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GREAT insights Magazine

CSR in international trade and investment agreements

December 2016

Peels, R., Echeverria Manrique, E. CSR in international trade and investment agreements. GREAT Insights Magazine, Volume 5, Issue 6. December 2016/January 2017. CSR in international trade and investment agreements

While reference to Corporate Social Responsibility in trade and investment agreements is becoming more common and comprehensive, the practical implications are still uncertain.

The proliferation of Corporate Social Responsibility (CSR) schemes has contributed to a global labour governance framework that is increasingly diverse, involving a wide array of policy instruments and institutional mechanisms. This article examines in particular the interplay between these various instruments and mechanisms.

While CSR was once considered as purely private and voluntary, some authors have argued that it increasingly integrates non-voluntary elements and is governed by law. By examining CSR language in trade and investment agreements, this article analyses the increasing regulation of CSR. We focus on labour-related CSR clauses in trade and investment agreements, that is, explicit CSR language, including both principles and references to instruments, such as the Tripartite declaration of principles concerning multinational enterprises and social policy (ILO MNE Declaration) and the OECD Guidelines for Multinational Enterprises (OECD Guidelines). These can be distinguished from traditional labour provisions (IILS, 2009; ILO, 2016), mainly by explicitly addressing the expected behaviour of private business. We also examine the possible implications of CSR references in these agreements for states, business and workers.

Introducing CSR in agreements

The International Labour Organization (ILO) Future of Work Centenary Initiative notes that “[t]he distinction between the strictly legal and the purely voluntary seems to be getting blurred, not least as accountability and reporting mechanisms are tightened.”(p. 16). For CSR to become more effective, greater clarity is needed on what is expected from corporations; and that clarity needs to come from governments and the international community. The increasing incorporation of CSR language in trade and investment agreements, including in recent agreements, such as the Trans-Pacific Partnership (TPP), the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union or the EU-Vietnam free trade agreement (FTA), is an example where various policy instruments – private and public as well as voluntary and non-voluntary – are combined.

Overall, the inclusion of CSR clauses in trade and investment agreements is in an embryonic state. This means that the large majority of agreements do not refer to CSR but recently the number of countries including CSR language in these agreements is increasing. Typically, these are the traditional proponents of social development provisions, that is, the EU, Canada, occasionally the US, and more recently the European Free Trade Association (EFTA). Among the first agreements that include CSR are the Joint Declaration concerning Guidelines to Investors, developed parallel to the EU-Chile Association Agreement (2003), the US-Chile FTA (2004), the EU-Cariforum Economic Partnership Agreement (2008), and the Canada-Peru (2009) FTA. Over time, CSR clauses have become more elaborated. Although practices differ across trade partners and agreements, the inclusion of CSR provisions in trade and investment agreements points towards the use of soft language but with higher levels of commitment, that can mention specific references towards CSR instruments or obligations related to CSR, and the possibility to apply more implementation mechanisms provided by the agreements.

Assessing CSR clauses

When having a closer look at these CSR clauses, the signing parties – states – typically commit to cooperation activities on CSR (cooperation), to encourage enterprises to voluntarily incorporate CSR mechanisms (enterprises’ adoption of CSR instruments), or to facilitate and promote trade in goods that are subject to CSR schemes (CSR trade including labelling, and fair and ethical trade schemes,). These are mainly ‘double soft’ references, understood as soft language in terms of states’ commitment with regard to the support to purely voluntary CSR engagement of the private sector. Nevertheless, these clauses also have potential since the states party to the agreements do commit to taking policy initiatives in the area of CSR, be it relatively soft commitments, which may have implications in the territory of the parties, or overseas in some cases.

First, various trade agreements refer to the inclusion of joint cooperation activities, which may include, amongst others, CSR activities. The annex to the labour chapter of the US-Peru FTA (2009), which establishes a Labor Cooperation and Capacity Building Mechanism, for instance states that “[…] regional cooperation activities on labor issues, may include, but need not be limited to … dissemination of information and promotion of best labor practices, including corporate social responsibility, that enhance competitiveness and worker welfare” (Annex 17.6, Article 2(o)).

Secondly, the parties may encourage enterprises to voluntarily incorporate/observe CSR mechanisms. For instance, the EFTA-Montenegro agreement (2012) acknowledges in the preamble the “importance of good corporate governance and corporate social responsibility for sustainable development, and affirming their aim to encourage enterprises to observe internationally recognized guidelines and principles in this respect, such as the OECD Guidelines for Multinational Enterprises, the OECD Principles of Corporate Governance and the UN Global Compact”.

