Lawrence Herman is a former Canadian diplomat, counsel at Herman & Associates and a senior fellow of the C.D. Howe Institute in Toronto.
This past year both the American and Canadian governments have issued something called “business advisories,” a new kind of communication with official warnings about commercial, reputational and legal risks in doing business or engaging in supply arrangements in parts of the world where human rights are under assault.
These are different than the usual kind of advice governments put out about risks in difficult or war-torn places around the globe. And different from travel advisories issued by governments long before the COVID-19 emergency, that warn about travelling to places with epidemics, corruption, civil unrest and other dangers. These new business advisories are not just about risk avoidance, these are direct warnings.
In one of these, the Canadian and U.S. governments warn companies about having supply chains and other arrangements in the Xinjiang region of China. In another, the U.S. warns about doing business in Hong Kong. Canada has issued a similar one for Myanmar.
In the European Union, 15 member governments have issued business risk advisories involving Israeli settlements in the West Bank. That includes France, Germany, Italy and Spain and, when it was part of the EU, the United Kingdom. As far as is known, the U.K. advisory for the West Bank is still in effect.
Regarding human rights in Xinjiang, the U.S. advisory states that the Chinese government continues its “horrific abuses” targeting Uyghurs and other Turkic Muslims, including “widespread, state-sponsored forced labor and intrusive surveillance, forced population control measures and separation of children from families, mass detention, and other human rights abuses amidst ongoing genocide and crimes against humanity.”
“Given the severity and extent of these abuses,” it warns, “businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law.”
While these advisories are currently focused on human-rights abuses in selected places, there is the possibility of warnings being extended to other parts of the globe including, for example, countries without adequate environmental or climate change policies.
These have direct effects on international trade, but because they are “advisory” and don’t involve government-mandated trade embargoes or tariff hikes, they don’t offend the rules of the World Trade Organization. Moreover, even if challenged, WTO exceptions for measures aimed at human-rights and environmental abuses could always be invoked.
Cynically, one might say that these are just hortatory statements, designed for domestic political consumption, since each country already has laws in place that penalize persons doing transactions or dealing or facilitating trade in goods produced from forced labour or other human-rights abuses.
That may be partly true, but these are more than window dressings. They carry direct warnings designed to have market impact. Using more ominous wording than the Canadian advisory, the U.S. communication on Xinjiang states, “As with all their risks, financial institutions should assess their potential exposure to the risk of handling the proceeds of forced labor on behalf of their clients, and as appropriate, implement a mitigation process that aligns with that risk, consistent with their requirements” under U.S. anti-money-laundering laws. If transborder payments aren’t processed by financial institutions, business will obviously cease.
Apart from legalities and financial risks, both governments say that businesses are expected to follow responsible business standards. Canada’s Xinjiang advisory says that, in addition to complying with Canadian laws, the government “expects Canadian companies active abroad, in any market or country, to respect human rights, operate lawfully, conduct their activities in a responsible manner and adopt voluntary best practices and internationally respected guidelines such as the United Nations Guiding Principles on Business and Human Rights and the Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises, including provisions on the elimination of forced labour or other abuses from their supply chains.”
The advisories’ references to the OECD guidelines, which include due-diligence guidelines for responsible business conduct abroad, as well as the references to the Canadian government’s own corporate social responsibility (CSR) guidelines, put companies on notice of the commercial risks involved and potentially negative investor and market reactions, even if no laws are broken.
Because of the far-reaching effect of these advisories, questions arise. What factors go into choosing when or why these are issued and for which particular region or country? Why, for example, has the U.S. put out an advisory for Hong Kong, but Canada has not? Why has Canada issued one for Myanmar, but the U.S. has not? Answers may have something to do with domestic politics, but the questions need to be asked.
Given internal political pressures, it’s possible that governments won’t limit future advisories to cases of human-rights abuses, but could extend them to warning of legal consequences, commercial risks and social opprobrium in doing business in unrepentant or lax carbon-emitting jurisdictions. Or where other egregiously unacceptable foreign government actions have occurred, such as in Belarus, Syria or Iran. These are factors that could influence their future development.
The point is that once out there, these new advisories create precedents that could proliferate, especially when public pressures and investor values, aided through social media, are demanding greater government involvement in channelling, and indeed compelling, responsible business practices abroad.
While so far limited to the U.S., Canadian and some European governments, the advent of these business advisories shows global trade and societal values converging, beyond the requirements of trade agreements and international treaties. Even if not all countries take this kind of action, in their formative stages, official government warnings like these are precedents that could be a new phenomenon in the evolving world of international trade.
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