BHR Symposium: Aligning Internal and External Policies on Business and Human Rights – Why the EU Should Engage Seriously with the Development of the Legally Binding Instrument

[Markus Krajewski holds the Chair in Public and International Law at the University of Erlangen-Nürnberg.]

As noted by Surya Deva in this blog, the 2020 Second Revised Draft for Legally Binding Instrument (LBI) on Business and Human rights is “negotiation-ready”. However, he wonders if states and the European Union are ready for negotiations. This contribution argues that the EU should be ready: There are sound policy and legal reasons why the EU needs to engage seriously with the LBI.

The EU and the Process towards a Legally Binding Instrument: Neither out nor (yet) in.

Observers of the past sessions of the Open-ended intergovernmental working group on business and human rights (OEIGWG) are well aware that the European Union did not actively participate in the sessions. While the EU contributed to the first two sessions – albeit only to question the usefulness and legitimacy of the process –  it has not constructively engaged in the substantive debates on previous drafts of the LBI. However, unlike other industrialized countries such as the US, Japan or Canada, the EU delegation usually stayed in the room and observed the debates.

The current official justification for the EU’s passive role is that the EU does not have a clear position on the process let a lone formal mandate to engage in negotiations. It is unlikely that this will change in the run-up to the sixth session of the OEIGWG in October 2020. However, this need not be the case as the Second Revised Draft leaves the door for the EU wide open and repeats the implicit invitation to the EU issued already by the (first) revised draft released in July 2019. Moreover, a number of events and developments within the EU in the first half of 2020 suggest that it is high time for the EU to abandon its current inactivity and become involved in the process of the LBI.

Towards human rights due diligence legislation in the EU

In February 2020 the European Commission published a widely recognised comprehensive study on due diligence requirements through the supply chain written by a consortium led by the British Institute of International and Comparative Law. The study identifies four broad policy options for the EU indicating that mandatory due diligence as a legal standard of care would have significant social, human rights, and environmental impacts as well as potential economic benefits for companies. It can be argued that such a legal standard would be in line with Article 6 of the Second Revised Draft of the LBI on prevention.

While the due diligence study does not reflect current EU positions it will clearly have a significant impact on the debates within the EU institutions. This was – unexpected by many observers – made clear in a statement of EU Commissioner for Justice Didier Reynders in a Webinar of the European Parliament Working Group on Responsible Business Conduct (RBC) on 29 April 2020. The Commissioner announced that the EU Commission will propose mandatory due diligence legislation in 2021. It is expected that the Commission will open a public consultation to inform its proposal in the coming weeks.

The European Parliament also became active and commissioned a study on Human Rights Due Diligence Legislation – Options for the EU including proposals for substantive elements of potential legislation on human rights due diligence and for monitoring, enforcement and access to justice for victims. The elements proposed in this study broadly correspond with aspects of the Second Revised Draft such as the scope (Article 3) and access to remedies and legal liability (Articles 7 and 8).

While it would be premature to take the proposals in the Commission’s and the Parliament’s studies as indications of the contents of a future legal instrument of the EU, the studies clearly reflect the current state of the debate which the EU institutions will certainly take into account when drafting and implementing human rights due diligence legislation. In this context, it is also worth recalling developments in the EU Member States. Apart from the well-known laws in France and the Netherlands, there are legislative proposals and commitments by the governments on human rights due diligence legislation in a number of Member States including Austria, Finland and Germany. 

Creating a level playing field through international commitments

It is often argued that such mandatory human rights due diligence legislation at the national level may place an unfair burden on domestic companies vis-à-vis their foreign competitors who are not subject to such requirements. Since these arguments have been and still are present in current debates in EU Member States (see for example the joint statement of German business associations) it can be expected that similar arguments will be raised during the debates about an EU legislative instrument.

The adoption of an international treaty mandating such legislation from the state parties could therefore contribute to a level playing field among the parties of such a treaty. In this regard, it would be in the interest of the EU legislator to ensure that an EU human rights due diligence legislation does not disadvantage EU companies compared with companies domiciled elsewhere. A binding legal instrument would reduce the potential of such a disadvantage at least concerning companies based in countries which are party to the treaty. It is therefore noteworthy that countries like Brazil and China have so far played a more active role in the OEIGW than the EU and its Member States.

Implementing the EU constitutional framework on foreign affairs

There are not only sound policy reasons for the EU to engage more actively in the process leading towards a Legally Binding Instrument. The EU would also implement its constitutional framework on foreign affairs. Article 21 of the Treaty on European Union (TEU) holds that

“The  Union’s  action  on  the  international  scene  shall  be  guided  by  the  principles  which  have  inspired  its  own  creation,  development  and  enlargement,  and  which  it  seeks  to  advance  in  the  wider  world:  democracy,  the  rule  of  law,  the  universality  and  indivisibility  of  human  rights  and  fundamental  freedoms,  respect  for  human  dignity,  the  principles  of  equality  and  solidarity,  and  respect  for  the  principles  of  the  United  Nations  Charter  and  international  law”

While the justiciability of this provision remains disputed, it reflects one of the central principles of EU external relations law: The goals and objectives which the EU pursues in its internal policies should also guide its external actions. In other words: EU constitutional law requires the EU to align its external policies with its internal values.

Applying this principle to the objectives of a legally binding instrument, one could argue as follows: If a – future – internal EU legislative act mandating human rights due diligence reflects the EU’s foundation on the respect  for  human  rights (Article 2 TEU), engaging in the negotiation of an international treaty with the same aim and objective would be in line with the EU’s commitment towards human rights in its external affairs as explicitly mandated in Article 21 TEU.

EU competence

One of the fundamental questions of EU external relations law concerns the scope and the nature of the EU’s competence. As aptly demonstrated by a long list of cases of the European Court of Justice, the EU’s external competence is subject to significant legal controversies. It is therefore important to assess if and how far the EU would be competent to engage in negotiations in a legally binding instrument. This depends on the contents of such an agreement.

Based on the Second Revised Draft of the LBI it can be said that the EU would have the sole competence for its Article 14.5 as far as it concerns trade agreements because the EU has the exclusive competence for trade matters (Article 3 para 1 (e) TFEU). If Article 11 of the LBI Second Revised Draft on applicable law would require changes in the relevant EU legislation on private international law (in particular the so-called Rome II-Regulation) the EU would also have an exclusive competence (Article 3 para 2 TFEU). The same would be true for certain aspects of adjudicative jurisdiction (Article 9 LBI Second Revised Draft, see the so-called Brussels I-Regulation) and on mutual legal assistance (Article 12 LBI Second Revised Draft).

Contrary to this, the competence concerning the laws on the statue of limitations (Article 10 LBI Second Revised Draft) would rest with the Member States. Regarding prevention (Article 6 LBI Second Revised Draft) and legal liability (Art. 8 LBI Second Revised Draft) the EU would acquire competence if it adopted internal legislation in this regard for example a legislative act on mandatory human rights due diligence. Otherwise, this competence would remain a Member state competence.

An international agreement which contains elements within the EU and within Member States’ competence can only be concluded as a so-called mixed agreement, i.e. an agreement to which the EU and its Member States would become parties. Consequently, the EU should be joined by its Member States when engaging in the negotiations on the LBI.

Conclusion

The Second Revised Draft of the LBI contains many elements which correspond to what could emerge as future EU legislation on human rights due diligence. In order to contribute to a global level playing field and to implement its own constitutional law framework on foreign affairs, the EU should participate actively in the development of the LBI. For competence reasons, the EU needs to be joined by its Member States in this regard.