As customary at the end of every five-year legislative cycle in the EU, during the first six months of 2024, the European Parliament (EP) and the Council are finalising major political agreements on some of the most significant proposals made by the European Commission during this mandate. Within the domain of trade, an exclusive competence of the EU, three pieces of legislation have undergone significant deliberation and debate. They have the potential to become game-changers, introducing new conditionalities for those outside our borders who seek to sell products inside our Internal Market.
The first of the three proposals is the one that presently has fewer chances of becoming law during these last months of the current mandate. It concerns the Regulation governing a new generation of unilateral trade preferences for selected countries, the so-called General System of Preferences (GSP). In short, allowed since the GATT in the 1970s (the equivalent to the current World Trade Organisation), developed countries can unilaterally allow poorer ones to trade with them at reduced tariffs without breaking the rule book of trade, which requires equality of treatment via the “most favourable nation” principle. The current GSP Regulation, which has been extended until 2027, pending the approval of a new one, allows 18 countries (9 in Asia) to unilaterally trade with the EU at reduced tariffs and, in the particular case of the 48 least developed countries in the world, as identified by the UN (7 in Asia), to sell us goods with zero tariffs and no limited quotas (the “Everything But Arms” (EBA) system). Notably, the EBA includes two Asian countries that by far take the most financial benefit from the overall system in the whole world: Bangladesh and Cambodia. In exchange, the EU requires all these countries to comply with a set of human rights, labour rights, and environmental obligations for the benefit of their own citizens.
The GSP is an instrument that should make us Europeans proud. Indeed, other jurisdictions have similar systems, notably the United States, but none are as comprehensive and detailed as the one we have in place in the EU. It has proved time after time to be a vital tool in opening a conversation with these third countries on extremely sensitive matters such as the death penalty, the criminalisation of homosexuality, the persecution of the press, child and forced labour, and serious environmental violations, among many others. Several countries in the past were suspended from the GSP (and in some cases reinstated), fully or partially, for systematically and wilfully violating these obligations, such as Sri Lanka and Cambodia in Asia.
The Commission presented in 2021 a new draft Regulation governing the system from 2024 to 2034. It included an important set of improvements. While the proposal may not have gone as far as many wanted, it represented a significant and reasonable step forward. Notably, it included a simplified and urgent system to suspend trade rights to third countries falling into serious violations of their obligations on human rights, other fundamental labour rights, and environmental obligations. It also further expanded some legal obligations in the referred third countries, notably including the Paris agreement on climate change.
However, discussions between the EP and Council seem to have stalled. Press sources inform of several Member States trying to include new conditionalities that would fit poorly in the current system. Some of them would not open our market to these countries but would rather aim to the opposite, at protecting ours from their products. Rice has been mentioned in this domain. Another set of conditionalities could make the overall GSP system unpalatable to many third countries, such as those related to the repatriation of migrants.
The other two legislative proposals are, at the time of writing, in good form to become EU law.
The first one is a ban, in the form of a Regulation, on forced labour products coming into or being produced inside our Internal Market. The European Parliament and Council have reached a political agreement on this proposal that should be substantiated in the coming weeks. The Regulation bans the placing and making available on and the export from the EU market of any product made with forced labour, in the common definition made by the International Labour Organisation (ILO) in its Forced Labour Convention of 1930. Millions of workers are today producing goods under conditions of forced labour, including children. Some of these products reach our EU borders. This is an offence to which all citizens of this planet, and in particular we Europeans, should do something about it. No produce made under forced labour conditions should be sold in our internal market and, in the future, we will have an instrument to ban it.
Some say that the ban that this new EU law will put in place will be less effective than the American “Uyghur Forced Labour Prevention Act” that outrightly prohibits products coming from this Chinese region into the US market. The EU system will not be based on blank presumptions but will require formal investigations, as we already do now in cases of trade dumping or illegal subsidies. The Commission’s proposal has the virtue of being general in scope, rather than specific to a single product or country. Notwithstanding this, the Commission will have to draft a list of high-risk areas and products that enforcement authorities will need to consider when assessing the likelihood of forced labour existence.
After much discussion, investigatory and decision-making powers will be implemented by both the EU and its Member States (the Commission initially wanted to devolve this responsibility solely to Member States). However, the beauty of the system is that a ban in one EU Member State will become a ban across the Union.
After final approval, the Union and its Member States will have three years to put all procedures in place to ensure the effective applicability of this ban.
This proposal should be warmly welcomed. Banning products made under forced labour ought to be an obvious, sensible measure that any democratic jurisdiction should enforce. Linking this ban to the ILO definition of forced labour shows that we truly believe in multilateral governance and rules-based international cooperation. Making any ban made in a Member State a EU ban reflects our commitment to deepen our EU internal collaboration.
The last piece of legislation for which the European Parliament and Council reached a political agreement is the so-called Corporate Sustainability Due Diligence Directive (CS3D). This is indeed a game-changer in the way the Union will deal with the promotion of human rights, labor rights, and environmental issues with our trade partners.
The CS3D creates legal (civil) liability for companies related to environmental and human rights violations within their entire supply chain, not only inside their company. This proposal could be considered almost a Copernican revolution: we will move from a system in which we support the promotion of human, labor, and environmental rights based on government (EU) to government (third countries) dialogue, to one in which the companies trading from these countries to the EU will be directly responsible to ensure compliance. Almost moving from a top-down to a bottom-up approach.
Indeed, no one is more aware and capable of improving human, labour and environmental rights that those companies that work in these countries producing the goods throughout their entire supply chains.
This much needed approach signifies a material change in the way companies deal with their subcontractors and partners across the globe as they will be directly responsible for what they do. This will require time (the obligations will take three years to be enforced after formal approval of the Directive) and significant effort in identifying risks, addressing shortcomings and creating new reporting and supervising systems to fulfil these important objectives.
This is indeed a major change in the way the EU will support the upholding of human rights, labour rights and the climate and environment of our planet.
Member States have watered the scope of the Directive at the eleventh hour, something that has been heavily criticised not only by civil rights and environmental organisations, but also by the very rapporteur of the proposal at the European Parliament. The Directive will be applicable to only the biggest companies in our continent, those with staff of more than one thousand and yearly turnover above 450 million euros. Indeed, this significantly reduces its impact, but one also needs to realise that this is just the beginning of a massively significant change in the way these major companies work: they will also be responsible across their entire supply chains of what happens in remote parts of the globe. Yes, this includes a fraction of EU companies but will be applied worldwide with far-reaching effects: children working in mines of metals that end up in our products, political prisoners in far away countries, companies destroying our forests and putting at risk our efforts combating the climate emergency. It is a genuine step in the right direction. As Europeans, we should be proud showing the way to the rest of the world.
