Bilal, S., Seters, J. van. 2015. Combining forces for more sustainable global value chains: A European perspective. GREAT Insights Magazine, Volume 4, Issue 6. December 2015/January 2016.
The EU should take a lead role in enhancing the sustainability of global value chains. It has some of the leverage and many of the instruments to do so. It should strengthen and scale up its efforts, ensure stronger synergy and coherence between its instruments, and encourage multi-stakeholder engagement for more responsible business.
Appropriate private and public endeavours can significantly contribute to enhance the sustainability of global value chains (GVCs), in terms of responsible business practices, social, labour, environmental, and other broad human rights considerations. Building on the adoption of the 2030 Agenda for Sustainable Development at the UN Summit in September, the European Union (EU) can further stimulate such endeavours towards sustainable GVCs. Indeed, the 2030 Agenda requires multi-stakeholder engagement, with particular emphasis put on engaging the private sector. It calls for responsible business conduct, whereby companies integrate social (‘people’) and environmental (‘planet’) concerns in their business operations (‘profit’), so as to achieve both developmental and economic sustainability.
The EU has a number of policy frameworks and instruments, which should be further enhanced and more carefully articulated and coordinated, to better stimulate and when required better enforce the sustainability of global value chains. This entails a more dedicated and coherent approach among various policies, instruments and initiatives, in particular related to trade and investment, private sector promotion and development cooperation. Most of all, it calls for a multi-stakeholders approach, combining public authorities, private sector and civil society actors along the value chains and beyond. In doing so, EU initiatives must take into account and build on incentives and own initiatives from various stakeholders, and in particular business.
Such objectives are well in line with the current EU strategic orientations and instruments.
The adoption in October of the new EU Strategy Trade for All is an important first step. Alongside a greater effectiveness of EU trade in facilitating value chain trade, its objectives are also to stimulate greater responsibility, in terms of process (transparency and accountability) as well as substance (towards sustainable development, human rights and good governance), from EU policies as well as private actors and partner countries.
The EU already recognises the importance of responsible business conduct in its framework of engagement with the private sector in development cooperation, adopted in 2014. The Commission Communication and following Council Conclusions on a Stronger Role of the Private Sector include a commitment that the EU and its Member States will seek to further promote Corporate Social Responsibility (CSR), in particular through the promotion of the implementation of internationally recognised guidelines and principles, such as the UN Guiding Principles on Business and Human Rights; the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy; the OECD Guidelines for Multinational Enterprises; the UN Global Compact; and the CFS Principles on Responsible Investment in Agriculture and Food Systems. This commitment includes specific reference to more responsible global value chains (GVCs) and responsible business practices, and is also embodied in the new EU Trade Strategy.
The revision of the joint EU Aid for Trade Strategy in early 2016, as well as the review of the EU policy on responsible business, will be important additional steps.
A number of trade related instruments are used to promote responsible conduct and enhance the sustainability of global value chains. These include various trade regimes and agreements, such as the Generalised System of Preferences (GSP), free trade agreements (FTAs), and plurilateral and multilateral agreements under the World Trade Organization (WTO); but also EU Regulations and Directives, for instance on illegal logging, conflict minerals, sustainability criteria for biofuels, corporate reporting on supply chain issues; as well as international standards and code of conducts, such as the UN, OECD and ILO guidelines and principles referred above; and other private sector own initiatives, such as the Global Reporting Initiative, ISO 26000 on Social Responsibility, the Equator Principles (by financial institutions on environmental and social risk), the Conflict-free Gold Standard of the World Gold Council.
The characteristics and approaches adopted to promote sustainable value chains are diverse, and often complementary. They include the following elements:
The degree of international cooperation: some trade instruments and measures promoting responsible conducts along value chains are unilateral, such as the EU GSP, EU Regulations and Directives, resulting from the EU single initiative. Others are bilateral and regional, such as the clause contained in FTAs, in particular in the trade and sustainable development (TSD) chapter, generally resulting from negotiations and jointly agreed with the partner countries. Still others are plurilateral and multilateral (such as UN, OECD, ILO, WTO, UN), resulting from international commitments.
