Earlier this summer, in June 2021, the German Parliament adopted the Supply Chain Due Diligence Act. The Act was signed into law a month later, marking the conclusion of a relatively swift two-year process of drafting and stakeholder consultation for this landmark legislation. The Supply Chain Due Diligence Act, Lieferkettensorgfaltspflichtengesetz, will take effect on 1 January 2023. Along with other similar legislations already in existence across Europe and a game-changer European Union directive on the same topic looming on the horizon, it heralds a new reality for any trading partner of Europe. It is a new reality that Taiwan cannot ignore.
The wind of mandatory corporate responsibility for human rights and sustainability has been steadily gathering speed abroad. Though such momentum is not yet seen in Taiwan, this is nothing new for European companies operating in certain jurisdictions. France, for example, has had a law in place since 2017, Loi de vigilance, requiring an environmental and human rights duty of vigilance for large multinationals with at least 5,000 or 10,000 employees, established in France with head office on French territory or abroad, with all or part of their economic activities in France.
These multinationals must prepare annual plans that would call out—identify, analyse and prioritise—human rights and environmental risks, while also have procedures to mitigate or prevent these risks. Though the law was passed in France, it has a concrete impact for enterprises in Taiwan. This is because the law requires the French multinationals to regularly assess their subsidiaries, sub-contractors and suppliers.
Aziz Ahammout, an Analyst on Labour Conditions for a French NGO focusing on decent work explains: “The Loi de vigilance has increased efforts by all stakeholders to prevent labour violations within the supply chains of companies, even though progress is still quite uneven among companies. Some don’t fully respect the law, according to reports made by The French High Council For Economy and some NGOs. But it is clear that more and more actions are needed for Taiwanese supplying to French companies.”
Another example is the Child Labour Due Diligence Law in the Netherlands, adopted in 2019 and expected to take effect in 2022, mandating companies to submit a declaration that they have conducted due diligence on child labour in their supply chains. This is similar to the human rights reporting requirement for companies that come under the scope of the UK Modern Slavery Act of 2015.
In the same week that the German Supply Chain Due Diligence Act was adopted, Norway also passed its own due diligence law, the Transparency Act, mandating fundamental human rights and decent work—but not yet environmental—due diligence, to come into effect in July 2022. Indeed, this landscape of human rights and environmental due diligence is fast evolving, pointing at first of regulatory changes, followed by the concrete challenges of implementation and enforcement.
Responsibility as Legal Compliance
These developments in France, Germany, the Netherlands, Norway and the UK are all concrete legal requirements, not voluntary adherence that has long marked the scene of corporate social responsibility (CSR). Though various legislations differ in the exact content and scope of the due diligence requirement—for instance, the Dutch law focuses squarely on child labour while others may have a broader scope—they show that mandatory due diligence on human rights and sustainability will become a normative expectation for how European companies conduct their business.
This means that soon words like the German Lieferkettensorgfaltspflichtengesetz and the French Loi de viligance will soon roll off our tongues, metaphorically, with nothing foreign about their sounds. It is only a matter of time. The European Commission is already considering a draft directive prepared by the European Parliament to make businesses operating in the EU accountable for negative environmental, social and governance (ESG) impacts that take place both inside and outside the regional block.
The European Parliament resolution adopted in March 2021 saw wide political support for robust human rights and environmental due diligence in business operations and activities. The resolution passed with an overwhelming majority (504 votes in favour, 79 against and 112 abstentions). It is important to stress that EU directives are powerful legislative instruments because they must be incorporated by each member state into its own national legal framework by a specified deadline. Member states cannot opt out.
Developments on mandatory corporate due diligence are fast evolving, behind the scenes too, driven in large part by the growing discontent across the region with a lack of substantial progress at COP26 to tackle climate change (as at time of writing). The European Commission’s proposal for a directive on corporate due diligence is expected to be released at the end of 2021 or early 2022.
