Martijn Scheltema, a co-chair of the European Working Group (EWG) or Responsible and Sustainable Supply Chains, which has produced for consultation a Zero Draft of a (the) Zero Draft for Consultation: The European Model Clauses (EMCs) for Responsible and Sustainable Supply Chains (July 2024); and a Commentary to the Zero Draft for Consultation European Model Clauses (EMCs) for Responsible and Sustainable Supply Chains (July 2024), along with an Introduction to the Zero Draft for Consultation: The European Model Clauses (EMCs) for Responsible and Sustainable Supply Chains (July 2024), has distributed a reminder that the consultation period has been extended to 15 January 2025.
As the website for the
Responsible Contracting Project reminds its readers,
The European Model Clauses (EMCs) are a set of model clauses designed to align with the EU Corporate Sustainability Due Diligence Directive (CSDDD), which entered into force in July of 2024. The clauses are the product of the European Working Group (EWG), which is composed primarily of European legal experts from practice and academia. A preliminary version of the EMCs was released for consultation in October 2023. Feedback from this initial phase informed the development of the current "Zero Draft", which is currently being workshopped through an inclusive consultation process coordinated by RCP with the financial support of the Initiative for Global Solidarity (IGS) which is implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on behalf of the German Federal Ministry for Economic Cooperation and Development. The consultations aim to ensure that the first official version of the EMCs (the EMCs 1.0), which will be published in 2025, is the product of an inclusive, balanced, and legitimate process. By participating in the consultation process, stakeholders can ensure that their perspective is considered in the final EMCs.
Martijn reminds all interested entities and individuals that if you have not yet
given feedback on the clauses, you have a couple of days left to provide
it. Your input is highly appreciated.
That is an excellent idea.
The EWG is developing the EMCs to serve as a key reference for the European Commission as it prepares the guidance on model contractual clauses contemplated under Article 18 of the CSDDD. The guidance and the EMCs are distinct instruments that are being developed independently, but the EWG is cooperating with the Commission to ensure that the instruments are in alignment. (Responsible Contracting Project )
The Project and its products are rich and deserve close attention. At the same time, having been hardened into a "Zero Draft", it is unlikely that anyone is interested in making fundamental changes--so the most useful interventions at this point are at the margins--refining the text of clauses; pointing out interesting examples or issues that might be included in the commentary; catching contradictions and textual coordination issues, and the like. Though of much more limited scope and impact, it is still important work that may produce a much better product to be consumed by the European Commission, and thereafter, in its own right. It is also extremely useful for efforts at coordination between this project and the US analogue--the
American Bar Association Contractual Clauses Project for which David Snyder, a member of the EWG, serves as Working Group Chair.
The Zero Draft provides a fairly straightforward framework. It consists of a Definitions sections plus five articles (mutuality of obligation, remediation measures, remedy, monitoring, and dispute resolution with stakeholders. The Commentary to the Zero Draft includes some interesting commentary from European Member States, mostly concerned about the coordination of the Zero Draft with whatever it is teach has legislated for itself. The basic impulse, drawn loosely from the UNGP and its progeny, is both well worn and relatively well understood within a broad spectrum of interpretation and application that virtually all actors, in their own ways and as a function of their own normative starting points, may agree is useful (my early wrestling with its core elements here). That is the trick though, to make sense of the EMC project, and to be most useful for the perfection of its project, one must be aligned with the core premises and normative principles around which it is constructed and which it attempts to express in its text. To their great credit, the drafters have been quite transparent on that score.
The "big bang" of this effort, and its animating spirit is "the presumption that buyers move from representations and warranties to human rights and environmental due diligence. The reason for this is that two reasons exist to enhance operational effectiveness and enforced legal requirements." (Commentary to the Zero Draft ). Indeed, "the regime of representations and warranties, with their accompanying liability—if they are not true, there is breach—is unrealistic and ineffective. Frequently, this regime is thought to lead to what is called a “tickbox” or “checkbox” approach to supply chain management in which buyers require a laundry list of representations of compliance from their suppliers." (Ibid., p. 3). Private law (contracts) become instruments of public purpose that exceeds the scope of the core relationships in markets--to engage in transactions in which factors of production are brought, consumed or produced in exchange for something of value. "Contracts can be considerably more effective in delivering better human rights and environmental outcomes than they have been, and moving toward this outcome is the goal of this project." (Introduction to the Zero Draft for Consultation, p.3) The object, then, is to bring these mundane disaggregated transactions back into the heart of structures for the fulfillment of public policy through the management of private law. Here one speaks not just of management in terms of improvement, but management with a much more ambitious and transformative aim for private law embedded in the conception and expectations of and in contract (together with the reform of its relationship to tort).
