27.03.2023 Yenkong Ngangjoh-Hodu, Tarcisio Gazzini, Avidan Kent, Kristian Siikavirta & Parveen Morris The proposed EU Corporate Sustainability Due Diligence Directive and its Impact on LDCs A Legal Analysis Ministry for Foreign Affairs of Finland Julkaisun nim i 2023:4 Publications of the Ministry for Foreign Affairs 2023:4 ISSN PDF 2737-0844 ISBN PDF 978-952-281-370-1 ISBN EPUB 978-952-281-370-1 The proposed EU Corporate Sustainability Due Diligence Directive and its Impact on LDCs A Legal Analysis Yenkong Ngangjoh-Hodu, Tarcisio Gazzini, Avidan Kent, Kristian Siikavirta & Parveen Morris Ministry for Foreign Affairs of Finland Helsinki 2023 Publications of the Ministry for Foreign Affairs 2023:4 Ministry for Foreign Affairs of Finland This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited. ISBN pdf: 978-952-281-370-1 ISSN pdf: 2737-0844 Layout: Punamusta Oy Helsinki 2023 Finland Publication distribution Institutional Repository for the Government of Finland Valto julkaisut.valttioneuvosto.fi Publication sale Online bookstore of the Finnish Government vnjulkaisumyynti.fi https://julkaisut.valtioneuvosto.fi/ https://vnjulkaisumyynti.fi/?lang=fi Description sheet 27 March 2023 The proposed EU Corporate Sustainability Due Diligence Directive and its impact on LDCs A Legal Analysis Publications of the Ministry for Foreign Affairs 2023:4 Publisher Ministry for Foreign Affairs of Finland Author(s) Yenkong Ngangjoh-Hodu, Tarcisio Gazzini, Avidan Kent, Kristian Siikavirta & Parveen Morris Language English Pages 102 Abstract The report provides a concise critical analysis of the Proposal for a Directive on Corporate Sustainability Due Diligence by the Commission from the standpoint of the least developed countries (LDCs). The proposed sustainability due diligence obliges certain European companies and companies of third-countries generating significant turnout in the EU to conduct due diligence in identifying, preventing and ending potential or actual negative environmental and human rights impacts. The proposal includes new means for injured parties to access justice by establishing civil liability and complaints procedures for those experiencing actual and foreseen adverse impacts in relation to the operations of the companies. The report analyses the trade structures between the EU and Tanzania and the Democratic Republic of the Congo, relevant principles of international law on human rights, environmental law, labour rights, corruption and rule of law, technology transfer, and liability rules, considered important to LDCs. The Draft Directive is almost silent on developing countries and LDCs where one can see that problems of human rights conditions and environmental harms are more prominent. There is a need to bring up issues that are crucial to boost the sustainable and equitable development of those countries, most prominently the fight against corruption and development of the rule of law. Provision This report is commissioned as part of UniPID Development Policy Studies (UniPID DPS), funded by the Ministry for Foreign Affairs of Finland (MFA) and managed by the Finnish University Partnership for International Development (UniPID). UniPID is a network of Finnish universities established to strengthen universities’ global responsibility and collaboration with partners from the Global South, in support of sustainable development. The UniPID DPS instrument strengthens knowledge-based development policy by identifying the most suitable available researchers to respond to the timely knowledge needs of the MFA and by facilitating a framework for dialogue between researchers and ministry officials. The content of this report does not reflect the official opinion of the Ministry for Foreign Affairs of Finland. The responsibility for the information and views expressed in the report lies entirely with the authors. Keywords Sustainability due diligence; international trade; human rights; environmental protection; Global South; technology transfer; corruption; labour standards; corporate social responsibility; civil liability; developing countries ISBN PDF 978-952-281-370-1 ISSN PDF 2737-0844 URN address https://urn.fi/URN:ISBN:978-952-281-370-1 https://urn.fi/URN:ISBN:978-952-281-370-1 Kuvailulehti 27.3.2023 EU:n ehdotus direktiiviksi yritysten kestävää toimintaa koskevasta huolellisuusvelvoitteesta ja sen vaikutukset LDC-maissa Oikeudellinen analyysi Ulkoministeriön julkaisuja 2023:4 Julkaisija Ulkoministeriö Tekijä/t Yenkong Ngangjoh-Hodu, Tarcisio Gazzini, Avidan Kent, Kristian Siikavirta & Parveen Morris Kieli englanti Sivumäärä 102 Tiivistelmä Tämä raportti on tiivis kriittinen analyysi komission ehdotuksesta direktiiviksi yritysten kestävää toimintaa koskevasta huolellisuusvelvoitteesta. Anlyysi nostaa esiin vähiten kehittyneiden maiden (LDC-maiden) näkökulman. Ehdotettu kestävää toimintaa koskeva huolellisuusvelvoite velvoittaa tietyt eurooppalaiset yhtiöt ja EU-alueelta merkittävää liikevaihtoa saavat kolmansien maiden yhtiöt huolellisesti tunnistamaan, estämään ja lopettamaan sellaiset toimet, jotka saattavat aiheuttaa tai aiheuttavat negatiivisia ihmisoikeus- ja ympäristövaikutuksia. Ehdotus sisältää uusia oikeussuojakeinoja vahingonkärsijöille luomalla siviilioikeudellisia vastuita ja valitusmenettelyjä niille, jotka kärsivät yhtiöiden toiminnoista johtuvista todellisista ja ennakoitavissa olevista haittavaikutuksista. Raportissa analysoidaan EU:n ja Tansanian sekä Kongon demokraattisen tasavallan välisen kaupan rakenteita, ihmisoikeuksia koskevan kansainvälisen oikeuden periaatteita, ympäristölainsäädäntöä, työntekijöiden oikeuksia, korruptiota ja oikeusvaltiota koskevia periaatteita, teknologian siirtoa ja vastuusäännöksiä, joiden katsotaan olevan tärkeitä LDC-maille. Ehdotusluonnoksessa ei juurikaan mainita kehitysmaita ja LDC-maita, joissa ihmisoikeus- ja ympäristöongelmat ovat yleisiä. On tarpeen nostaa keskusteluun näiden maiden kestävää ja oikeudenmukaista kehitystä tukevia seikkoja, joita ovat erityisesti korruption torjunta ja oikeusvaltion periaatteiden kehittäminen. Provision Tämä raportti on osa ulkoministeriön rahoittamia ja UniPID-verkoston hallinnoimia kehityspoliittisia selvityksiä (UniPID Development Policy Studies). Finnish University Partnership for International Development, UniPID, on suomalaisten yliopistojen verkosto, joka edistää yliopistojen globaalivastuuta ja yhteistyötä globaalin etelän kumppanien kanssa kestävän kehityksen saralla. Kehityspoliittinen selvitysyhteistyö vahvistaa kehityspolitiikan tietoperustaisuutta. UniPID identifioi sopivia tutkijoita vastaamaan ulkoministeriön ajankohtaisiin tiedontarpeisiin ja fasilitoi puitteet tutkijoiden ja ministeriön virkahenkilöiden väliselle dialogille. Tämän raportin sisältö ei vastaa ulkoministeriön virallista kantaa. Vastuu raportissa esitetyistä tiedoista ja näkökulmista on raportin laatijoilla. Asiasanat Kestävää toimintaa koskeva huolellisuusvelvoite; kansainvälinen kauppa; ihmisoikeudet; ympäristönsuojelu; globaali etelä; teknologian siirto; korruptio; työnormit; yritysten sosiaalinen vastuu; siviilioikeudellinen vastuu; kehitysmaat ISBN PDF 978-952-281-370-1 ISSN PDF 2737-0844 Julkaisun osoite https://urn.fi/URN:ISBN:978-952-281-370-1 https://urn.fi/URN:ISBN:978-952-281-370-1 Presentationsblad 27.3.2023 EU-kommissionens förslag till direktiv om företagsbesiktning avseende mänskliga rättigheter och miljö och dess inverkan på de minst utvecklade länderna En juridisk analys Utrikesministeriets publikationer 2023:4 Utgivare Utrikesministeriet Författare Yenkong Ngangjoh-Hodu, Tarcisio Gazzini, Avidan Kent, Kristian Siikavirta & Parveen Morris Språk engelska Sidantal 102 Referat Rapporten tillhandahåller en kortfattad kritisk analys av kommissionens förslag till direktiv om företagsbesiktning avseende mänskliga rättigheter och miljö. Rapporten tar up de minst utvecklade ländernas (MUL) synvinkel. Den företagsbesiktning som föreslås ålägger vissa europeiska företag och företag i tredje länder som genererar ett betydande utfall i EU att genomföra en företagsbesiktning för att identifiera, förebygga och stoppa potentiell eller faktisk negativ påverkan på miljö och mänskliga rättigheter. Förslaget inkluderar nya sätt att få tillgång till rättslig prövning för skadelidande genom att etablera procedurer för civilrättsligt ansvar och klagomålsförfaranden för dem som upplever faktiska och förutsedda negativa konsekvenser som kan relateras till företagens verksamhet. Rapporten analyserar handelsstrukturerna mellan EU och Tanzania samt Demokratiska republiken Kongo, relevanta principer för internationell rätt gällande mänskliga rättigheter, miljölagstiftning, arbetsrätt, korruption och rättsstatsprincipen, tekniköverföring och ansvarsregler som anses viktiga för de minst utvecklade länderna. I utkastförslaget undviker man nästan helt att ta upp utvecklingsländer och MUL där man kan se att problem gällande mänskliga rättigheter och miljöskador är mer framträdande. Det finns ett behov av att ta upp frågor som är avgörande för att främja en hållbar och rättvis utveckling i dessa länder, framför allt kampen mot korruption och utvecklingen av rättsstatsprincipen. Provision Denna rapport är beställd som en del av UniPID Development Policy Studies (UniPID DPS), finansierad av Finlands Utrikesministerium (MFA), och hanterad av Finnish University Partnership for International Development (UniPID). UniPID är ett nätverk av finska universitet som etablerats för att stärka universitetens globala ansvar och samarbete med partner från det södra halvklotet, till stöd för en hållbar utveckling. UniPID DPS-verktyget stärker en kunskapsbaserad utvecklingspolicy genom att identifiera de mest lämpliga, tillgängliga forskarna för att svara på utrikesministeriets kunskapsbehov i rätt tid och att underlätta ett ramverk för en dialog mellan forskare och departementstjänstemän. Innehållet i denna rapport återspeglar inte Finlands utrikesministeriums officiella uppfattning. Ansvaret för informationen och åsikterna i rapporten ligger helt på författarna. Nyckelord Due diligence för hållbarhet; internationell handel; mänskliga rättigheter; miljöskydd; Global South; tekniköverföring; korruption; arbetsnormer; företagens sociala ansvar; civilrättsligt ansvar; utvecklingsländer ISBN PDF 978-952-281-370-1 ISSN PDF 2737-0844 URN-adress https://urn.fi/URN:ISBN:978-952-281-370-1 https://urn.fi/URN:ISBN:978-952-281-370-1 Contents Foreword.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Executive summary.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1 Introduction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2 Trade between the EU and LDCs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.2 Trade between the African LDCs and the EU.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.3 Challenges Facing EU – DRC and Tanzania Trade.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.4 Potential Impacts on EU - LDC Trade .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 3 International Human Rights and the Rule of Law.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.2 LDCs, the Rule of –Law – Tanzania and the DRC.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.3 Market Exit from LDCs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 3.4 Analysing Current Regulation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 3.5 Conclusions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 4 Environment and Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 4.2 Public Engagement and Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4.3 The Environmental Scope of the Directive.