Important Aspects of Ecuadorian Regulations in the Supply Chain

published on 15 September 2022 | reading time approx. 5 minutes

by Veintimilla, Michael, Ecija GPA

The German Supply Chain Due Diligence Act establishes an obligation of care for companies located in Germany that meet the conditions to be subject to control by the competent authority in this country. Large companies that are subjects of control in Germany must make an effort and have a duty of due diligence in their supply chains to verify that no violations of human rights and the environment are committed within the production process of the good or service in question.

The supply chain extends to direct and, in certain cases, indirect suppliers even outside of Germany. These are not subjects of control by the German control authority, but they will most likely have contractual obligations with companies that, being located in Germany, must comply with this law.

For this, it is necessary to know to what extent Ecuador is part of the international instruments that protect human rights, and to what extent the principle of autonomy of will extends in Ecuador, by which the parties can incorporate by way of contractual certain compliance standards for suppliers.

Ecuador and human rights

The Republic of Ecuador incorporates international treaties within the hierarchical order of application of the norms, placing them below the Constitution, but above all the rest of regulations, including organic laws, all this in accordance with article 425 of the Constitution. But it goes further when article 424 declares that in­ter­national human rights treaties that recognize more favorable rights than those contained in the Constitution, will prevail over any other legal norm or act of public power.

Finally, article 417 of the Constitution states that treaties and other international human rights instruments will apply the pro-human principles of non-restriction of rights, direct applicability and open clause established in the Constitution.

With this explanation, it should be noted that Ecuador signed the Universal Declaration of Human Rights, ratified the International Bill of Human Rights and has joined and ratified the main human rights instruments relating to children, women and the disabled.

Therefore, in accordance with the aforementioned constitutional norms, the rights contained in these treaties are directly applicable in the country.

Then, the Constitution itself has recognized human rights within its text, especially in the content of Title II of this normative body, where aspects such as the inviolability of life, the prohibition of discrimination, the rights of women and children, the right to health, work and social security, civil rights and freedoms, among others.
An issue that stands out is the right to prior consultation that indigenous peoples and nationalities have on plans and programs for prospecting, exploitation and marketing of non-renewable resources found on their lands, contained in numeral 7 of article 57. This also recognizes the right to consult the community in general regarding state decisions or authorizations that affect the environment, contained in article 398.

Not having complied with this process has been cause for judicial orders to prevent the start or stop the activities of oil and mining projects.

On the other hand, rights recognized in international instruments have been expressly incorporated into Ecuadorian legislation, for example: it is legal for a minor to be hired as a worker as long as he is at least 15 years old; special protections have been established for working women who are pregnant or breastfeeding; there is an obligation to enroll all workers in social security; Companies with more than 25 workers must have at least 4 percent of their total workers with disabilities.

Therefore, Ecuador several provisions contained in international instruments on human rights are part of its legal system.

Principle of the autonomy of the will in Ecuador

The autonomy of the will is the freedom enjoyed by individuals to enter into contracts, and within these, deter­mine their content, effects and duration, as long as it does not contravene the law.

Freedom of contracting is a right that is recognized in the Constitution of the Republic of Ecuador. Article 66, numeral 16 of the aforementioned legal body, establishes that the right to freedom of contract is recognized and guaranteed to people. The principle of the autonomy of the will materializes through contracts.

On the other hand, Article 1454 of the Civil Code defines the contract or convention as an act by which one party agrees with another to give, do or not do something. Article 1561 of the same regulations establishes that every legally concluded contract is a law for the contracting parties, and cannot be invalidated except by their mutual consent or for legal reasons.

The principle of the autonomy of the will has been recognized in several rulings, such as in judgment No. 171-14-SEP-CC issued by the Constitutional Court on October 15, 2014, where it establishes that the immense scope that the parties have to decide to enter into contracts and determine their content, as well as the conditions, limitations, modalities, formalities, deadlines and other particularities will be governed by the autonomy of the will of the contracting parties, within the constitutional and legal framework in force in Ecuador.

Likewise, the same Court in judgment No. 044-10-SEP-CC of October 21, 2019, has established that in general the contract has as its basic foundation the will of the contracting parties to agree and celebrate it freely. This requirement is within the scope established by law, so that obligations are generated from this manifestation.

In conclusion, taking these definitions into account, the parties may freely agree to what they so decide, as long as the clauses established in the contract or agreement do not contravene the law.

Thus, the parties can: Establish contractual mechanisms to incorporate compliance standards above the legal minimums; agree on ways to verify compliance with certain standards, either through inspection or audits; transfer certain risks and responsibilities with back-to-back clauses; establish penalty mechanisms in case of delays or breaches of the contract; establish the forum where disputes will be submitted; choose the law applicable to the contract.

Therefore, the parties freely insert these agreements in order to incorporate and safeguard compliance with international standards that come from instruments in which Ecuador has not ratified them.

Compliance as a tool for Due Diligence

First of all, it is necessary to understand that there is no exact definition of “compliance”, so it becomes necessary to understand its scope and its application for compliance with this new law, especially with its extraterritorial effects. Its purpose is to comply with regulations, whether they are legal or adopted by an organization on a voluntary basis. In short, Compliance becomes a set of tools for self-regulation and internal responsibility of companies that adapt to the needs of each company and industry, in order to comply with the rules of both the legal framework and corporate that are adopted.

In relation to the Law of Due Diligence in the Supply Chains of Germany, it is important to point out that companies must also be attentive to the affectation of Human Rights by their activity, for which it becomes necessary to take the necessary measures that to prevent such violations or violations of said rights. To this end, companies in the development of their activities must take care not to affect human rights in general, for this the Guiding Principles of Human Rights indicate that they must have: 1) corporate policy of promotion, respect and reparation in Human Rights matters; and, 2) design and implementation of a corporate due diligence mechanism regarding human rights violations.

Precisely in this prevention and protection of DD.HIH. The applicability of Compliance takes effect as an effi­cient solution that can document the prevention actions that have been implemented and must be taken, as well as mitigation in the event of an unwanted breach.

Within the tools or solutions that compliance can offer, we must differentiate those that are suitable for German companies, as well as for local (Ecuadorian) companies.

For German companies, there are direct actions, such as: Auditing foreign (Ecuadorian) suppliers, Back-to-Back Clauses (B2B), Modification of contractual conditions, Certificates of compliance, etc.; and indirect actions, such as: Requirement of B2B clauses, Certificates of compliance, etc.

In contrast, for local (Ecuadorian) companies, the actions to be taken are always direct, for example: Internal audits, Consultancies, Implementation of Compliance programs or at least one chapter of HR and M.A., Risk management, Culturalization etc.