Select Committee on Trade and Industry Annxes to the Report

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 past year

  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 wider discussions.

  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 countries.

  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[5], 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[6]. 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[7].

(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[8]. 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 Response)

  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 countries.

(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.

March 2000

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.

5 Back

6   available at Back

7 Back

8   OJ Ref C176/13. Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 18 January 2001