EN Official Journal of the European Union C 28/72

Opinion of the European Economic and Social Committee on ‘Ethical Trade and Consumer Assurance Schemes’

(2006/C 28/15)

On 8 February 2005, the European Economic and Social Committee, after a request received on February 2005 from the next UK's Presidency of the EU approved to draw an opinion on Ethical Trade and Consumer Assurance Schemes.

The Section for External Relations, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 10 October 2005. The rapporteur was Mr Adams.

At its 421st plenary session, held on 26 and 27 October 2005 (meeting of 27 October 2005), the European Economic and Social Committee adopted the following opinion by 75 votes in favour, 12 against and 10 abstentions.

Executive Summary

1. Ethical trade (in the various forms which the Opinion defines) (1) can make a significant contribution to sustainable development and to the direct engagement of consumers in a positive and empowering response to globalisation.

2. Using a knowledge-based set of systems it can inform both the provider and producer of goods and services and stimulate market-centred action and consumer response. Europe has global leadership in this field. Such activity ties in with the Lisbon Strategy and simultaneously contributes to the Millennium Development Goals.

3. Proliferating consumer assurance schemes seek to offer a range of ethical, social and environmental guarantees. Most seek to address one or a small number of issues specific to that product, such as fair trade, organic production, sustainable forests, environmental impact, child labour or animal welfare.

4. The Opinion critically explores the necessary requirements of such schemes to be effective, the adequacy of policy definition within the EU and the urgently required need for clarification and co-ordination. It suggest practical steps which EU institutions, Member States and regional/local communities and authorities can take to consolidate, underpin and enhance these initiatives.

5. The Opinion also suggests a policy framework which will help the various institutions of the EU and a wide range of ethical trade initiatives ask the same questions about securing and demonstrating impact, and share learning about how to answer them. This will help to enhance effectiveness and minimise any duplication and waste of monitoring effort.

6. Such a framework should give an intelligent basis for comparing consumer assurance schemes with other policy instruments aiming to achieve similar goals and provide EU institutions and Member States with a pointer towards policy coherence and a practical tool for assessing the investment of resources.

7. The development of the Opinion has resulted in far-reaching interest and participation across the Commission, amongst major commercial interests and NGOs. The EESC will encourage through further practical work: — practically facilitating a stakeholder dialogue in 2006 to produce a common ethical trade assurance framework for impact assessment/quality; — practically facilitating a stakeholder dialogue in 2006 to prepare the EU participation in the work of ISO 26000; — a consumer awareness programme, from early years, through mainstream education and extending into lifelong learning, on the capacity of consumers to influence social and environmental dynamics through informed purchasing.

1. Introduction

1.1 In February 2005 the UK Government requested the EESC to produce an exploratory opinion on Ethical Trade and Consumer Assurance Schemesin the context of its Presidency of the Council from July — December 2005 and contributing to initiatives on sustainable development. ‘Ethical trade’, in its various forms, has been an element in a number of recent EESC opinions, notably in the field of sustainable development (CESE 661/2004) and corporate social responsibility (CESE 355/2002). Fair trade in particular has long been of concern to the EESC commencing with its opinion in 1996 (2). We therefore welcome this further opportunity to look specifically at the issue.

1.2 Trade usually drives positive economic growth, wealth creation and social opportunity but can also create human and resource exploitation and environmental impact. ‘Ethical trade’ may offer possibilities of resolving some of these tensions. Consumers can direct the power of their consumption with significant effects; companies are highly responsive to consumer trends and also seek to minimise risk to their reputation. The potential leverage of ‘ethical trade’ is substantial. Of the 100 largest economies in the world, 51 are corporations, 49 are countries (3). In 2003 world trade flows between nations exceeded $9.1 trillion — some 25 % of global GDP — and have grown at an average rate in excess of 6 % per annum for more than 20 years (4). The absolute volume of ‘ethical trade’ flows is difficult to measure but an estimate can be made based on goods and services sold by corporations that subscribe to social and environmental audit schemes. This gives an approximate figure of 5-7 % of world trade.

1.3 Economic globalisation, the shaping of the world through a consumer society and the increasing influence of transnational corporations, has stimulated discussion of ‘ethical trade’. It has led to demands that greater social and environmental responsibility is exercised by those involved in the trading chain and through a more coherent national and international regulatory framework. This has seen rapid growth in the attempted measurement of ‘ethical trade’ through various assessment processes.

