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Sustainable trade

Aligning trade and human rights

Published 01 November 2022

The Hinrich Foundation will launch its Sustainable Trade Index 2022 on November 8. Among the themes that the index explores is the challenges that foreign trade poses to labor abuses and income inequality especially with globalized supply chains. New trade models suggest that sustainable trade does not have to be at odds with human rights.

Global trade profoundly impacts people and the planet. Trade agreements typically catalyze deregulation, resulting in greater employment opportunities and lifting millions out of poverty. However, economic growth has yet to lead to equitable and sustainable outcomes. Evidence indicates that when market forces reign, corporate interests are often prioritized over inclusive development and human rights are often undermined.

Exploitation at the cost of empowerment

For centuries, trade and human rights have had a turbulent interaction. After the East India Company established the spice trade in India in the 17th century via trade agreements with Indian states and municipalities, it soon established 'company rule'. Throughout the 17th and 18th centuries, the company relied on slave labor and exploited both skilled and unskilled workers. The "most favored nation" principle, the policy of non-discrimination that laid the bedrock for future eras of multilateral free trade, in the 19th century encouraged anti-slave trade agreements, yet forced labor and slavery persisted in many forms worldwide.

As bilateral trade agreements and regionalism opened economic opportunity in the 20th century, so too did room for exploitative labor practices. The North American Free Trade Agreement (NAFTA), for instance, created one of the largest trade blocs in the world by gross domestic product and helped drive the exponential growth of export-oriented maquiladora factories in Mexico. New employment opportunities attracted many women to garment factories and electronics assembly plants. Globalization, deregulation, and free trade gave women in northern Mexico – near the border with the US – more opportunities to enter formal employment, but they also exposed them to low wages and appalling working conditions.[1] Sexual harassment was an all-too-common experience faced by many of these women.

On the other side of the world, in South Asia, the situation wasn't all that different in Bangladesh's garment factories. The 1974 Multi Fibre Arrangement (MFA), managed under the General Agreement on Tariffs and Trade to govern global textile trade, changed the country's ready-made garment (RMG) industry forever. The MFA established quotas limiting textile imports into developing countries and helped reduce barriers to international trade. Bangladesh's RMG industry soon became one of the fastest-growing industries globally. With a workforce of 80% women, the sector has been the country's main source of foreign exchange earnings for the last three decades.[2] Yet, the collapse of the Rana Plaza building, which housed garment producers, and the Tazreen Fashion garment factory fire re-exposed the industry's unsafe working conditions and labor abuses. Intimidation, lack of freedom of association, and sexual harassment are other well-documented abuses in Bangladesh's RMG sector.[3]

While the two trade agreements lifted economies and lay some claim to empowering women, they also exposed women to greater risks and vulnerabilities than ever before. The dominance of a growth agenda, together with a lack of enforceable human rights provisions in the trade agreements, resulted in unintended and unwanted side effects and, ultimately, exploitation.

Bangladesh and Mexico are two economies surveyed in the Hinrich Foundation's Sustainable Trade Index 2022, which measures the relative capacity of 30 key economies across Asia, Europe, and the Americas, to achieve sustainable growth through global trade.

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Sustainable Trade Index 2022

Among other indicators, the index measures and ranks economies on how much goods are produced by forced labor or child labor. It also assesses how much imports and exports of these 30 economies are exposed to the risk of being produced by modern slavery. These indicators are part of the societal "pillar" that the index uses to evaluate how governments manage trade-related externalities. The other pillars measure economic and environmental factors.

This addition is a timely indicator to watch, as even recent trade agreements fail to consider human rights risks. The world's largest multilateral free-trade pact – the Regional Comprehensive Economic Partnership (RCEP) signed in November 2020 between Australia, China, Japan, New Zealand, South Korea, and the 10 member states of the Association of Southeast Asian Nations – is silent on environmental and labor rights protections linked to trade. Civil society groups fear that the RCEP is likely to intensify land grabs in Asia. This is particularly troublesome given the long history of exploitation of workers in Southeast Asia's commodity production chains, particularly palm oil and rubber.