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 4.4 Article 15: Climate Change and the 1.5 °C Target.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 4.5 Obligation to Mitigate Environmental Damages.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 4.6 Assistance for LDC-Based Companies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 4.6.1 Reliance on Contractual Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 4.6.2 Responsibility Following Disengagement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 4.7 Conclusions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 5 Labour Rights and Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 5.2 Challenges for African Business .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 5.2.1 Tanzania.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 5.2.2 The Democratic Republic of the Congo.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 5.2.3 The African Union Action Plan.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 5.3 Challenges for Business.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 5.4 Conclusions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 7 Publications of the Ministry for Foreign Affairs 2023:4 6 Corruption and Transfer of Technology.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 6.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 6.2 Corruption.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 6.2.1 Legal Commitments of the EU and its Member States.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 6.2.2 Relationship Between the Protection of Human Rights and the Environment and Fight Against Corruption.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 6.2.3 Inclusion of Corruption in a Legally Binding Instrument on Corporate Sustainability Due Diligence.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 6.2.4 Corruption and LDCs: Tanzania and the Democratic Republic of the Congo.. . . . . . . . . . . . . . . . . . . . 78 6.3 Transfer of Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 6.3.1 Legal Commitments of the EU and its Member States.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 6.3.2 Transfer of Technology, Human Rights and the Environment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 6.3.3 Inclusion of Transfer of Technology in the Directive.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 6.4 Conclusions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 7 Liability Regime.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 7.1 Due Diligence Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 7.1.1 French Corporate Duty of Vigilance Law.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 7.2 Enforcement and Civil Liability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 7.2.1 Case-law.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 7.3 Interim Conclusion.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8 Conclusion and Policy Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 8 Publications of the Ministry for Foreign Affairs 2023:4 F O R E W O R D The Ministry for Foreign Affairs has worked with responsible business conduct for over a decade. During the past years, the Ministry has closely collaborated with the Ministry of Economic Affairs and Employment, business, and civil society to elaborate, what due diligence – an ongoing process where businesses identify, prevent, mitigate, and cease adverse impacts caused by their own operations or business partners and provide remedy, when appropriate – means in different sectors, supply chains, or operating environments. Since 2019, guided by the Programme of Prime Minister Sanna Marin’s Government, the focus has been on how due diligence could be translated into legally binding obligation. The Ministry of Economic Affairs and Employment published an assessment memorandum on national due diligence obligation, where it was noted that the country of operation plays a role in how the objects of due diligence legislation – respect of human rights, environmental protection – can be met.1 In February 2022, the European Commission published its proposal for a Directive on Corporate Sustainability Due Diligence. This would place a due diligence obligation on human rights and the environment to large companies and smaller, certain risk sector companies operating in the EU. Both the national assessment memorandum and the draft directive include assessments on impacts to human rights, the environment, and EU companies, but very little assessment on how the directive would impact developing countries, their companies and trade. As such a legislation is quite new, we as legislators have little experience on its practical application or impacts. The unknown impacts have been a specific concern to our sustainable trade unit, as we work with both responsible business conduct and encouraging business in least developed countries (LDCs) to part take in EU value chains. 1 Piirto, Linda and Teräväinen, Sami (Ministry of Economic Affairs and Employment, Helsinki 2022): Memorandum on the due diligence obligation: Review of the national corporate social responsibility act, http://urn.fi/URN:ISBN:978-952-327-795-3. Retrieved 8 March 2023. http://urn.fi/URN:ISBN:978-952-327-795-3 9 Publications of the Ministry for Foreign Affairs 2023:4 This is why our unit requested studies to: 1. Assess impact of the proposed legislation on the ability of particularly LDCs to participate in EU supply chains and the impact on their economies (e.g. jobs). 2. Identify key bottlenecks that prevent LDCs from participating in EU supply chains as well as measures that mitigate negative impact. 3. Propose options for Finland to support LDCs in meeting requirements of the proposed legislation. Furthermore, we requested the studies to approach the research topic by focusing on two developing countries, preferably LDCs, relevant to Finland’s development cooperation. The studies should also focus on supply chains both in primary production and in manufacturing. We have identified these as key “unknowns” on which we need to know more about in order to a) fulfil the objectives of the due diligence legislation and b) support developing countries and their companies to be a part of EU value chains in the future too. We are fortunate to have received two excellent research proposals that examine the topic from two different perspectives. The report at hand prepared by an international research team lead by the University of Vaasa provides a rich analysis of the proposed legislation particularly from a legal perspective. It offers insights into its implications of the proposed legislation for developing countries by considering the cases of Tanzania and the Democratic Republic of Congo. The report makes recommendations to improve the proposed legislation and identifies measures to support LDCs. The second report titled Towards inclusive European CSR legislation: Analysing the impacts of the EU corporate sustainability directive on LDC trade and prepared by an international team lead by the Hanken School of Economics focuses more on the economic and social implications of the proposed legislation on value chains in developing countries complementing the analysis of the first report. It considers particularly the textiles and garment manufacturing value chain in Ethiopia and the coffee production value chain in Tanzania. The two reports provide independent assessments by the researcher teams of the proposed EU legislation on corporate sustainability due diligence and its implication for developing countries. We are confident that the findings of these reports will contribute significantly to discussions concerning the proposed legislation and will support in identifying measures to assist companies operating in developing countries to meet requirements of the proposed legislation. We would also like to thank both research teams for their excellent work and giving their expertise to these studies. https://urn.fi/URN:ISBN:978-952-281-374-9 https://urn.fi/URN:ISBN:978-952-281-374-9 10 Publications of the Ministry for Foreign Affairs 2023:4 We are greatly indebted to the UniPID network of Finnish Universities for facilitating the two research reports starting from the call for proposals, to managing contracts and ensuring the successful publication of the reports. We would in particular like to thank Kelly Brito for her professional support throughout the process. Commercial Counsellor Linda Piirto and Commercial Counsellor Antti Piispanen, Sustainable Trade Department for International Trade, Ministry for Foreign Affairs 11 Publications of the Ministry for Foreign Affairs 2023:4 E X E C U T I V E S U M M A RY The present report offers a concise critical analysis of the proposed EU corporate social responsibility Directive from the standpoint of trade between the EU and the world’s least developed countries (LDCs), taking into account the cross-cutting objectives of Finnish development policy, according to which “development cooperation should not only focus on avoiding negative impacts, but also try to make a positive contribution.”2 There is little doubt that the proposed Directive represents a positive step in the right direction. The attempt to address and prevent human rights and environmental impacts beyond the EU’s jurisdiction is laudable and reflects recent trends in international law. Yet, the proposal as it stands will have consequential impacts on the already fragile trade relationship between the EU and African LDCs. Accordingly, EU-incorporated companies are ‘in scope’ companies and non-EU companies will also be covered by the Directive, subject to them meeting a certain threshold. The report found that companies in Tanzania and the Democratic Republic of the Congo (DRC), two case studies, will need to ensure human rights practices are engrained in their business practices, especially at the senior board level. Accordingly, companies that are ‘in scope’ are required to put measures in place that would ensure they are following human rights and environmental due diligence. As is the case with some existing Sanitary and Phytosanitary (SPS) and technical barriers to trade (TBTs) requirements for exports into the EU, where satisfying health and safety norms have proven particularly challenging to LDCs such as the DRC and Tanzania, the report found that human rights and environmental requirements in the proposal may likely add another barrier to export from these countries into the EU, if care is not taken in the final drafting of the proposed Directive. More specifically, the report found that the proposed Directive will present a real challenge to the exports of key products like foodstuff, beverages and minerals from the DRC into the EU. The same applies to the export of live animals, vegetable products and base metals from Tanzania. These are all identified as high impacts areas in the proposed Directive. Overcoming these challenges will require EU Member States to reconsider 2 Guideline for the Cross-Cutting Objectives in the Finnish Development Policy and Cooperation (2021), at https://um.fi/ documents/35732/0/Annex+4+-+Cross-cutting+Objectives+%281%29.pdf/ e9e8a940-a382-c3d5-3c5f-dc8e7455576b?t=1596727942405. https://um.fi/documents/35732/0/Annex+4+-+Cross-cutting+Objectives+%281%29.pdf/e9e8a940-a382-c3d5-3c https://um.fi/documents/35732/0/Annex+4+-+Cross-cutting+Objectives+%281%29.pdf/e9e8a940-a382-c3d5-3c https://um.fi/documents/35732/0/Annex+4+-+Cross-cutting+Objectives+%281%29.pdf/e9e8a940-a382-c3d5-3c 12 Publications of the Ministry for Foreign Affairs 2023:4 the proposed Directive and put in place a support package for LDCs like the DRC and Tanzania which will be impacted by the proposed Directive. Three key components from the trade perspective would be crucial in helping companies in Tanzania and the DRC to overcome the difficulties posed by the proposed Directive. Firstly, targeted technical assistance to help companies in these countries meet the due diligence requirements and domestic constraint to build their capacity to export will be crucial. Secondly, it is of absolute necessity that the drafting of the final Directive is made simpler and clearer so that companies in these countries will be able to ascertain, without difficulty, the exact due diligence standard they will need to meet before they can export to the EU. Thirdly, the promotion of transparency, streamlining as well as coherence amongst EU Member States is also very important. Indeed, the report’s main conclusion is that the impact of the proposed Directive on LDCs and industries that are operating within their jurisdictions deserves further attention. As presented, the proposed text requires clarification and elaboration on elements such as technical assistance, clearer and more detailed guidelines, and better coherence with other areas. The proposed Directive could have been more ambitious, notably by addressing competing areas such as technology transfer and corruption. The proposed Directive will also benefit from more targeted adjustments, such as with respect to civil liability, post-disengagement obligations, and engagement with stakeholders. Non-enforcement of international human rights obligations (and international environmental laws) and even weak enforcement of national law, especially in LDCs due to insufficient rule of law, makes legislation such as the proposed Directive an alluring option to manage real human rights conditions in foreign countries in an indirect way. International law has not succeeded in creating sustainability obligations for multinational companies (MNCs), though there is still ongoing development towards more concrete responsibilities for MNCs in securing human rights in their value chains and supply management. The directive does not give guidance on how the future development in international law would be anticipated. Over the years, the main human rights responsibilities and obligations have been on states. The proposed Directive sets MNCs in a new environment, particularly due to the mitigation and liability rules.The proposed Directive, therefore, opens up the possibility for human rights responsibility beyond the current state-centred regime. In this regard, it is important that the proposed Directive takes into account the fact that MNCs are required to observe human rights due diligence so that implementation is uniformly carried out within the EU. 13 Publications of the Ministry for Foreign Affairs 2023:4 The due diligence obligations and additional requirements and liabilities make it necessary for MNCs to take on a new role working with foreign trading partners, foreign administration and local communities. In this new role, European companies may need additional support and guidance from the EU and home state authorities. The instructions on engagement with stakeholders such as local communities require certain adjustments. Notably, the instruction to consult with relevant stakeholders only “where relevant” does not represent the golden standard of public participation and engagement. The removal of the term “where relevant” is not expected to harm companies and will support them in their efforts to prevent adverse impacts, future disputes, and reputational damage. Article 15 of the proposed Directive provides specific instructions on climate change. Companies will require further detail on the meaning of the instruction to ensure compatibility with the Paris Agreement (global) 1.5 °C target, especially in the context of operating in LDC territories and in light of the recognition of these nations’ sovereignty and the principle of common but differentiated responsibilities. The proposed Directive instructs companies to support their small and medium-sized enterprise (SME) partners in their effort to mitigate and prevent adverse impacts. As they currently stand, these instructions are too vague and SME partners are not guaranteed sufficient support. In light of the very drastic implications for SMEs failing to comply with the requirements to prevent and mitigate adverse impacts (i.e. the possible termination of the business relationship), the Directive should clarify the scope and the detail of the required assistance, and confirm that it will be adequate to ensure SMEs’ ability to comply with the proposed Directive’s requirements. The proposed Directive includes instructions to end business relationships where business partners have not complied with the Directive’s requirement to prevent and mitigate adverse impacts. The Council’s draft allows companies, in very limited cases, to maintain these business relationships, under the condition that companies will routinely monitor the situation and reassess their decision to avoid disengagement. The requirements to monitor and reassess deserve further detail and clarification, especially in light of the severity of this exception and its consequences, i.e. allowing companies to knowingly maintain business relationships with partners that cause adverse impacts to human rights and the environment. The due diligence obligations detailed in the proposed Directive are laudable in that they significantly enhance existing reporting only obligations enacted in California, the U.K. and Australia in the quest to tackle modern slavery. 14 Publications of the Ministry for Foreign Affairs 2023:4 The report has considered the proposed Directive’s impact upon labour standards insofar as they impact upon businesses in LDCs. The focus on LDCs such as Tanzania and the DRC highlights the prevalence of poor labour standards and the plight of modern slavery and child labour, which are rampant alongside poor enforcement systems. The hidden nature of modern slavery due to its existence in the informal sector presents significant challenges. If the Finnish cross-cutting objective of making positive contributions is brought to the fore, then there is an urgency for clear guidance for EU corporations on their responsibilities for engaging with local businesses and stakeholders. This is to be accompanied by sanctions, both pecuniary and those that come with a risk of reputational damage. Alongside robust guidance and sanctions, the proposed Directive should extend the support to potential victims of egregious labour standards. The civil liability regime should place the burden of proof upon the corporation as opposed to the victim. This is to enhance the support to vulnerable LDC victims. The proposed Directive should adopt the Finnish development policy cross-cutting objectives and make a positive contribution by enhancing support for victims. This should extend to enabling victims to be represented by non-governmental organisations (NGOs). A uniform approach across the EU will avoid a fragmented and uncertain civil liability regime. The Draft Directive is silent on two issues that are crucial for LDCs, namely the fight against corruption and transfer of technology. These issues are intimately related to the enjoyment of human rights, protection of the environment, promotion of rule of law and good governance, reduction of the technological gap and advancement of sustainable development. The importance of fighting corruption has been emphasised in every fora, including the European Parliament (EP). Companies must refrain from engaging in corruption practices and are expected to play a significant role in fighting those practices alongside the EU and its Members, which are bound by several conventions on this subject. The inclusion of the fight against corruption in the Directive – as prospected by the EP Committee on Legal Affairs – is fully justified and will be very beneficial for LDCs, most of which occupy the bottom places in the Corruption Perceptions Index (in 2021 Tanzania and the DRC figure, respectively, at 87th and 169th place, out of 180). Such a conclusion is even more compelling for corporate responsibility in the extractive sector. The need to include transfer of technology in the Directive is less immediate compared to the fight against corruption, but nonetheless equally important from the standpoint not only of the protection of human rights and the environment, but also of the transition 15 Publications of the Ministry for Foreign Affairs 2023:4 to climate resilience and low emission development, as recognised by the Finnish Development Policy. The EU and its Members are bound under Article 66 (2) of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to promote and encourage companies in their territories to transfer technology to LDCs. Indeed, such transfer largely depends on the willingness of companies – which normally hold technologic knowledge – to pursue such transfer in all its forms, while continuing to enjoy the legal protection of intellectual property rights. Bringing transfer of technology within the scope of the concept of corporate responsibility is admittedly a cross-cutting objective, although it already figures in a few investment treaties such as the 2019 Economic Community of West African States Common Investment Code (ECOWIC). Yet, including transfer of technology in the preamble or even in a specific provision in the Directive would at once strengthen the synergies between the EU, its Members and companies in this area, and considerably increase the Directive’s added value for LDCs. 16 Publications of the Ministry for Foreign Affairs 2023:4 1 Introduction The report aims at providing a concise critical analysis of the Proposal for a Directive on Corporate Sustainability Due Diligence elaborated by the Commission (hereinafter “Draft Directive”)3 from the standpoint of the world’s least developed countries (LDCs). It takes into account the Explanatory Memorandum,4 the Council’s General Approach on the Draft Directive, and the provisional position on the Draft Directive expressed by the European Parliament’s Legal Affairs Committee.5 The main challenge of the Report is that the Draft Directive is almost silent on developing countries and LDCs. Furthermore, there is no mention in the Draft Directive or any related documents of issues that are crucial to boost the sustainable and equitable development of those countries, most prominently the fight against corruption. The proposed Directive is based on Articles 50 and 114 of Treaty on the Functioning of the European Union (TFEU). It has two main purposes: (a) obliging European companies satisfying the conditions indicated in Article 3 and companies of third-countries generating significant turnout in the territory of the EU to conduct due diligence in identifying, preventing and ending potential or actual environmental and human rights impacts; and (b) compelling those companies to facilitate access to remedy and justice, in particular by establishing civil liability and complaints procedures for those having legitimate concerns regarding potential or actual adverse impact in relation to the operations of the former and their subsidiaries as well as their value chain. 