Memorandum submitted by the Department
of Trade and Industry on Ethical Trading
1. This note is in response to the Committee's
request of 17 February 2000 for information regarding recent developments
relating to "Ethical Trading". This follows the Committee's
Report on "Ethical Trading", published on 9 March 1999
and the Government response, submitted to the Committee on 14
May 1999. In line with the Committee's request, this note provides
information on general developments relating to ethical trading,
followed by information on the Committee's particular interests.
(a) General relevant developments over the
2. The third WTO Ministerial conference
in Seattle, referred to in paragraph 12 of the Committee's Report,
ended without agreement to launch a new Round of trade negotiations.
At Seattle, the UK and EU approach included proposals on trade
and labour issues. In particular we proposed the establishment
of a Joint ILO/WTO Standing Working Forum to examine the relationship
between trade policy, trade liberalisation, development and fundamental
labour rights (see paragraph 13 of the attached Conclusions to
the October General Affairs Council which sets out the EU approach
to the Seattle meeting). The UK Government, working with trade
unions, WTO Members and others, made good progress at Seattle
in building a consensus around the EU proposal for such a joint
Forum. The UK will continue to press for this approach.
3. The Cabinet Office Performance and Innovation
Unit (PIU) is conducting a study looking at the interface between
trade policy on the one hand and broader social, health and environmental
issues on the other. This includes examining the contribution
which private sector voluntary initiatives can make to these broader
objectives, including the optimal mix between voluntary measures
and Government intervention.
4. The OECD is in the process of updating
its 1996 study on "trade, employment and labour standards"
to take account of recent developments. We would expect the updated
report to provide a stimulus to debate, both within OECD and in
5. Following recent meetings in the OECD
we remain confident that the review of the OECD Guidelines for
Multinational Enterprises will be concluded successfully and that
a positive recommendation can be made to the OECD Ministerial
in June 2000. Sufficient progress was made in those meetings among
delegations and with representatives from business, labour and
NGOs, especially on the difficult issue of implementation, that
the June deadline for completing the review is achievable.
6. The Ethical Trading Initiative, supported
by DFID, is approaching its mid-term review. A team of consultants
will be evaluating the effectiveness and potential follow-up of
the pilot projects, as well as the overall alliance between business,
trade unions and NGOs on the issue of ethical trading.
7. DFID also supports a Resource Centre
for the Social Dimensions of Business Practice. The Resource Centre
is now approaching its second phase during which it will undertake
research and pilot projects to provide a better understanding
of how business, as part of its core operations, can contribute
substantially to poverty elimination and upholding of human rights
in pursuing primary business objectives. The Resource Centre is
also considering establishing similar centres in a number of developing
8. Kim Howells has been appointed as Minister
for Corporate Social Responsibility. His role will be to promote
the business case for corporate social responsibility and to develop
stronger links between different government departments working
in this area.
(b) Developments in ILO consideration of ethical
trading issues, including the possible seminar referred to at
paragraph 14 of the Government Response
9. The ILO has recently initiated a Private
Voluntary Initiatives Programme,
which aims to translate the principles underlying the ILO's standards
into company practice. The Programme includes research, information
dissemination, and providing advice and technical assistance,
particularly for companies in developing countries. A number of
meetings are being planned under this Programme to look at issues
of corporate citizenship, with the aim of developing a dialogue
with the private sector (particularly business leaders from developing
countries and Multinational Corporation supply chain managers).
The ILO has published a study of some 200 codes of conduct and
a dozen social labelling schemes.
In addition, the ILO is participating in the UN Global Compact,
an inter-agency initiative between the UN and the private sector,
which calls on business to uphold principles relating to labour
standards as well as the environment and other issues.
(c) An update on the take up of the GSP special
incentive scheme and on the outcome of the Government's pressure
for a more generous scheme (paragraph 12 of Government Response)
10. The GSP Regulation of December 1998
lays out the procedures and mechanisms for the special incentive
arrangements. Moldova made a formal application and details of
this were published in the Official Journal on 22 June 1999.
The Commission has since completed its examination, and has informed
the GSP Committee of its findings. The Commission recommends acceptance
of the Moldova application, and we expect that it will be approved
within the next few weeks once some further technical procedures
are completed. Russia has also made an application, but the General
Affairs Council (GAC) decided on 24 January to suspend consideration
of the application in order to signal its strong disapproval of
Russian actions in Chechnya. We are not aware of any other applications.
11. As the Committee noted last year, the
GSP scheme will come up for review in 2001. We will press for
improvements when negotiations on a successor begin, probably
next year, and will continue to make the case that we are in favour
of more generous treatment. We understand the Commission has written
its annual report on the operation of the scheme, which will include
the special incentives, but this has not yet been released. We
will also press the case for improvements when a discussion of
the report begins in Brussels.
(d) Recent changes in the law on local authority
contracts for the inclusion in public procurement tenders of ethical
production specifications (paragraph 13 of Government Response)
12. Part II of the Local Government Act
1988 deals with contracts for the supply of goods, materials or
services or the execution of works. Section 17 imposes a duty
on local authorities and public bodies to exclude from the tendering
process any consideration of matters which come within the definition
of "non-commercial" matters contained in this section.
