EU’s Corporate Sustainability Due Diligence Directive (EUCSDDD) sparks a global trade paradigm shift
Free Trade Agreements or Sustainable Trade Agreements? The EU’s Corporate Sustainability Due Diligence Directive (EUCSDDD) raises this crucial question of choices, challenging the norms of international commerce in vogue for the last few decades. Imagine a world where every product purchased carries a hidden story-a tale of the well-being of the farmers and their families, environments preserved and corporate integrity maintained. The European Union’s proposed Corporate Sustainability Due Diligence Directive (UCSD) is a landmark piece of legislation towards that direction. It compels European companies to identify and mitigate environmental and human rights risks throughout their supply chains. It also underscores living wages and incomes as human rights, insists on responsible management of supplier relationships and emphasises the necessity of meaningful stakeholder engagement to enhance transparency and accountability in human rights and environmental practices. However, the EUCSDDD’s impact could extend far beyond Europe’s borders. It has the potential to become a catalyst for a global race to the top, pushing democracies around the world to adopt stricter sustainability standards. India stands at a crossroads, poised to not just adapt to these standards but also lead the way in demonstrating how integral sustainable trade is to the ethos of modern democracies.
Democracy: The Bedrock of Sustainable Trade
Democracy and sustainable trade are not merely compatible; they are inextricably linked. The interconnection between democracy and sustainable trade is rooted in the principles of equity, participation and long-term accountability. Democratic systems, by their nature, promote inclusive decision-making and public accountability, which are essential for sustainable trade practices. For instance, democracies are more likely to implement and enforce regulations that ensure trade does not lead to environmental degradation or exploitation of workers, which are key aspects of sustainable trade (Hickel, 2020). Closer home, scholars like Amartya Sen have shown through his works that sustainability legislation ensures that economic decisions consider the environmental and social impact on future generations, a core tenet of responsible governance.
Moreover, sustainable trade often requires international cooperation and agreements that are robust and equitable. Democracies are better positioned to engage in such agreements because they are based on principles of transparency and public participation. This openness allows for more effective and fair negotiations that consider the diverse needs and impacts on all stakeholders involved, from local communities to international partners. Reputed international scholars like Hickel (2020) and Rockström and Klum (2015) suggest that this democratic approach supports a form of globalisation that is not only about free trade but also about fair trade, where the benefits and responsibilities of trade are widely and fairly distributed. This is crucial for achieving the United Nations’ Sustainable Development Goals (SDGs), as it ensures that trade supports broader societal well-being and environmental sustainability rather than contributing to inequality and ecological degradation.
Impact on Global Trade
Some critics fear the EUCSDDD could encourage trade toward countries with laxer regulations, creating a race to the bottom rather than the top. However, the European Union has emerged in the past five decades as a powerful force in shaping the global conversation around sustainable international trade. The EU’s early environmental regulations, like clean air and water directives, weren’t just about protecting its citizens. By making stricter environmental standards a prerequisite for access to its vast market, the EU created a ripple effect. Companies worldwide adapted to comply and other countries followed suit, leading to a global shift towards cleaner practices and a higher bar for environmental responsibility. Other landmark legislation like the Conflict Minerals Regulation (Regulation (EU) 2017/821), which aims to eradicate conflict minerals from supply chains, demonstrates the bloc’s commitment to ethical trade practices. This, in turn, has spurred international discussions and collaborations on human rights and responsible sourcing practices throughout global supply chains.
Navigating the EUCSDDD:
The India-EU bilateral trade in goods is valued at €115.3 billion in 2022 and services contribute an additional €39.9 billion; the EU stands as India’s second-largest trading partner (EPRS, 2024). The UCSD presents a unique opportunity for India to solidify its position as a responsible player on the global trade stage.
While initial concerns exist regarding potential cost increases for Indian businesses complying with the directive’s standards, there’s a significant upside. Aligning with the EUCSDDD can elevate India’s image as a sustainable and ethical sourcing hub, attracting more European investment and boosting exports of responsibly produced goods. This, in turn, strengthens India’s negotiating position in the ongoing Free Trade Agreement talks with the European Union.
(Shatadru is the founding Managing Director of Solidaridad in Asia; views are personal)
