Trade with the EU prompts the need for compliance with EU law
Serbia does not yet have legislation requiring its companies and other businesses to monitor the compliance with human rights and environmental standards throughout their value chains. However, such requirements are becoming increasingly relevant for Serbian companies, given the country’s high dependence on trade and investment flows with the EU. The Stabilization and Association Agreement between the EU and Serbia makes Serbia a convenient hub for trade towards the EU, which has been recognised not only by domestic businesses but also by businesses from third states.
Recent moves within EU institutions re-actualise the relevance of human rights, environmental, and good governance standards for businesses. Companies operating from Serbia should prepare for complying with human rights, environmental, and good governance due diligence requirements in order to maintain safe access to the EU market.
Human rights and environmental due diligence obligations are proliferating
Businesses are increasingly required to observe the respect for human rights standards throughout their value chains. Since 2011, the UN Guiding Principles on Business and Human Rights recommend human rights due diligence on the global scale. These are only guidelines and do not impose legal obligations, however they are considered an authoritative source setting out the corporate responsibility to respect human rights. The same recommendation has been advanced by the OECD, which has also created a set of detailed sectoral guidance in this respect, as well as by the International Labour Organization.
Human rights due diligence obligations, often in combination with those relating to environment, are now proliferating as hard law in the EU. Laws imposing human rights and environmental due diligence obligations are already in place in France and The Netherlands, in the latter country regarding child labour specifically. Similar obligations are expected in Switzerland and Germany, and companies have expressed support for legislative action in other countries too.
At the EU level, human rights and environmental due diligence requirements are already known across specific industry sectors. Due diligence obligations, relating to either human rights or environment, are set out in Regulation 2017/821 regarding the import of tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas, and Regulation 995/2010 regarding timber and timber products. The proposed Regulation of the European Parliament and of the Council concerning batteries and waste batteries, officially proposed by the Commission on 10 December 2020, imposes human rights and environmental due diligence obligations regarding supply chains of rechargeable industrial batteries and electric-vehicle batteries with internal storage and a capacity above 2 kWh.
A general due diligence obligation
The EU is now working towards establishing a general requirement of human rights and environmental due diligence, but also good governance due diligence which covers matters like corruption and bribery. A draft directive appeared in September 2020 in a draft report before the Committee on Legal Affairs of the European Parliament, and its revised version was adopted by the same committee in early 2021. The draft directive is included in the European Parliament resolution of 10 March 2021, requesting the Commission to advance a formal proposal for a directive.
The resolution explicitly states that the future directive is expected to achieve extraterritorial effects. The proposal aims to cover not only EU-based businesses but also non-EU businesses when operating in the EU market. Businesses would be required to conduct due diligence throughout their value chains, both upstream and downstream, even stretching outside the EU. This means that even companies that are not operating in the EU but that export to or import from the EU market should be concerned as they are possible targets of due diligence.
While the initial draft did not contain limitations regarding the size of businesses, the latest draft limits the applicability of the future directive to large undertakings, as well as publicly-listed or high-risk small and medium-sized undertakings.
A formal proposal of the directive has yet to be advanced by the Commission. Once in force, EU member states will need to transpose the directive into domestic law, which means the details of due diligence obligations remain to be seen.
Serbian companies should be prepared
These developments in the EU and other European countries present new considerations for Serbian-based businesses, as they may become subject to human rights, environmental, and good governance due diligence requirements. It may be that Serbian companies have not been so far engaged in the business and human rights discourse to an appreciable extent, but now is the time to expand views on corporate social responsibility.