Business and human rights: Towards a German action plan and EU trade and investment agreements
Evita Schmieg gives a personal view on the German discussion on human rights and EU trade and investment agreements in the process of putting up a national action plan. Africa is experiencing unprecedented economic growth, The UN Guiding Principles on Business and Human Rights, endorsed in 2011, are grounded on the States’ obligations to respect, protect and fulfil human rights and fundamental freedoms, the role of business enterprises to respect human rights and finally the need for effective remedies when rights and obligations are breached. It is the role of states to further define how to apply these principles in different policy areas, amongst them trade and investment policy. The latter issue is covered by those principles dealing with policy coherence. These are principles: number eight – public institutions shall be aware and observe human rights obligations; number nine – states shall maintain policy space to meet human rights obligations; and number ten – which demands states to respect certain principles related to human rights in their capacity as members of international institutions. The discussion process towards a national German action plan At the end of 2014, the German government started a process that would lead to an action plan on ‘business and human rights’ with a first conference, which defined the relevant topics that needed to be discussed. From April until November 2015 a range of stakeholder hearings were carried through on these topics, with participation from the private sector, government agencies, civil society, associations as well as academia (see Reference). The whole process is under the auspices of the Foreign Office, but other ministries are involved according to their responsibilities. A National Baseline Assessment, prepared by the German Institute for Human Rights, summarises the situation in Germany, defines open questions and serves as a basis for discussion, especially during the hearings. The hearing on human rights and free trade and investment agreements (FTA) took place in Berlin on 30 October 2015 with approximately forty participants representing the different stakeholder groups and moderated by the author of this article. It did not aim at finding consensus between different positions, but rather to get a complete picture of the issue in all its particulars.
The overarching task given by the Guiding Principles is to make free trade and investment agreements (FTA) more supportive to human rights and to strengthen policy coherence (following principles eight to ten). A central issue is the ambiguity of FTAs with regard to their effects on the policy space of partner countries to pursue human rights objectives. It is the fundamental idea of FTAs to create a stable and foreseeable environment for private economic activity, and to thereby contribute to economic and social development. The assumption is that this should eventually facilitate pursuing human rights objectives in the long run. At the same time, during implementation, FTAs might come with negative effects on human rights and unduly restrict the possibilities of states to apply instruments in pursuing those, e.g. by restricting the possibility to increase tariffs with the objective of food security. Agreements therefore, always have to maintain a certain flexibility (policy space) with regard to correcting harmful developments and do contain instruments to that effect, e.g. safeguard clauses. Besides, FTAs are also seen as instruments for promoting human rights, e.g. via human rights and sustainability clauses. The final impact of an FTA depends, of course, on the concrete formulations negotiated, but to a large extent also on actual implementation. The latter can be an area for support by development co-operation in order to maximise benefits and minimise risks of FTAs. German companies are often amongst those most engaged in improving the human rights situation in partner countries. Corporate social responsibility (CSR) can therefore be a helpful instrument to further pursue. With regard to investment agreements, some stakeholders identify an imbalance between long standing and well anchored investor rights on the one hand and a lack of rights and possibilities especially of vulnerable groups with little voice, to sue human rights violations on the other. The Investor-State Dispute Settlement System is a case in point, with support in Germany for reforming this system, defining the right of the State to regulate and to link it with national legal systems.
Sustainability impact assessments (SIA) have been used since 1999 to assess the possible impact of free trade agreements on partner countries. They do not cover human rights explicitly, but do touch upon related issues under the heading of sustainability (e.g. food security concerns). In the new EU trade strategy it is mentioned that the “effects of new FTAs on LDCs” will be analysed, whereas in the past SIAs have been applied to a larger range of FTAs. However, in future the use of the instrument should rather be expanded to all FTAs, and might also look at impacts within the EU. Additionally, many SIAs carried out so far are not integrating human rights issues in trade policy as demanded by the UN guiding principles. A first range of proposals refers to improving their quality by clearly defining objectives and the structure of SIAs, taking due account of human rights issues. Transparency in the process should be ensured. Scenarios might not only cover different economic assumptions, but also different paradigms with regard to trade policy. SIAs should lay open the trade-offs between human rights and other policy objectives in order to allow for informed decisions. A second set of ideas centres on the paucity of the actual role and impact of SIAs. Structures should be established to ensure that SIAs are discussed broadly, with stakeholders, within the European Council and the EU Parliament and that outcomes of SIA do have a real impact on on-going negotiations. The furthest reaching suggestions demand a more comprehensive approach of SIAs. They should examine outcome and impact of negotiated FTAs at all stages: ex ante, during negotiations, and in the implementation phase (monitoring). SIAs should provide an analysis of effects and indicate where policy changes might be necessary in pursuing human rights objectives. However the guidelines ask for human rights to be the guiding objective in designing FTAs from the start, rather than developing instruments to cope with upcoming problems. FTAs should in principle be supportive to human rights and create an enabling environment to pursue those.
