Statement at the end of visit to the Republic of Korea by the United Nations Working Group on Business and Human Rights

Korean

Seoul, 1 June 2016

Introduction

In our capacity as members of the United Nations Working Group on Business and Human Rights, we have today ended our ten-day visit to the Republic of Korea. We are grateful to the Government of the Republic of Korea for its support for, and facilitation of, this visit. We take this as a sign of its willingness to show leadership in addressing business and human rights issues.

During our visit, we met with Government officials from the Office for Government Policy Coordination in the Prime Minister’s Secretariat, the Ministry of Foreign Affairs, the Ministry of Justice, the Ministry of Strategy and Finance, the Ministry of Trade, Industry and Energy, the Ministry of Environment, and the Ministry of Employment and Labor, the Korea Corporate Governance Service, the Small and Medium Business Administration, Daejeon Metropolitan City and Ulsan Metropolitan City. We also met with representatives of the National Human Rights Commission of Korea (NHRCK) and  of the Legislation and Judiciary Committee of the National Assembly, as well as with representatives of civil society organizations and victims groups, trade unions (the Korean Confederation of Trade Unions, the Korean Metal Workers Trade Union, the Korean Public and Transport Workers’ Union, the Union of the Seoul Metropolitan Rapid Transit Corporation, and the Union of the Busan Transportation Corporation), the UN Global Compact Network Korea, and representatives of private business enterprises (POSCO Daewoo, Samsung Electronics, LG Electronics, Hyundai Motors, Hyundai Heavy Industry, and RB Korea formerly known as Oxy Reckitt Benckiser) and of State Owned Enterprises (SOEs) (Korea Electric Power Corporation, Korea Railroad Corporation, Korea Minting and Security Printing Corporation, and Korea National Oil Corporation).

We started our visit in Seoul and then went on to Gwacheon, Daejeon, Sejong, and Ulsan.

In our statement, we would like to outline some initial observations from our visit. Our official report to the 35th session of the Human Rights Council in June 2017 will include further observations and recommendations.

General Context

Over the past 35 years, South Korea has transitioned from being one of the world’s poorest countries into the world’s 12th largest economy and an important contributor to international development assistance. However, the country is currently facing an economic slow-down combined with a rise in relative poverty and inequality as well as youth unemployment and an ageing population.  

In South Korea a number of large business corporations and conglomerates (chaebols) coexist alongside a large number of small and medium-sized companies (SMEs). Also, South Korean companies, both public and private, are increasingly investing and expanding their operations overseas.

General observations

We observed genuine commitment amongst Government officials and business enterprises to the implementation of the UN Guiding Principles. However, while some companies had a policy statement, it generally did not reflect a human rights due diligence approach. We also witnessed a need for greater coherence between different Government departments and public institutions working in this area. Furthermore, we heard from companies that they would like the Government to set out its expectations of business conduct related to business and human rights.

The growing attention being paid to the relationship between business and human rights has been facilitated by the work of the National Human Rights Commission of Korea to raise awareness about these issues. The Commission has, inter alia, usefully translated into Korean the UN Guiding Principles and the Working Group’s guidance on national action plans on business and human rights and is promoting the development of a national action plan on business and human rights. These efforts are also being actively supported by the UN Global Compact Network in Korea.

We were also encouraged by what we observed as openness and genuine willingness amongst the Government and business representatives we met with to improve practice and policy in line with international best practice. In particular, we noted the commitment expressed by the Office for Government Policy Coordination in the Prime Minister’s Secretariat to facilitate coordination and coherence amongst government agencies in this area.

During the visit a number of cases and allegations were drawn to our attention by civil society organizations, trade unions and victim groups. Several of these cases are well known to the South Korean public. The cases relate to issues such as abusive working conditions faced by workers who work for subcontractors; exposure to hazardous substances in the workplace; repression of union activity; and the outsourcing of operations with high human rights risks, including overseas.  

Protecting against abuse in supply chains

From the information gathered and testimonies heard about cases of business-related human rights abuse, one key underlying concern and contributing factor was a failure to ensure adequate oversight of supply chains and a lack of willingness of some lead business enterprises to effectively assume responsibility to prevent or mitigate human rights impacts linked to their operations. The risk of adverse human rights impacts increases in the lower tiers of supply chains, and even more so when supply chains extend beyond national borders. The Government is fully aware of this, and some measures are being taken to improve the situation. However, much more needs to be done to address current gaps in legal and institutional frameworks to enhance protection against adverse human rights impacts throughout supply chains.

