The Future of Sustainable Trade: Balancing Regulation and Inclusion

The UNCTAD report on sustainable trade examines the shift from voluntary sustainability standards to legally binding due diligence laws. While these regulations promote responsible trade, they also risk marginalizing small producers in developing economies. This article explores the challenges, regulatory gaps, and policy recommendations needed to create a more inclusive and fair global trading system.

Sustainability is no longer a voluntary effort in global trade; it's becoming a regulatory necessity. A recent report from the United Nations Conference on Trade and Development (UNCTAD), titled The Future of Sustainable Trade: Due Diligence Initiatives, Voluntary Sustainability Standards, and Developing Countries, explores this transition. The shift from voluntary sustainability standards (VSS) to mandatory due diligence laws is reshaping international markets, with significant implications for businesses, policymakers, and developing economies.

Corporate responsibility once relied on voluntary sustainability initiatives, but today, legal frameworks are driving compliance. Governments worldwide are implementing due diligence laws that require businesses to integrate environmental and social standards into their supply chains. These regulations fall into three broad categories: trade-based legislation focusing on specific commodities or industries, disclosure-based legislation requiring businesses to publicly report their sustainability actions, and comprehensive due diligence laws applicable across multiple sectors. While these measures promote ethical sourcing and responsible trade, they also pose challenges for businesses—particularly small and medium enterprises (SMEs) in developing economies.

VSS have long been used to promote ethical and environmental practices, but their voluntary nature limits enforceability. With the introduction of mandatory due diligence laws, companies now face stricter obligations to align with international treaties on human rights, labor, and environmental protection. However, achieving full compliance is no simple task. The report highlights key misalignments between existing voluntary standards and new regulations such as the European Union Deforestation-Free Regulation (EUDR). This discrepancy creates additional burdens for businesses attempting to navigate overlapping requirements. Moreover, monitoring compliance through audits and grievance mechanisms is costly, disproportionately affecting small producers in developing regions.

For developing economies, the move toward mandatory sustainability requirements presents a double-edged sword. While these regulations foster more responsible trade, they also introduce barriers that could marginalize smaller players. Key concerns include trade diversion as multinational companies adjust supply chains to meet due diligence laws, exclusionary risks where smallholder farmers, indigenous groups, and informal workers often lack the resources to comply, cost factors where compliance expenses can reduce price premiums for sustainable goods, and market monopoly risks where large corporations with the means to comply may consolidate supply chains, creating monopolistic tendencies that disadvantage smaller competitors. To mitigate these risks, UNCTAD suggests targeted financial support, capacity-building initiatives, and flexible regulatory frameworks that consider regional contexts.

The report urges a balanced approach to sustainability governance. To ensure fair trade opportunities for all, it proposes regulatory harmonization where policymakers should work toward aligning voluntary and mandatory sustainability frameworks to reduce inconsistencies, support mechanisms for SMEs including financial assistance, technical training, and simplified compliance procedures, preventing market domination by ensuring governments monitor trade policies to prevent large firms from monopolizing sustainable supply chains, and equitable value distribution through fair pricing mechanisms and cooperative market structures to ensure that smallholders receive fair compensation. By addressing these gaps, the global trading system can evolve into a more inclusive and sustainable framework, benefiting both the planet and the people behind its supply chains.

The transition to sustainable trade governance is a necessary step toward ethical globalization. However, the success of due diligence laws depends on their ability to support—not exclude—vulnerable stakeholders. The UNCTAD report highlights the urgent need for regulatory harmonization, financial aid, and strategic policy interventions to ensure that sustainability remains an inclusive goal. By fostering cooperation between governments, businesses, and local producers, sustainable trade can truly be a catalyst for global equity.