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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Doing Business Right Blog | The Proposed Binding Business and Human Rights Treaty: Introducing the Draft - By Shamistha Selvaratnam

The Proposed Binding Business and Human Rights Treaty: Introducing the Draft - By Shamistha Selvaratnam

Editor’s note: Shamistha Selvaratnam is a LLM Candidate of the Advanced Masters of European and International Human Rights Law at Leiden University in the Netherlands. Prior to commencing the LLM, she worked as a business and human rights solicitor in Australia where she specialised in promoting business respect for human rights through engagement with policy, law and practice.

By resolution, on 26 June 2014 the UN Human Rights Council adopted Ecuador’s proposal to establish an inter-governmental working group mandated ‘to elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises’. The proposal was adopted by 20 to 14 votes, with 13 abstentions, and four years later, in July this year, the working group published the first draft of the treaty (from herein referred to as the ‘treaty’). Shortly after, the draft Optional Protocol to the draft treaty was released. The Optional Protocol focuses on access to remedy for victims of human rights abuses by businesses.

This first blog of a series of articles dedicated to the proposed BHR Treaty provides an overview of the main elements of the draft. It will be followed by a review of the reactions to the Draft, and a final piece outlining some recommendations for the upcoming negotiations.

Key Provisions of the Treaty

Preamble (Treaty, Article 1)

The preamble of the treaty makes it clear that it is the primary responsibility of the States to ‘promote, respect and fulfill human rights and fundamental freedoms’, including human rights abuses committed by businesses. Accordingly, the treaty seeks to indirectly impose obligations on businesses by calling on State Parties to adopt legislation that is consistent with the treaty requirements.

Purpose (Treaty, Article 2)

The purpose of the treaty is to ‘strengthen the respect, promotion, protection and fulfillment of human rights’ and to ‘ensure effective access to justice and remedy to victims of human rights violations’ in the context of business activities of transnational character, and to ‘advance international cooperation’ so that States fulfill their obligations under international human rights law.

Scope and jurisdiction (Treaty, Articles 3 to 5)

The treaty will apply to ‘human rights violations in the context of any business activities of a transnational character’. ‘Business activities of a transnational character’ is defined to mean ‘any for-profit economic activity … undertaken by a natural or legal person … that take place or involve actions, persons or impact in two or more natural jurisdictions’. Accordingly, unlike the UN Guiding Principles on Business and Human Rights, the treaty does not apply to and bind businesses that only have domestic activities.

Jurisdiction for acts or omissions arising under the treaty vests in the court of the State where the acts or omissions occurred or where the alleged perpetrator (whether a natural or legal person) is domiciled. The alleged person is considered to be domiciled at the place where it has its: ‘(a) statutory seat; (b) central administration; (c) substantial business interest; or (d) subsidiary, agency, instrumentality, branch, representative office or the like.’

Rights of victims (Treaty, Article 8)

‘Victims’ are defined to mean persons who individually or collectively alleged to have suffered harm, including physical or mental injury. The treaty recognises that victims have the right to ‘fair, effective and prompt access to justice and remedies in accordance with international law’, including restitution, compensation and environmental remediation. It also imposes a number of obligations on State Parties to the treaty, namely, State Parties must:

  • Guarantee the rights of victims to present claims to their court.
  • Investigate all human rights violations effectively, promptly, thoroughly and impartially and take action against alleged perpetrators.
  • Ensure their laws do not unduly limit the right of victims to appropriate access to information relevant to the pursuit of remedies.
  • Provide proper and effective legal assistance to victims throughout the legal process (for example, by informing victims of their procedural rights).
  • Assist victims in overcoming financial barriers to commencing proceedings.
  • Establish an International Fund for Victims to provide legal and financial aid to victims.
  • Provide effective mechanisms for the enforcement of remedies.
  • Protect victims, their representatives, families and witnesses from unlawful interference with their privacy, and from intimidation and retaliation.

The treaty also provides that in no case will victims be required to pay the legal expenses of the other party to a claim.

Human rights due diligence (Treaty, Article 9)

A key article of the treaty requires State Parties to ensure that their domestic legislation requires all businesses to which the treaty applies to undertake due diligence throughout their business activities. The due diligence must take into account ‘the potential impact of human rights resulting from the size, nature, context of and risk associated with the business activities’ (including the activities of its subsidiaries and controlled entities).

The due diligence undertaken by businesses must include:

a)     Preventing human rights violations within the context of its business activities.

b)     Monitoring the human rights impact of its business activities.

c)     Identifying and assessing any actual or potential human rights violations that may arise through its activities.

d)     Reporting publicly and periodically on non-financial matters (for example, environmental and human rights matters).

e)     Undertaking pre and post-environmental and human rights impact assessments covering its activities.

f)      Reflecting the requirements set out in a) to e) above in its contractual relationships.

g)     Carrying out ‘meaningful consultations with groups whose human rights are potentially affected by the business activities and other relevant stakeholders’.

h)     Establishing and maintaining financial security, if required.

