dutch Agreement on Sustainable Garment and Textile

The Dutch Agreement on Sustainable Garment and Textile is one of the first initiatives at the national level supporting the implementation by corporate actors of their due diligence obligations. At the same time, it attempts to ‘harden’ business obligations to perform human rights due diligence in the supply chain, and provides means to enforce an obligation which could not stem from the UNGP. The Agreement represents an interesting example of multi-stakeholder efforts in the regulation of fundamental socio-economic issues, where industry organisations, trade union, non-governmental organisations and the Dutch government agreed to join forces to ensure responsible business practices in the global garment and textile supply chain.

The Agreement expressly builds on the UN Guiding Principles and on the OECD Guidelines in order to i) making progress in 3-5 years towards the improvement the conditions of groups affected by adverse impacts in respect of specific risks in the garment and textile supply chains; ii) to provide business actors with a set of tools for preventing their operations and production from negatively impacting on their supply chain; iii) to develop joint projects to address issues that single companies could not tackle successfully. The Agreement was signed in July 2016 by 55 companies with their representative organisations - together constituting around 30% of the sectors in the Netherlands, 5 NGOs, the Dutch trade unions, and the Government. Signatories are expected to engage with business actors which did not enter into the Agreement and urge them to sign, so that the market shares of the companies involved reaches at least 50% by 2018 and 80% by 2022.

The commitments made by the enterprises

Enterprises party to the Agreement assume certain obligations, the main of which being the inclusion of nine ‘themes’ in their internal policies for responsible business conduct. Interestingly, the Agreement takes up a broad scope with respects to the supply chain risks which corporations must tackle, including not just human rights and work-related issues such as forced labour, freedom of association and living wage, but also safety and health concerns, and even gender themes, environment and pollution, and animal welfare. The detailed components of each specific theme are laid down in the Annexes to the Agreement. The obligation to address these issues is operationalised via due diligence processes which, in line with the OECD Guidance, must be communicated to all partners in the supply chain and other stakeholders, and must be performed in a manner proportionate to the size of the business and the specific circumstances of the operations.

 The commitment to conduct due diligence on the nine themes identified in the Agreement is far from being just hortative. In the first place, companies are given access to a set of tools for implementation provided for by the Secretariat. Corporate signatories are then required to annually submit an ‘action plan’ for assessment and approval by the Secretariat of the Agreement. Such an ‘action plan’ does not seem to be contemplated by the OECD Guidance, which only refers to a Corrective Action Plan with a different content. The action plan is not available to the public in light of confidential business information about suppliers and pricing policies. Nonetheless, the information required therein forces companies to gather information about their operations and to reflect upon their own practices. The plan must present the insights gained through due diligence about the structure of their supply chain. It must address how specific purchase practices of the companies, including prices, delivery times and duration of the contacts of supply, may increase risk in their supply chain. The action plan also requires companies to substantiate their policies with regards to the nine themes, and formulate measurable targets for improvement.

The Agreement explicitly stresses the ‘business case’ for an early-mover engagement in responsible production. Indeed, it allows signatories companies to anticipate the growing trend of mandatory due diligence, which is particularly noticeable in the EU. After the Directive on non-financial reporting and the Regulation on conflict minerals, the European Parliament has recently tabled a Motion to require the Commission to propose mandatory regulation for the garment supply chain. Different from mandatory due diligence as laid down, for example, in the conflict minerals Regulation, the Agreement does not contemplate third party auditing of due diligence, the outcome of which must normally be made public by companies. In any event, signatory corporations to the Agreement can publicise their participation, can rely on the support of other parties in its implementation, and have access to a growing corpus of best practices that the signatories are going to share within the framework of the Covenant. Companies can also rest assured that, in case information arises concerning an enterprise’s adverse effects in the supply chain, other parties (presumably NGOs) will not make the information public before the elapsing of a two-week period during which the involved company must produce a ‘satisfactory result’.

Institutional features, mechanisms for review and dispute settlement

Certain institutional features constitute the most innovative and interesting elements of the Agreement, which sets up permanent institutions responsible for monitoring companies’ action plans and for settling disputes. The Steering Group and its Secretariat are instrumental in overseeing compliance with the Agreement, in pushing companies towards respecting the commitments in their action plans, and in ensuring that continuous improvement takes place. The Steering Group, which acts by consensus and whose composition reflects the multi-stakeholder character of the Agreement, is responsible for its day-to-day management and possible projects for its implementation. The Steering Group is supported by a Secretariat.

The Secretariat serves as a central source of expertise, training and support for enterprises in the area of due diligence. Its most important task is, however, the assessment of companies’ action plans elaborated within the frame of their due diligence obligation. The assessment is performed against the text of the Agreement itself, the OECD Guidance, and the context of operation of the enterprise under review. Specific elements of due diligence are under scrutiny as well, such as the way the company communicates its principles and policies for ‘international responsible business conduct’, and how these policies are implemented in its daily operations. The review shall also appraise the way the company has analysed risk of adverse impact, whether it has collected sufficient information about its supply chain, whether it has prioritised its activities, and investigated the correlation between its own practice and adverse impact.