While steps have been taken by some companies to integrate human rights due diligence into their operations, we found that even the companies with a specific human rights policy did not acknowledge that their human rights responsibilities mean they need to follow their impacts through the entire  supply chain. The approach should not be tier by tier, but impact by impact, prioritized by severity.

Some of the companies that we met with claimed that it was practically impossible for them to monitor the supply chains beyond their direct suppliers. Another company indicated that reports of human rights abuse implicating one of its direct suppliers was none of its business. This is not a correct approach under the Guiding Principles.

All companies are expected to make it their business to avoid adverse human rights impacts linked to any part of their operations. The complexity of supply chains is no excuse for inaction. Large companies with complex supply chains are expected to identify and prioritise those areas where the risk of negative human rights impact is most significant. Companies are expected to establish grievance mechanisms to support the identification of adverse human rights impacts. Such mechanisms should be available to workers and individuals and communities who may be adversely impacted by business operations.

There is evidence of progressively good practice among some companies. The Korea Railroad Corporation stated its commitment and responsibility to exercise human rights due diligence beyond its first tier of direct suppliers. It said it conducts on-site visits to monitor compliance of first, second and third tier suppliers, and suppliers are obliged to notify any new sub-contracting arrangements. It also revealed that a hotline is available to workers of first, second and third tier suppliers.

Another concern relates to the way large corporations use sub-contractors for parts of their core operations. A 2014 study undertaken by the NHRCK on the conditions of industries with high risk of industrial injury found that many subcontracted workers experience worse working conditions and less safety information compared to directly employed workers.

A case in point is the shipyard in Ulsan operated by Hyundai Heavy Industries (HHI). We discussed this with HHI management and trade unions. The shipyard employs 55,000 workers, 30,000 of which work for subcontractors. 80 % of subcontracted workers are involved in production (and exposed to high health and safety risks), compared to only 20% of directly employed workers. The ship yard has experienced a high number of fatal work accidents (averaging 6 annually over the past 10 years, 71% amongst subcontracted workers). We were informed that 7 workers died in the first 5 months of 2016, of which 5 were subcontracted workers. The In-house Subcontractor Worker’s Union in HHI (ISWU) alleges that HHI is “outsourcing risk”. HHI attributes the higher number of fatal accidents amongst subcontracted workers to inexperience amongst subcontracted workers (with an average of 2 years of experience) as compared to HHI’s directly employed workers (with an average of 18 years of experience). In order to improve health and safety conditions, HHI and other business operations with a high risk of industrial injury should find ways to improve oversight and incentivise subcontractors to improve safety conditions.

The relationship between SMEs and large companies

In the Republic of Korea large conglomerates make up less than 1% of business enterprises, while 3.42 million small and medium-sized companies (SMEs) account for more than 99%. SMEs account for 88% of employment, and about half of the SMEs supply large companies and chaebol-affiliated conglomerates.

A common concern in discussions with Government and civil society representatives was the asymmetrical and often non-transparent relationship between the large companies and their SME suppliers, where the big companies are able to set conditions and pressure SMEs competing for contracts to offer lower prices. There is also a marked difference in working condition, salary scales and benefits of employees of large companies compared to the majority of the SME workforce.

The Government has taken various measures to protect SMEs against unfair practices by large firms, including the Act on the Promotion of Collaborative Cooperation between Large Enterprises and Small-Medium Enterprises (enacted in 2006 and most recently amended in 2016). The Act aims to develop policies “to facilitate win-win cooperation between large enterprises and small-medium enterprises”, including related to exchanges of technology and human resources and narrowing the salary gap between large enterprises and SMEs (art. 4(2)). To incentivise larger corporations to provide greater support to SMEs, the Government has also created the “win-win cooperation index”, whereby large enterprises are assessed annually by independent evaluators with awards for good practice. However, these initiatives currently do not explicitly include human rights due diligence. This is important and, as proposed by the NHRCK, criteria related to human rights should be added to the “win-win copperation index”.

Avoiding business-related human rights abuse outside Korea

Some cases brought to our attention concerned the overseas activities of South Korean companies. We heard about the sourcing of cotton from Uzbekistan by the Korea Minting, Security Printing & ID Card Operating Co. (KOMSCO) through a joint local subsidiary in Uzbekistan, KOMSCO Daewoo (GKD); allegations of abusive labour conditions in garment factories in Myanmar wholly or jointly owned by South Korean companies; and land acquisition related to a natural gas project in Myanmar by POSCO Daewoo International.

