The Political Economy of Due Diligence Legislation


The policy challenge.
Citizens and politicians in Western democracies have increasingly become aware of the importance of human rights, civil liberties, social rights, and sustainability issues as well as the different adherence to basic rights (such as equal treatment) all over the world.

This trend has recently materialized in laws in the United States (US), Europe, Australia, and elsewhere. To varying extents, these oblige domestic businesses to comply with, and enforce, Western values and standards along their international supply chains. This values-based due diligence legislation has caused ongoing controversies over compliance costs, impacts on foreign relations – particularly with developing countries – and effectiveness in achieving legislative objectives. 

Clearly the economic and political judgement of due diligence legislation 
in principle and in detail is very complex. Aiming to structure key contours of the political discussion on values and trade, in this policy brief we develop a conceptual, descriptive overview of the fundamental political economy challenges inherent to designing due diligence legislation. 

The policy response.

We do not question the necessity of adhering to human rights and civil liberty; rather to chart ways to achieve legislative objectives with reasonable costs to companies, governments, and civil society in jurisdictions enacting such legislation. Furthermore, in our view, legislation should allow for developing countries’ institutional trajectories by acknowledging that some standards, such as labour and environmental, develop in tandem with economic growth – as can be seen in developed countries economic history. Which is to say that these requirements should be formulated in a nuanced manner that balances idealism with pragmatism.

To keep the analysis manageable, we focus on human and labour rights. Next, we briefly review relevant objectives of due diligence legislation in the West. Section 3 applies economic reasoning to these, showing the challenges hampering the successful and consistent application of legislation through interpreting such challenges as budget constraints. 


About the authors

Peter Draper is Professor and Executive Director, The Institute for International Trade, The University  of Adelaide
Andreas Freytag is Professor and Chair of Economic Policy, Friedrich Schiller University, Jena
Naoise McDonagh is Senior Lecturer in International Business, School of Business and Law, Edith Cowan University 
Matthias Menter is Professor of Business Dynamics, Innovation  and Economic Change, Friedrich Schiller University, Jena

*Photo Trisha Downing Unsplash 

IIT would like to acknowledge the funding of Universities Australia, under the Australia - Germany Joint Research Co-operation Scheme

Tagged in Policy Brief

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