Book launch at Middlesex University – 7 Dec. 2016
Rae Lindsay, co-head of the international law practice at Clifford Chance will be the guest speaker.
To register, or for more details about the event, please visit the Eventbrite page here.
If you have any questions about the event, please email Christiana Rose: c.rose@mdx.ac.uk.
The Draft EU Regulation on Conflict Minerals: “Smart Mix” or Missed Opportunity?
Source: Jewish World Watch
It is a pleasure to welcome Dr Chiara Macchi as a guest poster on Rights as Usual. Dr Macchi is a post-doctoral researcher at the Sant’Anna School of Advanced Studies (Pisa, Italy) and project associate of the Essex Business and Human Rights Project. This post is hers. It is a shorter version of a paper she presented at the International Conference on Business and Human Rights in Sevilla which took place last week, and where I also presented.
*******************************************************************
The first version of the EU draft Regulation on conflict minerals, published in March 2014, came as a disappointment to the many civil society actors that had advocated for strong EU rules, creating a non-binding opt-in self-certification system limited to the import of 3TG (tin, tantalum, tungsten and gold ores and concentrates). While one of the EU Commission’s stated aims was to complement Section 1502 of the US Dodd-Frank Act , which imposes legal obligations on the “downstream” section of the conflict minerals supply chain, the proposal created a crippled complementarity by establishing a purely voluntary scheme for EU “upstream” companies. EU institutions were split, with the Commission and Council favouring a soft approach and the European Parliament proposing, in May 2015, far-reaching amendments that would impose binding due diligence requirements on both upstream and downstream companies. A political understanding was reached on 20 June 2016 after a few months of “trilogue negotiations”. While a new version of the draft Regulation is not available yet (as its technical aspects are being finalized), one question that arises is whether the policy framework emerging from the trilogue, that combines mandatory and voluntary elements, is what the UN Guiding Principles on Business and Human Rights define as a “smart mix”, or whether, as maintained by critics, it constitutes a missed opportunity.
Mandatory due diligence checks for smelters, refiners and direct importers only
Mandatory due diligence checks conducted according to the OECD Due Diligence Guidance are introduced for smelters, refiners and direct importers. However, EU manufacturers and sellers above 500 employees are only “encouraged” to report on their sourcing practices.
The introduction of binding rules for upstream companies constitutes a welcome development, especially because smelters and refiners are best placed in the supply chain to track the minerals back to their mine of origin. However, only 20 smelters and refiners and 400 direct importers of 3TG based in the EU will be targeted by these rules, while the some 880 thousand downstream companies placing finished and semi-finished products (laptops, jewels, mobile phones, etc.) on the EU market will not be subjected to binding disclosure. Given that, as pointed out by Eurometaux, “conflict minerals mostly find their way into Europe through imported products and components”, excluding downstream companies from mandatory due diligence has at least four negative effects:
(i) it reduces the impact of the Regulation, targeting roughly 0,05% of EU companies and failing to guarantee that EU consumers will be informed about the sourcing practices of brands whose products may contain conflict minerals;
(ii) it does nothing to prevent EU downstream companies from resorting to non-EU smelters and refiners, the majority of which are based in countries that do not have binding conflict minerals legislation in place (China, Malaysia, Indonesia, Thailand and Russia);
(iii) it does not incentivize EU downstream companies to pressure their non-EU upstream suppliers to conduct supply chain due diligence;
(iv) it fails to create a level playing field among EU downstream companies, a stated aim of the Commission: while between 150 and 200 thousand EU-based companies are de facto required to conduct conflict minerals due diligence in order to retain their business relationships with US downstream clients, who are bound by the Dodd-Frank Act, the remaining EU downstream companies will continue to be addressees, at best, of non-binding recommendations under EU rules.
The EU could and should amend the draft Regulation introducing an extensive definition of “importer”, encompassing, in line with the European Parliament 2015 proposal, not only direct importers of raw materials, but “all companies who first place covered resources, including products that contain those resources, on the Union market”. This would allow for mandatory due diligence checks to be extended to thousands of EU companies importing finished and semi-finished products containing 3TG.
The Regulation is global in scope but its impact may still be limited to certain areas
The Regulation is global in scope (unlike the Dodd-Frank Act), but the Commission, with help from external experts, will draw an indicative, non-exhaustive list of conflict-affected and high-risk areas.