1.4 ‘Ethical trade’ is directly relevant to the strategic interests of the EU. An important aspect of the Lisbon Strategy is the focus on a knowledge-based economy to ensure a strong competitive base. ‘Ethical trade’ relies on a knowledge-based set of systems to inform both the provider and producer of goods and services and stimulate market-centred action and consumer response. Europe has global leadership in ‘ethical trading’ initiatives and by consolidating this position will simultaneously contribute to the Millennium Development Goals. In addition the important role of products and services subscribing to specific environmental impact minimisation goals are identified in the sixth and current Environment Action Programme (5).

1.5 The various emerging strategies and initiatives to promote ‘ethical trade’ share a non-statutory approach and a recognition of consumer or investor power; they complement and share a significant proportion of their methodology and analysis with the movement for greater corporate social responsibility (CSR). The European Commission adopted new guidelines for the promotion of CSR in July 2002 and will shortly publish a ‘Strategy for the promotion and development of CSR in the European Union’.

1.6 This particular area has been covered in depth by the recent EESC own-initiative opinion ‘Information and measurement instruments for corporate social responsibility (CSR) in a globalised economy’ (6).

1.7 The present opinion provides a complementary approach and uses a common basis. In doing so it recognises that widely accepted international conventions and frameworks are already in place or under development; in transnational business, international development, environment, corruption, foreign affairs, labour issues and human rights. These are based on a combination of humanitarian ethics and international law.

1.8 They find expression in a body of standards which provide a benchmark at international level, for example the ILO Tripartite Declaration on Multinational Enterprises and Social Policy; the ILO Declaration on Fundamental Principles and Rights at Work and Conventions covering employment conditions and labour rights; the guidelines for multinationals set out by the OECD; the UN's Universal Declaration of Human Rights; and the conventions listed in connection with the new GSP+ measures (see Appendix 1).

1.9 The encouragement of corporate social responsibility through, for example, the Multi-stakeholder Forum promoted by the Commission (7) and the Ethical Trading Initiative (8) by the UK Government, has played a part in further establishing the market framework for consumer involvement. The concepts and tools being developed by these and similar initiatives are beginning to provide a practical working consensus in the area of production and supply chains.

1.10 CSR focuses on supplier-driven processes whereas ‘ethical trade’ involves a broader remit and includes consumer-driven initiatives. Retailers in particular have developed supply chain auditing programmes (9) some of which have been supported by NGOs and trade unions. Some NGOs have also supported independent product labelling. These initiatives bring an awareness of the social dimension of the market to producer and/or consumer and may provide a way for moral and social influences to be exercised through purchasing power.

1.11 This opinion recognises that not all consumers have the economic capacity to choose ‘ethical’ products, but will focus on how consumers who do choose to support ‘ethical’ schemes can be assured that the schemes (and companies) truly deliver what they promise and do not promise or imply more than they can deliver. It will explore the adequacy of policy definition within the EU on this subject; look at where responsibilities lie, the degree of coordination necessary and suggest practical steps which EU institutions, Member States and regional/local communities and authorities can take.

1.12 The outcomes of this initiative will also benefit other stakeholders. Trade unions and their members will have specific interest in ensuring that assurance schemes that recognise the dignity of labour, improving working conditions for their members and other disadvantaged workers — are distinguished from those that do not. Similarly, businesses will be interested in ensuring that consumer trust is improved through public support for good quality assurance schemes. Public Authorities, while constrained by EU procurement regulations, can also stipulate quality standards based on ‘ethical trade’ in their procurement strategies and thereby support their policy goals.

1.13 In so doing, it will contribute to the development of assurance schemes that offer a positive cost/benefit ratio, that secure real social and environmental improvements as well as consumer satisfaction and enable responsible employers to distinguish themselves objectively from others whose intent is primarily one of gaining market advantage.

2. Scope

2.1 ‘Ethical trade’ covers a range of approaches which enable consumers to respond to some of the social and environmental costs of production. Given the different priorities attached to these issues in different Member States, it is important to define clearly the scope of this opinion.

2.2 Whilst CSR refers to managing and minimising the negative consequences of a company's entire activities there has developed a particular set of initiatives to monitor, manage and improve the social, economic and environmental impact of its sourcing operations. This usually involves the means by which it improves the social and environmental performance of its suppliers and has come to be referred to as Ethical Trade or Ethical Trading.