As the business operations of South Korean companies are increasingly becoming transnational, more attention needs to be given to how South Korean companies exercise human rights due diligence to avoid causing human rights harm outside South Korea. It was clear from our discussions that this is an area which requires much more attention from companies and the Government.

Many Government and company representatives we met with recognized that it is important to step up action in this area. Companies should develop mechanisms to allow grievances to be brought to their attention early on to prevent harm from escalating. The Government should actively assist companies to identify, prevent and mitigate human rights risks related to their overseas activities. Embassies should assist in such efforts as they have an interest in preventing South Korean companies from having adverse human rights impacts on the local population. Some training has taken place, but no clear monitoring mechanism was described.

The Government and companies should explore ways to avoid human rights abuses related to companies’ operations abroad and to facilitate access to remedy if harm occurs, in accordance with international standards and best practice.

Non-financial reporting

All of the companies we met with prepared annual sustainability reports. Several included a more or less explicit reference to human rights. Most indicated that they followed the Global Reporting Initiative (GRI) G4 guidelines, which include human rights criteria and make reference to the UN Guiding Principles on Business and Human Rights. However, they generally did not go into detail about steps taken to identify risks and prevent and remedy human rights harm. We strongly encourage companies to give more attention to these aspects.

We also encourage the Government to establish non-financial reporting requirements on human rights due diligence processes in line with the Guiding Principles and existing reporting standards. The Government could also use other existing mechanisms to promote responsible business conduct by companies e.g. the Korean Business Ethics Index (KoBEX), under the Ministry of Trade, Industry and Energy, which evaluates the ethical leadership of the CEO, equal employment at work, human resources development, health and safety, and the “win-win cooperation index” to incentivize large companies to support SMEs. Human rights criteria could also be included in the periodic assessments and rankings of business practice. The human rights check list sent to 115 public companies and institutions developed by the NHRCK is another important tool. It could usefully be expanded to involve private companies.

Labour rights

Health and safety in the workplace was raised with us as an issue of particular concern during our visit. The Occupational Health and Safety Act makes several requirements on employers in respect of the provision of safe workplaces. However, from the information gathered during our visit, it was clear that more needs to be done to facilitate the reporting of incidents in the workplace so that all such incidents can be properly investigated and remediation and prevention measures put in place.

The burden of proof on those seeking compensation for industrial accidents is very high. Victims must provide, amongst other things, evidence of the presence of a risk factor and evidence of a high level of exposure. Victims must satisfy the burden of proof in order to receive any compensation from the Occupational National Insurance for injuries suffered from hazardous working conditions. It would be important to review the current legislation to bring it in line with international standards and to find a way to distribute the burden of proof more equally in cases where it is difficult for workers to prove wrongdoing/human rights abuse by an employer. In this regard, we note that one step in that direction has already been taken under the new Act on Liability for Environmental Damage and Relief Thereof.

We also heard concerns surrounding the freedom for trade unions to operate unhindered in certain business contexts. We heard reports about so called “yellow unions” set up by a company which do not meet international standards for freedom of association and collective bargaining. We are also concerned by reports of companies suing the trade union of a supplier where industrial action has been taken, and of wages being deducted from workers who go on strike to pay for the lost profits incurred following the industrial action. Workers should not have to meet the financial cost resulting from their legitimate defence of their employment rights and all companies should seek to understand the reasons for industrial action and adapt their management practices, rather than punishing protesters.

Migrant workers, including those in an irregular situation

One of the groups particularly at risk of business related human rights abuse is temporary migrant workers. Several features of the current system of the Employment Permit System (EPS) for migrant workers seem to contribute to a heightened risk of abuse. Through bilateral agreements with 15 countries in the region, South Korea invites migrant workers to come to the country for periods of three years with an ESP E-9 visa. While they are allowed to change employer up to three times during the three-year period, we are concerned that the system makes migrant workers vulnerable to abuse.

Finding themselves in an even more vulnerable situation are an estimated 214,000 unregistered migrants in South Korea, of which an estimated 49,300 became unregistered migrants with expired E-9 visa under the EPS. Even if unregistered migrants are allowed to remain in the country while any case concerning abusive labour practice or non-payment of salary is being processed, unregistered migrant workers will be particularly vulnerable to human rights abuse. 

