Perspectives in Responsible Sourcing

Eu criticizes US 100% cargo scan requirement

The European Commissions has recently issued a critique of the US requirement to scan 100% of cargo destined for the US (the Homeland Security Bill came into force in August 2007, requiring that all US bound cargo by scanned in the ports of origin by 2012). The EU has repeatedly expressed opposition to the concept of a unilateral requirement to scan cargo destined for the US in ports of origin. 

According to the article:
• "The unilateral US initiative imposing 100% scanning in European ports of US bound containers is a high cost option compared to alternative approaches that would produce benefits to security." 
• "It would tend to divert scarce resources from other essential measures and might create a false sense of security and complacency." 
• "It would call for a shift of European resources away from European security requirements."
• "It could have serious repercussions for EU-US maritime transport and trade, and on transport organisation within the EU and worldwide, without any clear benefits in terms of enhanced security." 

The article offer the following interesting data on the 100% cargo scanning pilot project carried out at the Southampton port of Felixstowe.
• "In Southampton, three Radiation Portal Monitors, one Advanced Spectrographic Portal and one X-ray scanner (NII) were used…The total cost is estimated at $18 million for scanning around 5,500 US bound containers over a period of six months." 
• "In the case of Southampton a simple calculation of total cost relative to the number of scanned US bound containers gives an average cost/container that exceeds $500." 
 
In terms of impacts on other EU ports, the article mentions the following considerations:
• "The US legislation does not contain any financial clause or spending authorization for equipping foreign ports." 
• "The presence of multimodal incoming container traffic needing increased handling (unloading, transporting, and reloading) and transhipment would pose tough challenges for 100% scanning in many ports."
• "…changes (required by the scanning equipment) would often require expansion into nearby land side areas that would be very expensive or unavailable."
• "The share of containers scanned ranges from 0.1% in bigger ports to 3% in smaller ones." 
• "[Regarding transhipment]… resources would have to be readily available to perform the scan near the vessels, or the US bound containers would have to be stacked in extra storage area, and wait for the scan, raising costs significantly."
• "….scanning transhipped containers is likely to lengthen the average waiting time significantly.  The need to secure the scanned containers until they are loaded on the final carrier vessel adds extra costs.  Preliminary feedback from large EU ports offers cost indications in excess of $300/container for moving stacked containers to scanning stations,"

Lastly, the European Commission highlights these policy issues associated with the requirement::
• "In addition, 100% scanning would tend to divert transport flows towards those ports –mostly the larger ones- with the necessary financial leverage and container traffic volume to amortise the additional 100% scanning costs." 
• "An additional "transaction cost" to international trade would raise transport prices and depress growth (via reductions of imports/exports) without offering any real security benefit."
• "In many less developed countries [which handle approx. 66% of container traffic] 100% scanning would hinder the development of freight container operations in domestic ports and of the related shipping, logistics and trading sectors."
• "Finally, the US 100% scanning initiative assumes compatibility with WTO rules which is not established."

The final point appears to indicate that the European Commission may consider pursuing this matter further at the World Trade Organization’s Dispute Settlement Body, based on the argument that the cargo scanning requirement represents a new barrier to trade. As developments occur, CSCC will continue to update readers about developments along with analysis on the issue.
For a copy of the full text of the article, click on the following link:
1. http://www.americanshipper.com/PDF/comments.pdf

Ruggie's Recommendations

In the world of corporate social responsibility, there are two primary schools of thought on how to approach corporate compliance with human rights standards.  One approach is to push for legislation meant to enforce these standards; a second approach is to use market-based incentives as a means of encouraging corporate compliance with these standards.  On April 7, 2008, John Ruggie, the Special Representative to the UN on business and human rights, issued his draft report on how to conceive of business and government roles in upholding accepted human rights standards going forward.  The framework for his recommendation is rooted in a well-established international law concept: protect, respect, fulfill (or remedy, in Ruggie’s terms).

1. The State has a duty to PROTECT against human rights abuses by third parties, including business – this is a legal stipulation;
2. There is a corporate responsibility to RESPECT human rights – this is a societal expectation;
3. There is a need for more effective access to remedies – this need to FULFILL is a functional necessity.

