The European Union’s Strategy for Ensuring Human Rights Compliance in Supply Chains

**European Union to Enforce Human Rights and Environmental Regulations on Supply Chains**

The European Union is set to introduce new regulations that will require large companies to actively address human rights abuses and environmental damage in their supply chains. This groundbreaking law will not only apply to EU businesses but also to foreign companies, including those from the United States, operating in the region. The European Parliament approved a draft of these rules in June 2023, and negotiations between EU member states and the European Commission are currently underway to finalize the law before its phased implementation begins in the coming years.

**Impacts of Human Rights Disclosure and Due Diligence Laws on Businesses**

Previously, governments have relied on voluntary compliance from companies to promote human rights. However, the new EU law represents the most significant effort yet to legally mandate companies to comply with human rights standards. This has far-reaching implications for both human rights worldwide and the business sector.

**The Relationship between Human Rights and Big Business**

Human rights encompass the fundamental rights that all individuals possess by virtue of being human, such as the right to life and freedom of thought. Historically, these rights primarily informed laws that limited government actions, such as prohibiting torture. However, in recent years, human rights considerations have also influenced business regulations due to the significant impact corporations can have on individuals’ rights.

Numerous instances of human rights abuses by businesses have occurred throughout history. From the British East India Co.’s involvement in the slave trade to IBM’s complicity in the Holocaust, these abuses highlight the need for greater regulation. More recent examples include child labor in cobalt mining in the Democratic Republic of Congo and forced labor in cotton production in China’s Xinjiang region. In 2011, the United Nations Human Rights Council adopted “guiding principles” on business and human rights, encouraging governments to ensure companies respect human rights in all their operations.

**The Emergence of Human Rights Due Diligence**

Human rights due diligence involves the process of investigating, understanding, and addressing potential human rights abuses within a company’s operations. This concept borrows from the practice of financial due diligence, where companies assess financial risks before making investments. Advocates argue that companies should apply similar efforts to identify the risks of human rights violations.

The EU law mandates that large companies operating within the bloc conduct human rights due diligence within their supply chains, ensuring no child or forced labor is involved. Additionally, companies must assess how their products are used, such as when technology is utilized for citizen surveillance. The law covers various human rights issues, including labor and environmental rights. Companies must evaluate the harmful impacts that have occurred or may occur and take appropriate action to prevent or address them. The law also includes enforcement provisions and penalties for noncompliance, allowing victims of abuses to seek damages.

**Scope of the Law and Potential Impact on Businesses**

The law applies to EU companies with a minimum of 500 workers and €150 million ($162 million) in net revenue. In sectors with a higher risk of abuse, such as clothing, footwear, and agriculture, the thresholds reduce to 250 workers and €40 million ($44.5 million). Non-European companies must also comply if their EU revenues meet these thresholds. It is estimated that approximately 13,000 EU companies and 4,000 non-EU companies, including prominent names like Apple, Amazon, and Nike, will be subject to this law.

If implemented effectively, the EU law has enormous potential to protect human rights, including workers’ health and safety and their freedom of speech, across the world. A recent report by human rights scholars highlights its significance in addressing labor rights violations and poor working conditions prevalent in transnational supply chains.

**Concerns and Potential for US Regulations**

While many companies have already embraced mandatory due diligence rules, others argue that government mandates would place burdensome obligations on businesses. Establishing a comprehensive risk map throughout a company’s value chain, from raw materials to consumers, is challenging when suppliers are separate entities operating across the globe within complex supply chains. Some companies also resist the idea of being held accountable for human rights violations occurring in their overseas supply chains.

In the United States, voluntary rules have been preferred for promoting human rights compliance among companies. However, recent developments indicate a shift towards more comprehensive regulations. In 2012, California passed the Supply Chain Transparency Act, requiring companies operating in the state to disclose their efforts to eradicate human trafficking and slavery in their global supply chains. Furthermore, in 2021, Congress enacted the Uyghur Forced Labor Prevention Act, banning the importation of goods produced in the Xinjiang Uyghur Autonomous Region of China, where Uyghur Muslims have faced intense suppression. These rules demonstrate an increasing number of U.S. companies being obligated to implement some form of human rights due diligence. However, these regulations, unlike the planned European approach, are narrowly tailored and do not require routine due diligence.

Given the potential competitive disadvantage faced by U.S. companies subject to the EU regulations, it may be timely for Congress to consider its own comprehensive human rights due diligence law. This approach would enable the U.S. to take a leadership role on this issue and contribute to the establishment of global standards while safeguarding the human rights of marginalized groups worldwide.

In conclusion, the forthcoming EU law demanding human rights and environmental regulations on supply chains is a significant step towards ensuring business accountability. Companies, both within and outside the EU, must take proactive measures to address human rights abuses and environmental damage within their operations. While concerns about the feasibility of compliance exist, the potential benefits for human rights outweigh these reservations. The U.S. should also consider enacting comprehensive regulations to maintain competitiveness and advance the protection of human rights globally.

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