Although intended not to be exhaustive, this list risks being interpreted as such by companies bound by the Regulation. The 2014 draft Regulation targets imports from conflict-affected areas, as well as “areas witnessing weak or non-existent governance and security, such as failed states, and widespread and systematic violations of international law (…)”. Interpreting this definition narrowly, as limited to countries with a clear link between mining and conflict and to failed states associated with widespread or systematic violations of human rights, would leave outside of the Regulation’s scope countries that are not conflict-affected or failed, but in which, nonetheless, due to a “sector-specific” weak governance, documented links exist between grave human rights violations and minerals extraction (e.g. widespread child labour use in hazardous work in Ghana’s gold mining industry).
The material scope is limited to the 3TG.
This choice derives, on the one hand, from the Commission’s aim to complement the Dodd-Frank Act by targeting the same minerals and metals, and, on the other, from the draft Regulation’s reliance on the model supply chain policy contained in the Supplements to the OECD Due Diligence Guidance, which only specifically address the 3TG. This limitation is arguably not the biggest flaw in the draft Regulation – it may actually make implementation more realistic – but the EU should specify (similarly to what the Dodd-Frank Act does) whether and how the definition of conflict minerals leaves the door ajar to future expansion of the material scope. Many more minerals linked to conflict dynamics and serious abuses need heightened attention from the international community (e.g. rubies from Burma, lapis lazuli from Afghanistan, diamonds from the Central African Republic).
Interim appraisal: the draft regulation falls short of ensuring companies “respect human rights”
The process of adoption of the final text should begin in the coming months, under the Slovak presidency, and the Regulation will enter into force after a transition period. The Commission declared in the political understanding that “it will consider making additional legislative proposals” targeted at downstream companies, should the adopted instrument fail to sufficiently leverage responsible corporate conduct. The draft EU policy has some positive aspects, including the provision of ex-post checks on importers and some important accompanying measures (e.g. public procurement conditionalities). However, its combination of voluntary and binding measures falls short of being a “smart mix”, as it has a low capacity to trigger virtuous dynamics in the supply chain. The EU, as matters stand, is missing an opportunity to use its market leverage to its full potential. Instead it could have sent out the message, in line with the principles of its external action and its human rights obligations, that the corporate responsibility to respect , the second pillar of the UN Guiding Principles, is not a matter of voluntary initiatives, but of legal compliance for all segments of the supply chain.
Unpacking the French Bill on Corporate Due Diligence: a presentation at the International Business and Human Rights Conference in Sevilla
INTRODUCTION
When he submitted the UN Guiding Principles on Business and Human Rights to the UN Human Rights Council for adoption, John Ruggie, then UN Secretary General Special Representative on Business and Human Rights, noted that their endorsement would mark “the end of the beginning: by establishing a common global platform for action, on which cumulative progress can be built, step-by-step.” (UN Doc. A/HRC/17/31, para. 13). In the absence of clear, practical guidance on how to comply with their duty to protect human rights from corporate abuse, States have reacted to the Guiding Principles in different ways. Some have adopted National Action Plans (see my post on the UK National Action Plan here), of various quality and ambition. Some have adopted laws to encourage corporate reporting, including on overseas operations (see for example the UK Anti-Slavery Act 2015.
In this context, one country – France – has seemingly adopted a more radical stance. In 2015, a group of Parliamentarians introduced an ambitious bill on corporate due diligence.
Against this background my presentation covers 4 main points: (1) why the bill is important; (2) the background of the bill; (3) the contents of the different versions of the bill; (4) the chances of the bill being adopted.
WHY THE BILL IS IMPORTANT
(a) France is the home state of major multinational corporations: Areva, Danone, L’Oréal, Michelin, Renault, Sanofi, Total, etc.
(b) The bill was introduced as allegations of complicity of torture against software companies Amesys (see my blog post on this here) and Qosmos are being investigated. In other words, after two decades during which the business and human rights community has focused its attention on Alien Tort Statute litigation in the United States, things are moving forward in Europe, a key development in the field of business and human rights.
