The current right-wing government in the Netherlands is not particularly unfriendly to business. Yet it continues many of the former (center-left) policies with regard to corporate social responsibility. It recently proposed a new law to enforce labour-related notification obligations for companies who receive government subsidies.
Since two years companies who receive subsidies, credits, credit insurance or participate in government-sponsored trade missions are obliged to explicitly endorse the OECD-guidelines and have a ‘duty of care’ with regard to child labour and forced labour. This duty extends to the companies own activities abroad, and the activities of the ‘first essential supplier’. Failure to conform may result in the withdrawal of government support. The newly proposed law adds an obligation to notify the government in case of ‘facts and circumstances that indicate child or forced labour’, and the possibility of administrative sanctions in case of non-compliance. The maximum penalty is set at € 74.000,-
The law is yet to be discussed in parliament, but the legislative memorandum highlights some interesting issues
The Dutch proposal is in line with the Atlantic division on whether the included labour standards align with ILO standards (the European approach) or the use of idiosyncratic definition (as applied in the American Generalized System of Preferences, Free Trade Agreements etc.) The norms and definitions in ILO Conventions 28, 105, 138 and 182 form the basis to determine whether child or forced labour has indeed occurred. But some countries have not ratified these instruments. The definition of what constitutes ‘heavy labour’, which is important to determine the applicable age limits, may differ from one jurisdiction to the other. For countries who have ratified and have reported their age requirements to the ILO, these domestic standards will be applied. For non-ratifying countries, the highest standard of protection is assumed.
The Council of State, which advises the government on all legislative proposals, mentions in passing the potential adverse economic effects on Dutch companies. As Dutch companies operating abroad are deprived of the possibility to go for the cheapest option, if the cheapness is caused by child or forced labour, other corporations from other countries may gain from this. The government stated in response that not doing anything about child and forced labour may result in reputational damages that are much more costly, and that pro-active policies may actually lead to a competitive advantage as customers will value it.
The supply chain
It may be unclear who the ‘first essential supplier’ is. This may not be clear at the outset, it may change over time, or the company may put of a smoke screen by means of a straw man. The company is therefore obliged to report in its subsidy application who the first essential supplier is, or at the earliest possible moment in case of uncertainty or change. A violation of this provision may result in forgery and can thus be remedied by criminal sanctions. In addition, supply chains are longer than the first supplier. Child labour or forced labour practices beyond the first supplier are not regulated because it is deemed impossible for the company at the end of the supply chain to trace labour rights violations throughout the chain.