Ruggie states that “there is no single silver bullet solution” to bridge the gap between law and practice, asserting that everyone involved “must learn to do things differently.”  He takes pains to distinguish his approach from that of the failed UN Norms, whose demise he attributes to a delineation of rights to be upheld rather than, as he proposes, the assignment of roles in upholding all rights. 

An Argentinian group (CEDHA, Center for Human Rights and Environment) issued a commentary on Ruggie’s latest piece and stated, “Ruggie again (as in previous reports) clearly steers the UN away from pressing for binding legislation, which was once conceived under the … UN Norms…” And Ruggie does use different language for States (who have a DUTY) and businesses (who have a RESPONSIBILITY).  He also states that corporations should not have the same duties as states and encourages states to “support and strengthen market pressures on companies to respect rights.”

Clearly, Ruggie supports market incentives for actors to uphold human rights, but does his framework preclude binding legislation, or does it allow for such legislation conceived of in a format different from the UN Norms?  At the national level, he refers to reporting requirements, redefining fiduciary duties and socially responsible investment as incentives.  Is he being politically astute in not mentioning alternative binding frameworks, or does he genuinely believe there are no such options?  An interview with Ruggie in Ethical Corporation Magazine reveals that he thinks the time is not right for a binding international treaty as there is not sufficient buy-in from stakeholders.  However, I felt he could have provided more ideas on state level legally-binding solutions to drive this process forward.

A recent development regarding the Central American Free Trade Agreement (CAFTA) demonstrates the delicate interplay between a standard-setting approach and an incentive-based approach to enforcement.  The law firm of Sandler Travis has reported that the AFL-CIO has filed the first ever labor rights complaint under CAFTA, in part to protest the U.S.-Colombia Free Trade Agreement.  The complaint cites fives cases in Guatemala where local labor laws were not upheld and the U.S. government failed to implement CAFTA labor provisions to remedy the situation.  The AFL-CIO’s chief international economist cites the incentive structures of free trade agreements as problematic stating that “once the U.S. approves a free trade agreement the partner country no longer has any incentive to make labor rights improvements.”  The U.S. government evidently responded by claiming that at least free trade agreements allow the U.S. to investigate the labor violation allegations.

This situation highlights the “governance gaps caused by globalization” that Ruggie refers to and shows why an incentive-based structure is so important to facilitate compliance with labor standards.  But an incentive-based structure, while important, is not sufficient.  At present, Ruggie points to a disincentive to uphold labor standards through bilateral investment treaties because “… treaties … permit… investors to take host States to binding international arbitration, including for alleged damages resulting from implementation of legislation to improve domestic social and environmental standards…”  So clearly, the national level legislative component is important and must not be negated by the incentives created.

The AFL-CIO complaint also highlights the third prong of Ruggie’s framework, the need for effective remedies.  Clearly, the right to investigate referred to above does not equate with fixing the problem.  The NAFTA labor rights component has faced similar criticisms of inefficacy.  Unless there are remedial mechanisms, judicial and non-judicial, as Ruggie alludes to, it seems unlikely that these provisions will be enforced at all in any trade agreement. 

The way forward will not be easy – Ruggie’s framework seems to be based largely on the good faith of the relevant actors to subject themselves to measures that would enforce their respective duties and responsibilities, if only through market mechanisms.  Relying on the good faith of these actors hasn’t worked so far, and there’s no indication it will work going forward.

If you have questions and comments about this blog, please contact Lara Blecher at lblecher@intlcompliance.com

Podcast with Michael Kobori (Levi Strauss & Co.) and Carrie George (CSCC)

The responsible sourcing world has been abuzz this past year with talk of increased collaboration among brands and their supply chain partners, NGOs, and other industry associations in the monitoring and remediation of “sweatshops”.  In the era of new media, CSCC has turned to podcasting to explore the issue of brand collaboration with Michael Kobori, Vice President of Supply Chain Social and Environmental Sustainability at Levi Strauss & Co., and Carrie George, Client Service Manager at CSCC.  The podcast is a frank and open dialogue on the benefits and challenges of increased collaboration in fighting exploitative labor conditions.

Download brand_collaboration_podcast.wav to your desktop.