During the last few decades, human rights clauses are included in all EU FTAs, at least in the form of a reference to an umbrella agreement (e.g. Economic Partnership Agreements refer to the Cotonou Agreement). These clauses are the basis for applying sanctions in case of human rights violations in partner countries and the demand has been raised that all EU FTAs should contain such clauses in future. Possibly, human rights issues could be integrated in the list of general exceptions contained in all FTAs. Limitations stem from the fact that FTAs are often negotiated with partners which do not in the same way want to include strong wording on human rights issues. There are, of course, different views on how to deal with this situation. An important question is how such clauses could be strengthened in order to use FTAs for promoting human rights issues including employment rights and core labour standards. The institutions created by FTAs should be playing an important role in monitoring, with possibly a strong role for civil society in that regard (with the EU CARIFORUM Consultative Committee as a possible example). Independent control and appeal instruments are also important in that respect. Demanding partner countries to implement steps towards improving the human rights situation before FTAs are ratified (ex ante conditionality) is interesting, but requires careful consideration. Although this has proven effective when applied in several cases by the USA, the approach can be seen as paternalistic and might not take into account enough partner countries’ need for support in improving human rights conditions.
The specific incentive arrangement of the EU General System of Preferences (GSP+) has been designed as an incentive for improving governance in third countries, but has shown limited effects. Withdrawal of preferences might be used more actively in order to strengthen the incentive character of the scheme. Preconditions for withdrawal should be formulated more clearly, foresee an independent assessment and a transparent discussion process. This should eventually lead to less arbitrariness in application. Sanctions could be applied in a more targeted manner – by excluding not whole countries from preferences, but only specific products in sectors where human rights problems occur. An additional positive way to support human rights might be to agree with partner countries on a continuing improvement process supported by development co-operation. A new instrument to be examined with regard to the GSP revision in 2018 would be to grant additional preferences for products complying with sustainability standards. The European Union would need to define criteria for such standards and in a next step, standard organisations such as Fair Trade, Maritime Stewardship Council (MSC), Forest Stewardship Council (FSC) etc., could apply for registration. Such preferences might create an incentive for private companies to increasingly switch to sustainable production methods respecting human rights. About the author Evita Schmieg is Associate Researcher, German Institute for International and Security Affairs.
Reference Protocols of German hearings on business and human rights are available at http://www.auswaertiges-amt.de/DE/Aussenpolitik/Aussenwirtschaft/Wirtschaft-und-Menschenrechte/NAPWiMr_node.html
This article was published in GREAT Insights Volume 4, Issue 6 (December 2015/January 2016).
Human rights and policy coherence in the area of trade and investment
The overarching task given by the Guiding Principles is to make free trade and investment agreements (FTA) more supportive to human rights and to strengthen policy coherence (following principles eight to ten). A central issue is the ambiguity of FTAs with regard to their effects on the policy space of partner countries to pursue human rights objectives. It is the fundamental idea of FTAs to create a stable and foreseeable environment for private economic activity, and to thereby contribute to economic and social development. The assumption is that this should eventually facilitate pursuing human rights objectives in the long run. At the same time, during implementation, FTAs might come with negative effects on human rights and unduly restrict the possibilities of states to apply instruments in pursuing those, e.g. by restricting the possibility to increase tariffs with the objective of food security. Agreements therefore, always have to maintain a certain flexibility (policy space) with regard to correcting harmful developments and do contain instruments to that effect, e.g. safeguard clauses. Besides, FTAs are also seen as instruments for promoting human rights, e.g. via human rights and sustainability clauses. The final impact of an FTA depends, of course, on the concrete formulations negotiated, but to a large extent also on actual implementation. The latter can be an area for support by development co-operation in order to maximise benefits and minimise risks of FTAs. German companies are often amongst those most engaged in improving the human rights situation in partner countries. Corporate social responsibility (CSR) can therefore be a helpful instrument to further pursue. With regard to investment agreements, some stakeholders identify an imbalance between long standing and well anchored investor rights on the one hand and a lack of rights and possibilities especially of vulnerable groups with little voice, to sue human rights violations on the other. The Investor-State Dispute Settlement System is a case in point, with support in Germany for reforming this system, defining the right of the State to regulate and to link it with national legal systems.