Situation of women

We observed a striking absence of women at a senior level in the companies we visited. When we asked for statistics relating to the number of women at senior levels of companies, this information was not available. According to an OECD 2016 survey, the employment rate of women stood at 54.9%, compared to 75.7% for men, and the World Economic Forum’s Global Gender Gap Report 2015, ranked South Korea at 115. Main obstacles to the participation of women in the workforce relate to traditional gender roles in society, lack of access to child care, and a significant wage gap, which is the largest amongst OECD countries. A 2014 report produced by the NHRCK showed that 17.4% of female workers have been reported to receive wages that fall below the minimum wage.  

While we heard about efforts to improve access to childcare, a more extensive or holistic approach to address discrimination against women would be needed, in line with recommendations to South Korea of the United Nations human rights treaty bodies and the 2012 Universal Period Review.

Quite apart from social and human rights considerations, it does not make good business sense to exclude half of the workforce. As was emphasised by UN Secretary General Ban Ki-moon in his keynote address to the Korea Leaders Summit 2015, convened by the UN Global Compact Network Korea, “if you really want to see dynamic growth, put more women in charge.” We echo the importance of businesses taking gender equality seriously and we consider that the South Korean economy and society has much to gain from a more balanced approach to gender representation at senior levels of all companies, large and small, and SOEs.

The State as an economic actor

Guiding Principle 4 provides that States should take “additional” steps to protect against human rights abuses by business enterprises that are owned or controlled by the State, as well as by other entities such as export credit agencies that are seen as being closely associated with the State.

The Republic of Korea has more than 40 SOEs that perform important roles in the economy. We note that mechanisms are already in place through which the Government can oversee and promote ethical business practice amongst SOEs. However, more needs to be done to raise awareness about what is expected of these companies in terms of human rights due diligence in line with the UN Guiding Principles.

The Korean National Pension Fund (NPF) is the third largest pension fund in the world with a fund reserve of 524 trillion KRW. The NPF is a signatory to the UN Principles on Responsible Investment which means that it should incorporate environmental, social, and corporate governance (ESG) issues into investment analysis and decision-making processes, and seek appropriate disclosure on ESG issues by the entities in which it invests. We encourage the Government (in particular through the Ministry of Health and Welfare which has oversight of the NPF) to provide guidance with regard to the expectation that the NPF should apply a human rights due diligence approach across its investments.

The Export-Import Bank of Korea (Eximbank) as executor of the Korea Economic Development Co-operation Fund, conducts appraisals of loan requests, conclusion of loan agreements, disbursement of loans, and evaluates economic aid projects in developing countries. We heard reports of an absence of human rights safeguards and human rights impacts of projects for which loans have been made. We encourage the Eximbank to develop environmental and social safeguards in line with international human rights standards through a transparent and consultative process.

We were pleased to hear that the Korea Exchange joined the Sustainable Stock Exchanges Initiative last year. The Korea Exchange uses the Dow Jones Sustainability Index Korea. RobecoSAM, along with the Korea Productivity Center, evaluates non-financial elements of 200 companies listed on the Korean Exchange. Since April 2016, the questionnaire sent to companies includes specific questions on human rights due diligence explicitly based on the UN Guiding Principles on Business and Human Rights.

Public procurement is handled by the Public Procurement Service. We learned that on 27 January 2016 the Partial Revision of Government Procurement Act was passed which enables the head of the Public Procurement Service to reflect social and environmental values, such as the environment, human rights, labour, fair trade, and consumer protection, in the procurement process in order to promote corporate social responsibility. However, there is no mandatory requirement for human rights and associated values to be considered as part of a procurement process. In order to entrench human rights in public procurement bidding processes, and promote policy coherence, we urge the Government to provide criteria for the evaluation of non-financial factors, and take steps to legally require disclosure of human rights and social and environmental factors during public procurement bidding processes so that performance in relation to those factors, and not just cost, determine which bidder wins the contract.

Access to remedy

We consider that the OECD National Contact Point (NCP) can play an important role in addressing cases of business-related human rights abuse in the operations of South Korean companies outside the country. As the Guiding Principles are incorporated into the OECD Guidelines for Multinational Enterprises chapter on human rights, the NCP also serves as a grievance mechanism for the Guiding Principles.