The review of the action plan evaluates the undertakings for improvement both with respect to the reduction of its adverse impact, the monitoring of its suppliers and the insights acquired over its operations, and theme-specific suggestions made by the parties to the Agreement. Further, the Secretariat compares the companies’ objectives with respect to each of the nine themes. Companies with less ambitious goals and which may be expected to do more, given their size and context of operations, will be ‘asked’ to scale up their efforts. Under this scenario, the enterprise is given the opportunity to present a revised action plan after two months. The Secretariat is also empowered to randomly verify that the information supplied is accurate. Finally, the Secretariat prepares aggregated annual public reports of the results achieved and of the improvements in the supply chain.

The review of action plans is given a prominent place in the Agreement, although it seems to lack real enforcement tools. A dispute settlement mechanism is created to solve disagreements (that the Agreement defines as ‘disputes’) between the company and the Secretariat about its assessment. Such disputes are limited to the review of the action plans, and not the appraisal of other elements of individual due diligence. An independent Complaints and Dispute Committee will be appointed by the Parties, with the competence to assess whether, with specific respect to action plans, a signatory enterprise is acting in accordance to the Agreement. The ruling of the Committee is binding both on the enterprise in question and on the Secretariat, which is entrusted with monitoring compliance. In case a company fails to comply with the ruling of the Committee after the timeframe it has specified, all information the Secretariat possesses on the company in question, including the dispute proceedings, is released to the Steering Committee members, excluding the business ones. The Agreement does not clarify whether the reports can be made public. At this stage, the Steering Committee can then only ‘issue written reminders’ to urge compliance. In the presence of further disagreement over compliance with a decision of the Complaints and Dispute Committees, one or more parties to the Agreement can submit the question to arbitration by the Netherlands Arbitration Institute (NAI). The standard of review of the NAI is expressly limited to ‘review marginally’ whether or not the company is in compliance with the binding advice of Committee. As it can be seen, no sanctions stem from failing to comply with the Committee’s advice. This questions whether the Agreement actually provides with real tools to scale up ‘sloppy’ commitments, or even just to enforce current ones, apart from offering a platform for discussion and peer pressure.

A second mechanism is contemplated for ‘complaints’, which can be raised by any stakeholder suffering injury, loss, or damage caused by a company party to the Agreement. As a non-negligible limitation, the subject matter of the complaint must be ‘of material significance’ to the complaining party, and must be substantiated in relation to the responding business party. This mechanism however is only ‘residual’. To the extent it may overlap with the jurisdiction of another dispute settlement mechanism (arguably the National Contact Point for the OECD Guidelines), the Agreement gives precedence to the latter one. It can therefore be expected that the complaints mechanism under the Agreement will deal with, for example, complaints linked to themes which are outside the scope of the OECD instruments. While the subject of the complaint and the parties involved are made public, the rest of the proceeding is not accessible, and the parties must withhold any information. Also the public nature of the binding ruling can be questioned, as parties can require confidentiality for competition and privacy concerns. The Committee will rule on whether the company is acting in accordance with the Agreement. In case further failure to comply with a ruling of the Committee is due to a supplier which cannot be induced to cooperate, such supplier is black-listed and parties to the Agreement are no longer allowed to purchase from it. In case of ‘unjustifiable’ failure to comply, parties can release information to the public about the dispute as well as express their opinion on the failure to comply. As a measure of last resort, parties can also request to the Steering Committee that the enterprise in question is expelled from the Agreement.

The challenges lying ahead

The Agreement is a much needed step to ensure more responsible practices in the Dutch garment sector, and to foster corporate due diligence. Its most important contribution appears to be the establishment of a system to enforce voluntary commitments. However, its multi-stakeholder nature has required certain compromises limiting the extent of review of due diligence practice and the amount of insight the public can acquire about a specific company and its supply chain. Although companies are required to perform due diligence, it is unclear whether, and if so to what extent, the way the due diligence process is operationalised in practice is checked. This should be compared with the approach followed by recent EU legislation contemplating auditing of the processes implemented by enterprises, and thereafter the release of the findings. Granted, the power of peer pressure should not be underestimated as a check on companies’ action plans. The establishment of a permanent structure capable of exercising pressure on corporate entities to force them to respect their commitments, and eventually to scale them up, appears a sensible approach to engage companies in behaviour that, as of now, goes beyond legal provisions which would otherwise be applicable.

Within this frame, it is regrettable that action plans are not made available in a disaggregated form, so as to allow the public to evaluate the commitments entered into by specific corporations. If one of the purposes of the Agreement is to establish a framework for accountability with respect to their own commitments, then more transparency would have certainly be welcomed. Wouldn't it be sufficient to remove sensitive information from action plan? Generally, transparency can also allow the public to form a better understanding of the garment supply chain in which Dutch companies operate. Admittedly, the situation could improve, as companies are to decide - within 1 year from the entry into force - which information to disclose and - within 3 years - how to communicate individually to the public. Developments are still possible as companies are expected to begin implementation of their actions plans in July 2017. Future practice of the Secretariat, the Steering Committee, and especially of the signatory companies will be key to determine the impact of the initiative.



[1] Alliance for Bangladesh Worker Safety, supported by US businesses; Accord on Fire and Building Safety in Bangladesh, which features a tripartite structure.

[2] Rana Plaza Arrangement.

[3] Sustainability Compact for Bangladesh.

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