Among other things, it imposes an obligation on every company that supplies goods or services to end users in the Netherlands to exercise 'due diligence' (gepaste zorgvuldigheid) so as to ensure that the goods or services concerned have not been produced using child labour.
The Act will probably not enter into force before (mid) 2022, mainly because a General Administrative Order (AMvB) will first be drawn up so as to provide further details of the (degree of) due diligence that will be required of companies. It may be relevant, however, for companies to already carry out an assessment of the (potential) impact that the Child Labour Due Diligence Act may have on them, and to take measures where necessary (see in this respect the aforementioned blog). It follows from the Act itself that as part of this due diligence obligation, a company must (i) investigate whether there is a reasonable suspicion that the goods or services to be supplied were created with the use of child labour and (ii) if there is such a suspicion, adopt and implement an action plan where necessary. The General Administrative Order will lay down more specific requirements for that investigation and action plan. It will do so in line with international guidance on this matter, such as the UN’s Guiding Principles on Business and Human Rights (UNGPs), the OECD’s Guidelines for Multinational Enterprises (OECD Guidelines), and the ILO-IOE Child Labour Guidance Tool for Business. The General Administrative Order will also link up with the Dutch Agreements on International Responsible Business Conduct (RBC Agreements) which companies, government, trade unions, and civil-society organisations have agreed in a number of 'high risk' sectors, such as the food and textile sectors.
As part of the 'RBC Measures in Perspective' project – which involves evaluation and (if necessary) reform of Dutch RBC policy – the Ministry of Foreign Affairs commissioned the Royal Tropical Institute (KIT) to examine and evaluate the RBC Agreements. The report was completed by the Institute on 30 June 2020 and submitted to the Dutch House of Representatives by the Minister of Foreign Affairs (Minister) on 10 July 2020 by means of a Memorandum to Parliament. Work on the General Administrative Order in relation to the Child Labour Due Diligence Act has been postponed in anticipation of the results of the KIT’s evaluation of the RBC Agreements. In the present blog, I will briefly discuss a number of relevant results of the evaluation and look at how they may affect the details of the General Administrative Order.
Some aspects of the evaluation of the RBC Agreements highlighted
The aim of having the KIT evaluate the RBC Agreements was to clarify the extent to which they promote the application of due diligence, in line with the OECD guidelines and the UNGPs, within high-risk sectors. Partly because of that specific objective, which focuses on the effectiveness of the Agreements as a (government) instrument, and the limited extent to which the effectiveness of steps within the due diligence process at company level were considered, the KIT report in fact offers few concrete guidelines for companies as regards implementing the due diligence requirements. It is also (still) not clear which elements of the report the legislator will take into account when drawing up the General Administrative Order in the framework of the Child Labour Due Diligence Act, or how those elements will be expressed. However, the evaluation does lead to a number of findings that are worth discussing in the context of the Child Labour Due Diligence Act.
Public pressure and intrinsic motivation
Although companies can sign up to one of the RBC Agreements on a voluntary basis, an important factor contributing to the success of the Agreements, according to the KIT’s evaluation, is that public pressure is often exerted on companies to sign up and to exercise due diligence. According to the KIT, companies attempt to reduce potential risks to their reputation by participating, and sometimes also to pre empt upcoming legislation in this area. The potential effectiveness of legislation such as the Child Labour Due Diligence Act therefore seems to be implicitly endorsed by the KIT: the ultimate form of public pressure would seem, after all, to be mandatory legislation. However, the KIT also notes that intrinsic motivation within a sector is just as important for the degree of success. In sectors in which the driving force behind the RBC Agreement is mainly from outside the sector (for example due to political pressure), companies are less motivated to exercise due diligence, according to the KIT. Although the potential penalties to be imposed in connection with the Child Labour Due Diligence Act are by no means insignificant and may in themselves increase motivation, there does seem to be added value in not only imposing obligations on companies but also clarifying the real importance of such legislation and providing support for meeting the obligations arising from it (including for sectors in which no RBC Agreement exist). This is also in line with the UNGPs, which prescribe a well-considered policy mix comprising both national and international, as well as binding and non-binding, measures. In the overarching 'RBC Measures in Perspective' project to evaluate and perhaps reform Dutch RBC policy, this has been recognised and further elaborated on in the form of a number of policy options. In a Request for Advice in June 2020, the Minister proposed four RBC policy mixes to the Social and Economic Council of the Netherlands (SER) and asked for its advice. The outlines of a new RBC policy will be drawn up in the light of that advice, the advice of the Advisory Board on Regulatory Burden (ATR), and the evaluation of the RBC Agreements. The Child Labour Due Diligence Act plays an independent role in three of the four proposed policy mixes in the form of thematic legislation. The fourth policy mix proposes wide-ranging due diligence legislation. This would mean that the legal obligations would ultimately extend to more comprehensive human rights due diligence. The Minister has promised greater clarity regarding the options for a possible new RBC policy by the autumn of 2020.