While the NCP has been subject to some recent positive reform, such as including in its work independent experts, and the Ministry for Environment and the Ministry of Employment and Labor, further progress, on the basis of international good practice, is needed. It is crucial that the NCP be both impartial, and perceived as such. The composition and location of the NCP needs to retain the confidence of all stakeholders, including civil society and trade unions. As per theCommentary on the Implementation Procedures of the OECD Guidelines for Multinational Enterprises, it is good practice for NCPs to “establish multi-stakeholder advisory or oversight bodies to assist NCPs in their tasks” and we suggest that setting up a multi-stakeholder advisory group would be useful for the NCP and would enable it to seriously engage with critical voices.

Under South Korean civil and criminal law, companies can be held liable for human rights abuse, including in cases of human rights abuse committed by a South Korean company abroad. To date, no company has been tried or found liable under civil law before national courts for human rights abuse related to its operations abroad. However, one such case has now been brought before Seoul Central District Court. A South Korean law firm, with the support of the Clinical Legal Education Center (CLEC) of Korea University School of Law, is representing 20 persons in a claim for compensation related to the purchase of land by POSCO Daewoo Corporation in 2010 for its activities in Myanmar. We look forward to the outcome of this case.

We consider that training about the Guiding Principles for the judiciary is essential to sensitise the judiciary and advance progress on the use of the Guiding Principles in cases concerning South Korean companies in the South Korean courts.

While operational grievance mechanisms are not meant to substitute for judicial mechanisms, in cases of serious human rights abuse, they can play an important role in providing access to remedy for individuals or communities who are adversely affected by a business enterprise. Similarly, they can provide a vital means for a company to become aware of matters within its business that it would otherwise not know about. Improved and enhanced grievance mechanisms need to be run by all companies operating in the country, and also by all South Korean companies operating overseas. This includes facilitating whistle-blower programmes, and developing a complaints handling process that is open to everyone involved, including workers in a companies’ supply chain.

We recognise the important work undertaken on business and human rights issues by the NHRCK and consider that the mandate of the NHRCK could be usefully expanded to enable it to consider all business related human rights harms caused by private enterprises, not just issues relating to discrimination, as is currently the case.

National Action Plan

We see a need for improved coordination and dialogue on business and human rights issues. There is a need to improve coordination amongst Government agencies and to allow for multi-stakeholder dialogue, involving Government, business and civil society which would enable the voices of the most vulnerable to be heard. The development of a National Action Plan on business and human rights based on the Guiding Principles is an opportunity to strengthen coordination and policy coherence. As the Government considers the recommendation due to be made by the NHRCK to undertake a NAP, we would like to stress the importance of involving in the NAP process the agencies that deal directly with the public sector and private businesses. We encourage the Government to use the NAP guidance prepared by the Working Group. As the guidance document underlines, NAPs “need to be developed in inclusive and transparent processes. Interested stakeholders need to be allowed to participate in the development, and update, of the NAP and their views need to be taken into account. Information needs to be shared transparently at all stages of the process”.

Closing
 
We have been encouraged to see that there is a political commitment to improve the situation with regard to business and human rights issues, and that many Government institutions and some businesses share this commitment. However, the implementation of the Guiding Principles has been limited to date and more needs to be done, both by the Government and businesses, private and public, to strengthen the protection against business-related human rights abuse at home and abroad.

All companies need to do human rights due diligence concerning their operations, including in relation to subsidiaries and suppliers overseas, so as to be able to both “know and show” that they are aware of the risks of adverse human rights impacts. Effective stakeholder engagement, especially with marginalised workers and members of affected communities, is vital. Steps must be taken to give victims of adverse business-related human rights impacts access to remedy and existing mechanisms, such as the NCP, should be strengthened. Justice delayed is justice denied and it is not acceptable for victims to have to wait for years for compensation to which they are entitled, either from companies or the Government. It is imperative that proper health and safety standards are adhered to and effectively enforced. Similarly, when things go wrong, it must be made easier for workers to claim the occupational insurance to which they are entitled and companies need to take responsibility for adverse human rights impacts in their supply chains.

While the Working Group has ended its visit, we will continue to collect information over the coming months as we write our report to be presented to the Human Rights Council in June 2017. It will contain concrete recommendations for the Government and business enterprises, as well as other stakeholders. We hope these will be useful to efforts to protect against and address adverse impacts of business activities on human rights.

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