3 Proposal for a Directive of the EP and the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937, Brussels, 23 February 2022 COM(2022) 71 final, available at https://eur-lex.europa.eu/resource. html?uri=cellar:bc4dcea4-9584-11ec-b4e4-1aa75ed71a1.0001.02/DOC_1&format=PDF. 4 Ibidem. 5 Proposal for a Directive of the EP and the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937 - General Approach, Doc. 15024/1/22 REV 1, Brussels, 30 November 2022, available at https://data.consilium.europa.eu/doc/ document/ST-15024-2022-REV-1/en/pdf. Draft Report on the proposal for a directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937 (COM(2022)0071 – C9-0050/2022 – 2022/0051(COD), available at https://www.europarl.europa.eu/doceo/document/JURI-PR-738450_EN.pdf https://eur-lex.europa.eu/resource.html?uri=cellar:bc4dcea4-9584-11ec-b4e4-1aa75ed71a1.0001.02/DOC_1 https://eur-lex.europa.eu/resource.html?uri=cellar:bc4dcea4-9584-11ec-b4e4-1aa75ed71a1.0001.02/DOC_1 https://data.consilium.europa.eu/doc/document/ST-15024-2022-REV-1/en/pdf https://data.consilium.europa.eu/doc/document/ST-15024-2022-REV-1/en/pdf https://www.europarl.europa.eu/doceo/document/JURI-PR-738450_EN.pdf 17 Publications of the Ministry for Foreign Affairs 2023:4 Environmental adverse impact and human rights adverse impact are defined indirectly in Article 3 (b) and (c) respectively by equating them to violations of the obligations contained in the international conventions listed in the Annex. The reference to those violations serves the very limited scope of setting a benchmark for establishing environmental and human rights impact for the purpose of the Draft Directive. From this perspective, the Draft Directive assumes that conduct by a State that would amount to a violation of the international conventions listed in the Annex causes environmental or human rights adverse impact in relation to the due diligence obligations of the companies falling within the scope of the Directive. Such a benchmark is not applied mechanically. Indeed, environmental or human rights adverse impacts may be caused by “a violation of a prohibition or right not specifically listed in that Annex which directly impairs a legal interest protected in those conventions”.6 It follows that the international conventions listed in the Annex continue to apply exclusively to their respective Parties. A conduct inconsistent with any of those conventions that can be attributed to a State would trigger its international responsibility in accordance with the rules on State responsibility as largely codified in the International Law Commission’s (ILC) Articles on State Responsibility.7 On the contrary, companies falling within the scope of the Directive are not bound by the international conventions listed in Annex.8 They are rather bound by the national regulations and administrative provisions Member States are obliged to adopt to implement the Directive and publish in accordance with Article 30 of the Draft Directive.9 With regard to the nature and spatial scope of the national regulations and administrative provisions, they can be qualified as “domestic measures with extraterritorial implications”10 or considered as an example of “territorial extension of measures adopted by Member States.”11 The Court of Justice of the EU has admitted that acts of the EU Institutions consistent with international law may apply beyond the border of the EU “in limited and 6 Explanatory Report, para 25, p. 35. 7 See International Law Commission Articles on Responsibility of States for Internationally Wrongful Acts (2001), UN Doc. A/56/49(Vol. I)/Corr.4. 8 This is without prejudice to the possibility of attributing the conduct of a company to a State under the rules on State responsibility. 9 As a matter of terminology, Article 30 uses in paragraph 1 “regulations and administrative provisions” and in paragraph 3 “national law”. 10 Report of the Special Representative of the Secretary General on the issue of human rights and transnational corporations and other business enterprises, 9 April 2010, A/ HRC/14/27, para 48. 11 See J. Scott, ‘Extraterritoriality and Territorial Extension in EU Law’, 62 Am. Journ. Comp. Law (2014) 87. 18 Publications of the Ministry for Foreign Affairs 2023:4 clearly defined circumstances” and provided there is “a close connection with the territory of the European Union”.12 Alternatively, they can be justified under the so-called effects doctrine developed mainly by the U.S. Supreme Court, which “has repeatedly upheld [the Congress’] power to make laws applicable to persons or activities beyond our territorial boundaries where U.S. interests are affected”,13 especially when the presumption against extraterritoriality has been rebutted by a “clear, affirmative indication that it applies extraterritorially”.14 In the case of the Directive, such clear and affirmative indication is quite manifest in its very objective to introduce corporate sustainable due diligence in the context of transnational business. It follows that the Directive is clearly meant to require Member States to enact measures applicable beyond the borders of the EU. From the standpoint of Member States, they exercise prescriptive jurisdiction with regard to companies formed in the EU identified in Article (2) (1) and Article 3 (a). The basis for the exercise of jurisdiction is the passive nationality link between the company and a Member State. The Directive equally applies to companies of third countries fulfilling one of the conditions indicated in Article 2.2 (a) and (b), both concerning the volume of turnover generated in the territory of the EU. The turnover in the territory of the EU above the indicated threshold thus provides a “territorial connection” between the third-country company and the territory of the EU.15 Concerning the structure of the report, Section 2 focuses on the relevance and implications of the Draft Directive for the trade relationships between the EU and its Members on one side, and LDCs on the other side. Sections 3 to 5 deal with three key areas of corporate sustainability due diligence, namely the protection of human rights, the environment and labour standards. Section 6 reflects on the fight against corruption and transfer of technology, which are important issues for LDCs but are not included in the Draft Directive. Section 7 briefly examines the remedies foreseen in the Draft Directive and in particular the complaints procedure. 12 Case C-561/20, Q v. United Airlines, Judgment, 7 April 2022, ECLI:EU:C:2022:266, paras 52, 54. 13 Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993) 813-814. 14 RJR Nabisco, Inc. v. European Community, 579 U.S. 2090 (2016) ... See William S. Dodge, ‘The Presumption against Extraterritoriality in Two Steps’, 110 Amer. Journ. Int’l Law (2016) 45. 15 Explanatory Report, para 24, p. 34. 19 Publications of the Ministry for Foreign Affairs 2023:4 In all those specific contexts, the report examines how the Directive could be amended or integrated to better meet the needs and priority of LDCs and ultimately contribute to boosting the sustainable development of their economies. The report’s final part will elaborate a series of recommendations. While the report’s recommendations are relevant for LDCs in general, we will provide closer examination of two case-studies, namely Tanzania and the DRC. The choice of the two countries is motivated essentially by the prominent place of these countries amongst LDCs, as well as their importance for the standpoint of natural resources and rare earth. The natural resources sector is indeed at once of paramount importance for the sustainable development of LDCs and of great concern in terms of the protection of the environment and human and labour rights. As far as methodology is concerned, the task entrusted with this team was to provide a legal analysis of the directive and its impact on LDCs and relevant stakeholders. We therefore commenced our work with the identification of key areas in which this impact is likely to manifest itself. We then relied on desk research methodology, analysing appropriate legal materials including conventions, EU law (including drafts) domestic laws and soft law guidelines, and secondary sources including academic journal articles, data from international organisations, NGOs reports and IGOs reports. Where appropriate and necessary, we provided a closer examination of two case studies – Tanzania and the DRC – although our analysis and recommendations are designed to be applicable to LDCs more broadly. The result of our legal analysis is presented as a report, accompanied with a list of concrete recommendations for policy makers. The Report is divided into 6 Parts discussing the Draft Directive from specific perspectives and focusing, respectively, on Trade between the EU and LDCs (Part 2 – Ngangjoh-Hodu), Human rights (Part 3 – Siikavirta), Environment and climate change (Part 4 – Kent), Labour standards (Part 5 – Morris), Corruption and transfer of technology (Part 6 – Gazzini) and Liability (Part 7 – Morris). 20 Publications of the Ministry for Foreign Affairs 2023:4 2 Trade between the EU and LDCs 2.1 Introduction The proposal, on face value, will likely affect only medium and large companies incorporated in third countries due to the turnover requirements highlighted below. The proposal, as it stands, will have consequential impacts on the already fragile trade relationship between the EU and African LDCs. Accordingly, EU incorporated companies are ‘in scope’ companies and non-EU companies will also be covered by the Directives subject to them meeting a certain threshold. In this regard, the proposed Directive will apply to non-EU companies if; the company generates a net turnover of more than EUR 150 million in the EU market in the financial year preceding the last financial year; or the company generated a net turnover of more than EUR 40 million but not more than EUR 150 million in the EU internal market in the financial year preceding the last financial year, provided that at least 50% of its net worldwide turnover was generated in certain high-risk sectors.16 This means that the proposal will only apply to fewer companies in the LDCs that meet the threshold specified in Article 2.2(a) and (b) as highlighted above. However, before discussing the implications of the proposal and the challenges currently facing companies in countries such as the DRC and Tanzania when it comes to trading with the EU, it is important to briefly identify and discuss existing the framework for trade between the EU and LDCs like the DRC and Tanzania. 2.2 Trade between the African LDCs and the EU The legal framework governing trade relations between the EU and African countries varies based on geographical location, level of development, whether there are existing Economic Partnership Agreements (EPAs) in place or the Generalised System 16 See Article 2.2(a) and (b) of the proposed Directive. Accordingly, some of the high risk sectors identified in the proposed Directives are; textile and clothing, mining, leather and footwear, agriculture, forestry, fisheries (including aquaculture), the manufacture of food products, and the wholesale trade of agricultural raw materials, live animals, wood, food, and beverages, extractive industry, the manufacture of basic metal product etc. See page 64 of the revised text (15024/1/22 REV 1). 