YourABA: June 2013
YourABA October 2013 Masthead

Assessing human rights risks in international commercial transaction agreements

When handling international commercial transactions for goods and services, lawyers should take into account the newly emerging issue of managing human rights risks. Disregarding these risks can have serious financial and reputational consequences for the client, said Corinne Lewis, a partner in the Brussels-based law firm Lex Justi, in a recent edition of International Law News.

Lewis named a couple of well-known examples. Last September, Apple experienced media criticism and production delays as a result of working conditions at its Chinese supplier Foxconn, which assembles iPhones. The Swedish retailer H&M has been pressured to cease using Uzbek cotton because of allegations of forced labor in Uzbekistan’s cotton fields. And in late April, the collapse of a Bangladeshi garment factory, which resulted in a death toll of more than 1,100, drew the world’s attention to the treatment of workers manufacturing clothing for European and American markets.

Lawyers working on international commercial transactions are already seeing new legislative and regulatory measures that address human rights concerns in companies’ supply chains, Lewis said. In 2010, California adopted the California Transparency in Supply Chains Act, which requires companies to disclose information about steps taken to ensure their supply chains are free of slavery and human trafficking.

Businesses and the lawyers who advise them will likely witness the increasing predominance of human rights as a part of their risk management and corporate responsibility strategies in coming years, Lewis said. As a result, lawyers advising purchasers and suppliers of goods and services need to understand the relevance of human rights to international transactions.

The role of the lawyer in advising a client on human rights risks associated with a given transaction will vary depending on the specific circumstances and the extent to which the client has implemented policies and practices to ensure its respect for human rights, Lewis said. For example, a small or medium-sized business may not have internal policies or practices in place to identify its own adverse human rights effects or those of a potential supplier or purchaser. In this case, the lawyer may need to provide more extensive general advice on human rights risks or suggest that the client seek outside expert advice.

When it appears that a transaction may result in an adverse human rights impact, the client should make the necessary changes to prevent or mitigate that effect, Lewis said. Even if a transaction would not directly contribute to a potential or actual adverse human rights impact, the business relationship could still link the client to the other party’s adverse human rights impact. In this case, the client should use its leverage to encourage the other party to prevent or mitigate the effect.

The contract could be drafted to include a reference to the particular negative human rights impact and the steps that the other party is to take to prevent or mitigate such effects, Lewis said. The contract could also provide for termination if the other party fails to take steps to prevent the identified human rights risks or to take action to remedy specified rights.

However, not all human rights risks can be identified during discussions and negotiations with the other party to the transaction, Lewis said. Actual human rights infringements or additional potential risks may be identified during the course of the arrangement. The lawyer and the client need to be aware that ascertaining human rights risks is an ongoing process that requires awareness, periodic monitoring and appropriate follow-up.

International Law News is a publication of the Section of International Law.

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