(c) Although it is not part of a National Action Plan per se, the bill nevertheless fits squarely with the objectives outlined in Pillar 1 of the UN Guiding Principles on Business and Human Rights, on the state duty to protect against corporate human rights abuses. In particular, the Bill is “setting out clearly the expectation that all business enterprises domiciled in France respect human rights throughout their operations” as per Guiding Principle 2. In fact, the first version of the bill was going even further than GP2.
BACKGROUND OF THE BILL
The original preamble of the first bill, which was put forward in November 2013, mentions, as justifications for the bill, the Rana Plaza disaster; the UN Guiding Principles on Business and Human Rights; ISO26000; and a groundbreaking 2012 criminal case regarding the Erika oilspill, in which Total was held liable for the acts of its subsidiary on the basis that Total had accepted to control whether the boats of those subsidiaries were fit to be on water.
CONTENTS OF THE DIFFERENT VERSIONS OF THE BILL
Bill #1
The first version of the bill (Proposition de loi relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre, n° 1519), bill #1, was put forward by a group of Parliamentarians in November 2013. It was not presented to Parliament until January 2015.
This bill was extremely ambitious. Its main points were as follows:
- Companies have the obligation to prevent sanitary and environmental damages as well as damages resulting from human rights violations.
- The company will be held liable if a damage occurs unless it can prove that it did everything it could to prevent the damage but that despite its vigilance and best efforts, the damage still occurred. This is made dependent on the company’s means and position. In other words, more would be expected of large companies and less of small companies.
- The bill included a presumption of responsibility for a company if, in the context of its operations, the operations of its subsidiaries and the operations of its subcontractors, that company could not demonstrate that they had adopted all the necessary, reasonable measures they could have taken in order to prevent damages, including damages resulting from human rights violations.
- This means that if a claim was brought, the burden of proof would have been on the company, not on the claimant. The burden of proof was reversed.
- The liability could be either civil or criminal (délit).
- The bill was to modify parts of the French code of commerce that deal with subsidiaries, and there was no threshold specified. The idea was that it would apply to companies that have subsidiaries, irrespective of their size.
Bill #1 arrived before the French Assemblée Nationale in January 2015. Rather controversially the Assembly decided to send the text back to one of the Assembly’s committees in order to be further debated and modified. Apparently the reason for this was that the then new minister of the economy Emmanuel Macron (who has now resigned) was against it.
In a nutshell, the work of the committee resulted in the death of bill #1. What emerged out of the work of this committee is bill #2, which was put forward on 11 February 2015.
Bill #2
These are what I believe to be the main aspects of bill #2
- In bill #2, the general principle that companies have an obligation to prevent damages is gone. Instead what we have is an obligation to produce and publish a “plan de vigilance”, a sort of due diligence report for companies.
- Only companies that are of a certain size are covered. NGOs have noted that this means about 120 companies.
- That report (plan de vigilance) must detail the measures that the company has taken in order to identify and prevent human rights and environmental risks resulting from the company’s activities but also the activities of its subsidiaries (that it “controls”) and the activities of its subcontractors and suppliers provided that they have “an established commercial relationship”. The notion of established commercial relationship means that in case a French company contracts with a supplier in a one-off deal, they have no obligation to include that in their report. In practice this means that one of the two French companies who were associated with the Rana Plaza disaster in the sense that clothes with labels from these brands were found in the debris, namely Auchan, would not in that case have been caught by the law. The order was for a million items but it was a one-off.
- That report must be published.
- Any person who can prove that they have standing can go to court to ask the company to adopt the report and/or to publish it.
- If the company doesn’t comply, there can be a fine of up to 10 million euro.
- Arguably the core point is that if a company hasn’t produced this plan, or if it’s not good enough, that fact can be held against it in case it is being sued for damages.
- However, while in bill #1 the burden of proof fell on the companies (they had to prove they had done everything they could to avoid liability), bill #2 changes this by putting the burden of proof on the claimants. There is no presumption of responsibility. Claimants have to prove a fault, a causal link between the fault and the damage they have suffered. Under bill #1, a causal link was necessary as well but it was less difficult to establish for claimants because the company had to prove that it had done everything it could to prevent the damage.
In March 2015, bill #2 was adopted during the first reading at the Assemblée Nationale, the lower chamber of Parliament . However, in November 2015, the Senate rejected this version of the bill. Following the normal legislative procedure, the bill was sent back to the Assemblée Nationale, where one committee worked on it again. No real change emerged from that process.
