About half of all global trade is nowadays organized in Global Value Chains (World Bank, 2020). Along these chains, the extractive sectors, tropical commodities and monoculture farms have a huge social and environmental impact in resource-rich countries. The intersection of different jurisdictions, combined with multinational enterprises' legal arrangements, often leaves victims of human rights violations without any compensation. Addressing these issues, the Global North started a regulation wave, which is certainly affecting the business and governments in the Global South.

From voluntary practices to binding regulations

The international trade organized in Global Value Chains (GVC)¹ is a key feature considering the globalization scenario. According to this dynamic, production processes do not happen within the end-use country. Instead, “it is broken down into many countries, organized according to its processes, and set according to the standards defined by the lead company” (Altenburg et al., 2022, p. 7). GVC is supposed to be a beneficial practice to all actors involved in the process: companies often headquartered in the Global North outsource their production to cut costs and maximize profit; businesses located in developing countries have more access to capital and inputs, which creates better jobs and reduces poverty (World Bank, 2020).

A central issue, however, consists of governance gaps throughout the supply chain, which often allows actors’ activities to remain unchecked. The rise of incidents related to collapsed factories, child labour, damage to indigenous communities and the environment involving directly or indirectly multinational companies in their supply chains led to the conclusion that purely voluntary and business-led initiatives (such as voluntary sustainability standards, guidelines, certifications and corporate social responsibility) were not enough to refrain human rights adverse impact. Moreover, given the high complexity of the business structure based on international commercial law, defendants do not get redress very easily. Therefore, a range of binding regulations has recently emerged in the Global North, which is normally the final stage of the chain.

Against this background, many legal frameworks aiming for sustainable supply chains are flourishing worldwide, for instance, in the UK (2015), France (2017), the Netherlands (2019), and Germany (2021). The German Corporate Due Diligence in Supply Chains Act of 2021 (Lieferkettengesetz) was enacted in July 2021, and it will come into effect in Germany on January 1, 2023. The German supply chain act pursues, in a nutshell, two goals: 1) Companies avoid damage to people and the environment by taking precautionary measures. 2) Affected parties can obtain redress more easily when the damage occurred (Germanwatch.org, 2021). The law obliges the companies (initially with more than 3,000 employees and, from 2024, those which have 1,000 or more employees) to fulfil their due diligence obligations.

But the German Act falls short as it does not require companies to conduct a risk analysis proactively and systematically for indirect suppliers, but only when they gain “substantiated knowledge” of a potential human rights violation (Section 9, paragraph 3). Therefore, one of the criticisms of this law is that it does not target indirect suppliers and, thus, does not cover abuses upstream, where they are most likely to happen (germanwatch.org, 2021).

Addressing these gaps and avoiding fragmentation as a result of State members acting independently, the European Union is also fostering sustainability in corporate governance through the Corporate Sustainability Due Diligence Directive, which is currently following the procedural steps for the European Parliament and Council approval (European Commission, 2022).

Human Rights impacts and violations along the value chain – emblematic and everyday cases

To illustrate how Human Rights violations and impacts occur along the supply chain, we give a few examples:

In Asia

It had never been a secret that the Global South's textile industries which sustain the Global North's garment industries are plagued with human rights abuses such as child labour, forced labour, gender discrimination, and terrible and unsafe working conditions. However, serious discussions and exposure of these issues came in the aftermath of the Ali Enterprise fire incident that killed over 250 people in Pakistan in 2012, the Tazreen fashion fire that killed over 100 people in Bangladesh and the Rana Plaza factory collapse that resulted in the death of over 1000 people in Bangladesh in 2013 (Saage-Maaß, 2021).

This incident with Ali Enterprise was an emblematic case of human rights adverse impacts and called the attention of the Global North. More specifically, the famous German retailer, Kik, was brought to the German Court for its alleged complicity in the incident, called accountable by the victims who sought compensation (ECCHR, n.d).

The case was, however, dismissed on procedural grounds. Notwithstanding the decision of the court, this case was particularly important for various reasons. First, it sent a message to Transnational Companies in Europe that victims from the Global South can be granted legal standing to bring civil and criminal claims for human rights violations in their supply chains. Secondly, the case provided a platform for victims to reach a wider audience and policymakers in Germany and Europe about their plights. And lastly, the case, to some extent, influenced law reform in Germany, this was because the proposal for the law on Supply Chain due diligence came shortly after the case was dismissed (Saage-Maaß, 2021).