2.3 Within this broad category those initiatives that focus on risk management can be distinguished from those intended to influence company reputation or gain market advantage through public claims. Most Ethical Trade initiatives are essentially defensive: means by which companies can guard against negative media coverage and/or develop a credible defensive response to such an event. Others will more openly aim to improve market opportunities through offering assurance to either the public or other business customers.

2.4 There is a further distinction between those initiatives whose outcomes are largely focused on assurance from those whose outcomes include an intention to improve a given situation. In many cases, schemes aiming solely at assurance will tend toward a ‘compliance mentality’ with a use of sanctions. By contrast, those aiming at improvement will be less compliance-oriented and focus on addressing underlying causes of non-compliance. They will tend to value long term relationships and management above the need for verification.

2.5 Finally, there are schemes that are essentially ‘mainstream’ by contrast with those that are based on the minority of consumers who already seeking ways to express social or environmental values through their purchasing. Schemes that either aim at improvement or aim at securing market advantage will often be based on consumer willingness to pay more for a product — or at least to demonstrate preference. Other schemes are often lower cost and the additional costs are absorbed within the supply chain, justified by the additional security to corporate reputation which is gained.

2.6 This opinion deals only with initiatives that are promoted to consumers to assure them that certain specified social and environmental benefits result from their purchase. In some cases these schemes are known and defined by the use of a product-based label, and most seek to address one or a small basket of issues specific to that product. Common examples are Fairtrade, Organic, Marine and Forest Stewardship, Eco-label, Child Labour. Other schemes may be promoted by an individual company or trade association and may not involve a third party ‘label’, instead being promoted to consumers through packaging, point of sale or PR material.

2.7 There is a risk to all such schemes; if some overstate the impact/benefit or mislead the public there will be a loss of trust affecting all. There is therefore need for authoritative quality assessment of consumer assurance schemes. Since schemes will have a wide range of aims, it is not feasible or desirable to have a central definition of ‘ethical trade’. Instead there can be a high level framework defining how quality is to be assured. The framework must be defined by a body free from commercial/operational pressures; for example a multi-stakeholder group.

2.8 Not all initiatives are based on such specific outputs. In particular the Ethical Trading Initiative in the UK is based on civil society organisations working together to learn about how such programmes can be effective and achieve hoped-for outcomes. Whilst the ETI is not, in these terms a ‘scheme’, its learning can be usefully applied to schemes across categories and its corporate members may in time become suppliers to or members of schemes.

2.9 In practice, there are no neat dividing lines between categories and most schemes will claim to contribute to the awareness and practice of sustainable development. This opinion focuses on schemes that rely on informed consumer action to achieve their aims.

3. The relevance of ‘ethical trade’ to the EU

3.1 European citizens benefit from a protective and supportive social net which is financed by tax levels that run, on average, at 40 % of GDP. Manufacturing and the provision of services within the EU are embedded within a framework of labour, environmental and social legislation the cost of which is incorporated in the price by the manufacturer and met by the consumer.

3.2 However, whilst this European model has contributed to the widespread achievement of good standards in many areas, at a global level the market heavily influences the spread of best practice. Price and quality remain the major considerations but some consumers have shown a growing willingness to select products and services from companies claiming to make the greatest contribution to social and environmental progress, both in the EU and elsewhere — and particularly in less developed countries. Trusted, transparent and effective assurance schemes can complement legislation by rewarding best practice. Consumer power driven by social values is becoming a significant force within the commercial world, rewarding companies that meet consumers' concerns and enabling corporate behaviour to reflect changing socio-economic values — which naturally vary to some degree across Member States according to economic capacity and priorities.

3.3 The non-statutory nature of such consumer assurance schemes requires the costs of implementation to be borne by consumers, and therefore it is consumer demand — expressed through the operation of the market — that encourages and discourages growth. It also means that compliance with competition and WTO trade rules is not compromised in the effort to promote good practice. On the other hand, voluntary schemes do not replace the need for proper regulatory frameworks within WTO to ensure that basic minimum standards are met in all trading relationships between countries.

3.4 Both individual Member States and the Commission have financially supported the development of several of the assurance schemes currently in the market, in recognition not only of their potential for environmental and social impact, but also for the role they can play in improving consumer awareness and developing consumer attitudes. It is important that the value of such schemes is assessed — both in achieving stated objectives and in being cost-effective.

