Authors Sergio Garrido Vallespí and Marc Morros Bo wrote an article titled “Human Rights Due Diligence in the United States and the EU: Differences, Trends, and a Corporate and Dispute Resolution Critique” (“the Article”). The Article has been divided into a series of four blog posts to be published on the blog of the Georgetown Journal of International Law (“GJIL”). This post is the first in the series. The second, third, and fourth posts are accessible on the Georgetown Journal of International Law Blog website. 

This Article is the result of a collaboration between GJIL  and the ESADE Law Review. In this regard, we would like to thank all editors and members of each journal who have been involved while writing this Article.

The Article delves into human rights due diligence in the United States and the EU, providing a brief comparative analysis of the legislative approach in both legal systems, as well as a corporate and dispute resolution critique of the topic at hand. While the first part offers a more systematic and descriptive analysis of the issue, the second part will move from an objective part to a more subjective approach by entering into an evaluation of those international, U.S., and EU regulations concerning human rights due diligence.

Introduction

Human rights due diligence (HRDD) is the process by which enterprises “assess[…] actual and potential human rights impacts, integrat[e] and act[…] upon the findings, track[…] responses, and communicat[e] how impacts are addressed,” according to      Principle 17 of the 2011 United Nations Guiding Principles on Business and Human Rights (UNGP). As opposed to the financial due diligence (DD) undertaken before      proceeding with a merger or acquisition, HRDD focuses not on the financial statements regarding a separate target company, but rather, on the internal conduct of a given company when operating in the market.

Section 11(b)(3) of the U.S. Securities Act of 1933 established the first category of DD, with a carve-out for liability in cases where there is a misleading or omitted material fact in a securities registration statement and the company has conducted “reasonable investigations.” The express category of HRDD, however, would not appear until 2011. Eight years prior, an effort had already been made through the 2003 U.N. Draft Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights (U.N. Draft Norms). The Commentary to Article 1 of the U.N. Draft Norms states that enterprises should conduct “due diligence in ensuring that their activities do not contribute directly or indirectly to human rights abuses, and that they do not directly or indirectly benefit from abuses of which they were aware or ought to have been aware.” Although the U.N. Commission on Human Rights did not pass the U.N. Draft Norms in the end, they introduced a different logic to look at Corporate Social Responsibility (CSR). 

Leaving aside residual domestic laws, the adoption of international CSR standards had always been optional, including Chapter II of the 1976 Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises. With that in mind, the U.N. tried to solidify relevant soft law by coming up with more effective rules. To that end, the U.N. Secretary-General appointed Harvard Kennedy School of Government Professor John Ruggie as Special Representative in July 2005. Finally, his proposal, the Protect, Respect and Remedy (PRR) Framework, was approved by the U.N. Human Rights Council (which replaced the U.N. Commission on Human Rights in 2006). The States’ commitment to operationalize the PRR Framework would become the UNGP, discussed infra. Henceforth, HRDD has persisted as the object of multiple regulations worldwide.

The present Article examines HRDD regulations in the United States and the EU. To that end, it has been divided into two parts. First, it will provide a comparative law analysis and explanation of the most significant trends in HRDD. A deeper look at the UNGP will open the first section, followed by an approximation to the U.S. legislation, both at the federal and state levels. Then, it will examine EU law touching on HRDD and differentiate between secondary EU law and domestic law of the Member States. Second, the Article will move from an objective description of the regimes to a subjective analysis by entering into an evaluation of those international, U.S., and EU regulations from a corporate and dispute resolution perspective. The first part will analyze how both legislators abandon a laissez-faire approach, decide to actively intervene through regulation, and avoid full market reliance. The second part will determine whether both the United States and the EU, including their companies, abide by the UNGP regarding HRDD and will discuss how to make those entities comply with the UNGP through investor-State and commercial arbitration if they do not. The Article will close with a conclusion that examines the future of HRDD.

Comparative law analysis and trends

U.N. Guiding Principles on Business and Human Rights 

     De jure, the UNGP are yet to become binding international law. Most countries, if not all (the United States is a clear example according to its Points of Clarification on Resolutions adopted at the 52nd Human Rights Council), regard U.N. Human Rights Council resolutions, such as Resolution 17/4 of 16 June 2011, where the UNGP is endorsed, as non-binding instruments. They do not even reach the status of customary international law.

However, looking at the UNGP from a de facto view makes the contrast between the UNGP and the pre-2011 soft law pertinent. Principle 1 of Section I (State duty to protect human rights) notes that “States must protect against human rights abuse within their territory […] by […] business enterprises,” while its Commentary affirms that “the duty to protect against human rights abuse by […] business enterprises” is included in the “States’ international human rights law obligations.” Such Commentary is consistent with the General Principles Section, which states that “[n]othing in these Guiding Principles should be read as creating new international law obligations, or as limiting or undermining any legal obligations a State may have undertaken or be subject to under international law with regard to human rights.” Therefore, it seems to us that, as if using Socrates’ maieutics, Harvard’s Ruggie unearthed through Section I of the UNGP a hidden obligation for States to regulate HRDD: Principle 3, an operating principle of Principle 1, goes on to say that States should ensure that their laws make methods that match the above-seen definition of HRDD in Principle 17 mandatory or enforce them if they do not exist. At the same time, Section II of Principle 15(b) (Corporate responsibility to respect human rights) provides for the “responsibility” of companies to have in place a “human rights due diligence process to identify, prevent, mitigate and account for how they address their impacts on human rights.” As opposed to what happened with Principle 1, no Commentary to Section II indicates that companies have the international law obligation to engage in HRDD. Such an obligation, we understand, would only arise if the States complied with the current status of international law by making HRDD mandatory for enterprises or enforcing them. That is how companies would comply with Principle 15(b) of the UNGP, not because they are binding and thus compel enterprises, but based on a national law made in compliance with a currently existing international law obligation for States. In this way, the UNGP are not soft law, but an affirmation of current international law calling for HRDD.

It goes beyond the reach of this Article to delve into the details of the UNGP HRDD characteristics in Principles 11 to 24 of Section II. A Harvard faculty colleague of John Ruggie, John Shermann III, already does that in his paper Beyond CSR: The Story of the UN Guiding Principles on Business and Human Rights. Instead, it must be noted as a final message that the legislation that we are now about to describe is, in a certain way, the response by the United States, the EU, and its Member States to the UNGP language reminding countries of their international law obligations towards human rights.

United States Legislation: Federal Law

At the federal level, U.S. legislation that requires HRDD is sector-specific. We observe three main groups depending on the regulation focus. 

First, there is an effort by Congress to make sure SEC-listed companies dealing with “conflict minerals” originated in the Democratic Republic of the Congo (DRC) or one of its nine adjoining countries disclose such activity and submit a “Conflict Minerals Report.” Certainly, this Conflict Minerals Report is no different from an ad-hoc DD process with certain human rights equities for mining companies, where the enterprise has to describe “the measures taken to exercise due diligence, the description of the products and the facilities used to process them, the country of origin of the conflict minerals, and the efforts to determine the mine or location of origin with the greatest possible specificity.” What is interesting about this regulation, apart from its content, is that it appeared as a section of Dodd-Frank (Section 1502), the 2010 U.S. legislative response to Wall Street’s conduct during the 2008 financial crisis. Even though there is no law in the United States similar to the generic EU Directive that will be analyzed below, Congress at least understood that consumer protection should go beyond the financial sector and encompass humanitarian crisis favored by armed groups as in the DRC.

Second, most U.S. laws on HRDD concern forced labor. In a response to a “consumptive demand” loophole that allowed non-extensive importation of labor-produced goods, Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) prohibits the importation into the United States of all goods and merchandise mined, produced, or manufactured wholly or in part in any foreign country by forced, convict, and/or indentured labor under penal sanctions, including forced child labor, through the issuance of “Withhold Release Orders” (WRO). That way, the U.S. Customs and Border Protection organization recently issued a WRO that prevented the importation of forced labor-produced sugar-based products in the Dominican Republic no matter whether the imported quantity was high or low. Similarly, the 2020 United States-Mexico-Canada Agreement (USMCA), which substituted the 1994 North America Free Trade Agreement (NAFTA), requires the three countries to take measures to prohibit not only the importation of goods produced by forced labor (the 19 U.S.C. § 1307 arguably plays that role), but also violence against workers exercising their labor rights, sex-based discrimination in the workplace, and the lack of protection of migrant workers under labor laws. 

Going further, in 2021, President Biden signed the Uyghur Forced Labor Prevention Act (UFLPA) in light of the Uyghur minority being forced to work in the autonomous region of Xinjiang, China. In it, a juris tantum presumption was made that all goods mined, produced, or manufactured entirely or in part in Xinjiang were done so by one of the prohibited types of labor in 19 U.S.C. § 1307, and thus their importation was deemed illegal. The Xinjiang company that intends to export to the United States is meant to undertake HRDD to prove to the Commissioner of U.S. Customs and Border Protection that the presumption is rebutted. Finally, this regulatory trend reflected in the USMCA and Biden’s presumption in the UFLPA related to 19 U.S.C. § 1307 possibly originated from the 1999 Executive Order 13126. There, the annual publication—today still ongoing—of a “List of Products Produced by Forced or Indentured Child Labor” was mandated to the U.S. Department of Labor so that federal parties could guarantee that they had introduced mechanisms to avoid child labor during the production processes of the items supplied. This State-crafted list thus facilitates today the then-unknown HRDD.

Lastly, a third U.S. regulation focuses on trafficking in persons. According to the 2015 Federal Acquisition Regulation Ending Trafficking in Persons, contractors, contractor employees, subcontractors, and subcontractor employees are prohibited from engaging in specific types of trafficking-related activities. To ensure compliance, the law would require contractors in contracts performed outside the United States exceeding $500,000 to develop a compliance plan, which amounts to HRDD for the above-seen violations. Notable in this last focus, however, is that the Federal Acquisition Regulation Ending Trafficking in Persons only applies to traffic in federal government contracts, leaving it optional for private parties to engage in HRDD to make sure human trafficking is not occurring (which obviously does not mean that private parties are allowed to engage in human trafficking).

---

*LL.M. (International Business and Economic Law), Georgetown University Law Center in progress; LL.M. (International Business Law), ESADE Law School and Freie Universität Berlin (2023); LL.B. and B.A. in Global Governance, Economics and Legal Order, ESADE Law School (2022).

**LL.B., ESADE Law School and Columbia Law School in progress.