Increased calls for human rights and environmental protection

With globalization, the human rights and environmental impacts of multi-layered supply chains have raised questions on how effectively trade agreements address challenges, including inequality and human rights abuse. Considering that 80% of global trade happens within the value chains of multinational corporations, businesses wield enormous influence on trade negotiations. In response, there has been rising demand for corporations to pay more attention to human rights and create more enforceable human rights provisions in trade agreements. There is a growing recognition that trade may not automatically lead to equitable social and environmental outcomes.

The Office of the High Commissioner for Human Rights (OHCHR) recommends that the Group of Seven states should "focus attention on integrating international standards for responsible business throughout trade policy.”[4] The United Nations Guiding Principles on Business and Human Rights (UNGPs), the authoritative global framework for states and businesses to prevent, address, and remedy human rights abuses connected with business activities, expect states to maintain adequate domestic policy space to meet their human rights obligations when pursuing business-related policy objectives. The UNGP's 10+ Roadmap recommends that states "set principles for creating trade and investment frameworks that respect human rights and the environment.”[5]

The Trade and Sustainable Development chapters in the EU's Trade agreements promote labor and environmental standards, and encourage trade which supports sustainable development. The European Commission's proposal for a Directive on Corporate Sustainability Due Diligence aims to "anchor human rights and environmental considerations in companies". Additionally, the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy and the OECD Guidelines for MNEs expect that international investors adhere to responsible business conduct and standards.

Similarly, a new generation of domestic laws, including the French Duty of Vigilance Law and the German Supply Chain Act, are pushing for more robust human rights due diligence. The UK's Modern Slavery Act 2015 requires every business with a total annual turnover of £36 million or more to publish a slavery and human trafficking statement outlining actions the company has taken to prevent and tackle modern slavery in its operations and supply chain. The Australian Modern Slavery Act requires Australia's biggest companies to publicly report on the risks of modern slavery in their operations and supply chains, and what they are doing to identify and address the issues.

From divergence to convergence

While it is just the beginning, promising trade models are emerging where trade agreements serve as a multi-purpose framework for all-inclusive people-centred development while boosting economic growth. Recently negotiated trade deals include provisions demanding higher standards of corporate respect for human rights. For example, the re-negotiated US-Mexico-Canada Agreement contains a 'Rapid Response Mechanism' that allows for the investigation of labor rights violations in factories. Similarly, the trade deal signed between Indonesia and the European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland) offers lower tariffs on imports of Indonesian palm oil only on the condition that importers can prove their product meets sustainability criteria. While the provision has its limitations due to reliance on certification, it is the first time that a bilateral trade deal has contained enforceable provisions seeking to create more sustainable supply chains.

Further, the Morocco-Nigeria Bilateral Investment Treaty requires investors to conduct a human rights risk assessment as a qualifying criterion to benefit from the Treaty. It also includes mechanisms to hold investors accountable under civil law if their "acts or decisions lead to significant damage, personal injuries or loss of life in the host state".

Though only a few, these are some promising examples of how trade agreements do not have to be at odds with human rights. On the contrary, they allow for the convergence of multiple goals.

The new horizon

The world will continue to move towards freer trade, creating opportunities for economic growth as well as risks and vulnerabilities to people. To ensure global trade is not at odds with human rights for all, negotiations of trade agreements must be rooted in transparency, and public consultation informed through environmental and human rights due diligence. Systems of incentives and sanctions to promote fair and ethical policies and practices can then create a horizon where human rights and trade agreements meet.

[1] Corey Tanner-Rosati, Is There a Remedy to Sex Discrimination in Maquiladoras, 16 LAW & BUS. REV. AM. 533 (2010).
[2] Swazan, I.S., Das, D. Bangladesh's Emergence as a Ready-Made Garment Export Leader: An Examination of the Competitive Advantages of the Garment Industry. JGBC 17, 162–174 (2022)
[3] Human Rights Watch (2015) Whoever Raises their Head Suffers the Most: Workers’ Rights in Bangladesh’s Garment Factories
[4] OHCHR (2022). Sustainable Global Supply Chains: G7 Leadership on UNGP Implementation. Report by the Office of the UN High Commissioner for Human Rights for the 2022 German Presidency of G7.
[5] OHCHR (2021): UNGPS 10+ : A Roadmap for the Next Decade of Business and Human Rights

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Harpreet Kaur is a Business and Human Rights Specialist at the UNDP’s Regional Bureau of Asia and the Pacific, where she oversees a regional project aiming at promoting responsible business practices through partnerships in Asia.

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