Local authorities are under a duty not to discriminate against
a contractor by the introduction of political or irrelevant considerations.
Amongst the matters specified as "non-commercial" are:
"the terms and conditions of employment by contractors of
their workers or the composition of, the arrangements for the
promotion, transfer or training of or the opportunities afforded
to, their workforces."
13. Both employers and employees need to
have confidence in the fairness of the competitive process. The
Government will amend Part II of the Local Government Act 1988
in such a way as to enable local authorities to take into account
appropriate workforce matters in the selection of tenderers and
the award of contracts, consistent with its EC obligations and
the achievement of value for money. A consultation paper will
be issued shortly and the Government expects to make the necessary
Regulations this year.
(e) An indication of progress with the development
of the Manual of Best Practice
14. The Foreign and Commonwealth Office's
Global Citizenship Unit have instituted a steering committee and
consulted widely on the format and content of this manual. Given
the high degree of interest and the range of views expressed,
the publication date has been postponed until summer 2000.
(f) A note on the outcome of the consideration
of action to be taken to clarify the issue of social labelling,
particularly in relation to WTO rules (paragraph 17 of Government
15. The EU approach to the Seattle WTO meeting
included a proposal for work to clarify the requirements of the
WTO Technical Barriers to Trade (TBT) Agreement for labelling
schemes (paragraph 11(j) of attached GAC Conclusions). The Government
continues to welcome labelling schemes in the market place, such
as those of the FairTrade mark, which allows consumers to make
informed choices and which open markets for products from developing
(g) A note on progress made in the company
law review's consideration of social audit in relation to ethical
trading concerns (paragraphs 18-19 of Government Response)
16. As part of the review of core company
law, one of the central themes adopted by the independent Steering
Group has been to promote transparency and accountability. The
Steering Group shares the Committee's concern that the law should
be structured in a way which provides an optimal incentive for
companies to trade responsibly. This is likely to be reflected
in an "inclusive" approach to directors' duties, which
would require directors to act in the collective best interests
of shareholders, while recognising that this can best be achieved
by taking due account of wider "stakeholder" interests.
17. The Steering Group is due to publish
a major consultation document in mid-March that will draw together
and summarise the work of the Review since February 1999. This
will include a number of proposals on directors' duties and reporting
and accounting requirements which are designed, in part, to reflect
the concerns expressed in the Committee's recommendation on social
accountability, including ethical concerns. A copy of the consultation
document will be forwarded shortly to the Committee.
The Future of the Export Credits Guarantee Department,
Third Report of 1999-2000, HC 52; Government Response, Tenth Special
Report, HC 849
1. On 27 July 1999, the Secretary of State
for Trade and Industry announced a fundamental review of the Export
Credits Guarantee Department's (ECGD) Mission and Status. In order
to provide a Parliamentary input into the review process, the
Committee decided to undertake a parallel inquiry to enhance the
process and provide some degree of transparency. The Report was
published in January 2000.
2. The Committee's principal concern was
the feeling expressed by many respondents that the interference
of the Treasury in the day to day work of ECGD had led to unacceptable
delays in responses to requests for cover and, in some cases,
the loss of contracts to overseas competitors. It supported maintenance
of the State guarantee for export insurance.
3. The Government provided its response
in July 2000 at the same time as announcing the outcome of its
own review. It accepted much of the tenor of the Committee's Report.
The Report was debated in Westminster Hall in October 2000.
Application for Support from ECGD for UK Participation
in the Ilisu Dam Project, Sixth Report of 1999-2000, HC 200: Government
Response, Fifth Special Report, HC 482
1. In the course of the Committee's inquiry
in the autumn of 1999 into the future of the ECGD, its attention
was drawn by witnesses to the growing controversy over the pending
application from Balfour Beatty for export credit in relation
to construction of the Ilisu Dam in South Eastern Turkey. Following
the Secretary of State's announcement on 21 December 1999 that
he was minded to grant the application subject to four conditions,
the Committee announced in January 2000 that it would pursue the
matter. The Committee heard evidence in January and February and
reported on 28 February 2000.
2. The Report gave general support to the
Government's position, while critical of some aspects of the handling
of the application and the Secretary of State's announcement.
It sought one additional condition, a published assurance that
consultation with neighbouring states had been carried out, and
an "independent expert evaluation" of the adequacy of
the archaeological rescue plan. The Committee also recommended
a debate before rather than after a Ministerial decision.
3. The Government's response, received in
May 2000, accepted the bulk of the Committee's conclusions and
recommendations, including the proposed assurance that consultation
had been carried out.
4. The Committee is pursuing the case in
the context of an inquiry into industrial and trade relations
with Turkey. Members spent a day at Hasankeyf in the course of
its November visit to Turkey, and met a number of those involved
in the project during their time in Ankara. The Committee intends
to produce a further Report shortly.
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