In March 2016, the Assemblée Nationale adopted bill #2 again during the second reading of the bill. Following French law making procedure, he bill was sent again to the Senate. On 13 October 2016, the Senate adopted a modified version of the bill, bill #3.
Bill #3
Bill #3 has little to do with previous versions. The Senate has transformed a bill that was supposed to enhance corporate legal liability into a bill which main aim is to transpose the EU directive on non-financial reporting. The bill is now about producing a report, and it includes the possibility to force companies to do it but crucially there is nothing about damages and victims of human rights violations. The report, or poor report, or absence of report, will not be taken into consideration to establish responsibility in case a damage occurs. In short, the core aspect of the bill, corporate liability for human rights violations, is gone.
WHAT’S NEXT?
We’re now in a situation where the Senate and the Assemblée Nationale are in disagreement since they each adopted a different version of the bill (bill #2 in the Assemblée Nationale, bill #3 in the Senate). As per Article 45 of the French Constitution, a Commission Mixte Paritaire has now to be set up. This is a special parliamentary committee made of members of both chambers to try to find a compromise. If a compromise text is adopted, the government can present it to both chambers for adoption. If no agreement is reached (which is likely considering the current position of the Senate) or if, following its presentation to both chambers, the compromise bill is rejected, the Government may send the bill to the Assemblée Nationale whose vote then prevails over the Senate’s. This is normal procedure to avoid legislation being indefinitely bounced back and forth between the two chambers. If this route was to be followed the Assemblée Nationale would vote on either the compromise bill, or bill #2, i.e. the latest text the Assemblée Nationale adopted.
The problem is that there are only a few months left for the bill to be adopted as it is likely that the current socialist government will lose the general election of June 2017. The French MP who has taken the lead with this bill gave an interview last month in which he discussed the likelihood of a meaningful bill being adopted. Apparently, he has received assurances from the government that their plan is to see this bill adopted by the end of 2016.
Watch this space for updates.
New book – Business and Human Rights. History, Law and Policy – Bridging the Accountability Gap
About the book
Business corporations can and do violate human rights all over the world, and they are often not held to account. Emblematic cases and situations such as the state of the Niger Delta and the collapse of the Rana Plaza factory are examples of corporate human rights abuses which are not adequately prevented and remedied. Business and human rights as a field seeks to enhance the accountability of business – companies and businesspeople – in the human rights area, or, to phrase it differently, to bridge the accountability gap. Bridging the accountability gap is to be understood as both setting standards and holding corporations and businesspeople to account if violations occur.
Adopting a legal perspective, this book presents the ways in which this dual undertaking has been and could be further carried out in the future, and evaluates the extent to which the various initiatives in the field bridge the corporate accountability gap. It looks at the historical background of the field of business and human rights, and examines salient periods, events and cases. The book then goes on to explore the relevance of international human rights law and international criminal law for global business. International soft law and policy initiatives which have blossomed in recent years are evaluated along with private modes of regulation. The book also examines how domestic law, especially the domestic law of multinational companies’ home countries, can be used to prevent and redress corporate related human rights violations.
Table of contents
1. Introduction
Part 1: Historical Highlights: Limited Corporate Accountability 2. The Atlantic Slave Trade: a “Business and Human Rights” Reading 3. International Labour Law: Early Development and Contemporary Significance for the Field of Business and Human Rights 4. Doing Business with the Nazis: the Criminal Prosecution of German Industrialists after the Second World War
Part 2: International Law and Policy: Limitations and Progress 5. Business, International Human Rights Law and International Criminal Law: Shifting Boundaries 6. Human Rights and International Economic Law: Connecting the Dots 7. Expanding International Regulation in Business and Human Rights 8. Private Regulation in Business and Human Rights
Part 3: Domestic Law and Policy: Embedding Human Rights in Business Practice 9. Shaping Law and Public Policies 10. Business and Human Rights Litigation before Domestic Courts: Remaining Obstacles
11. Conclusion: The Future of Business and Human Rights
My name is Nadia Bernaz and I am Associate Professor of Law and Governance at Wageningen University in the Netherlands.
My main area of research is business and human rights. I look at how corporations and businesspeople can be held accountable for their human rights impact through international, domestic and transnational processes.