Treaty tantrums: Past,present and future of a business and human rights treaty

Abstract

This column analyses the current process in the UN Human Rights Council to negotiate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises. It does so in the context of two previous attempts at the UN level to adopt binding rules for (multinational) corporations and the continued inability of international soft standards as well as hard rules at the national level in States in ensuring that businesses take their human rights responsibilities seriously. It is argued that an international treaty is desirable as part of a regulatory ecosystem to promote respect of human rights by business enterprises and to strengthen corporate accountability for human rights abuses. While the treaty should build on and complement the existing international soft standards, it should also try to fill some of the regulatory gaps that these standards might not ever be able to fill.

1. INTRODUCTION

Business and human rights (BHR) as a term as well as the evolution of BHR as a specialised field is relatively new. However, the involvement of business enterprises in exploiting people or natural resources is much older. ¹ Even theoretical discussions about the role of business in society can be traced at least to the famous Berle-Dodd debate that unfolded between two Ivy League professors in the early 1930s. ² Around the same time, Gandhi was articulating his trusteeship theory. In 1939, he wrote: ‘Supposing I have come by a fair amount of wealth – either by way of legacy, or by means of trade and industry – I must know that all that wealth does not belong to me; what belongs to me is the right to an honourable livelihood, no better than enjoyed by million others. The rest of my wealth belongs to the community and must be used for the welfare of the community.’ ³ Through the trusteeship theory, Gandhi was proposing a transformative change in the relation of business and society, something that the BHR movement, or the Sustainable Developments Goals and the concept of stakeholder capitalism for that matter, are trying to accomplish in the twenty-first century in a less ambitious way.

More specifically, in terms of regulating the conduct of multinational corporations (MNCs), discussions about the binding rules at the UN level have been ongoing since the early 1970s. The first two attempts were reflected in the form of the Draft UN Code of Conduct on Transnational Corporations 1990 (Draft Code) ⁴ and the UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights 2003 (Draft Norms). ⁵

The third, and currently ongoing, attempt started in 2014 with the UN Human Rights Council adopting a resolution to elaborate an international Legally Binding Instrument (LBI) to regulate, in international human rights law, the activities of transnational corporations and other business enterprises. ⁶ Several drafts of the proposed LBI have been released and discussed during annual sessions of the open-ended intergovernmental working group (OEIGWG). These attempts can be labelled as three ‘high tides’, as they symbolise the constant battle between the proponents and opponents of binding international standards triggering waves of low and high tides in the momentum towards such a goal.

The late Professor John Ruggie, the former Special Representative of the Secretary General on human rights and transnational corporations and other business enterprises (SRSG), was successful in overcoming the polarisation around the Draft Norms, as many States and business associations resisted the adoption of non-voluntary international standards. The SRSG built a consensual regulatory framework in the form of the UN Guiding Principles on Business and Human Rights (UNGPs) unanimously endorsed by the Human Rights Council in 2011. However, as the current LBI process demonstrates, this consensus did not last long and the cleavage between soft and hard standards resurfaced soon thereafter. This may be partly because the ‘thick stakeholder consensus’ claimed by the SRSG ⁷ was perhaps only a ‘wide but thin’ consensus. While the wide consensus resulted in the swift uptake of the UNGPs by all stakeholders, both States and businesses continue to pay lip service to the UNGPs’ meaningful implementation, thus signifying the thinness of their commitment.

Due to space constraints, this column will not go into the question why a BHR treaty is required. Both scholars ⁸ and civil society organisations ⁹ have already advanced strong normative and practical justifications for such a treaty. Rather, this column will assume that legally binding international standards are required – as a complementary tool to other soft international standards and hard norms at the domestic level – to effectively regulate activities of business enterprises and hold them accountable for human rights abuses. It will therefore focus on the past, present and future of an international BHR treaty. After analysing lessons from the three high tides (past), the column will examine some key contentious issues (present) and then outline a few recommendations to enhance the chances of success of the current LBI process (future).