21 Publications of the Ministry for Foreign Affairs 2023:4 of Preferences (GSP) that applies to the exports of the African country in question. With regards to trade between the EU and African LDCs, there are two key trading regimes. The first is the Everything But Arms (EBA) initiative applicable to all LDCs around the world, including those in Africa. The second framework is the EPA, provided the LDC in question has signed and ratify an EPA with the EU or is part of a sub-regional group that has signed the agreement.17 The third trading regime is the multilateral trading system under the World Trade Organization (WTO). However, as most African LDCs have yet to sign an EPA, their trade with the EU have been largely governed by the EBA. As always with non- reciprocal trade preferences, the EBA is voluntary and can be withdrawn at will by the EU. Therefore, over the last decades, the EU and these countries have been involved in the negotiation of a legally binding and WTO-compatible reciprocal trade arrangements in form of an EPA. Negotiating trade agreements with third countries as a group, especially when the group operates as a custom union or common market, is a normal practice as it ensures that the applicable common external tariffs (CET) amongst the members is the same. In this regard, the CET that is essential to the functioning of the custom union is preserved. Although there have been expectations that the four sub-regions i.e., the East African Community (EAC),18 the Southern African Development Community (SADC)19, Central Africa20 and the Economic Community of West African States (ECOWAS) would negotiate, sign and implement an EPA as a group, this never happened. For instance, in West Africa, Nigeria refused to sign the EPA proposed by the EU, complaining that the proposed agreement was incompatible with its trade interests and overall development objectives. Consequently, for fear of access to EU market, Côte d’Ivoire and Ghana broke ranks and are now implementing what is termed a ‘stepping stone’ EPA. None of the West African LDCs saw the need to sign the so-called stepping stone EPA, given that they currently export to the EU under the EBA framework. 17 The European Community in 2002 introduced the “Everything But Arms” initiative for all LDCs. This means that this non-reciprocal trade preferences do not only apply to African LDCs The initiative applies to all LDCs so long as they meet the rules of origins condition. See Regulation 416/2001 of 26 February 2001, Official Journal of the European Union No. L 60 of 1.3.2001 18 See EU EAC – EPA, available at https://policy.trade.ec.europa.eu/ eu-trade-relationships-country-and-region/countries-and-regions/ east-african-communityeac_en 19 See EU – SADC EPA at https://trade.ec.europa.eu/access-to-markets/en/content/ epa-sadc-southern-african-developmentcommunity. 20 See EU – Cameroon EPA, available at https://trade.ec.europa.eu/doclib/docs/2020/ october/tradoc_158984.pdf https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/east-african-communityeac_en https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/east-african-communityeac_en https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/east-african-communityeac_en https://trade.ec.europa.eu/doclib/docs/2020/october/tradoc_158984.pdf https://trade.ec.europa.eu/doclib/docs/2020/october/tradoc_158984.pdf 22 Publications of the Ministry for Foreign Affairs 2023:4 In a similar light, with regard to the EAC EPA, Kenya and Rwanda broke ranks and signed the agreement even though the EAC is a custom Union and the other LDC members of the EAC, including Tanzania, are not willing to sign. Although the two countries were given the green light by the EAC at their summit on 28 February 2021 to implement the signed interim EPA based on the principle of variable geometry, such implementation is yet to take place.21 The difficulty of implementation of the signed EAC – EU EPA by Kenya and Rwanda only demonstrates the challenges of engaging in fragmented trade agreements by individual members of Custom Unions with third countries.22 The implication for the current studies is that while Kenya continues to trade with EU under the EU GSP scheme and the WTO regime, Tanzania and other LDCs members of the EAC trade with the EU under the EBA. The same can be said about the DRC, where Cameroon broke ranks and signed the Central Africa EPA with the EU, while the DRC and other Central African countries refused to sign. These countries are either trading with the EU under the EBA, the EU GSP or the WTO regimes. This is particularly true with the DRC, which has continued to trade with the EU under the EBA. Nonetheless, the nature of the EBA preferences do not lend themselves to exports of value-added goods to the EU. EBA preferences are structured in such a way that the beneficiaries could only largely benefit from them if they rely on primary products as their key exports to the EU. The simple reason behind this as will be discussed below is because of the SPS requirements as well as the technical requirements by EU for value added goods from these countries into the EU markets. In most cases, the SPS and technical requirements lack clarity and are too cumbersome for companies in LDCs to be able to comply with. 21 See European Commission, Overview of Economic Partnership Agreements, available at https://trade.ec.europa.eu/doclib/docs/2009/september/tradoc_144912.pdf 22 For EAC – EU EPA to enter into force, the remaining four EAC members i.e., Burundi, Uganda, South Sudan and Tanzania will need to ratify the agreement. See https://policy. trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/ east-african-community-eac_en#:~:text=The%20East%20African%20Community%20 (Burundi,and%20Kenya%20has%20ratified%20it. https://trade.ec.europa.eu/doclib/docs/2009/september/tradoc_144912.pdf 23 Publications of the Ministry for Foreign Affairs 2023:4 Figure 1.  EU Trade with the DRC -500 -400 -300 -200 -100 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total goods: EU Trade �ows and balance, annual data 2011–2021 Imports Value Mio € Exports Value Mio € Balance 24 Publications of the Ministry for Foreign Affairs 2023:4 Table 1.  EU Trade with the DRC Total goods: EU Trade flows and balance Source Eurostat Comext - Statistical Regime 4 Period Imports Exports Balance Total Trade Value Mio € % Growth % Extra-EU Value Mio € % Growth % Extra-EU 2011 657 0 963 0,1 306 1621 2012 654 -0,5 0 1035 7,4 0,1 380 1689 2013 1085 65,9 0,1 1019 -1,5 0,1 -67 2104 2014 1068 -1,6 0,1 914 10,3 0,1 -154 1981 2015 687 -35,7 0 1091 19,4 0,1 404 1778 2016 915 33,3 0,1 890 -18,5 0 -26 1805 2017 1232 34,6 0,1 875 -1,6 0 -357 2108 2018 1452 17,8 0,1 993 13,4 0 -459 2444 2019 1028 -29,2 0,1 1027 3,4 0 -1 2055 2020 973 -5,4 0,1 915 -10,9 0 -57 1888 2021 1492 53,4 0,1 1024 11,9 0 -468 2516 % Growth: relative variation between current and previous period % Extra-EU imports/exports as % of all EU partners i.e. excluding trade between EU Member States 25 Publications of the Ministry for Foreign Affairs 2023:4 Table 2.  European Union, Trade with DRC, Source Eurostat Comext – Statistical regime 4 HS Sections Imports Exports Value Mio € % Total % Extra-EU % Growth Value Mio € % Total % Extra-EU % Growth I Live animals; animal products 0,0 0,0 0,0 282,0 169,0 16,5 0,4 40,9 II Vegetable products 16,0 1,1 0,0 9,6 43,0 4,2 0,1 -13,5 III Animal or vegetable fats and oils 0,0 0,0 0,0 28,3 2,0 0,2 0,0 9,8 IV Foodstuffs, beverages, tobacco 28,0 1,9 0,1 -2,9 137,0 13,3 0,1 14,4 V Mineral products 126,0 8,4 0,0 -24,7 25,0 2,4 0,0 -44,7 VI Products of the chemical or allied industries 0,0 0,0 0,0 -13,2 160,0 15,6 0,0 -14,0 VII Plastics, rubber and articles thereof 0,0 0,0 0,0 41,6 22,0 2,2 0,0 15,0 VIII Raw hides and skins, and saddlery 0,0 0,0 0,0 336,2 1,0 0,2 0,0 49,1 IX Wood, charcoal and cork and articles thereof 13,0 0,9 0,1 29,4 1,0 0,2 0,0 64,4 X Pulp of wood, paper and paperboard 0,0 0,0 0,0 41,5 48,0 4,7 0,1 18,1 XI Textiles and textile articles 0,0 0,0 0,0 37,2 28,0 2,7 0,0 13,0 XII Footwear, hats and other headgear 0,0 0,0 0,0 -88,4 2,0 0,3 0,0 45,5 XIII Articles of stone, glass and ceramics 0,0 0,0 0,0 266,4 8,0 0,8 0,0 54,1 XIV Pearls, precious metals and articles thereof 54,0 3,6 0,1 -15,6 0,0 0,0 0,0 -13,8 XV Base metals and articles thereof 891,0 59,7 0,6 74,6 25,0 2,4 0,0 -1,0 XVI Machinery and appliances 1,0 0,1 0,0 87,6 192,0 18,8 0,0 8,5 XVII Transport equipment 0,0 0,0 0,0 -51,2 112,0 11,0 0,0 95,7 XVIII Optical and photographic instruments, etc. 1,0 0,0 0,0 132,4 24,0 2,3 0,0 -8,0 26 Publications of the Ministry for Foreign Affairs 2023:4 HS Sections Imports Exports XIX Arms and ammunition XX Miscellaneous manufactured articles 0,0 0,0 0,0 304,1 10,0 1,0 0,0 21,2 XXI Works of art and antiques 0,0 0,0 0,0 67,1 0,0 9,0 0,0 -64,0 XXII Not classified 361,0 24,2 2,2 105,4 15,0 1,4 0,1 121,0 AMA / NAMA Product Groups Total 1492,0 100,0 0,1 53,4 1024,0 100,0 0,0 11,9 Agricultural products (WTO AoA) 44,0 3,0 0,0 1,4 349,0 34,1 0,0 20,3 Fishery products 0,0 0,0 0,0 252,4 3,0 0,3 0,0 80,1 Industrial products 1447,0 97,0 0,1 55,9 671,0 65,6 0,0 7,7 % Growth: relative variation between current and previous period % Total: Share in Total: Total defined as all products % Extra-EU: imports/exports as % of all EU partners i.e. excluding trade between EU Member States 27 Publications of the Ministry for Foreign Affairs 2023:4 As shown in Figure 1 above, the imports from the DRC into the EU have rather fluctuated between 2011 and 2021. Despite this fluctuation, one can see a somewhat upward trend in imports from the DRC into the EU in this time period. Yet, most of the imports are in the extractive sector as can be seen in Table 2. Beyond this sector, there has also been noticeable export of forestry products into the EU, as well as foodstuffs, beverages and tobacco. Although the trade balance seems to be in favour of the DRC, the figure is not entirely accurate. The DRC almost fully relies on arms and ammunition imports from the EU, and these figures have not been recorded. Consequently, if the new EU proposal is to impact trade between the EU and the DRC, this will likely be in the extractive sector as well as the forestry and agricultural sectors. Figure 2.  EU Trade with Tanzania 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total goods: EU Trade �ows and balance, annual data 2011–2021 Imports Value Mio € Exports Value Mio € Balance 28 Publications of the Ministry for Foreign Affairs 2023:4 Table 3.  EU Trade with Tanzania Total goods: EU Trade flows and balance, Source: Eurostat Comext – Statistical regime 4 Period Imports Exports Balance Total Trade Value Mio € % Growth % Extra-EU Value Mio € % Growth % Extra-EU 2011 480,0 0,0 843,0 0,1 363,0 1323,0 2012 439,0 -8,6 0,0 836,0 -0,8 0,0 397,0 1275,0 2013 516,0 17,7 0,0 734,0 -12,2 0,0 218,0 1251,0 2014 554,0 7,4 0,0 809,0 10,1 0,0 254,0 1363,0 2015 657,0 18,6 0,0 890,0 10,1 0,0 233,0 1547,0 2016 613,0 -6,7 0,0 845,0 -5,0 0,0 232,0 1458,0 2017 515,0 -17,7 0,0 797,0 -5,7 0,0 293,0 1302,0 2018 461,0 -8,7 0,0 762,0 -4,4 0,0 302,0 1223,0 2019 424,0 -8,1 0,0 836,0 9,7 0,0 412,0 1260,0 2020 635,0 49,9 0,0 839,0 0,4 0,0 205,0 1474,0 2021 457,0 -28,0 0,0 856,0 2,0 0,0 399,0 1314,0 % Growth: relative variation between current and previous period % Extra-EU imports/exports as % of all EU partners i.e. excluding trade between EU Member States 29 Publications of the Ministry for Foreign Affairs 2023:4 Table 4.  