International Trade and Corporate Social Responsibility

Transcription

1 International Trade and Corporate Social Responsibility Professor Kevin Kolben Rutgers Business School, Newark and New Brunswick, New Jersey, USA Testimony Before the Committee on International Trade European Parliament Brussels, Belgium February 23, 2010 Introduction I would like to thank the Committee on International Trade for inviting me today to make some remarks on the subject of trade and Corporate Social Responsibility (CSR). It is a great honor and pleasure to be able to contribute to this very important discussion, and to participate as an American visitor in these proceedings. I would like in my brief remarks to try and help frame some of the issues that we are discussing today, addressing them in particular from my own area of expertise, which is transnational labor regulation and trade. I d like to make a few points and raise a few questions to help frame the conversation today for the experts and participants who are here and who have extensive experience in CSR, and from whom I look forward to learning a great deal. The points and questions are as follows. Firstly, I would like to ask why it is that it is important to incorporate what are often thought of as non-trade issues into bilateral trade agreements, and to ask what are the ends of linking trade with CSR. I would suggest there are important political reasons to link trade and social issues, and that the ends of such linkage should be a) to protect human rights of course, but also b) to achieve development, broadly defined. Development means increasing the capabilities of individuals, as well as developing and not replacing the regulatory institutions of developing countries. Secondly, we need to understand what are the potential and the limitations of linking trade and CSR. While trade agreements tend to focus on state action, CSR can be better at reaching companies, particularly where regulatory capacity is weak in a given country. Third, we need to ask and understand what it is that we mean by CSR? I will suggest that we should conceptualize CSR as a set of processes, voluntary and mandatory, that can help 1

2 companies realize the expectations of their stakeholders, while at the same time engaging with governments to help advance their own regulatory capabilities. Finally, I will suggest that a development based CSR approach to trade would include the creation of experimental, development grounded programs that can help achieve the goals of development, and I will give a couple of brief examples. 1) Why Trade and CSR? To think about the question of trade and CSR, we should first ask what the function of trade is, and why the inclusion of social and environmental standards has become part of the bilateral trade agenda in the United States and in Europe. As I understand the question, thinking about trade and CSR is an aspect, or perhaps a subset, of thinking about the broader question of trade and labor or trade and human rights linkage. The primary function of trade agreements is to reduce economic and non-economic barriers to the free flow of goods and services. But this pure, economic conception has given way to a more socially embedded notion, whereby trade liberalization and globalization must be undertaken in a way that complies with the expectations of citizens both citizens of the nation state as well as the more abstract global citizenry. The incorporation of labor, environmental, and human rights provisions in trade agreements signals that economic growth must be done responsibly, and must take place in a context that recognizes that liberalization without regard for the social is bound to fail. It will fail in part because we must remember that trade liberalization is not the default state of affairs, but rather one that we aim to achieve. In democratic societies such as the EU, trade liberalization will only take place when the citizens and stakeholders consent to the institutions of liberalization, such as trade, investment, and economic growth. But consent will not be likely to occur or be sustainable if the institutions and processes of liberalization take place in a manner contrary to the preferences of the citizenry. And many studies have in fact shown that a majority of people around the world, in both developed and developing countries, believe that environmental protections 1 and labor protections ought to be part of trade regimes. 2 1 Chicago Council Foreign Relations, World Public Opinion (2007) 2 Id.; Brian Burgoon, The Distinct Politics of the European Union s Fair Trade Linkage to Labour Standards, European Foreign Affairs Review, Vol. 14, p (2009). 2

3 The Development Aims of the Social Aspect of Trade In conceptualizing the role of CSR in trade regimes, we must also keep in mind what is the purpose of linking social issues to trade, including those related to CSR. I want to suggest that, just as the EU has done in its broader social global policies, 3 we need to think about trade and CSR from a development perspective, as well. Why is this so? Well, trade liberalization for its own sake is not a particularly compelling objective. What is compelling about liberalizing and expanding trade is that it can potentially lead to greater developmental outcomes for the citizens whose countries are liberalizing. Increasing overall GDP, which is what trade liberalization does best, is not a satisfying definition of development. As many commentators have argued, development no longer means simply increasing GDP. Rather, development has increasingly come to be understood, as Amartya Sen, Martha Nussbaum, and others have articulated it, as the process of increasing the capabilities of people to achieve and realize the lives that they deem worth living. While this sounds abstract, it helps us think about what are the goals of trade liberalization, and how we want to orient a particular CSR and trade regime. Trade policy ought to be grounded therefore in achieving development goals. Not simply economic growth for its own sake, but rather achieving a broader set of objectives that we as global citizens deem important and central to what we conceptualize to be important for human flourishing. But we must also remember that an important element of development is the creation of democratic institutions, building the rule of law, and developing regulatory capacity. A CSR approach to trade should not be a substitute for well functioning, accountable regulatory institutions. CSR and private forms of regulation, I would argue, lack the legitimacy of a functioning democratic state, and thus we must be very careful about replacing public regulatory instruments with CSR. 3 Jan Orbie & Lisa Tortell, Exporting the European Social Model, Journal of European Social Policy, Vol. 19, p (2009). 3