2. LESSONS FROM THE THREE HIGH TIDES

The first high tide for negotiating binding standards at the UN level began in the early 1970s with the UN Economic and Social Council (ECOSOC) in 1973 appointing a Group of Eminent Persons to study the impact of transnational corporations (TNCs) on economic development and international relations. ¹⁰ The Group suggested adopting an incremental approach to regulating TNCs (begin with a code of conduct culminating in a treaty) and recommended ECOSOC to establish institutions to probe TNCs-related issues. The latter recommendation led to the creation of the UN Commission on Transnational Corporations comprising government representatives in 1974. The Commission established an Intergovernmental Working Group on the Code of Conduct, which deliberated over the content of the Code during 1977–1982 and produced an initial draft in 1983 comprising 71 provisions. ¹¹ The 1990 Draft Code was the last version released. It applied to all TNCs (including their entities) irrespective of the ownership structure. Paragraph 13 of the Draft Code, among others, provided that TNCs ‘shall respect human rights and fundamental freedoms in the countries in which they operate’. The Draft Code also contained provisions about TNCs refraining from supporting or sustaining the apartheid regime in South Africa (para 15) and abstaining from indulging in corrupt practices (para 20). By applying the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy to TNCs, paragraph 25 of the Draft Code strengthened the labour rights focus of the Code.

While there was an agreement on a majority of the 1990 Draft Code provisions, the key divide between developed and developing countries was around provisions related to nationalisation and compensation, national treatment of TNCs, and settlement of disputes between TNCs and host States. ¹² All these provisions were about the ‘rights’ of TNCs vis-à-vis host States (the key focus of developed countries), and not about TNCs’ responsibilities (the key focus of developing countries). There was also a divergence about the nature of the Code: while developing countries stressed the need for a legally binding international instrument, developed countries preferred a voluntary code. ¹³ This debate in essence ‘represented a clash between those who believed in government-directed development and those who preferred the primacy of the market mechanism.’ ¹⁴

The second high tide was reflected in the form of the Draft Norms, which were drafted during 1999–2003 by the five-member UN Working Group on the Working Methods and Activities of TNCs, appointed by the then UN Sub-Commission on the Promotion and Protection of Human Rights. ¹⁵ The Norms not only applied to all TNCs but also to other business enterprises in certain situations: ‘if the business enterprise has any relation with a transnational corporation, the impact of its activities is not entirely local, or the activities involve violations of the right to security’ (paragraph 21). The Draft Norms, along with the commentary appended thereto, provided a comprehensive statement of corporate human rights obligations, and also outlined the procedure for their implementation. As the Norms adopted a non-voluntary approach to compliance, they included specific implementation provisions. ¹⁶ Para 18 also provided for prompt, adequate, and effective reparation to persons and communities adversely affected by the failure of businesses to comply with these Norms.

Although the UN Sub-Commission on the Promotion and Protection of Human Rights approved the Norms in August 2003, ¹⁷ the then Commission on Human Rights declared that they lack any ‘legal standing’. ¹⁸ Because of stiff opposition from the business sector as well as several States and an antagonistic position adopted by the former SRSG, ¹⁹ the Draft Norms’ journey was cut short prematurely. Nevertheless, their real value lies in preparing groundwork for the UNGPs and underscoring the important role of legally binding norms. ²⁰

The third high tide began in June 2014 with the UN Human Rights Council adopting a resolution to establish an OEIGWG ‘to elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises’. ²¹ The resolution was put forward by Ecuador and South Africa with significant support from a coalition of civil society organisations. It was adopted by a recorded vote of 20 to 14, with 13 abstentions – thus reflecting sharp divisions with all developed States voting against it, while several developing States abstaining. So far seven week-long annual sessions have taken place and a number of drafts have been released for discussion (including during these sessions): the Zero Draft was released in July 2018, a Revised Draft in July 2019, the Second Revised Draft in August 2020 and the Third Revised Draft in August 2021. ²²