3.5 Similarly, the EU and Member States have supported, through financial assistance and by defining legislation, production and manufacturing systems providing for such assurance schemes. Standard setting, and assistance to producers in achieving those standards, has been recognised as an important aspect of maintaining a distinctive European approach. The examples of appropriate packaging, energy efficiency, product disposal, and organic agriculture are all well-established. It should be noted that legislation for such schemes was preceded by extensive practical experience in running well-defined voluntary programmes.

3.6 Considerable attention has been given to the implications of a knowledge-based economy for equipping the supply side of European production and service industries (technology, lifelong learning, research, etc.) but less attention has been paid as to what this means for the demand side of the economy. If European consumers are the most knowledgeable in the world they are likely to be the most selective and discriminating — more likely to make a purchasing choice based on a range of social and environmental factors in conjunction with the traditional elements of price and quality. Product labelling is a simple way to communicate complex issues. However, the underlying complexity of ‘ethical trade’ issues requires a new approach to consumer education and information based on appreciation of sustainable development.

3.7 Developments in the international economy — globalised, diversified production and increasing comparative knowledge available to the consumer — are bringing about new types of market. Consumers are increasingly in a position to demand, and obtain, goods and services tailored to their personal preferences. These preferences have been extended beyond the traditional ones of price, style and quality and now include a range of social and environmental values that also look backwards along the supply chain and forwards to impact in use and disposal. Encouraging this sophistication in approach is very much in the interests of European business and labour, which should be well placed to respond. It is also very much in line with the needs of an efficient free market, in which consumers have the information and understanding to make effective demands. Without this knowledge, market distortions occur in which social and environmental costs are not effectively allocated or borne.

3.8 Nevertheless, it is recognised that consumers in all 25 Member States have a wide and differing range of concerns and priorities. In the new Member States particularly, consumers are rightly most concerned about product quality, safety and value. Basic assurance on these issues has yet to be achieved in many of these countries. The Committee again stresses the non-statutory nature of ethical assurance schemes which allows take-up to be matched with consumer priorities.

4. ‘Ethical trade’ initiatives in Europe

4.1 There are several schemes (examples in 2.6) that offer assurance to consumers in Europe and internationally through enhancing company reputation, site inspection and certification or specific product labelling. All of them involve significant expenditure both in meeting the required standards and in documenting and assuring compliance; these costs in general being borne in the pricing of goods by consumers wishing to contribute to social and environmental progress. Obtaining comprehensive information on such schemes is problematic as there is no clearing house, trade association or accepted reference point at present. However, it is possible to conclude that in excess of 100 label-based consumer assurance schemes are marketed across the 25 Member States with sales estimated at in excess of EUR 20 billion.

4.2 Each system has its own developing mechanisms to ensure that the standards are met in reality. There are on-going initiatives to develop common approaches to this level of assurance among several schemes. Such coherence of approaches can and should lead to comparable quality management systems as well as efficiency and other savings, which will benefit all partners.

4.3 There is a similar need to develop and adopt common approaches to monitoring impact, since the assurance of standards does not in itself guarantee that improvements are taking place, either at specific sites or in general. For example, minimum labour standards may be most easily achieved by the pre-selection of suppliers that already meet the standard, or by the de-certification of non-compliant sites. While this meets the standard at a technical level and may assure consumers, it may in fact reduce overall standards — by further disadvantaging weak producers.

4.4 Many (but not all) of the independently monitored assurance schemes are developing common approaches to demonstrating that their standards are met. For example, the International Social and Environmental Accreditation and Labelling (ISEAL) Alliance is developing common approaches to quality amongst its members. There is a need for similar coherent work across the full range of consumer assurance schemes to ensure that the standards have the desired outcome. This needs to take the form of an impact assessment. A common approach to assessing the impact, the extent to which this reflects the understanding of the consumers and justifies the costs they bear will allow a more open valuation of such schemes. It will also lead to a definition of the qualities such schemes need in order to qualify for the Commission's support — which itself needs to be based on evidence of impact if it is to contribute towards agreed policy goals.

4.5 For consumers and suppliers to have confidence in ‘ethical trade’ they need assurance that the costs and benefits to consumers and companies on the one hand and the ‘target’ social/environmental benefits on the other hand, are in a sensible balance. A scheme to secure better conditions for workers in developing countries may merely shift production into the unregulated margin; a scheme to reduce environmental impact may cost more to audit than is justified or create serious inefficiencies; organic animal husbandry standards may decrease animal welfare if mechanistically applied; an initiative to reassure consumers about child labour may result in children moving into more damaging occupations or being unable to pay for part-time education.