Failure to comply with the above requirements will result in commensurate liability and compensation. However, the treaty provides that State Parties can exempt certain small and medium-sized businesses from selected due diligence obligations to avoid imposing undue administrative burdens on those businesses.

Legal liability (Treaty, Article 10)

The treaty requires State Parties to ensure that both natural and legal persons can be held criminally, civilly or administratively liable for human rights violations undertaken in the context of business activities through their domestic law.

The treaty also sets out the principles for civil and criminal liability. With respect to civil liability, businesses to which the treaty applies will be liable for harm caused by human rights violations in the context of their business activities in various circumstances, namely:

a.     to the extent it exercises control over the operations; or

b.     to the extent it exhibits a sufficiently close relation with its subsidiary or entity in its supply chain and where there is strong and direct connection between its conduct and the wrong suffered by the victim; or

c.     to the extent risk have been foreseen or should have been foreseen of human rights violations within its chain of economic activity. 

With respect to criminal liability, States are required to ‘provide measures under domestic law to establish criminal liability for all persons with business activities of a transnational character that intentionally, whether directly or through intermediaries, commit human rights violations that amount to a criminal offence’. Where criminal responsibility is not applicable to legal persons in the legal system of a State Party, that Party must ensure that legal persons are subject to ‘effective, proportionate and dissuasive non-criminal sanctions, including monetary sanctions or other administrative sanctions’.

Mutual legal assistance and international cooperation (Treaty, Articles 11 and 12)

States Parties must ‘cooperate in good faith to enable the implementation of commitments' under the treaty and the fulfilment of the treaty’s purposes. They must afford one another the widest measure of mutual legal assistance in initiating and carrying out investigations, prosecutions and judicial proceedings’. This includes taking evidence from persons, executing searches and seizures and facilitating the freezing and recovery of assets. However, a narrow exception to mutual legal assistance is also provided.

With respect to international cooperation, State Parties must undertake ‘appropriate and effective measures’ to allow for international cooperation among the States. This may include sharing experiences, good practices and challenges.

Enforcement and remedies (Treaty, Article 14; Optional Protocol, Articles 1, 3 to 8, 10 and 11)

The treaty does not contemplate any international enforcement or complaint mechanism. Instead, it establishes a monitoring and oversight mechanism – a Committee of experts. The Committee will perform a number of functions including making general comments on the treaty, considering and providing concluding observations and recommendations on reports submitted by State Parties and providing support to State Parties in order to allow for the implementation of the treaty.

In contrast, State Parties that ratify the Optional Protocol recognise ‘the competence of the Committee … to receive and consider communications from or on behalf of individuals or groups of individuals’. If the Committee receives a communication, it must bring it to the attention of the State Party concern and the involved person conducting business activities who can then submit written explanations or statements clarifying the matter and the remedy within six months. The Committee can then designate its members to carry out a confidential inquiry into the matter and report to the Committee urgently. The findings of the inquiry will then be provided to the State Party and the involved person conducting business activities, together with comments and suggestions.

Further, pursuant to the Optional Protocol, State Parties are required to establish a National Implementation Mechanism (NIM) ‘to promote compliance with, monitor and implement’ the treaty within two years. The functions of the NIM are to: (a) make the treaty content known to the general public, business and victims; (b) cooperation with other national institutions, foreign NIMs and civil society organisations ‘to raise awareness on the implementation’ of the treaty; and (c) make recommendations to a State Party’s competent authorities.

As such, NIMs will have the power to:

  • request necessary information from a State Party in relation to the implementation of the treaty, including financial and non-financial information. It also has the power to request information from other State Parties;
  • conduct reviews on the implementation of a State Party’s due diligence obligations when requested by ‘victims, natural or legal persons conducting business activities of a transnational character or all other persons with a legitimate interest’, or where the NIM deems it necessary;
  • where non-compliance is identified, provide recommendations to natural or legal persons conducting business activities in order for it ‘to bring its operation into compliance, [or] inform the competent authorities about such conduct or omission’;
  • receive, consider and investigate complaints of human rights violations alleged to have been committed by natural or legal persons conducting business activities brought by victims or a group of victims, their representatives or other interested parties’, and assist parties to reach an amicable settlement; and
  • monitor the compliance of parties that have reached an amicable settlement, and, in the event of any non-compliance, communicate the non-compliance to the Committee of experts, ‘without prejudice to the right to institute appropriate judicial or administrative procedures against the non-complying party.’

Implementation (Treaty, Article 15)

In order to implement the treaty, State Parties are required to, inter alia, ‘take all necessary legislative, administrative or other action’ to ensure the effective implementation of the treaty. The treaty does not elaborate on how State Parties are to do this in practice.

Next Steps

So where to from here? The working group’s next session is scheduled for 15 to 19 October 2018 in Geneva during which it will discuss the treaty and Optional Protocol. While the treaty and Optional Protocol are a step in the right direction to imposing human rights obligations on businesses there are still gaps that it needs to address, which will be explored in the next blog post.

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