While it is far from certain whether the current LBI process will result in a BHR treaty, the process has already achieved certain positive outcomes. This process has, for example, forced many developed States – including the European Union (EU) – and BHR scholars to take the treaty project seriously, rather than just focusing on the implementation of the UNGPs through national actions plans (NAPs). As of July 2022, 26 States have adopted such standalone NAPs, 18 of which are from Europe. ²³ It is not a coincidence that even some businesses and investors in recent years have realised the value of creating a global level playing field through binding rules at the regional and international levels. ²⁴

We can draw several lessons from the continued quest to negotiate a binding international instrument reflected in the three high tides so far. First, although much has changed in the last five decades about the home of MNCs, there has been a little change in the general resistance or reluctance on the part of developed countries to adopting binding international standards in the BHR field. As noted above, the June 2014 resolution at the Human Rights Council to negotiate a LBI was opposed by all developed States. The EU’s engagement with the process has been lukewarm at best, while several other developed States like the US, Canada, Australia and Japan generally remain sceptical about the treaty process.

Second, despite the pre-dominant State-centric nature of international (human rights) law, non-State actors have played a critical role in shaping the contours of binding international standards. For example, independent experts led the drafting process of the Draft Norms, while the Treaty Alliance – a coalition of CSOs from all world regions – has been at the forefront of the current LBI process.

Third, there is a growing recognition that the binding international standards should not focus solely on MNCs. Unlike the Draft Code, the Draft Norms envisaged their application to non-MNCs in certain situations. The post-2019 drafts of the LBI have moved towards regulating all business activities, not merely those of a transnational character. ²⁵ As noted in the next section, the scope of the proposed treaty has been one of the most contentious issues.

Fourth, access to remedy for affected rightsholders and corporate accountability are becoming increasingly important. While these issues were not on the radar of the Draft Code, access to remedy has featured prominently in both the Draft Norms and the Draft LBI. The most recent Third Revised Draft of the LBI contains detailed provisions regarding access to remedy, including civil, administrative and criminal liability of businesses for human rights abuses (Articles 7 and 8). It also outlines ways to remove various barriers to access to remedy by stipulating rules for adjudicative jurisdiction, limitation period, applicable law, mutual legal assistance, and international cooperation (Articles 9–13).

Fifth, despite the continued challenges noted below, the current LBI process appears to be most promising in delivering legally binding standards at the international level. The LBI may employ the UNGPs as a springboard to build political consensus. Such a consensus should also be easier to achieve because of an emerging practice of mandatory human rights due diligence (HRDD) laws in Europe. Moreover, the LBI process is supported by a new global civil society alliance to counter-balance corporate lobbying against binding standards.

3. TREATY TANTRUMS

Despite all the political challenges, roadblocks and resistance, the LBI process has so far survived. It is limping forward with every new draft providing some improvements in the content of the treaty. Yet, major differences remain about several aspects concerning the form, scope, and substance of the LBI as well as its relationship with other soft and hard regulatory standards. This section examines some of these contested sites, which give the impression of various States (including some States supporting the LBI) and other stakeholders throwing tantrums. These tantrums arguably reflect lack of good faith on the part of these actors in addressing concerns of rightsholders affected by business activities.

3.1. Scope of the treaty

The scope of the LBI remains the most contentious issue in the current treaty negotiations. This is reflected in the language of the footnote to the Council resolution 26/9 as well as in subsequent discussions during the OEIGWG sessions. The scope issue has two interrelated prongs: regulatory targets and subject matter. ²⁶ First, should the LBI apply to all types of business enterprises or only MNCs? Second, should the proposed treaty cover all international human rights, or only selected gross or serious human rights abuses?