4.6 As mainstream manufacturers and service providers see ‘ethical trade’ as a significant market trend, they play an important role in translating the idealistic expectations of consumers into practical, operational schemes. The inevitable gap between expectations and reality means that the ‘ethical trade’movement (in its many forms) risks being accused of naivety. In the corporate world attitudes vary according to their sensitivity to consumer pressure and their relative power within the trading chain. Some responses are led by a concern for public relations (protecting brand value), some are market-led (designing products for these new areas of concern) and others procurement-led (a culture of due diligence and risk management). All approaches can have value but the varying motivation of companies suggests that a common analytical framework is necessary.

5. Common Framework

5.1 There are tensions inherent in any ‘ethical trade’ system that has a strong consumer assurance element. On the one hand the system seeks to achieve social and environmental goals within the supply chain; on the other it seeks to offer assurance to consumers. This gives rise to a number of potential problems.

5.2 The arrangements that need to be put in place to offer assurance may be disproportionate to the ‘real’ impact on the goals — for example auditing may be costly, the administrative changes required for transparency may be costly and complex.

5.3 More seriously, the assurance requirements may actually have a negative impact on the goals of the scheme — for example a focus on what can be measured and audited can distort priorities; audit requirements and costs may exclude producers with the greatest need for improvement.

5.4 Further, in many cases, the understanding and hence priorities of consumers may be limited and result in distortions in the scheme — for example, consumers will in general prioritise a ‘clean’ supply chain (no child labour, no pesticide residues) rather than effective progress on the ground (improved wages and availability of schools, better environmental management).

5.5 This in itself may lead companies to select new suppliers that already meet good standards, instead of engaging in longer term improvement in their existing supply chain, which may have no net benefit in terms of the broader goals.

5.6 Finally, a scheme without some independent scrutiny might be making assurance claims that exaggerate or over-simplify the impact of the scheme (or even make false claims!) which will in the short term undermine the goals and in the longer term undermine consumer trust in assurance schemes as a whole.

5.7 In systems that are funded by a few major donors these issues can be addressed through good management, but a system that is funded to a major extent by part of the premium on individual consumer purchasing choices does not necessarily have the proper management processes in place and consumers themselves are not in a position to judge the quality or cost-effectiveness of a consumer assurance scheme.

5.8 A common criticism of consumer assurance schemes is that, because they are to a greater or lesser extent dependent on consumer attitudes, and the level of consumer understanding of the problem is limited, there is a tendency for such schemes to offer a simpler and more complete assurance than is justified by the reality. Only a more open and informed debate can resolve this and allow an open and informed (knowledge-based) market to develop.

5.9 It is, however, not appropriate for the EU or Member States to attempt to prescribe centrally the definitions or substantive standards for the various strands of ‘ethical trade’ — such central control will lack flexibility to take account of improving performance and changing circumstances. It also militates against the right of consumers to exercise choice according to their own changing values. What can — and should — be set centrally is the basis on which consumers can be assured that such schemes achieve what they claim.

5.10 This opinion seeks to create a framework within which a variety of initiatives can begin to ask the same questions about securing and demonstrating impact, and share learning about how to answer them. The dynamic is presented diagrammatically in Appendix 2. The various assurance schemes are aiming at different goals, so a simple cost-benefit analysis would be difficult and ultimately unlikely to succeed, given the difficulty in valuing such diverse and subjective ‘goods’. However, it is possible to develop a common framework within which we can ask the same questions about quality of all schemes and obtain comparable answers. Ultimately it is for consumers and consumer organisations to apply their personal values to the resulting information.

5.11 While the detailed terms and performance measures will vary, depending on the scope and objectives of any scheme, there are several underlying quality issues. It will be possible, following further research and consultation, to identify some key questions each scheme should be in a position to answer and provide evidence for to demonstrate quality. Most crucial will be to identify high-level social, environmental or economic goals to which schemes hope to contribute: it is these that define basic scheme elements such as stakeholders, scope and impact measures.

5.12 The following are recommended as a starting point (though in further consultation it is recommended that coherence is sought with existing, credible, quality frameworks):

a) Scheme Governance

Where does ultimate control of the scheme lie?