The proposal will have a significant impact on the normative expectations of responsible business conduct, by shifting CSR from something often treated as ad hoc and extra to an integral and everyday part of doing business. It is a sentiment underscored by Ahammout, an experienced professional in human resources and responsible supply chain management: “The spirit of these laws is a total switch from the classic modus operandi using voluntary social compliance and auditing. Now the focus will be on the risks for the workers. So Taiwanese suppliers will need to show progress on decent work according to relevant international standards.”
Real Test for Common Values
One of the most unexpected about-turns this year was the announcement by the European Parliament in May 2021 to freeze ratification talks for the EU-China Comprehensive Agreement on Investment (analysis here). The agreement, at one point, looked all but certain and well timed to take effect during the incoming French presidency of the European Council in early 2022; France was a key supporter of the EU-China investment agreement.
The fact that the EU-China investment agreement is frozen indefinitely while EU-Taiwan ties have intensified is a policy development charting wholly new ground. It is one for the ages, as both sides stress common values of freedom, democracy, human rights and the rule of law, as President Tsai Ing-wen has described Taiwan as the “frontlines of the global contest between the liberal democratic order and the authoritarian alternative.”
The recent high-profile and first-of-its-kind visit to Taiwan by an official delegation from the European Parliament, with members from the Special Committee on Foreign Interference and Disinformation, is a clear sign that EU-Taiwan official relations are at an interesting beginning. Much will come in the short- and medium-term to map out the contours of this new bilateralism, including perhaps the move to officially change the name of the European Economic and Trade Office in Taiwan to simply ‘European Union Office in Taiwan,’ as proposed by the European Parliament in the blueprint for EU-Taiwan political relations and cooperation in October 2021.
Supply Chain Fault Lines
Amidst all the cautious optimism, however, is a glaring fault. One that can potentially undermine the discourse of this common-value diplomacy by impinging on where declared values move from speeches to the actual world of business activities and relationships. Take the issue of recruitment fees that migrant workers must pay prior to them starting work in Taiwan. This can range from the USD 1200-4000 paid by Filipino workers up to the average of USD 6500 paid by workers from Viet Nam. Furthermore, once in Taiwan, migrant workers pay a monthly service charge to their Taiwanese labour brokers, which is around 7.5 to 10 percent of their minimum monthly wage depending on their employment sector.
All together, these high fees are considered a risk factor of debt bondage and forced labour. The International Labour Organization is clear in that the elimination of forced labour is a fundamental principle and right at work, with international standards pointing to a model of fair recruitment where no workers bear the cost of their own recruitment. European companies that must stay in compliance with various supply chain due diligence requirements have increasingly come to view the practice of labour recruitment that indebts a workforce through recruitment costs as an area of corporate liability. This has important ramifications for their Taiwanese suppliers.
In addition, rigorous environmental due diligence as required under these European legislations on corporate accountability will likely not see a rapid uptake in Taiwan. For years, the island’s vibrant environmental activism has typically leaned heavily towards domestic issues, most notably the use of nuclear power. There has not been a similar level of awareness and mobilisation on global climate change (analysis here), in stark contrast to the ground-swelling support in Europe on climate action that has underpinned much of the urgency around environmental due diligence.
Exceptionalism
It is true that the private sector in Taiwan is not exceptional in its corporate responsibility or irresponsibility to embed respect for human rights and sustainability. A read of the news across the world underscores that these are global challenges with local and transnational dimensions. Taiwan is not unique in the challenges it faces to ensure that responsible business conduct is the norm, not the oddity. But what is unique for Taiwan is that soft diplomacy, potentially leading to other things it may want, requires a level of consistency. This means business is not just business. It too has a part in public relations and diplomacy. And corporate responsibility and accountability go squarely to where the rubber meets the road – do we mean what we say when we speak of human rights and sustainability, and does this hold when matters of corporate responsibility and accountability have a bearing on the costs of doing business?
Better think fast. A new dawn comes, and Lieferkettensorgfaltspflichtengesetz is one beautiful word.
(Feature image courtesy of Andrew Gustar Flickr)