From the perspective of affected rightsholders, it matters little whether the abuser is an MNC or a small domestic company. However, many States supporting the LBI process would prefer the scope of the proposed treaty to be confined to MNCs, thus excluding domestic businesses from its ambit. The EU, on the other hand, has insisted from the very beginning, as a precondition to engage with the process, that the LBI should apply to all business enterprises. The EU has been successful in getting the scope of the LBI broadened. Yet, paradoxically, in February 2022 it released the Directive on Corporate Sustainability Due Diligence, which applies only to selected big companies. ²⁷ Such an inconsistent stand of the EU is illustrative of ‘treaty tantrums’ on the part of many States. This perhaps also reflects the EU conceding that it may not be feasible at this stage for all business enterprises – even for Europe-based ones – to conduct meaningful HRDD in line with the UNGPs.

To overcome this deadlock about the intended regulatory targets, a hybrid option may be desirable: while the LBI applies to all business enterprises, it also contains certain special provisions to deal with MNCs as the more difficult regulatory targets. ²⁸ For example, provisions related to mutual legal assistance and international cooperation as well as overcoming the barrier posed by the doctrine of forum non conveniens ²⁹ will be especially relevant in the context of MNCs. Moreover, a differentiation could be made in relation to the HRDD obligation as well. The LBI may, for instance, obligate States to ‘encourage’ all but ‘require’ only certain businesses to conduct HRDD.

Regarding the second prong of the scope (subject matter), Ruggie had argued that the proposed LBI should only focus on ‘gross violations’. ³⁰ There has been almost no traction to the idea of the LBI being confined to selected egregious human rights abuses, though the 2019 Revised Draft did contain a list of criminal offences akin to gross violations. ³¹ Apart from challenges in defining ‘gross’ violations, such a narrow scope will not capture a majority of business-related human rights abuses. Therefore, the proposed LBI should cover all human rights abuses, including labour rights, environmental rights, and climate change. The differentiation between gross and non-gross abuses should be relevant only to the question of corporate liability, e.g. criminal liability will be desirable for gross human rights abuses, whereas civil and/or administrative liability alone should suffice for other abuses.

3.2. Relation with the UNGPs

Concerns exist about the relation of the LBI and the UNGPs. Many States and business organisations have opposed the LBI process on the ground that it will break the hard-fought consensus built around the UNGPs and also divert the attention from their implementation through NAPs. The other strand of this debate has been that the LBI should align with the UNGPs. However, there has been less clarity on what such an alignment should look like. ³²

Although the OEIGWG process emerged as a response to the perceived softness or inadequacy of the UNGPs in addressing corporate impunity for human rights abuses, there is a growing recognition that the LBI should complement the UNGPs. Mares argues that the UNGPs-treaty relation can be analysed on two levels: ‘first, the UNGPs as a precursor of the treaty (process complementarity), and second, the two instruments coexisting in a smart policy mix (substantive complementarity)’. ³³ In other words, over the years the BHR discourse has rightly evolved from an ‘either or’ to a ‘complementary’ approach. The proposed BHR treaty should take the UNGPs as a starting point and not the end point as part of achieving ‘ambitious complementarity’. ³⁴ For example, the LBI could expand the ‘minimum’ basket of ‘internationally recognised human rights’ proposed by Principle 12 of the UNGPs to expressly include environmental rights and climate change.

As far as alignment of the LBI with the UNGPs is concerned, Ruggie and Sherman have suggested that how HRDD ‘is translated into legislation and regulation is an iterative process that flows from the Guiding Principles but requires far more contextual and textual specificity.’ ³⁵ In my view, a loose alignment – instead of a literal alignment – with the UNGPs will be preferable, because the UNGPs, especially its Pillar II concerning corporate responsibility to respect human rights, were not intended to be legally binding. The conversion of soft social norms into legal norms as well as the process of multilateral negotiation of the LBI will require suitable adaption to the text of the UNGPs. For instance, if the LBI were to focus only on State-based judicial and non-judicial remedy mechanism (and thus leave out non-State-based grievance mechanisms), that should still satisfy the loose alignment threshold.

3.3. Direct corporate obligations

Some civil society organisations and scholars have argued the LBI should impose direct human rights obligations on corporations. ³⁶ Direct obligations may be desirable to reduce over-dependency on individual States to create and enforce norms. They should also be normatively feasible under international law, because MNCs’ status as subjects of international law ