Home states of agricultural commodity traders: Unwillingness to regulate

Even after decades of failed corporate “self-regulation”, significant legislation that would ensure corporate respect for human rights and the environment is still largely absent in the host states of the traders. Even in other countries where laws exist, they demonstrate substantial gaps in that they only partially codify corporate responsibility in terms of respect for human rights and the environment, and/or only apply to a select number of companies. Where such legislation does exit or is under consideration, its largely preventative nature does not cover issues such as liability or access to remedy for victims of human rights violations.

A lack of transparency regarding the actual business activities of commodity traders in home states, their ownership structures, the organisation of supply chains, market shares, and financial data poses additional difficulties for regulators.

If regulators want to protect human rights, transparency is a key prerequisite to determine responsibilities, ensure accountability and remediation for victims of corporate misconduct.

The US and Europe have begun to introduce some regulation covering a range of specific issues, such as combatting forced labour and slavery or illegal timber harvesting, and begun to put in place overarching regulation. Switzerland, however, still lacks comprehensive regulation when it comes to governing human rights and transparency in the commodity trading sector.

The Federal Council acknowledged some of the challenges in its 2018 report on the commodity trading sector, but it still  refuses to take any regulatory measures, instead preferring to rely on corporate self-regulation: “The Federal Council expects all companies operating in or from Switzerland to behave with integrity and responsibility with regard to compliance with human rights, environmental and social standards at home and abroad.“

Need for binding measures

Switzerland’s preference for relying on corporate social responsibility instruments was again illustrated in the Commodity Trading Sector Guidance on Implementing the UNGP published in November 2018. The guidance was developed by a multi-stakeholder initiative comprising public bodies, the private sector as well as civil society organisations including Public Eye. The guidance itself can be viewed as a solid instrument if it is used in conjunction with the OECD-FAO Guidance for Responsible Agricultural Supply Chains which, as opposed to the former, also covers the production stage of agricultural commodities. Nevertheless, it remains a voluntary mechanism and neither binding measures by the Swiss state to implement the guidance nor to impose sanctions are foreseen.

These shortcomings demonstrate that the Swiss government is more concerned with reputational risks to business than with actual negative human rights impacts on the ground.

The Swiss government continues to refuse to regulate the commoditiy trading sector despite it posing very specific risks to people and the environment. Moreover, Switzerland has to date failed to ensure transparency in terms of financial and statistical data on the commodity trading sector, including even basic figures such as combined turnover or tax payments. 

Competition policies: Failing to curb corporate power

Competition policies, the area of law intended to prevent problematic concentrations and abuse of market power, could contribute to solving some of the problems along global agro-food value chains and is slowly making a reappearance on the global stage. Typically and almost universally, however, competition policies today exhibit several shortcomings pertaining to the issue of power concentration, especially in the agro-food sector.

First and foremost, competition policies are primarily designed to protect consumers. Their aim is to enhance “consumer welfare,” which is served by avoiding price increases and a decline in quality or choice of products. Competition policies largely disregard the welfare of producers and leave them unprotected from potential abuse of market power and power concentrations. Moreover, competition policies are largely national in nature. This narrow scope effectively means that potentially negative implications occurring outside of a national market at the production stage are largely dismissed. Moreover, apart from the EU-level, there is no regional or supranational authority to address and regulate concentration or abuse of market power. Cooperation between national competition authorities is often considered insufficient. This is a severe shortcoming in the face of the transnationality of agro-food corporations and the global scope of value chains, not to mention the scope of the challenges at hand.

These deficiencies are currently recognized in academia and civil society, among competition authorities and by the European Commission and Parliament. There is no such discourse in Switzerland, despite the obvious necessity. Swiss competition policies rarely consider questions of social and ecological sustainability when assessing potentially negative effects of market concentration or abuse of power. Switzerland’s view is skewed towards consumer protection only and its primary focus on the Swiss market makes this blind spot even more apparent.

Root causes: Power imbalance along global value chains

One of the reasons for both non-existent and feeble regulation and weak enforcement in producing countries and home states alike lies in the ability of large, financially strong market players such as agricultural traders to abuse, oftentimes legally, yet illegitimately, their positions of power. Powerful players such as traders are in a much better position than small-scale farmers and workers, who have little bargaining power, to shape, interpret and bend the rules governing the sector to their favour.

This affects not only human and labour rights protections but also policies governing transparency or competition, which are often rigged towards multinational corporations from the outset. The same goes for the habitually investor-friendly and export-oriented policies in producing countries, all too often promoted by governments in home states and the national agro-food lobby alike.