Minimum standard for due diligence obligations
Pursuant to the Child Labour Due Diligence Act, companies that act in accordance with a joint action plan approved by the Minister (such as an RBC Agreement) will be deemed to be exercising due diligence. It is therefore striking that in its evaluation report the KIT concludes that one of the weaknesses of the RBC Agreements is that they sometimes differ greatly in content and set-up, and that there is no minimum standard for, inter alia, the due diligence obligations. One example is the RBC Agreement on Sustainable Forest Management, which has a completely different design – aimed at certification and promoting demand for sustainable timber – compared to the other Agreements, and which does not impose any specific due diligence obligations on participating companies. Whether a company acts in accordance with an RBC Agreement does therefore not seem (in the current set-up) to be a suitable criterion for concluding that such a company is in fact exercising due diligence pursuant to the Child Labour Due Diligence Act. To that end, the open standard that 'due diligence' entails will need to be fleshed out. Open standards generally have the advantage of giving companies greater scope for customising their policies, taking account, for example, of their size, the complexity of the production chains, and whether or not they are operating within a high-risk sector. It is questionable, however, to what extent such open standards still make it clear for companies what exactly is expected of them, and what acts and omissions, for example, will lead to criminal liability (the lex certa principle). Some kind of standardisation will therefore be unavoidable when the General Administrative Order is drawn up.
Level playing field
The KIT recognises in its evaluation that it can be difficult for companies to bring about positive effects within the global value chain because, as individual companies, they have relatively little influence. The RBC Agreements are intended to help increase that influence. It would seem, however, that cooperation is hampered by the fact that companies have little incentive to be transparent about their approach and to cooperate with competitors or other stakeholders because of commercial interests, confidentiality with respect to customers, competition restrictions, and the uneven nature of the (international) playing field. The lack of a level playing field is reflected, for example, in the limited scope that the RBC Agreements so far have: only 1.6% of the total number of companies within the thirteen sectors in the Netherlands that have been designated as 'high-risk sectors' have actually signed up to one of the Agreements. Of course, the actual influence of the participating companies also depends on their size and market share, but the conclusion remains that many companies have not signed up and the playing field is perceived as not being a level one. The Child Labour Due Diligence Act can partly level out that playing field in the area of due diligence with regard to preventing child labour. Foreign companies will also fall within the scope of the Child Labour Due Diligence Act in so far as they supply goods or services to end users in the Netherlands; this will create a more level playing field internationally. Besides domestic legislation in the area of human rights due diligence in some other European countries, for example France and the UK, such legislation also seems to be in the process of development at EU level. In January 2020, the European Commission presented a report mapping out possible EU follow-up steps with regard to human rights due diligence: doing nothing, a voluntary approach, EU transparency legislation, and EU legislation on due diligence. Most of the companies surveyed expressed a preference for due diligence legislation with a view to creating a level (or more level) playing field and greater legal certainty. Despite the respondents probably not being fully representative of the totality of relevant companies (participation was voluntary), the survey is an indicator that has been responded to. The EU’s Justice Commissioner Didier Reynders announced on 29 April 2020 that the Commission intended presenting a legislative initiative on mandatory due diligence, probably early in 2021. It is not yet known what potential consequences this will have in terms of the Dutch Child Labour Due Diligence Act.
Limited capacity of SMEs
The evaluation by the KIT shows that a lack of experience, capacity, and/or financial resources often makes it difficult for small and medium-sized enterprises (SMEs) to actively promote and apply due diligence. As an example, the KIT’s report refers to the food industry, in which a large proportion of SMEs produce (own-brand) products with low prices, small margins, and high volumes. They often do not have the financial scope for investing (heavily) in due diligence processes. The ongoing Covid-19 pandemic may also have a major impact on SMEs in particular. If we translate the KIT’s findings into an aspect that may be relevant to the upcoming General Administrative Order in the framework of the Child Labour Due Diligence Act, it is conceivable that the General Administrative Order will, for example, make a more detailed distinction between different sizes of companies and the obligations or exceptions that will apply to them. Comparable legislation in France, for example, relating to human rights due diligence applies only to limited liability companies of a certain size (based on the number of employees). One option proposed by the KIT in the context of the RBC Agreements is to increase the financial capacity of SMEs by means of subsidies or tax breaks. However, the effectiveness of such a scheme in the framework of the Child Labour Due Diligence Act will largely depend on the precise details of both the scheme in question and the General Administrative Order. Moreover, experience has shown that such incentive schemes are susceptible to fraud, making them likely, all in all, to provide a less attractive option.
The KIT’s evaluation of the RBC Agreements has taken the Dutch government a step further with the evaluation and possible reform of its RBC policy. What role the Child Labour Due Diligence Act will play in this and what effect that Act will ultimately have will need to become evident from the RBC policy strategy that is expected to be presented in the autumn of 2020 and the actual elaboration of the General Administrative Order on that basis. For companies, the General Administrative Order (and also any future EU legislation on mandatory human rights due diligence) will be particularly important in relation to the development (or further development) of their RBC policy (as regards preventing child labour). It is therefore certainly advisable to continue to monitor developments in this area.
If you have any questions about the Child Labour Due Diligence Act or its (potential) consequences for your company, please do not hesitate to contact us.