European Union

With the collapse of the WTO’s Doha round of trade negotiations, the EU and the US continue to expand their network of free trade agreements (FTAs). The most contentious of all has undoubtedly been the US-Colombia FTA, which entered into force last year. But the next main project in the expansion of FTAs is the proposed agreement between the European Union and the United States, the two biggest trading blocks in the world. In his State of the Union speech, Barack Obama said that:

To boost American exports, support American jobs, and level the playing field in the growing markets of Asia, we intend to complete negotiations on a Trans-Pacific Partnership. And tonight, I’m announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union, because trade that is fair and free across the Atlantic supports millions of good-paying American jobs.

The AFL-CIO is skeptical, but not completely dismissive, towards the Trans-Pacific Partnership Agreement. The list of negotiating countries includes low-wage economies like Vietnam, which undoubtedly feeds the fear that American jobs will be lost because of the trade deal. Nowhere on its website does the AFL-CIO mention the proposal to negotiate a trade deal with the EU. My assumption is that trade unions do not perceive a trade deal between two high-wage economies as a risk. As an addition assurance, an interim report that was published in June 2012 stressed that any agreement between the EU and US will include a labour clause. So what’s to worry about?

In their paper entitled “Regional Trade Agreements and domestic labour market regulation,” Christian Häberli, Marion Jansen and José-Antonio Monteiro reach the following conclusion:

The race-to-the-bottom argument is often used in conjunction with the phenomenon of North-South trade, the idea being that trade with countries having lower labour standards puts the high labour standard country under pressure to reduce its own standards.

The findings reported [...] below do not support the idea that weakening of labour market regulations in industrialized countries is driven by trade with low income countries. On the contrary: the only type of [Free Trade Agreement] for which we consistently find highly significant negative coefficients are [Free Trade Agreements] among high income countries. According to the findings reported below, it is competition among countries of a similar level of income that appears to put the highest pressure on labour market regulation in the rich world.

Apparently, American and European trade unions would be well advised to pay more attention to the US-EU trade deal. This could also open up a discussion about the stifling effect of the core labour standards paradigm in FTAs. It is nice that under the FTA, the US and EU would likely be prohibited to employ child labour, but that does not touch upon the ‘core’ of possible implications to US and EU labour markets. Any credible FTA reference to labour standards would need to be based on an analysis of potential effects of the FTA on domestic labour market regulation in the state parties, and not on four issues that happened to be the only ones that the ILO member states could reach consensus on.


Later this year the European Commission will publish a proposal for a new directive on corporate transparency requirements with regard to social and envrionmental information. Currently, large European companies are only required to report on these issues when they are relevant for the financial position of the company. Many EU member states have implemented legislation that is more demanding, which has led to an unleveled playing field (according to the Commission). In Denmark, for instance, companies are not required to have a policy on corporate social responsibility (CSR). But if they do, they are required to provide information on: (1) the content of its policies, (2) what is done to realise these policies, and (3) an assessment of the business on achievements resulting from its work on CSR, and any future expectations to the work. The reporting requirement is thus unliked from any financial considerations. (More info on the Danish model can be found here.) If the European Commission wants to have a level playing field, it would make sense to adopt the model that is currently the most strict, i.e. the Danish model. (The other option would be to oblige the Danes to adopt lower standards, which is unlikely.)

For now it remains unclear whether the Commission will do so. It has only published a communication on “renewed EU strategy 2011-14 for corporate social responsibility” in which it outlines ideas for a future CSR policy, and issued some documents that provided the basis for expert group discussions and a public consultation. So we’ll have to wait and see what will happen. But from a conceptual perspective the communication is quite interesting. It begins with the fact that the Commission now adopts a new definition:

Old EU definition of CSR                                                                                                                                     “A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”

New EU definition of CSR                                                                                                                                “The responsibility of enterprises for their impacts on society.”

The Commission still considers CSR a voluntary exercise. But simultaneously it acknowledges the need for what it calls “complementary regulation”. A ‘comply or explain’ model like Denmark has would be a logical template. There is no requirement to have a CSR policy. But when a company does have one, it obliges itself to provide information on this. When a company does not have a CSR policy, it has to state reasons. A comply or explain model could further be applied to all business. Small and medium size companies that think CSR is too much a burden can just say so, hence there is no risk for excessive administrative costs. The new EU definition also breaks with the idea that there should be a link between CSR and the financial performance of the company. This also aligns with the Danish model. Furthermore, it would enable a wider range of interested stakeholders to challenge CSR reports when it would contain false or defincient information.

More on the old EU directive and the subsequent application can be found in one of my articles that is available here. It will be interesting to see how the notion of “complementary regulation” will lead to the further juridification of CSR.


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