Contracts are integral to corporate practice and to regulating global business operations, and
increasingly address environmental and human rights issues in supply chains. Contracts can be a powerful tool to improve these practices, but their history is fraught. This project is an effort to improve contractual governance in order to better uphold human rights and environmental standards and implement appropriate due diligence in global supply chains. The approach seeks to build on the strength and reach of contracts whilst moving away from contractual practices that have so frequently proven ineffective (if not counter-productive) in practice. The goal is to make human rights and environmental standard. (Introduction to the Zero Draft for Consultation)
To that end, one has to embrace a specific way of interpreting the key documents on which this normative foundation is constructed, and then used, to elaborate the Zero Draft Framework. Within that framework, the basic innovation is to broaden responsibility and risk from supplier to supplier and buyer with respect to human rights and environmental due diligence, buyer responsibilities, and remediation (Ibid., 8-9).
All of this is fair; and to some extent these decisions have already been decided at the European level at least in the form of the experiment in administrative interlinking that is the CSDDD (putting aside its worthy objectives). But then so may be a counter-vision that emerges from a different, and also plausible, reading, of the foundational normative texts--UNGP, OECD Guidelines for Responsible Business Conduct and perhaps with more difficulty the CSDDD (which itself reflects a quite specific European choice of baseline normative starting points. Certainly, certain sectors in North America and East Asia may view things differently--either in micro form (the interpretation and application of the framework within its own normative starting points), or in macro form (the construction of the system itself and its grounding norms--say, for example in both development and under a balancing risks, opportunities and impacts" standard standard of (ESG Along the Socialist Path: China's Long March to an Institutionalized ESG Reporting System; The Original Text of the New (Trial) Basic Standards 企业可持续披露准则——基本准则（试行）).
As such, one can no longer speak here of one's grandparents' private law, except in the past tense. Here private law is understood to serve a constituting objective; one like the constituting objectives of public law in the establishment of administrative organs. The point is to create a system of contractual provisions that establish
an administrative system within which it is possible to embed economic
activity within a human rights and sustainability maximizing regime. In
contemporary language--it centers a human rights and sustainability
impacts analysis system with and perhaps as the framing element of the
calculus of economic activity through private law. Yet this is not an autonomous constituting private law--but a private law that can be intimately attached to and interlocked with the administrative structures of mandatory obligations that have been established in public law and administered through its state organs. It also centers something like a Brussels Effect--the notion that public law can radiate from one (important) legal center outward through supply chains, to manage norms and regulatory behaviors elsewhere--not through direct projections of public authority, but through the embedding of public mandates through private arrangements (but see here for a general caution of the effect of the "effect" in a related field). The EU's CSDDD plays a central conceptual role in this melding of public and private due diligence apparatus.
The CSDDD recognizes that contracts have an important role to play - as a key component of the human rights and environmental due diligence (HREDD) exercise - to contribute to fostering respect for human rights, decent working conditions, and sustainable environmental standards within global supply chains, although they are not the only means to undertake such HREDD. * * * Articles also envisage the possibility of requiring businesses to establish contractual provisions with their direct or indirect supply chain partners (Art. 10(2)(b) and 10(4) and Art. 11(3)(c) and Art. 11(5). Both provisions clarify that such contractual provisions may be accompanied by measures to support carrying out due diligence (Art. 10(3) and Art. 11(4), which are obligatory for SMEs (Art. 10(2)(e) and Art. 11(3)(f)). Although the CSDDD will apply only to large companies as defined, it envisions that human rights and environmental due diligence obligations will flow through to SMEs through contractual measures and include special provisions for them and notably the fact that, where measures to verify compliance are targeting SMEs, the cost of independent third-party verification shall be borne (fully or in part) by the buyer (Art. 10(5) and Art. 11(6)). (Introduction to the Zero Draft for Consultation, pp. 4-5).
