Introduction

With the rapid development of the global economy, Taiwanese enterprises have been increasingly engaging in transnational investments to expand their business and market presence. However, when operating overseas, companies often encounter labor disputes and significant controversies due to unfamiliarity with local laws, cultures, or work practices. These issues can severely impact both local business operations and profitability, as well as the brand and reputation of the company.

While many enterprises may view such incidents as isolated labor disputes, the evolving landscape of international human rights standards suggests otherwise. Governments and supply chain partners worldwide are progressively demanding greater transparency and accountability from businesses in how they handle labor disputes and protect workers' rights.

I. Trends in the Development of International Human Rights Standards

As international human rights standards continue to mature, the management of labor disputes and the protection of workers' rights have become focal points for governments and supply chain partners alike. In May 2024, the European Parliament passed the Corporate Sustainability Due Diligence Directive (CSDDD), requiring large companies to conduct annual due diligence on environmental and human rights practices and publicly disclose their findings. This directive not only targets EU-based companies but also applies to non-EU companies with substantial turnover within the EU. Non-compliance can result in fines amounting to 5% of the company's global annual turnover and public disclosure of the company’s name.

For companies planning transnational investments or collaborations with foreign enterprises, it is imperative to seriously address labor relations and establish internal policies that protect workers' rights and ensure prudent handling of labor disputes.

II. Human Rights Issues and Legal Risks Faced by Corporations in Transnational Investments

Human rights issues have transcended the realm of abstract concepts to become critical factors in business operations and corporate reputation.

The CSDDD explicitly defines "adverse impacts on human rights," which include violations of the Universal Declaration of Human Rights and various international conventions. These regulations require businesses to safeguard workers' rights, eliminate child and forced labor, ensure safe working conditions, and uphold trade union rights.

For corporations, understanding the scope of human rights obligations and establishing corresponding compliance mechanisms can significantly mitigate risks associated with labor disputes and penalties in the context of transnational investments.

Additionally, for policies already adopted or planned by a corporation that pertain to human rights responsibilities, companies can leverage these practices to enhance their corporate image and brand value. This, in turn, fosters stable business relationships with other enterprises.

Key components of human rights due diligence include:

Consulting with stakeholders to develop preventive measures.
Seeking contractual assurances from partners to comply with the company’s code of conduct.
Investing in management or production processes aligned with preventive action plans.
Providing appropriate support to affected small and medium-sized enterprises (SMEs).

III. The Legal Implications of Violating International Human Rights Standards

Failure to prevent human rights violations can result in severe consequences for businesses. In cases of non-compliance with the CSDDD, companies face not only administrative penalties but also potential civil liabilities. Moreover, if a parent company or its subsidiaries are implicated in joint violations of human rights, they could be held jointly liable.

By implementing robust internal audit and risk management mechanisms, companies can substantiate their efforts to prevent involvement in human rights violations, thereby strengthening their defense in potential litigation.

IV. Human Rights Issues: A Mandatory Obligation Rather Than a Competitive Advantage

With the advancement of the CSDDD, an increasing number of countries are expected to mandate human rights due diligence as a legal obligation for businesses. Many international corporations have already required their suppliers to conduct relevant due diligence and sign declarations to ensure compliance with international labor standards.

In August 2024, the Taiwanese government released a draft of the Guidelines for Respecting Human Rights in the Supply Chain for Taiwanese Enterprises. Although still in draft form, this document presents a valuable opportunity for Taiwanese businesses to better understand and comply with international human rights standards.

In future transnational investments, human rights compliance will not merely be a competitive advantage but a fundamental obligation. In light of strengthening global regulatory trends, it is crucial for companies to establish internal human rights risk management systems promptly to effectively address upcoming challenges and opportunities.

Concluding Remarks

The integration of human rights standards into corporate governance is no longer optional but a necessity for businesses aiming to thrive in the international arena. Taiwanese enterprises must proactively embrace these evolving standards to secure sustainable growth and maintain a competitive edge globally.

LCS & Partners
Annie Liao, Partner
Zuying Wang, Attorney

The complete version of this article will be included in the 2024 annual publication of LCS & Partners.

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