EU: A strict Due Diligence Directive is expected to have a significant net direct positive economic impact, according to new study
EXECUTIVE SUMMARY
This study assesses the possible economic impacts of the EU Corporate Sustainability Due Diligence Directive (EU CSDDD). On the theoretical level, perspectives from neoclassical economics are combined with the value chain approach, and with the power resources perspective. Empirically, this study provides a brief overview of economic development, international trade, and human rights with a focus on the Global South. Based on a deductive methodology, comparative-static and dynamic analyses are combined to estimate the likely impacts of the EU CSDDD. Thereby, the study focuses on the effects on the Global South, the effects on global competition and the EU, and the effects on European and Austrian workers. The conclusion drawn is that the EU CSDDD is expected to have a considerably positive economic welfare effect on the Global South and positive net effects on the European economy. In addition, it tends to strengthen the position of workers not only in the Global South but also in the European Union. It is crucial that an effective EU CSDDD, including the financial sector, is implemented to ensure that these potential positive economic effects occur.
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In conclusion, the EU CSDDD is not only an important step towards effectively reducing human rights violations in GVCs. As shown, the stricter the regulations and the fewer the loopholes that are left open, the more effective the EU CSDDD will be, not just in terms of protecting human rights, but also in economic terms. This is particularly important, not just for workers in the Global South, but also for workers in Austria and Europe. A strict EU CSDD regulation is expected to have a significant net direct positive economic impact and economic welfare is expected to increase. Moreover, as shown, in a dynamic perspective it can be expected that the EU CSDDD will have positive effects on the regulatory dynamics of other countries or regional blocs and will possibly affect the regulatory dynamics to further protect human rights at the international level.
7 POLICY IMPLICATIONS
The policy implications can be summarised as follows:
- Based on the study it can be concluded that the EU CSDDD should be implemented as it effectively contributes to decreasing human rights violations and is expected,therefore, to have positive economic welfare effects. This is particularly important for workers in the Global South.
- A broad scope and closed loopholes (i.e., including the financial sector, addressing not just large companies, but also SMEs, and the inclusion of environmental goals such as the Paris Agreements) are essential to increasing the effectiveness of the EU CSDDD.
- Constructing a broad alliance between human rights activists, civil society and workers organisations from the Global South and the Global North is of mutual benefit and helps to facilitate, based on solidarity, deepening binding regulations at different levels.
- Indicate the vested interests of those who oppose or pretend to water down the EU CSDDD.
- Usually, new stricter regulations (from banking regulation to the EU General Data Protection Regulation, etc.) are initially opposed by companies. However, these measures represent, as the EU CSDDD does, an expression of modernising economic relations that increase economic welfare and are, therefore beneficial.
- Companies that rely on good business practices without systematically abusing human rights have ‘nothing to hide’. These companies benefit directlyfrom a level playing field.
- The EU CSDDD is expected to induce forward-looking specialisation patterns in Europe that are not based on human rights abuses. In a dynamic perspective, such specialisation patterns have positive effects at the company level. They also result in positive externalities and spill-over effects. For these reasons these specialisation patterns are economically beneficial for Europe.
- The EU CSDDD is an important starting point for the implementation of more far-reaching binding international social and environmental standards at the EU level as well as in other international governance arenas.