EU Trade with Tanzania, Source Eurostat Comext - Statistical regime 4 HS Sections Imports Exports Value Mio € % Total % Extra-EU % Growth Value Mio € % Total % Extra-EU % Growth I Live animals; animal products 67,0 14,7 0,2 31,9 8,0 0,9 0,0 8,2 II Vegetable products 146,0 32,0 0,3 22,1 21,0 2,4 0,1 -63,7 III Animal or vegetable fats and oils 1,0 0,1 0,0 -54,1 5,0 0,6 0,1 46,7 IV Foodstuffs, beverages, tobacco 71,0 15,5 0,1 -39,8 47,0 5,4 0,1 30,1 V Mineral products 40,0 8,7 0,0 -85,8 16,0 1,9 0,0 11,9 VI Products of the chemical or allied industries 1,0 0,2 0,0 409,7 141,0 16,5 0,0 -7,0 VII Plastics, rubber and articles thereof 0,0 0,1 0,0 325,6 26,0 3,0 0,0 -7,5 VIII Raw hides and skins, and saddlery 0,0 0,0 0,0 -76,9 0,0 0,0 0,0 139,4 IX Wood, charcoal and cork and articles thereof 1,0 0,2 0,0 -11,8 1,0 0,1 0,0 1,1 X Pulp of wood, paper and paperboard 0,0 0,0 0,0 8,2 25,0 2,9 0,0 53,7 XI Textiles and textile articles 7,0 1,5 0,0 9,5 10,0 1,1 0,1 -3,5 XII Footwear, hats and other headgear 1,0 0,1 0,0 45,7 0,0 0,1 0,0 69,9 XIII Articles of stone, glass and ceramics 1,0 0,2 0,0 -3,3 12,0 1,3 0,0 45,1 XIV Pearls, precious metals and articles thereof 21,0 4,5 0,0 -32,4 0,0 0,0 0,0 -65,9 XV Base metals and articles thereof 95,0 20,8 0,1 495,9 42,0 4,9 0,0 -36,4 XVI Machinery and appliances 2,0 0,5 0,0 22,0 249,0 29,0 0,0 -17,5 XVII Transport equipment 1,0 0,1 0,0 76,8 74,0 8,7 0,0 29,2 XVIII Optical and photographic instruments, etc. 1,0 0,2 0,0 -5,1 26,0 3,0 0,0 -36,1 30 Publications of the Ministry for Foreign Affairs 2023:4 HS Sections Imports Exports XIX Arms and ammunition 0,0 0,0 0,0 -34,5 XX Miscellaneous manufactured articles 1,0 0,1 0,0 61,7 10,0 1,2 0,0 3,7 XXI Works of art and antiques 1,0 0,1 0,0 19,6 0,0 0,0 0,0 -81,1 XXII Not classified 1,0 0,3 0,0 -64,9 144,0 16,8 0,0 380,7 AMA / NAMA Product Groups Total 457,0 100,0 0,0 -28,0 856,0 100,0 0,0 2,0 Agricultural products (WTO AoA) 217,0 47,5 0,0 -8,4 81,0 9,4 0,0 -23,3 Fishery products 71,0 15,5 0,0 26,5 0,0 0,0 0,0 182,4 Industrial products 169,0 36,9 0,0 -50,5 775,0 90,6 0,0 5,6 % Growth: relative variation between current and previous period % Total: Share in Total: Total defined as all products % Extra-EU: imports/exports as % of all EU partners i.e. excluding trade between EU Member States As regarding EU – Tanzania trade, Figure 2 shows that Tanzania has witnessed a negative balance of trade against the EU for the last ten years. While there has been fluctuation in imports and exports between Tanzania and the EU, there is a noticeable positive balance of trade in favour of the EU between 2011 and 2021. Regarding specific areas of trade, the bulk of Tanzania’s exports to the EU have been vegetable products and precious metals. There have also been modest exports of live animals and animal products to the EU. Essentially, even without statistics on arms and ammunitions that Tanzania is likely a net importer from the EU, Tanzania is a net importer from the EU. Table 4 shows that most of Tanzania’s imports from the EU are machinery and chemical products. Therefore, if the new EU proposed Directive is to affect EU trade with Tanzania, it would likely involve products such as machinery, chemicals, precious minerals as well as vegetables and vegetable products. 31 Publications of the Ministry for Foreign Affairs 2023:4 2.3 Challenges Facing EU – DRC and Tanzania Trade As is the case with most LDCs and developing countries, the DRC and Tanzania consider international trade as a critical path to economic growth, poverty alleviation and prosperity.23 This is not a surprise, though, as the link between international trade and development is no longer a point of contestation. Recent examples from emerging economies like China, India, and South Korea as well as advanced developing countries like Botswana, Tunisia and Mauritius show that with the right conditions, international exchange of goods and services can foster economic growth and contribute to poverty alleviation, gender equality and environmental sustainability.24 This approach to development and prosperity is also consistent with United Nations 2030 Sustainable Development Goals (SDGs)25 as well as African Union Agenda 2063.26 Yet, the extensive policies and measures undertaken by LDCs and in particular, Tanzania and the DRC, have not led to increase in trade volume and positive balance of trade vis-à-vis the European Union. In fact, international trade has not generated the quality and form of growth necessary to reverse rising poverty levels and low prosperity. The persistent underdevelopment, lower volume of trade and reliance on a few baskets of exports mainly, in the agricultural and extractive sectors, demonstrate that despite largely tariff- free and duty-free market access to the EU under the EBA, there are still significant non- tariff barriers (NTB) that prevent them from engaging into value added goods exports to the EU.27 In recent years, there have been improvements in exports earnings for the DRC and Tanzania, as shown on Tables 2 and 4 above. These improvements have been largely due to favourable movements in prices of commodities such as diamonds, gold, copper, and 23 See International Trade Centre, United Republic of Tanzania: Invisible Barriers to Trade Business Perspectives, (April 2022). 24 See Jeffrey A. Frankel & David Romer, ‘Does Trade Cause Growth?’, in John J. Kirton (ed.), Global Trade (Routledge, 2009); Mukhisa Kituyi, International Trade and Development Nexus, Great Insight Magazine, ECDPM (November 2013), Michael Trebilcock, ‘Between Theories of Trade and Development: The Future of the World Trading System’, 16 Journ. World Investment & Trade (2015) …; Thomas Wiedmann & Manfred Lenzen, ‘Environmental and Social Footprints of International Trade’, 11 Nature Geoscience (2018) 314; Zi Hui Yin & Chang Choi, The effect of trade on the gender gap in labour markets: the moderating role of information and communication technologies, Economic Research-Ekonomska Istraživanja, (2022), pp. 1-20. 25 See UNSDG targets 17.10, 17.11, and 17.12 26 See Agenda 2063: The Africa We Want, African Union. Available at https://au.int/en/ agenda2063/overview 27 Of course, it is also true that lack of competitive business environment and concrete government policy to promote industrialisation are also to be blamed. https://au.int/en/agenda2063/overview https://au.int/en/agenda2063/overview 32 Publications of the Ministry for Foreign Affairs 2023:4 coffee. Yet, exports of these countries continue to be dominated by primary products. The key challenge for these countries is structural. In most of the countries that have transitioned into emerging economies through export-led growth, export promotion has played a critical role in their long-term growth strategy.28 Manufacturing-led export, which is pivotal in long-term growth, can only happen when there is support for a virtuous cycle of investment, innovation and a transparent and focused poverty reduction strategy. All these ingredients are missing in the trade policy approach of the DRC and Tanzania. At best, where there is a growth strategy,29 implementation is woefully missing.30 Although insufficient infrastructure is a key contributory factor to lack of manufacturing-led growth in the DRC and Tanzania, political will, which has been largely lacking, is pivotal to any export-led growth. However, external factors have also been an issue. Over the years, Tanzania and the DRC have found it challenging to comply with SPS as well as products standards for their exports to the EU market. While the EU, as a WTO member, is obliged to act in accordance with WTO obligations on SPS, the SPS Agreement under the WTO also allows Members to set their own SPS standards. To this end, WTO Members are generally expected to set standards that are not higher than international ones or than standards necessary to achieve a legitimate objective.31 In other words, restrictions on the basis of SPS shall only 28 It is true that in some instances export-led growth will better be achieved through increase public infrastructure financing as well as expanded import of capital equipment. See for instance, Tyler Biggs, Assessing Export Supply Constraints: Methodology, Data, Measurement, in Africaportal (2007), Paul Collier, The Political Barriers to Development in Africa (Oxford Research Encyclopedias, 2019). 29 See Tanzania Country Strategy 2019-2022, available at https://www.lrct.go.tz/uploads/ documents/sw-1665650968-LRCT%20STRATEGIC%20PLAN.pdf. 30 See Christian Estmann et al, Merchandise export diversification strategy for Tanzania - promoting inclusive growth, economic complexity and structural change, Development Economics Research Group Working paper Series, 02-2020, University of Copenhagen (2020). 31 See Annex B.11(b), to the WTO SPS Agreement. https://www.lrct.go.tz/uploads/documents/sw-1665650968-LRCT%20STRATEGIC%20PLAN.pdf https://www.lrct.go.tz/uploads/documents/sw-1665650968-LRCT%20STRATEGIC%20PLAN.pdf 33 Publications of the Ministry for Foreign Affairs 2023:4 be “to the extent necessary to protect human, animal or plant life or health, based on scientific principles and not maintained without sufficient scientific evidence”.32 The EU standard has been seen as more restrictive.33 In the case of Tanzania, the requirement to comply with SPS standards has impeded the market access of fish and other agricultural products such as maize, beans, and coffee to the EU. Exports of these products to the EU require exporters to put in place additional measures to improve hygiene and safety in the supply chain.34 Moreover, there are issues of concern related to policies and strategies for investing in the upgrading of landing sites. The same challenges hold true for the DRC as EU strict SPS and standards requirements have made it very difficult to export animals and animal products as well as foodstuff and other agricultural products to the EU. Moreso, the strict EU SPS requirements has also been a hinderance to manufacturing-led export from Tanzania and the DRC into the EU. The existence of strict SPS requirements means that the export of semi-processed and processed products into the EU has been very challenging. 2.4 Potential Impacts on EU - LDC Trade Pursuant to Article 2 of the proposed Directive, companies established according to the laws of third countries will be expected to comply with significant obligations in the Directive. Such compliance will be expected if they generate a net turnover of more than 40 million but not more than EUR 150 million in the EU in the financial year preceding 32 See WTO SPS Agreement Article 2.2. The only exception to this obligation is where relevant scientific evidence is not sufficient. In such a situation, a WTO member may provisionally adopt SPS measure which may be more restrictive based on the available evidence. Such measure would need to be reviewed within a very reasonable timeframe and the member concerned is obliged to seek clarity on the scientific evidence available before continuing the measure. See SPS Agreement Article 5.7. 