4 2) Potential and Limitations of Linking Trade and CSR Trade Agreements Focus on the State But while we might agree that trade and human rights or trade and CSR ought to be linked, we need to be clear about the limitations of the trade agreements as a vehicle of development. Trade agreements and the human rights, labor, or environmental provisions in them, are potentially limited in their ability to impact the conduct of companies. This is because trade agreements are primarily intended to create conditions to create a mutually agreeable framework for liberalizing trade flows between countries. These frameworks include the rules of the game, as well as mechanisms to settle disputes between the parties when one party believes that the rules have been broken. Generally speaking, these rules concern the conduct of states. CSR Focus on Companies But what happens when a trading partner, as is often the case, has a very weak regulatory regime in which it is unable to enforce the law or the expectations of global society? This is where the value of CSR comes into play, particularly in developing countries. CSR is so compelling, and also necessary for many corporations, because their stakeholders often expect and demand greater regulation of corporate supply chains than host states can provide. Thus it is left to the corporation, as well as other non-state actors in civil society to fill in the gaps. Often, host governments are not willfully allowing companies to violate the law, but rather struggle with low capacity to do so. This is where the notion of CSR can, I think, be helpful, albeit with the caveat that it not play a substitution or displacement role to the state. 3) What is a CSR Approach to Trade? But before we can discuss the possible constructive role of CSR in trade regimes, I think we need to try and define what we mean by CSR. The concept of CSR is grounded in the notion that there exists a social contract between the corporation and society that requires it to behave in ways that society expects of it. This, however, is of little help in defining what exactly those 4

5 expectations are. CSR is thus an inherently vague concept and its precise definition varies widely depending on the industry and the context, and there is often disagreement over whether or not CSR is, for example, purely voluntary or mandatory, what standards should apply, and who are the key stakeholders. The European Parliament in its 2006 report for example notes that Corporate Social Responsibility represents business taking more direct responsibility for managing its social and environmental impact, becoming more openly accountable not simply to employees and their trade unions, but also to wider 'stakeholders' including investors, consumers, local communities, environmental and other interest groups. 4 I would like to suggest that, at least in the context of trade regimes, we might think about CSR not so much as a set of outcomes or concrete standards, but rather as a set of processes and methods. These processes and methods are mechanisms to create incentives for companies to comply with domestic and international norms of conduct, and to help ensure that they conform to the expectations of the various stakeholders, particularly in weak regulatory environments. What are some of these processes and methods? I would propose a working list that would include the related concepts of a) transparency, b) monitoring, c) reporting, and d) accountability. 4) Incorporating CSR into Trade So if we talk about CSR as a set of processes, how might trade agreements be designed in order to facilitate or catalyze these processes? How might we design trade regimes to unleash CSR processes as a vehicle to achieve the expectations that we have for global and domestic companies? How can trade and CSR be combined to achieve the goals of development, and not serve as a mechanism to replace the democratic state and its regulatory institutions with a system that lacks democratic legitimacy? What I would like to propose is that we think about trade and CSR in terms of combining the tools of trade, which create incentives for states, and the tools of CSR, which create incentives for companies, and think about how they can realize development goals. To repeat, the goals of development include improving people s capabilities to lead the lives they deem 4 European Parliament, Committee on Employment and Social Affairs, Report on Corporate Social Responsibility, p. 17 (2006). 5

6 worth living, which I believe includes such issues as having their basic human rights respected, but also developing the regulatory capacity of democratic institutions of governance. How we do this will be highly context specific and tailored to the specific circumstances of a given country. Unfortunately, in practice there are very few examples of combining CSR and trade. One of the only, and also and most interesting, is the now famous Cambodia experiment that now has taken the name Better Factories. Better Factories started out as the product of a free trade agreement between the U.S. and Cambodia. As a condition of textile trade with Cambodia, the United States required that a program be implemented that would verify if labor conditions in the factories were in compliance with Cambodian and international standards. If they were found to be in compliance, Cambodia would receive extra quota allotments. All companies as a condition of receiving an export license were required to participate. The monitoring regime used what I have termed a CSR process. Independent monitors not connected with the under resourced Ministry of Labor conducted inspections based on a labor checklist. This information was made into a report that would be shared with the local factory, and if the factory gave its permission, to multinational buyers, such as the Gap or H&M. Summaries of the findings would then be made public in a synthesis report that was made available online. What become clear in my interviews with a number of the factory owners is that the fear of buyers cutting contracts based on bad labor reports drove them to make real changes in their labor practices. This program is now aiming to turn into a self-sustaining program primarily funded by corporate subscribers to the information and reporting service. Cambodia is generally touted as a success story, although a mitigated one. Better Factories has also evolved into a larger program called Better Work that is a joint project of the ILO and the World Bank s International Finance Corporation. One of the few places that the very young Better Work program is operating is in Haiti, where the United States government is funding the program as part of a requirement in its HOPE II preferences program that the ILO establish a program to verify labor standards compliance. Better Work, which is fundamentally a CSR program, is providing that role. The program is also currently operating in two other countries that enjoy bilateral agreements with the US, such as Jordan and Vietnam, although the programs have no direct link with those agreements. I believe that programs such as these hold much promise for helping us think about and devise experimental, innovative trade and CSR regimes. But at the same time, it is important to take a hard look at what they can achieve, and what they cannot. Have these trade linked CSR programs been, or will they be successful, for example, in achieving the development goals that 6

7 we wish to ascribe to them? Have labor rights been improved? More difficult to know and evaluate, have they done anything to improve the capacity of the states in which they work to regulate themselves using democratically accountable regulatory institutions? Conclusion So to conclude, I have sought to raise the following questions and points in regards to the discussion over trade and CSR: 1) The development goals of linking trade and CSR, including the importance of not conceptualizing CSR as a substitute for democratically accountable state-based law and regulation. 2) The limits and potential of trade agreements and CSR to achieve those development goals. 3) A proposal that we adopt a procedural and methods approach to CSR in the effort to link trade and CSR. 4) And finally my suggestion that we should use this opportunity for trade and CSR linkage to think about experimental and innovative collaborations between state and non-state systems of governance, provided that they are directed towards our democratic and developmental objectives. Thank you for your time, and I look forward to the ensuing discussion. 7