In Africa

An emblematic case worth discussing is the cocoa industry in West Africa. Two-thirds of the world’s cocoa is produced in West Africa. Cote d’Ivoire alone accounts for almost 50 per cent of the entire cocoa production (Wettstein, 2022). The cocoa industry in West Africa is characterized by child labourers who are mostly migrant workers trafficked from neighbouring countries and subjected to unsafe and inhumane working conditions. These child labourers are not only malnourished but also lack access to schools and decent living conditions (Wettstein, 2022)

Notable coffee companies in the Global North, like Nestlé, Cargill, Hershey etc., get the source of their cocoa from these cocoa farms in West Africa, making them complicit in these human rights violations. Several attempts to hold these companies liable by victims of child labour in the US domestic courts relying on the Trafficking Violations Protection Reauthorization Act 2017 and the Aliens Tort Claim Act 2005 proved fruitless because of the reluctance of the US courts to go against the principle of presumption of extra-territoriality (Wettstein, 2022). Recently, however, a US court has refused a motion to dismiss a case involving Nestlé for its alleged false and misleading labels with the intention to hide the use of child slave labour in the West African cocoa supply chain (BHR Resource Centre, 2022). The decision of the court not to dismiss the case against Nestlé signifies hope and progress in holding corporations accountable for their complicity in human rights violations in the cocoa production supply chain.

In Latin America

One of the most emblematic cases of environmental impact and human rights violations in Latin America happened in January 2019, when a dam breached at an iron ore mine near Brumadinho, a Brazilian town. The incident killed 272 people, affected indigenous protected areas, and left hundreds of people without their houses (MPF, 2022). In addition to the civil and criminal lawsuit filed by the Brazilian public prosecution against the Brazilian mining company Vale S.A. and individual complaints (MPF, 2022), the German company TÜV SÜD was also sued since its Brazilian subsidiary confirmed the dam’s safety a few months before the incident, despite known safety risks (ECCHR, 2019).

According to the Business & Human Rights Resource Centre’s lawsuit database, the sectors linked to the highest number of cases of human rights abuses by businesses were, in this order: mining, hydrocarbons, agriculture and livestock, and automotive industry. Whereby, the countries with the highest number of lawsuits filed were Colombia and Brazil, followed by Guatemala, Peru and Argentina, respectively (BHR Resource Centre, 2020).

As briefly demonstrated, the negative impacts on stakeholders are more likely to happen upstream, from where the lead companies’ legal bonds are too distant and frail to automatically configure their civil or criminal accountability.

What is next?

This discussion highlights how soft law mechanisms like the UN Guiding Principles on Business and Human Rights, and the OECD Guidelines have fallen short to tackle corporate human rights abuses. Realizing this, countries in the Global North like France, Germany, the Netherlands and the EU have taken steps to come up with binding regulations to hold corporations accountable for Human Rights violations in their supply chains. Thus, individual country-led and supranational (EU) initiatives are commendable.

However, it is important to point out that they are problematic in the sense that most of these initiatives are mostly restricted in Global North countries while impacting the rights and livelihoods of people mostly from the Global South who have no or little say in the design of these initiatives.

As a consequence of this regulation wave from the Global North, businesses and governments will have to adopt what is called the cascade effect (Marzano, 2021): if the deforestation rate and human rights violation cases are high in a commodity-producing country, EU importers will look for alternatives in low-risk ones. This pressure on the business can make them push the sourcing countries’ governments to enforce legislation and strengthen conservancy policies to comply with the legislation from the buyers’ countries.

Without disregarding all the arguments against the transnational effects coming unilaterally from the Global North reproducing the cycle of “Western dictates/white saviours” (Lichuma, 2021) and uneven accumulation of wealth, the attention that human rights violations are currently having is unique in history. The regulation is an effective alternative to pressure businesses and governments of resource-rich countries to enforce environmental and social norms or risk losing space in the export market.

Cover photo courtesy of EQS GROUP

Bibliography

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1 We are aware of the terminological differentiation between Global Value Chains and Global Supply Chains, but in this article, they are used indistinctly.

~ The views represented in this blog post do not necessarily represent those of the Brandt School. ~