Is it a multi-stakeholder scheme in which a balance of stakeholders constitute the decision-making bodies?

Is it controlled by an independent and disinterested ‘trustee’ group to which stakeholders can appeal?

b) Scheme Goals

Are the goals clearly defined?

Do the goals of the scheme match the needs of the stakeholders most disadvantaged by the trading system?

Do the goals of the scheme match the concerns of consumers and the ‘vision’ promoted by the scheme?

— Have affected stakeholders (including those in developing countries) been involved in clarifying and codifying the goals?

— Are the goals of the scheme publicly available?

c) Scheme scope

Does the scheme address the ‘problem’ as normally defined?

— Do the terms of the scheme address the scope of the ‘problem’ to a reasonable extent, or are they focusing only minor, easily-achieved aspects?

— Do the profiles of certified sites (‘producers’) match the promoted vision and goals?

— Do sites already meet the standards or is continuous improvement a core element of the scheme?

d) Scheme standards or terms

Do the standards set and monitored by the scheme express the goals?

— Are the standards defied in a process in which stakeholders (including those in developing countries) can participate?

— Is there a credible mechanism by which the adoption of the standards will contribute to the achievement of the goals?

— Are the scheme terms or standards open to the public?

e) Impact assessment

Is there credible assessment of the impact of the scheme on the goals?

— Is the wider and longer term impact on the sector monitored and do changes (‘outcomes’) match the goals of the scheme?

— Are local stakeholders actively and knowingly involved in defining the terms of the impact assessment and in its implementation?

— Is there a process to identify and address any negative impacts?

f) Independent review

Is there any independent review of the scheme's operation?

— Are stakeholders (including those in developing countries) involved in defining the terms or in the review itself?

— Are the findings of such reviews available to the public?

g) Cost-benefit analysis

Is there any process to monitor and evaluate the costs of the scheme borne by suppliers, traders and consumers in comparison to the progress made to achieve the goals?

h) Public claims

Do the public claims by certified companies or suppliers match the goals, standards and outcomes of the scheme?

— Does the independent/stakeholder review monitor the public claims made by companies involved in the scheme?

5.13 Quality standards, such as those outlined above (which need to be further refined and tested) should be met by any scheme that seeks the trust of consumers or any support from the Commission and national governments. Schemes that do not meet such standards may be understood to offer poor value for money.

5.14 The credibility with which these standards can be developed and promoted needs to be assured by a multi-stakeholder approach, supported by public authority at European level.

5.15 Clearly there are challenges in developing any comparative cost-benefit evaluation in this area, but it should give an intelligent basis for comparing consumer assurance schemes with other policy instruments aiming to achieve similar goals.

6. Policy framework and responsibilities

6.1 A coherent policy rationale is essential in this rapidly developing area and practical suggestions are set out in section 7. The EU and individual Member States believe that strong ethical and humanitarian standards should be an integral part of global trade and diplomacy. Not only is a ‘better’ world a desirable objective in itself but such common concerns help to further develop a Europe-wide culture based on values. More tangibly, stimulating consumer purchasing and awareness towards the ‘ethical’ can be a good opportunity for European industry as it is well placed to engage with the commercial opportunities. The EU and Member States should not endorse any specific brand but provide the authority for an assurance scheme to which all reputable consumer assurance initiatives can subscribe.

6.2 Policy coherence is therefore a prime objective. In the development of this opinion, extensive and valuable exchanges of information, views and policy perspectives have already taken place. It is proposed that a managed, active dialogue between stakeholders on the issues of ‘ethical trade’ and consumer assurance schemes is formally established as a follow-up to this opinion under the auspices of the EESC.

6.3 Such a dialogue would seek to establish: — the elements essential to a coordinated policy on social and environmental consumer assurance scheme issues, — the action required to embed such a policy in the EU, — how to encourage such policy consideration in Member States.

7. Practical action

7.1 This opinion explores the coherence of the processes encouraging the presentation to consumers of ethical assurance schemes. It has provided pointers and policy tools to enable the EU to decide whether to provide further support in this area and how to do so rationally and cost-effectively. There are a small number of practical actions the EU can take to encourage and support the continuing development of ‘ethical trade’ (as defined for the purposes of this opinion) in such a way as to ensure coherence with the EU's wider policy goals.