33 The Cotonou Agreement Article 48 requires African, Caribbean and Pacific (ACP) countries and the EU to recognise the right of each party to adopt or to enforce SPS measures necessary to protect human, animal, or plant life or health, subject to the requirement that these measures do not constitute a means of arbitrary discrimination or a disguised restriction to trade, generally. The EU and most ACP countries have agreed to apply the same standard in the context of the EPA and also act consistent with the SPS Agreement under the WTO. 34 See EU Commission Regulation (EC), No. 1881/2006 of 19 December 2006 setting Maximum levels for certain contaminant in foodstuffs (OJL 364, 20.12.2006, p.5) as well as Eric Pichon, Economic Partnership Agreement with the East African Community, Briefing, International Agreements in Progress, European Parliament, (May 2022). Available at https://www.europarl.europa.eu/RegData/etudes/BRIE/2022/729445/ EPRS_BRI(2022)729445_EN.pdf. https://www.europarl.europa.eu/RegData/etudes/BRIE/2022/729445/EPRS_BRI(2022)729445_EN.pdf https://www.europarl.europa.eu/RegData/etudes/BRIE/2022/729445/EPRS_BRI(2022)729445_EN.pdf 34 Publications of the Ministry for Foreign Affairs 2023:4 the last one provided that at least EUR 20 million was generated in any of the following sectors; agriculture, forestry, fisheries (including aquaculture), the manufacture of food products and beverages, and the wholesale trade of agricultural raw materials, live animals, wood, food, and beverages.35 It is also important to note that the threshold requirements may change by the time the proposed Directive is finalised as the EP Legal Affairs Committee seems to be suggesting a much more lower threshold in term of the number of employees. As seen on Tables 2 and 4 above, most of these sectors are precisely sectors of significant export interests to the DRC and Tanzania. This means that SMEs and large multinationals based in these countries are likely to be impacted by the new proposal if the threshold specified in Article 2 of the proposal is met. However, assuming that very few companies from LDCs, Tanzania36 and the DRC in particular, meet the EUR 40 or EUR 20 million turnover requirements under the proposed Directive, there will still be potential impacts on companies from these countries that are part of a value chain with a company that are ‘in scope’. Additionally, if the threshold is lowered as currently suggested by the EP Legal Affairs Committee, the impact will likely be felt by smaller companies that are part of a value chain with ‘in scope’ companies. By implication, instead of the supposedly, well- intentioned objectives of the proposed Directive to safeguard human rights and prevent harmful environmental practices, the proposed Directive may well become a disguised restriction on international trade. As is the case with existing non-tariff measures (NTMs) to trade, such as TBTs and SPS measures which have contributed to reduced market access for LDCs into the EU, the environmental requirements, if designed in a discriminatory and protective manner, are likely to be counterproductive to the ambition of the DRC and Tanzania to double their exports by 2030.37 On the other hand, the requirements could also increase international trade if they are designed and applied in a manner that would guarantee the environmental and human rights credentials of imported goods. In other words, such an approach can build trust and confidence in a particular product and eventually, demand for the goods. 35 The following sectors are also included; the manufacture of textiles, leather and related products (including footwear), and the wholesale trade of textiles, clothing and footwear. See Article 2.2(b). 36 An example of such company is the MeTL Group in Tanzania, which has an annual revenue of roughly USD 9 Billion. See https://www.metl.net/en/who-we-are/about-us 37 See Istanbul Plan of Action, Fourth United Nations Conference on the Least Developed Countries, United Nations, (09-13 May 2011), A/CONF.219/3/Rev.1 https://www.metl.net/en/who-we-are/about-us 35 Publications of the Ministry for Foreign Affairs 2023:4 However, with goods from Tanzania and other LDCs historically, facing restrictive NTBs of about 75 per cent, it is more likely than not that requirements to demonstrate environmental and human rights credentials of export to the EU will further stifle international trade.38 Generally, companies in Tanzania and the DRC will need to ensure human rights practices are ingrained in their business practices, especially at the senior board level. Accordingly, companies that are ‘in scope’ are required to put measures in place that would ensure that they are following human rights and environmental due diligence. Integrating due diligence and identifying actual or potential adverse human rights and environmental impacts by companies in these countries, as required by the proposed Directive, may not in themselves be a problem. The key issue for businesses intending to export to the EU is likely to be proving that they have those conditions in place even if there is a public communication as required by the proposed Directive. As is the case with existing SPS and TBT requirements for exports into the EU, where satisfying health and safety norms have proven particularly challenging to LDCs like the DRC and Tanzania, the human rights and environmental requirements in the proposal will add another layer of barrier to export.39 In view of the above, it is fair to conclude that the proposed Directive will present a real challenge to the exports of key products like foodstuff, beverages and minerals from the DRC into the EU. The same applies to the export of live animals, vegetable products and base metals from Tanzania. These are all identified as high impacts areas in the proposed Directives. Overcoming these challenges will require EU Member States to reconsider the proposed directives and put in place a support package for LDCs such as the DRC and Tanzania, which will be impacted by the proposed Directive. Three key components would be crucial in helping companies in Tanzania and the DRC to overcome the difficulties posed by the proposed Directive. Firstly, targeted technical assistance to help companies in these countries meet the due diligence requirements and domestic constraint to build their capacity to export will be crucial. Secondly, it is of absolute necessity that the drafting of the final Directive is made simpler and clearer so that companies in these countries will be able to ascertain, without difficulty, the exact due diligence standard they will need to meet before they can export to the EU. Thirdly, the promotion of transparency, streamlining as well as coherence amongst EU Member States is also very important. 38 See UNCTAD, If you Care about Least Developed Countries, Care about Non-Tariff Measures, A technical note by UNCTAD Secretariat, at https://unctad.org/system/files/ official-document/ditc2015misc4_en.pdf 39 See Abel Paul et al, ‘Comparative Advantage of Tanzanian Coffee Sector under “Everything but Arms” Export Trading Regime’, 13 Journal of Economics and Sustainable Development (2022) …. Related to this, see for instance, Benjamin William Mkapa, Why the EPA is not Beneficial to Tanzania, South Centre, Bulletin No. 1 (November, 2016). https://unctad.org/system/files/official-document/ditc2015misc4_en.pdf https://unctad.org/system/files/official-document/ditc2015misc4_en.pdf 36 Publications of the Ministry for Foreign Affairs 2023:4 3 International Human Rights and the Rule of Law 3.1 Introduction The directive aims to complement vague international rules on business responsibility. This section clarifies some human rights developments and discussions in international law and brings up the problems faced by LDCs. The analysis highlights some key issues by way of bettering the directive proposal. The aim of this study is to analyse the implications of the proposed directive on corporate sustainability due diligence. Without a general understanding of human rights in differing social and juridical cultures, it is not simple to offer robust answers to these questions. General analysis of human rights is not the goal of this study, but instead we focus on legal rules and international trade with emphasis on human rights (and environmental) issues. One view of the human rights and trade nexus is that in theory, namely in economic theory, trade liberalisation raises living standards measured in Gross National Product (GNP) in aggregate. More open trading countries experience higher rates of economic growth. This is illustrated for example by Sykes.40 His analysis from existing sources suggests that wealthier states have superior human rights conditions. That effect is seen also in the Rule of Law Index produced by the World Justice Project41 and I Human Freedom Index42. Sykes underlines there is no basis for supposing, either in theory or in practice, that a more open trading system does systematic damage to human rights.43 The question is how to best address the tensions that arise between open trade and human rights. Economic theory admits that open trade may cause undesired effects in the form of negative externalities (pollution and natural resources overuse) and uneven distribution of income. 40 Alan O. Sykes, International Trade and Human Rights: An Economic Perspective, 2003 (John M. Olin Program in Law and Economics), p. 3. 41 World Justice Project, https://worldjusticeproject.org. 42 The Human Freedom Index, https://worldpopulationreview.com/country-rankings/ freedom-index-by-country 43 Sykes, note 40, p. 9. https://worldjusticeproject.org https://worldpopulationreview.com/country-rankings/freedom-index-by-country https://worldpopulationreview.com/country-rankings/freedom-index-by-country 37 Publications of the Ministry for Foreign Affairs 2023:4 Howse illustrates well the complex relation between (liberal) trade and human rights and imminent problems like conflict diamonds and sex tourism (and trafficking).44 A balanced analysis of benefits and costs is perhaps needed to explain and illustrate difficulties.45 In general, the protection of human rights requires legislation and access to justice in addition to working national income distribution mechanisms to control the undesired effects of open trade.46 In general, there is conformity in thinking that international trade creates an incentive for state leaders to protect domestic human rights. Repression and arbitrary law enforcement undermine the business marketplace by creating uncertainty.47 Despite that, we can see that human rights are not on the same level in trading countries, even when the states are bound by identical international rules and conventions protecting human rights.48 It is not within the remit of this study to analyse the reasons for observed differences, but it would be useful to reflect on why and to what extent human rights conditions differ on a global scale. Only then can one begin to consider the appropriate tools for implementing human rights. The proposed Directive fails to incorporate observed differences, trends, causes, or analysis of the legal, administrative or social measures to approach the problem. One way to confront the anomaly of differing human rights conditions is to assess the real and implied costs and benefits of human rights. This is currently missing in the human rights paradigm. This discussion does not undermine the importance and value of human rights and human rights obligations, but creates an opportunity to analyse why some states fail to uphold human rights to a similar extent to others (as for example in EU). Analysis may give reasons for targeted policy measures. Human rights costs and benefits may be pecuniary, social, and political. The political cost of securing human rights may be high for authoritarian states where leaders are destined to stay in power through undemocratic means.49 Enforcement of human rights requires 44 Robert Howse, ‘Human Rights in the WTO: Whose Rights, What Humanity? Comment on Petersmann’ 13 Eur. Journ. Int’l Law (2002), 651–659, p. 651–652. 