The level of references: some sustainable-related provisions refer to autonomous EU own rules and standards (e.g. EU regulations and directives). This is in particular the case for the Deep and Comprehensive Free Trade Agreements (DCFTAs), with issues related for instance to employment and social policy, the environment and corporate governance. However, the common approach is to refer to international standards and obligations. For instance, to qualify for the autonomous EU GSP+, developing countries must adhere to 27 international conventions. Trade and sustainable development chapters of EU FTAs also commonly refer to such international standards. The EU also seeks bilateral agreements to promote a specific issue. This is the case for illegal logging, where the EU Action Plan for Forest Law Enforcement, Governance and Trade (FLEGT) has been enshrined in voluntary partnership agreements concluded on a bilateral basis (already with six countries so far: Cameroon, Central African Republic, Republic of Congo, Ghana and Indonesia). The EU-Central Africa Economic Partnership Agreement (EPA) with Cameroon also explicitly refers to FLEGT.
The type of commitments: Some provisions have a binding language, subject to possible sanction or dispute settlement, whereas others arecouched in best endeavours type of language, focusing on consultation, cooperation and general commitments to broader principles. For instance, the EU GSP scheme entails explicit binding requirements, and the serious failure to respect human rights led to the temporary withdrawal of EU unilateral preferences for some countries (Belarus, Myanmar/Burma and Sri Lanka) and investigation and engagement with others (e.g. China, El Salvador, India, Pakistan, Russia). DCFTA also entails several binding provisions. However, TDS chapters generally entail commitments with no explicit conditionality or sanction.
The type of engagement: the type of commitments relate to a great extent to the approach adopted by the EU. So far, the EU has put greater emphasis on a process-oriented approach based on constructive engagement, rather than a sanction-driven approach. This may explain why there has been only very limited sanction so far (only in the GSP context and in delaying the conclusion of the DCFTA with Ukraine). A process-oriented approach entails substantive standards (generally international ones) and procedural commitments, based on dialogue, consultation and (technical) cooperation, stakeholder involvement, transparency, reporting and monitoring, and dispute settlement. This also translates in the institutional setting, to stimulate dialogue and interaction among stakeholders from the parties. This has led not only to the establishment of joint the Trade and Development Committees, but also to the reference to domestic advisory group(s), the establishment of the Civil Society Forum and the Panel of Experts, as in the case of the EU-Korea FTA and EU-Moldova DCFTA, and the Consultative Committee and the Joint Parliamentary Committee in the EU-CARIFORUM EPA, for instance.
The targeted entity: sustainable provisions in trade agreements are targeting the partner country authorities, as in the case of the EU GSP and FTAs. However, EU Regulations and Directives are often directly aimed at companies, as in the case of the Conflict Minerals initiative of the EU (targeting the tin, tantalum, tungsten and gold value chains), FLEGT and the EU Timber Regulation, or the Accounting and Transparency Directives (and their related new reporting and transparency obligations for large extractive and logging companies).
The scope of the application: depending on the instrument used, the scope of the sustainable commitments covers the whole economy, as in the case of the GSP and most FTA provisions, or some specific sectors, activities or value chains, as in the case of illegal logging, conflict minerals, reporting and transparency requirements by extractive and logging industries, or sustainable criteria for biofuels.
The degree of support and cooperation: Most of the sustainability dimensions of the EU trade and investment policy are accompanied by development cooperation, generally in the form of technical and information cooperation and/or financial support. Such commitments and endeavours are often explicitly referred to in the TDS chapters of the EU FTAs (and in voluntary partnership agreements), and/or are explicitly considered under parallel mechanisms.
Development cooperation is thus important to promote responsible business conduct in GVCs, related to trade and investment (Aid for Trade) and beyond. However, the AfT Agenda is much broader and has not explicitly targeted responsible business practices. The revision of the EU joint Aid for Trade Strategy in 2016 provides an opportunity to better link with the EU’s approaches to private sector development and engagement, including beyond purely development cooperation instruments. It is also an opportunity to raise the profile of the promotion of responsible business conduct to guide increased and joint efforts of the EU and its Member States in this area.