7.2 It is recognised that the EU and some individual Member States may wish to continue to support the development of specific initiatives in this area. It is recommended that such support is focused on those that both offer consumer assurance and are able to objectively demonstrate that they are also contributing to tangible improvements in socioeconomic and environmental conditions in communities affected by the supply chains involved. Schemes that encourage capacity building in Southern countries should certainly be encouraged.

7.3 In order to facilitate this, it is recommended that the EU commissions exploratory research to establish clear and widely-applicable quality criteria against which such consumer assurance schemes can be assessed. This research should involve, apart from consumer organisations, the participation of a variety of environmental and social labelling and other schemes and engage with stakeholders throughout the supply chain to ensure wide applicability, and to facilitate the development of coherent quality tools within the sector.

7.4 The questions offered in section 5 can form a useful starting point for a more comprehensive evaluation framework. The EESC wishes to stress that the intention is not to create another level of bureaucracy or another market barrier to companies or assurance schemes. It believes that any scheme needs to be able to demonstrate impact, quality and cost-efficiency and a common framework will help to minimise duplication of effort.

7.5 Such research will also be helpful to underpin consumer confidence in such assurance schemes, allowing civil society organisations to recommend their members and adherents to support schemes relevant to their own particular social and environmental concerns. Given that this issue has implications for a number of DGs, there will need to be a coordinating point at which information and the development of a coherent policy can be focused.

7.6 Given the current reliance of consumers on product labels to identify products produced and traded according to specific social, environmental and animal welfare standards, there is increasing likelihood of consumer confusion and inefficiency as products carry multiple labels. It is therefore also proposed that the EU Commission research into alternative means by which the social and environmental values of products can be reliably measured and drawn to the attention of consumers.

7.7 A strategic programme of consumer education in member states should focus on raising consumers' awareness of the potential and means by which they can use their purchasing decisions to achieve social and environmental goals appropriate to their priorities.

7.8 It is noted that, with the rapid development of product information systems that can be accessed at point of sale, via the internet and other channels, it will in the next few years be increasingly feasible to develop databases of product provenance and quality. As well as covering the social and environmental issues related to this opinion, this can also record wider quality and safety issues, such as specific dietary factors and allow consumers to prioritise specific issues according to their values or needs.

7.9 The development of a common framework for quality and impact assessment for ‘ethical trade’ assurance schemes will facilitate the development of more objective and sustainable ethical procurement policies within the Commission and perhaps Member States.

7.10 Further stimulus of the demand for products can be encouraged through public procurement. Much consolidation and clarification of the role of social procurement by public authorities has taken place in the last five years and the proposals suggested above will ensure that if purchasing authorities opt, within the EU legislative framework, for products with positive social and environmental benefits, this will achieve tangible outcomes.

8. A way forward

8.1 The development of this opinion provides an opportunity for the main stakeholders to respond and engage in dialogue, although in a very modest way. As a result of this consultation, the opportunity arises for the EESC to stimulate work on five new initiatives: — A continuing dialogue between key stakeholders, including consumer associations, across the EU (and globally where appropriate) on reaching policy coherence in ‘ethical trade’ and consumer assurance schemes. The EESC proposes that it takes the lead through 2006 in establishing a specific stakeholder forum of the type which has already proved valuable. This may include establishing the feasibility of establishing a comprehensive information database under which the social, environmental and other factors underlying product quality and performance can be gathered, objectively confirmed using clear assessment protocols and made publicly available. DG Development has already signalled interest in making available critical, evaluating data about ‘ethical trade’ schemes to assist producers and exporters to access the European market (10). — The development, through a wider and more detailed consultation with stakeholders in Member States and globally, of a common ‘ethical trade’ assurance framework for impact assessment and measures of quality. This will allow the EU and Member States to more objectively distinguish the initiatives that genuinely add value from those that merely offer reassurance. Such work will support the policy goals of DG Development through encouraging more sustainable trade relationships and the work of DG SANCO in providing reliable consumer information. — An involvement with the development of a standard ISO 26000, which aims to provide practical guidance related to operationalizing social responsibility, identifying and engaging with stakeholders and enhancing credibility of reports and claims made about social responsibility. While this is primarily aimed at developing a standard for corporate social responsibility, it may provide a baseline of performance against which to measure specific ethical trade schemes. — A consumer awareness programme, starting with early years education, running through mainstream education and extending into lifelong learning, on the capacity of consumers to influence social and environmental dynamics through informed purchasing. DG SANCO has already signalled interest in encouraging consumer education about fair trade, and the objective of a more informed and empowered consumer society able to make effective choices in the marketplace is key to its role. — A proposal for an international research centre to provide a focus for supplier and market research, sales and technical information, educational initiatives and policy development to be supported as a joint programme by the Commission, Member States, and all main stakeholders.

