EU due diligence rules could test trade ties with ASEAN

Lawmakers in the European Parliament are set to vote on a new regulation this week that aims to hold companies accountable for environmental degradation and human rights abuses, both within the EU and outside of the bloc.  

The legislation — the Corporate Sustainable Due Diligence Directive (CSDDD) — will apply to large EU companies and to non-EU firms active in the 27-member bloc.

The rules would first apply to large European companies with over 500 employees and €150 million ($160 million) in annual global revenues, and to non-EU firms that generate at least €150 million of their turnover in the bloc. It would then be expanded to businesses with over 250 workers and revenues of over €40 million.

The statute mandates businesses to identify and eliminate the negative effects of their activities in the entire value chain.

"There are a lot of labor rights abuses that happen within the European Union and in regions of Asia, Latin America and elsewhere by EU-headquartered companies, so it was important to think of initiating such a law," Lara Wolters, a Dutch politician and member of the Socialists and Democrats political group in the European Parliament, told DW.

What prompted the legislation?

Wolters said that efforts for such a legislation in the EU had picked up pace after the Rana Plaza factory collapse in Bangladesh a decade ago, which was one of the world's worst industrial disasters.

The tragedy highlighted the global fashion industry's reliance on factories in developing countries where working conditions are often poor.

"In the European Parliament, we are hoping to adopt the law on June 1," Wolters said. "If a company fails to oblige, then sanctions will be imposed and victims of corporate abuse can take the company to court," she added.

Rights groups across the world have welcomed the proposed directive.

"The new EU corporate accountability law could ensure that companies engage with communities and conduct due diligence both on human rights and environmental harms caused by their operations, as well as across their value chains," Rachel Cox, Senior Land and Environmental Defenders campaigner at Global Witness, told DW.

She pointed out that this could contribute to improving the environment and human rights situation in other parts of the world.

Rights groups say it will help in places like the Philippines

In Southeast Asia, for instance, business activities have caused environmental damage and jeopardized human rights, campaign groups say.

A Global Witnesses report highlighted a case in the Philippines' Manila Bay region, where two Dutch companies tied up with a Philippine conglomerate — the San Miguel Corporation — to construct the new $15 billion international airport in Manila.

It found that the construction process had led to the destruction of the region's fragile ecosystem and displaced around 700 people. 

"Unfortunately, they have been wrecking a lot of the lives of the fisher folk in the area because of how they have been carrying out the land reclamation process," Jon Bonifacio, national coordinator at the Kalikasan People's Network for the Environment, an environmental group in the Philippines, told DW.

"They are very much involved in the displacement of a lot of fisher folk in the Manila Bay area and provided them with very little to no compensation," he added.

The companies have downplayed the environmental and human rights impact, Bonifacio said.

"So, I think it's very important to see how the European Union will negotiate and hopefully implement this new corporate due diligence legislation. I think it's very crucial here in the Philippines."

How will ASEAN nations view the new rules?

But the legislation could also cause some consternation to local businesses already having to adapt to numerous other EU regulations on the environment and sustainability.

The EU is the second-largest investor in the Association of Southeast Asian Nations (ASEAN) and its third-largest commercial partner, trading goods worth more than €215.9 billion in 2021, accounting for around 10.2% of total ASEAN trade.

Incoming EU legislation on deforestation and sustainable products has also led to a major dispute with Malaysia and Indonesia, the world's two largest producers of palm oil, whose imports the EU wants to phase out by 2030.

MEP Wolters said the whole point of the new law is to ensure that companies own up to the abuse occurring through their business activities and do not say: "We didn't know."

"That's what happened with Rana Plaza. All these companies said they didn't know. Instead, if they always had procedures to investigate, they would have found out long before the disaster happened," she stressed.

"So we're setting an expectation that you have to know what work your companies are doing. You have to go and investigate."

Will it hurt EU businesses?

But some EU lawmakers and firms also worry that, if passed, the proposed directive will hurt European business prospects too.

"We need to prepare for what it will bring and accept and share that responsibility. But if I were a radical, I would say that this is the end of free enterprise," Czech EU lawmaker Martina Dlabajova told EU media outlet Euractiv.

In a joint statement, over 35 European industry associations said that while they supported the objectives of the proposal, they were concerned about how small businesses and the European economy would be affected.

If the European Parliament passes the legislation, it will then be down to EU interinstitutional talks to finalize the rules. The aim is to ensure that the directive comes into force at the start of 2024.

"The key to make sure this law protects human rights defenders is that it remains strong and does not become a tick-box exercise," Cox said.

For Bonifacio, if the law doesn't pass, companies will continue indulging in practices that harm the environment and human rights.

"I think that's something that really needs to be pointed out, and what we really want is to ensure that people and the planet are protected in the process."

Edited by: Srinivas Mazumdaru