The role of sustainability impact assessments
Sustainability impact assessments (SIA) have been used since 1999 to assess the possible impact of free trade agreements on partner countries. They do not cover human rights explicitly, but do touch upon related issues under the heading of sustainability (e.g. food security concerns). In the new EU trade strategy it is mentioned that the “effects of new FTAs on LDCs” will be analysed, whereas in the past SIAs have been applied to a larger range of FTAs. However, in future the use of the instrument should rather be expanded to all FTAs, and might also look at impacts within the EU. Additionally, many SIAs carried out so far are not integrating human rights issues in trade policy as demanded by the UN guiding principles. A first range of proposals refers to improving their quality by clearly defining objectives and the structure of SIAs, taking due account of human rights issues. Transparency in the process should be ensured. Scenarios might not only cover different economic assumptions, but also different paradigms with regard to trade policy. SIAs should lay open the trade-offs between human rights and other policy objectives in order to allow for informed decisions. A second set of ideas centres on the paucity of the actual role and impact of SIAs. Structures should be established to ensure that SIAs are discussed broadly, with stakeholders, within the European Council and the EU Parliament and that outcomes of SIA do have a real impact on on-going negotiations. The furthest reaching suggestions demand a more comprehensive approach of SIAs. They should examine outcome and impact of negotiated FTAs at all stages: ex ante, during negotiations, and in the implementation phase (monitoring). SIAs should provide an analysis of effects and indicate where policy changes might be necessary in pursuing human rights objectives. However the guidelines ask for human rights to be the guiding objective in designing FTAs from the start, rather than developing instruments to cope with upcoming problems. FTAs should in principle be supportive to human rights and create an enabling environment to pursue those.
Substantive law – human rights clauses and sustainability chapters
During the last few decades, human rights clauses are included in all EU FTAs, at least in the form of a reference to an umbrella agreement (e.g. Economic Partnership Agreements refer to the Cotonou Agreement). These clauses are the basis for applying sanctions in case of human rights violations in partner countries and the demand has been raised that all EU FTAs should contain such clauses in future. Possibly, human rights issues could be integrated in the list of general exceptions contained in all FTAs. Limitations stem from the fact that FTAs are often negotiated with partners which do not in the same way want to include strong wording on human rights issues. There are, of course, different views on how to deal with this situation. An important question is how such clauses could be strengthened in order to use FTAs for promoting human rights issues including employment rights and core labour standards. The institutions created by FTAs should be playing an important role in monitoring, with possibly a strong role for civil society in that regard (with the EU CARIFORUM Consultative Committee as a possible example). Independent control and appeal instruments are also important in that respect. Demanding partner countries to implement steps towards improving the human rights situation before FTAs are ratified (ex ante conditionality) is interesting, but requires careful consideration. Although this has proven effective when applied in several cases by the USA, the approach can be seen as paternalistic and might not take into account enough partner countries’ need for support in improving human rights conditions.
GSP+ to promote human rights
The specific incentive arrangement of the EU General System of Preferences (GSP+) has been designed as an incentive for improving governance in third countries, but has shown limited effects. Withdrawal of preferences might be used more actively in order to strengthen the incentive character of the scheme. Preconditions for withdrawal should be formulated more clearly, foresee an independent assessment and a transparent discussion process. This should eventually lead to less arbitrariness in application. Sanctions could be applied in a more targeted manner – by excluding not whole countries from preferences, but only specific products in sectors where human rights problems occur. An additional positive way to support human rights might be to agree with partner countries on a continuing improvement process supported by development co-operation. A new instrument to be examined with regard to the GSP revision in 2018 would be to grant additional preferences for products complying with sustainability standards. The European Union would need to define criteria for such standards and in a next step, standard organisations such as Fair Trade, Maritime Stewardship Council (MSC), Forest Stewardship Council (FSC) etc., could apply for registration. Such preferences might create an incentive for private companies to increasingly switch to sustainable production methods respecting human rights. About the author Evita Schmieg is Associate Researcher, German Institute for International and Security Affairs.
Reference Protocols of German hearings on business and human rights are available at http://www.auswaertiges-amt.de/DE/Aussenpolitik/Aussenwirtschaft/Wirtschaft-und-Menschenrechte/NAPWiMr_node.html
This article was published in GREAT Insights Volume 4, Issue 6 (December 2015/January 2016).
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