45 Sykes 2003, note 40, p. 10–11. 46 Sigrun Skogly, ‘Global human rights obligations’, in Mark Gibney et al. (eds.), The Routledge Handbook on Extraterritorial Human Rights Obligations (2022), p. 25, p. 31. 47 Olga Chytz. ‘Dangerous liaisons: An endogenous model of international trade and human rights’, 53 Journal of Peace Research (2016) 409 and literature there. 48 See for example Rule of Law Index . 2021 by The World Justice Project, p. 10. Obtainable from https://worldjusticeproject.org/sites/default/files/documents/Index-2021.pdf. 49 Chytz, note 47. https://worldjusticeproject.org/sites/default/files/documents/Index-2021.pdf 38 Publications of the Ministry for Foreign Affairs 2023:4 an effective and credible legal system with sanctions. For this reason, there is a need for a credible public power and well-functioning tax system.50 Accountability and rule of law may emerge as a risk for authoritative regimes and autocrats. Domestic industry, political and business elites may use intermediary states to take advantage of the benefits of international trade without observance of human rights. The benefits of human rights generally accrue to the public and society as a whole, and it is not clear how this affects political leaders and social conditions in authoritarian states. Competitive and healthy markets benefit from human rights and vice a versa, but in states where markets are not competitive (perhaps even monopolised or state-owned), the picture may differ. 3.2 LDCs and the Rule of Law: Tanzania and the DRC In order to reap the benefits of international trade, a country needs solid rule of law conditions. In this respect, LDCs are under-performing. Tanzania is included in international indexes comparing rule of law and human rights conditions and development. The Rule of Law Index lists Tanzania at 100th place globally, and theDRC at 137th place.51 In this case, it is interesting to investigate how these two countries are seen in the areas of adherence to rule of law, fundamental rights, absence of corruption, regulatory enforcement, and civil and criminal justice. These aspects of social development affect the risks confronted by firms engaged in business and trade in foreign countries. Figures 1 and 2 show the scores given to Tanzania and the DRC in 2021 respectively.52 Given the low ranking for both countries globally and regionally, one may see these countries as more problematic when it comes to the relationship between trade, human rights and the environment. 50 See discussion in Sykes, note 40. 51 World Justice Project, Rule of Law Index 2021, p. 10–11. 52 The scores range from 0 to 1, where 1 signifies the highest possible score and 0 signifies the lowest possible score. 39 Publications of the Ministry for Foreign Affairs 2023:4 Figure 3.  Tanzania 2021, Rule of Law Index 2021, p. 161. Figure 4.  DRC 2021, Rule of Law Index 2021, p. 66. 2021 Score 2020 Score Constraints on Government Powers Absence of Corruption Open Government Fundamental Rights Order and Security Regulatory Enforcement Civil Justice Criminal Justice 0 0.5 1.1 1.2 1.3 1.4 1.5 1.6 2.1 2.2 2.3 2.4 3.1 3.2 3.3 3.4 4.1 4.2 4.3 4.4 4.5 4.6 4.74.85.15.25.3 6.1 6.2 6.3 6.4 6.5 7.1 7.2 7.3 7.4 7.5 7.6 7.7 8.1 8.2 8.3 8.4 8.5 8.6 8.7 2021 Score 2020 Score Constraints on Government Powers Absence of Corruption Open Government Fundamental Rights Order and Security Regulatory Enforcement Civil Justice Criminal Justice 0 0.5 1.1 1.2 1.3 1.4 1.5 1.6 2.1 2.2 2.3 2.4 3.1 3.2 3.3 3.4 4.1 4.2 4.3 4.4 4.5 4.6 4.74.85.15.25.3 6.1 6.2 6.3 6.4 6.5 7.1 7.2 7.3 7.4 7.5 7.6 7.7 8.1 8.2 8.3 8.4 8.5 8.6 8.7 40 Publications of the Ministry for Foreign Affairs 2023:4 Trade agreements between the EU and LDCs are discussed in the trade section of this report. In this instance, it is fitting to note that those agreements include human rights conditionality and even sanctions in limited occasions. Furthermore, they acknowledge that a political environment guaranteeing peace, security and stability, respect for human rights, democratic principles and the rule of law, and good governance is part of a long- term development strategy.53 The responsibility for establishing such an environment rests primarily with the countries concerned. 3.3 Market Exit from LDCs The academic response to the proposed Directive chiefly focuses on the anticipated effects on domestic corporate law.54 Though, some points may be relevant to trade with LDCs suffering from rule of law problems. There is the threat that companies may have an incentive to exit markets where adverse environmental or human rights impacts may occur and the company does not believe it can fully control or oversee the problems. The nature and scope of human rights violations and negative impacts is potentially wide. This creates additional problems for MNCs and may make exit from LDCs an obvious business decision if the market or supply are available elsewhere. Negative human rights impacts include, but are not limited to: − Damage to public health through pollution, environmental accidents and health and safety failures − Use of forced labour or child labour, or underpayment of workers − Provision of unsafe or unhealthy working conditions − Forced or involuntary displacement of communities, including indigenous communities − Use of excessive force by security guards protecting assets − Discrimination against employees, for example by race, gender or sexuality − Depletion or contamination of water sources that local communities depend upon.55 53 2000/483/EC: Partnership agreement between the members of the ACP of the one part, and the European Community and its Member States, of the other part, signed in Cotonou on 23 June 2000. OJ L 317, 15.12.2000, p. 3–353, amended. 54 Nordic & European Company Law, LSN Research Paper Series No. 22-01, Response to the Proposal for a Directive on Corporate Sustainability, Due Diligence by Nordic and Baltic Company Law Scholars. 55 KPMG 2016. Addressing human rights in business. Executive perspectives. December 2016. 41 Publications of the Ministry for Foreign Affairs 2023:4 In preparation of the Directive proposal, the Commission reacted to market exit issues addressed by the Regulatory Scrutiny Board noticing the anticipated indirect and negative impacts of the directive on trade with LDCs.56 The Commission replied that although new obligations are imposed on EU companies, the value chain and the fact that human rights violations occur mostly outside the EU means the proposed Directive has a strong external dimension and will inevitably affect companies and stakeholders in third countries. It could affect the economies of third countries more broadly.57 The Commission noted that this requires coherence with EU trade and development policies and measures to mitigate potential negative impacts on EU partner countries, adding that it is currently difficult to assess the possible negative impacts of due diligence implementation on companies in third countries. The proposal contains safeguards with a view to mitigating such feasible negative impacts. The Commission presumed there is a certain risk that suppliers in LDCs will prefer to sell to other regions where due diligence rules are not in place or less stringent.58 However, for lowering that risk, there are some safeguards in the proposal requiring EU companies to engage locally and contribute to the costs of new production processes, infrastructures, and share burden with SMEs. Paragraph 36 of the preamble of the proposal states that companies should prioritize engagement with business relationships in the value chain, instead of terminating the business relationship, as a last resort action after attempting at preventing and mitigating adverse potential impacts without success. This is detailed in Article 7 (Preventing potential adverse impacts) paragraphs 5–6 and in Article 8 (Bringing actual adverse impacts to an end) paragraphs 6–7 of the proposal. The idea is similar to the due diligence guidance of the Organisation for Economic Co-operation and Development (OECD). Exiting business relationships or markets is the last option. These principles concern existing business relationships and do not confront 56 European Commission, SWD(2022) 39 final, Commission Staff Working Document. Follow-up to the second opinion of the Regulatory Scrutiny Board Accompanying the document Proposal for a Directive of European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937, Brussels, 23.2.2022. 57 European Commission, note 56 p. 20–21. 58 European Commisson, note 56, p. 22. 42 Publications of the Ministry for Foreign Affairs 2023:4 the anomaly of companies perceiving business relationships or markets as too risky to enter or invest in the first place. In general, political risks and human rights conditions affect investment decisions59. Academic responses underline that it would be better for companies to do all they can to resolve issues, instead of leaving markets and letting the abuse continue out of sight or left to competitors from jurisdictions unrestrained by these considerations. 3.4 Analysing Current Regulation Human rights are currently a well-developed area in international law and various indexes have been identified ranking states according to their human rights and freedom conditions.60. From the perspective of the proposed Directive, it must be noted that the proposal refers to the most universal UN declarations and international agreements and conventions, not to European, regional, or national human right laws. The traditional principle in international law is that states are sovereign legal subjects and a state lawfully acts within its jurisdiction in its own territory. Action in another country requires permission as violation of another country’s sovereignty is not permitted. This means that although human rights are universal, a state’s human rights obligations extend only within its own territorial borders.61 In addition, these human rights treaties often make reference to a state’s ‘territory’ or to its exercise of ‘jurisdiction’ as a way of limiting 59 See for example Jiang, Martek (2021) and Blanton, Blanton 2006. For foreign direct investment (FDI), human rights conditions creates a dilemma because repression may create a stable, compliant, and relatively inexpensive host for FDI, while contending argument is that the protection of human rights reduces risk and contributes towards economic efficiency and effectiveness. Jiang, Weiling & Igor Martek, ’Political risk analysis of foreign direct investment into the energy sector of developing countries’, … Journal of Cleaner Production (2021) 1. Blanton, Shannon Lindsey & Robert G. Blanton, ‘Human Rights and Foreign Direct Investment A Two-Stage Analysis’, 45 Business & Society (2016) 464. 60 For example, The Rule of Law Index, Freedom House, a