Different types of development cooperation instruments to promote responsible business conduct are increasingly used by the EU, its institutions and its Member States, which could be further scaled up and whose coherence and synergy could be enhanced. They are generally directed at partner country governments as well as other stakeholders, in particular (European and developing countries) companies operating in GVCs. Examples of different types of development cooperation tools include:
Awareness raising among public and private stakeholders on internationally recognised guidelines and principles for responsible business practices. This relates, for instance, to raising the issue in established political and policy dialogues with partner countries and regions as well as information sharing and exchanges with companies and other social partners, which constitutes a core aspect of the EU CSR strategy.
Providing technical assistance and capacity development support to partner country governments to enact, implement and enforce domestic legislation conducive to responsible business conduct, also in line with internationally agreed guidelines and principles. The EU FLEGT Facility is an example, which supports countries to better regulate and govern the forest sector in order to stop illegal logging, in the context of Voluntary Partnership Agreements between the EU and timber producing countries. Another example is the EU-Bangladesh cooperation to enhance the legal and institutional framework of the garment industry.
Using elements of responsible business conduct as eligibility criteria for companies to benefit from development cooperation instruments, including technical assistance and access to grants, concessional loans and other blending mechanisms. They can relate to EU own sustainability principles or to internationally agreed ones, such as the UN Guiding Principles on Business and Human Rights or the OECD Guidelines for Multinational Enterprises. Examples include the DeveloPPP.de programme of BMZ and the Dutch Good Growth Fund.
Providing technical support and finance (in the form of grants, concessional loans and blending) for innovative and inclusive business initiatives to make GVCs more sustainable. Examples are the Global Innovation Fund financed by SIDA, DFID, USAID, Australia and the Omidyar Network as well as the Africa Enterprise Challenge Fund (AECF), funded by the Netherlands, SIDA, DFID, Australia and IFAD.
Promoting and facilitating public-private partnerships and new forms of multi-stakeholder alliances for sustainable businesses. Examples of such PPPs or multi-stakeholder alliances are the joint Danish, Dutch and Swiss-funded Sustainable Trade Initiative (IDH) and SIDA’s Public Private Development Partnerships (PPDP).
Some programmes and instruments can fit into two or more of these categories. This holds true for the EU Switch Asia programme for example, which focuses on sustainable production and consumption patterns, by covering activities related to awareness raising, policy support and the promotion of environmentally friendly technologies and practices by businesses.
These different types of instruments can be strengthened and further scaled up, both at the EU and Member States’ level. Coherence and synergies between a range of policies and instruments, covering not only development and trade, but also issues such as environmental, human rights, private sector policy measures should be enhanced. Furthermore, coherence and synergies with (non DAC-able) EU private sector development support and economic diplomacy can be strengthened. The Addis Ababa Action Agenda on financing of the Sustainable Development Goals implicitly makes the distinction between development-oriented and commercially-oriented public financing instruments for private sector development less relevant. Commercially-oriented public finance instruments for private sector development can also be used to promote responsible business conduct along GVCs, for instance by having eligibility criteria related to sustainability. Many already have such criteria, while proper application and monitoring of adherence to them is not always assured. Given their similarities, lessons can be learned across development-oriented and commercially-oriented instruments despite differing objectives. The coherence of EU policies for sustainable development should thus also encompass broader EU engagement with business and its external action and economic diplomacy, including the internationalisation of EU business (and SMEs in particular), the promotion of more stable and conducive regulatory environment in partner countries and at international level.
Particular attention must also be paid to international business own initiatives and incentives in that respect. More stringent regulations and trade provisions are not necessarily the most optimal option. Innovative approaches and initiatives from private sector and other civil society stakeholders must be encouraged and facilitated, not curtailed and undermined. In doing so, a balance must be found between constructive engagement and effective enforcement, including building on multi-stakeholder partnerships.
The challenge is to identify how the combination of trade and development cooperation instruments, and other initiatives, can best support business endeavours towards responsible practices along GVCs. But beyond policy frameworks, it is action that matter most, by public authorities of course, but most of all by private actors and civil society, in the EU and its member states and in partner countries. The question of implementation of well-intended ambitions and commitments should thus take centre stage.
About the authors
San Bilal, Head of Economic Transformation and Trade Programme, ECDPM.
Jeske van Seters is Deputy Head, Food Security Programme, ECDPM.
Photo: Trucks outside Kampala, Uganda, East Africa. Credits: Robert Lutz/CC.
This article was published in GREAT Insights Volume 4, Issue 6 (December 2015/January 2016).