That integration distinguishes the European from the American approach (Ibid., pp.11-12)). Fair enough--though one might expect push back from States that view these are indirect encroachments, and in extreme cases as threats to their national security, state secrets, and control of data and the normative baseline for State assets and populations within their control. That push back has started in the United States (among others see here), but there are heretics within emerging European orthodoxies (eg Draghi report). China is both linking, in terms of result generally, but through its own path, and subject to strict countermeasures for what it might consider to be interference with its own normative and legal orders applied to its own productive forces.
All of this works well, and as drafted, the EMCs are consistent with the vision of its drafters. For those who do not share that vision, individuals, enterprises, and states, there are always countermeasures--private law, legislation, and interpretive battles before courts. More generally the EMCs will face a set of challenges that any such enterprise would face irrespective of the normative choices built into the model clause language. I have organized my sense of these challenges in six points, challenges which may be inevitable and thus unavoidable: (1) complexity; (2) prolix ambiguities; (3) the Versailles effect; (4) the costs of administration; (5) the usual suspects; and (6) the power of setting the stage :
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Monty Python pix credit here
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1. Complexity. The enterprise of business and human rights, and now included within or as their driver sustainability and climate change norms, has become quite complex; and not just complex. They have become self-refereeing increasingly evidenced by its own peculiar language, its own meaning making community, and the pathways and linkages that suggest the structures within which actions, norms, and text are understood abd values and expectations created. That is well and good--and indeed an essential element of the quite specialized language of law (
Broekman and Backer, Lawyers Making Meaning). That is perfectly fine--everyone has to make a living, and sectoral specialization is a n old fashioned way of ensuring that. And yet, the consequences might be worth considering, especially where they themselves provide what might be gross adverse human rights consequences. Complexity favors the wealthy and those invested with the resources to attain or buy capacity. The power and capacity imbalances might well be exacerbated by well intentioned systems tat are fir for useful exploitation only by those with the means to take advantage. The risk of further victimization of economic actors on the lower rungs of production ought not to be ignored.
2. Prolix Ambiguities. The problem with text is similar to that of children or other creations. Once they are born or made they become their own agents and can, in the hands of others, or through their own interactions, acquire a life of their own. One can develop all of the normative firewalls that one likes--but in the absence of a significantly powerful Holy Office and Discipline and Inspection apparatus, text may led behaviors in unexpected directions. That then produces incentives to reform or supplementation and the endless cycle of text-interpretation-reform-reinterpretation etc. The usual response, and the best one available to date is that the courts will serve some sort of coordinating role; in Europe that may be augmented by increasingly intrusive techno-bureaucracies especially as they meld their operations and cultures with their private entity counterparts. The effect is augmented where a framework is offered. Here that framework provides substantial space for discretionary deviation, but also tension with an ecology of mandatory measures which may cinstrain or direct text in particular ways. With multiple stakeholders engaged in battles over meaning and possibility, the possibilities of strategic behavior in which the attainment of the core objectives of text become sidelined might well grow. Yet that is precisely the risk that all contemporary efforts to develop substantial bureaucracies around a textual framework that is grounded in margins of appreciation (internal and external) now face. This is the prolixity effect from which there is currently no escape.
3. The Versailles effect. In an essay of 2000 I noted the disastrous consequences of the "Versailles effect"(Forbidden Cities).
Elites that wall themselves off (physically or virtually) within
structures of their own creation, where they exist in a world far
removed from others run the risk that they will be strangers in their
own land. Transposed to CSDDD and the EMC project, one might wonder the extent to which they will be most effective at the level of economic and governmental grandees. Tine will tell, of course, but the template fashionable since the 2007 financial crisis (see here) to develop reforms grounded in a "cram down" style of regulation and management is also embedded in the core of CSDDD itself. That tends might well be the Achilles heel of the European approach, one that, at its core sometimes appears to be based on the notion that the masses will follow their superiors (however that caste is constituted from European epoch to European epoch). On the other hand, it has worked well enough in this historical era, and its power is now enhanced by technology and social media. For the rest of us there is, as the Cubans have come to understand it, the informal economy and the unregulated veiled market. Related to this is the notion that contract are negotiated; absent regulation And mandating specifically worded text in contract, these provisions may be adjusted among the parties, and from that, generalized, it is possible that over time the "standard" language will drift. Of course, as between the parties to a contract, administrative officials with oversight authority, and the courts (which courts?), substantial interpretive spaces may develop, exacerbated by the national contexts in which they might arise (certainly outside of Europe, but even within it).