Third, CSR clauses may facilitate and promote trade in goods that are the subject of CSR schemes. The EU-South Korea FTA (2011) for instance deals with CSR under the chapter of trade and sustainable development, as following: “the Parties shall strive to facilitate and promote trade in goods that contribute to sustainable development, including goods that are the subject of schemes such as fair and ethical trade and those involving corporate social responsibility and accountability” (Article 13.6(2)).

Fourth, the provisions generally do not clarify where states should or shall encourage (or even a softer commitment to ‘make an effort’ to encourage) businesses to adopt these policy initiatives. Therefore, it could be assumed that this encouragement might also be directed to businesses with operations overseas to apply their adopted CSR policies wherever they operate (i.e. in home and host countries). In this regard, it should be noted that Canadian agreements often establish the commitments of the parties towards the encouragement of enterprises to adopt CSR when they operate within their territories (understanding that enterprises can be national or foreign) or under their jurisdiction (even if this is outside of their territories).

A modest but increasing number of recent Bilateral Investment Treaties (BITs) include references to CSR. One possible explanation of the more limited CSR language in BITs is the relatively limited, and much more recent, public attention towards the sustainable development potential/challenges of BITs.

Implications for states, businesses and workers

As trade and investment agreements are state-to-state agreements, the most important implications of CSR language are for states. However, incorporating CSR language is a way to recognise the role of private businesses in promoting and furthering labour rights, complementary to the role of states. What are the implications that CSR clauses in trade and investment agreements could have for states, businesses and workers, which are the main interested parties to labour-related CSR provisions and moreover the tripartite constituents of the ILO?

Implications for states: Through the support of CSR initiatives in trade and investment agreements, states could play an important role in shaping the conditions for responsible business behaviour worldwide and enhance coherence. As examined before, states commit themselves in different ways, for example, through hard or soft obligations to promote these initiatives (e.g. ‘shall strive to’, ‘should promote’, ‘shall promote’) with the enterprises that are in their territories, subject to their jurisdiction (as mandated in the case of Canadian agreements) or overseas (when applicable). Notwithstanding the relatively soft character of these commitments, they are included in binding agreements and states can in principle be held ‘accountable’ through the implementation mechanisms provided in the agreements, where different stakeholders are given a role.

Implications for businesses: Even though the direct implications of CSR clauses are situated at the level of states, businesses would be responsible for the implementation of the policies adopted in their operations, and perhaps will select those CSR instruments particularly promoted by governments. Indirectly, however, it is a strong recognition that private businesses have a role in promoting labour standards and improved working conditions. Consequently, corporations might be scrutinised by stakeholders and the wider public through the implementation mechanisms provided in the agreements. The adoption of CSR commitments may also permeate into Global Supply Chains (GSCs) through the practices of lead firms and subsidiaries. Further, various agreements provide for cooperation on awareness raising and capacity building on CSR.

Implications for workers: Workers’ organisations have also been involved in the institutional mechanisms provided in the agreements. Therefore, there is potential in the activation of these clauses, in conjunction with other provisions in trade and investment agreements (such as labour provisions) to have a positive impact in workers’ and broader human rights. For example, in the cross-border civil society meetings, these have been used to advocate for increased cooperation activities or close monitoring of CSR behaviour of multinational enterprises, and to cooperate with governments and businesses in this matter.

Potential role for the ILO

Current ILO involvement in the follow-up of CSR clauses in trade and investment agreements is limited, but some instances exist that may deliver insights on potential ILO involvement. The ILO is foremost involved by directly addressing states and their obligation to implement the international labour standards at the domestic level. This is the core of the ILO. However, interesting experiences exist where the ILO works in a trade and investment context, by engaging with private businesses, supporting government institutions and involving multiple stakeholders through monitoring, capacity building or social dialogue.

This article summarises some of the key insights of Peels, R., E. Echeverria M., J. Aissi and A. Schneider. 2016. Corporate Social Responsibility (CSR) in International Trade and Investment Agreements: implications for states, business and workers, ILO Research Paper Series, 13. Further key insights can be found in the recently released ILO. (2016), Assessment of labour provisions in trade and investment arrangements. Geneva: ILO, and before IILS (2013), Social Dimensions of Free Trade Agreements, Studies on Growth with Equity, Geneva: ILO.

About the authors

photo-peels-great-december-2016   photo-echeverria-great-december-2016

Rafael Peels and Elizabeth Echeverria Manrique are Research Officers at the Research Department of the International Labour Organization.


Photo: School health CSR, Bosch social engagement, India. Credits: Trinity Care Foundation, via Flickr.com.

This article was published in GREAT Insights Volume 5, Issue 6  (December 2016/January 2017).

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Economic Transformation and TradeCorporate Social Responsibility (CSR)InvestmentTrade

External authors

Rafael Peels

Elizabeth Echeverria Manrique