This week in Paris the OECD Guidelines for Multinational Enterprises are getting a make-over. This could make a big difference in lifting efforts on ethical trade.

The Guidelines are standards of behaviour expected of multinational enterprises operating in or from 42 states (including the UK) that have signed up to them. The standards cover employment and industrial relations, as well as human rights, environmental protection, corruption, and taxation.

Each signatory state to the Guidelines has to set up its own National Contact Point (NCP) to assist with promoting the Guidelines and handling complaints filed under them. Although the complaints process is non-judicial, the UK NCP has been able to resolve a range of seemingly intractable labour disputes in the supply chains of UK companies from Pakistan to Malawi. This is partly due to the tireless efforts of workers on the ground, but also because the NCP's structure and rules, widely recognised to be robust, transparent and fair, helped bring the parties together in London to resolve the mess further down the supply chain.

Correcting the supply chain headache

Last updated in 2000, the Guidelines text is in bad need of an update, (least of all to lift the performance of the many dysfunctional NCPs). A key question at the review launched this week, is how should business activities in global supply chains be covered? The current text has been plagued by vagueness, currently requiring enterprises to: "encourage where practicable, business partners, including suppliers and sub-contractors to apply principles of corporate conduct compatible with the Guidelines".

The problem here is that different NCPs have interpreted this non-committal and open-ended language in different and often conflicting ways. Nearly everyone recognises the language needs to be changed, especially in light of the advances companies have made on tackling problems in their supply chains. But given the complexity of supply chains, could any new language meet the challenge?

Enter John Ruggie, the UN Special Representative on Business and Human Rights - who has been tasked with applying his concept of "Human Rights due diligence" to the problem. For Ruggie, an enterprise should conduct a "due diligence" on its supply chain relationships to identify risks of actual and potential adverse human rights impacts, and to prevent or mitigate these risks and impacts where they arise. Where the acts or omissions of an enterprise directly lead to abuse occurring - for example, a company placing a high volume, lost-cost order under absurdly tight deadlines causes the supplier to institute forced overtime and underpayment of wages - the enterprise must take appropriate steps to address those acts or omissions.

Where the enterprise is implicated in abuse, but solely through goods and services it procures (ie its sourcing does not alter the supplier's practice) then its response must be balanced by a careful test weighing up its leverage on the supplier, and the centrality of the supply chain to its business.

For more information on this new principle and its careful test, see the discussion paper below from the Ruggie team.

Unions support this approach because it strikes a fair balance: it recognises the responsibility of business to address its impact on the supply chains it sources from, but does not place an obligation on business to remedy all abuses in a supply chain. Nor, at the other extreme, does it require them to do nothing at all - as many NCPs currently interpret the existing Guidelines language. This new test would acknowledge the efforts of companies with good ethical performance, and importantly, put pressure on the laggards to catch up.

What does this mean for ETI?

Assuming the review comes up with clearer language on supply chains, the Guidelines are likely to become more relevant for ETI's work - and for all of ETI's members - in several ways.

Firstly, the complaints mechanism under the UK NCP could be used more often to address labour rights disputes in supply chains, especially through the professional and independent mediator it can provide to the parties free of cost. As a first step, we could hold a join seminar with the UK NCP for all ETI members to better understand what the Guidelines are, and how they can assist work on ethical trade.

Secondly, companies will seek guidance on what is meant by carrying out a "human rights due diligence" and how they can fulfil their obligations that flow from that. For ETI it's a great chance to draw on its immense experience to answer these questions. And it might also bring more companies knocking on the door at Coldbath Square...

To learn more about the review of the Guidelines, or even to press for changes during the review (the louder the ethical trade voice is, the better!), each ETI membership group can contact their counterparts as follows:
• For the NGO caucus, through Rights and Accountability in Development (RAID), or at the OECD level, through OECD Watch;
• For corporate members, through the CBI, which is also influential within the Business and Industry Advisory Committee to the OECD (BIAC); and
• For trade unions - just contact me! Or if you can't stomach that, the TUC and/or the Trade Union Advisory Council to the OECD (TUAC).

The TUC, CBI and RAID all sit, along with representatives from across Whitehall, on the Steering Board of the UK National Contact Point (NCP) for the Guidelines.

Useful links

OECD Guidelines for Multinational Enterprises

UK National Contact Point for the OECD Guidelines

The corporate responsibility to respect human rights in supply chains (Discussion paper)

OECD Watch