9. Concluding note: definition of the terms used in this Opinion

The global impact of commercial activity on society and the environment has led to a number of new terms and concepts evolving. The way that key terms and concepts have been used in this opinion is defined below. Terms and definitions in this field vary from country to country and to avoid translation misunderstandings it is essential that this Glossary is used throughout.

Corporate Social Responsibility (CSR) This term is now well-established. It is accepted that wealth creation and meeting national statutory requirements of operation are intrinsic to all responsible business activities.

CSR therefore specifically refers to ... The voluntary policies and practices of a company to maintain and improve the social and environmental performance of its entire operation . It can involve review through internal management and assessment systems or external audit.

Ethical Trade This is a subset of (and a more recent concept than) CSR and is used in two main senses.

In general usage the phrase is understood as … A conscious attempt to adjust the trading activities (producing, retailing or purchasing) of a company, organisation or individual to reflect a set of ethical values . Ethics is a branch of philosophy concerned with human character and conduct. Ethical trade in this sense can therefore reflect a very wide ranging set of values; its scope can include a wide range of products and services (including financial services and tourism) based in any country, including member states of the EU. The opinion, when it is using this sense, will present the phrase as ‘ethical trade’. The title of the opinion is also used in this sense.

The second, distinct, usage is current in the Commission and in a number of European initiatives such as the Ethical Trading Initiative (ETI) in the UK, the Initiative Clause Sociale (ICS) in France and the Business Social Compliance Initiative (BSCI) which is international in membership. Here, the phrase normally refers to ... The policies and practices of a company to address the social and environmental impact of its sourcing operations and in particular the working conditions of suppliers . The opinion, when it is using this sense, will present the phrase as Ethical Trade.

Fair Trade

This can be regarded as a subset of ethical trade; in general usage the phrase is understood as ... Trade where those involved in the process — whether producing or consuming, buying or selling — are not disadvantaged and gain reasonable and proportionate benefit. The opinion, when it is using this sense, will present the phrase as ‘fair trade’.

The second, distinct, usage defines the phrase as … a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers — especially in the South. For example, those organisations represented by the European Fair Trade Association accept such a definition. The opinion, when it is using this sense, will present the phrase as Fair Trade.

Consumer Assurance Schemes

In this opinion one specific aspect of ‘ethical trade’ and ‘fair trade’ is of concern: where consumer pressure is a major factor and where consumer choice — and often consumer willingness to pay more for a product — is the major driver for change. For the purposes of the opinion consumer assurance schemes are defined as … A system that allows and encourages consumers to play a part in ethical trade by purchasing goods and services that are produced in a way to achieve specific social or environmental outcomes, benefiting specific communities or society as a whole .

Note that use of the term ‘scheme’ is taken to include social and environmental assurance approaches taken by individual businesses and business coalitions as well as independent third party and multi-stakeholder schemes.

Sustainable Development

‘Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs (11)’.

Brussels, 27 October 2005 The President of the European Economic and Social Committee Anne-Marie SIGMUND

(1) As these terms are subject to differing interpretations a definition of key terms used in this opinion is clearly set out in section 9.

(2) European ‘fair trade’ marking movement EXT/134 April 1996.

(3) Top 200: The Rise of Corporate Global Power. Institure for Policy Studies 2000. (Measuring corporate sales and country GDPs).

(4) WTO Trade Statistics April 2004.

(5) COM(2001) 31.

(6) Information and measurement instruments for corporate social responsibility (CSR) in a globalised economy SOC/192.

(7) European Multistakeholder Forum on CSR Final Report June 2004.

(8) An alliance of companies, NGOs and trade union organisations which promotes and improves the implementation of corporate codes of practice which cover supply chain working conditions.

(9) For example the BSCI (www.bsci-eu.org) and ICS (www.scd.asso.fr).

(10) Cooperation with cross-cutting data and information services such as the EU's PRISMA project will be worth exploring.

(11) World Commission on Environment and Development (WCED). Our common future, 1987.