4. The costs of administration. The costs and burdens of the construction and operation of the interlocking administrative organs necessary to give effect to these system creating and risk re-allocating provisions might require some considerable thought. One does not speak to the costs of human rights adverse impacts or those with environment and climate change effect. One speaks here to the more banal business of funding a bureaucratic apparatus within every entity involved in the process of due diligence--along with the costs of the operation of gatekeepers, quality control and auditing mechanisms, and those of dispute settlement and contestation. Here good intentions create blank spaces that must eventually be confronted or they become potential threats to the system--much like the difficulty of moving toward substantial investment in electric vehicles and high level computing without considering the burden that it places on electricity generating capacity that may not be able to keep up. Like smog, costs have to go somewhere; usually people with little connection to business might be inclined to believe that these costs may be built into pricing--or better that it can (righteously) be taken from "profit." Certainly that works at times, but sat some point either the rules will have to start thinking about regulating pricing or will have t provide subsidies (through taxes of some sort). Alternatively, the costs may be reflected in increased taxation or reallocation of budget items (in the public sector) or in price adjustments in the private sector; for the rich that may be an annoyance, for those less resource fortunate it might seem like punishment or the shifting of the rewards of development goal posts. And in some jurisdictions, that sort of calculus would be irreconcilable with a development centered normative framework for the development of productive forces. But the costs of administration may be systemic as well. And that may require at some point a larger discussion of the nature of production, its purposes and the nature of development, and its manifestation in the lives of people and collectives.
5. The usual suspects. Like any other contractual provision system, this one brushes up against the usual suspects--the list of concepts and parameters that may constitute substantial challenges to the realization of the goal that the drafting group (and the EU Commission in its turn) have set for themselves. Among these are issues of legal liability extensions through principles of agency, the limitations of rules of third party beneficiary, the power of the principle of the autonomy of legal persons and of asset partitioning rules, and the limitations of extraterritorial extensions whether direct or indirect. Choice of law and choice of forum rules may play a part as well as blocking legislation. But the principle obstacle may likely be the (unstated and unresolved) disjunctions between tort rules, contract and public policy with respect to the allocation of risk bearing and risk control among economic actors. The Model Clause Project tackles one element of these issues, but not all of them. An added complication--the effect of accumulating public oversight of these clauses and economic activity--at some point these sorts of projects will likely give rise to another necessary conversation--the identification of the line that separates regulation from either a regulatory taking or the effective public control of a private entity. At some point, one may be tempted to suggest that the sum of these rules converts enterprises subject to them, directly or indirectly, into state controlled enterprises. And that would trigger another significant discussion.
6. The power of setting the stage. These are fundamental point of orientation. The response to all of them might be something like, "we have to start somewhere". And there is power in that. Like the UNGP themselves as an "end of the beginning" the act of starting somewhere sets the template and parameters within which what comes after can be better guided within the cognitive constraints that the initial effort imposes. That, more than anything, encapsulates the power of this project, whatever the always impermanent flaws in the transposition of good intentions into operational methodologies. And here, stage is set with the elaboration of premises around which it is possible to reconsider the use of contract to establish not just a bartering transaction but also institutions of governance between private entities, intertwined with State managers, so that contract no longer memorialized economic, but now incorporates the institutions of social and political activity, among actors and those affected by the interactions of participants in markets as producers and consumers. That is, in a sense, quite revolutionary when taken to its logical ends. Or, for a while at least, this may remain the window dressing on the estates of the elites.
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| Pix credit Trying To Get There” Choreographer Tyrone Aiken, Dancers Cast: 2020– Photo, Mike Strong |
All of this suggests both the richness of the text, the importance of the guiding ideology, and the pathways chosen to fulfill the objectives of that ideology as expressed in the EMC project, and on a broader scale within the trajectories of CSDDD and its fundamental ordering premises. But that richness is also deeply embedded in the micro-analytics that are the subject of the consultation, and that, itself is worthy of deep consideration. The EMC project nicely aligns with the European regulatory path and its normative substructures; it is a critically important intervention in the elaboration of the administrative system that will emerge from out of the CSDD framework (and then from there to be generalized as a template for governance within all sectors of regulation in Europe). Given its normative and methodological choices, it is a worthy project to make this effort as good as possible. Interested parties ought to take the opportunity to contribute to that effort. Others should take notice.
The text of the Zero Draft follows below.
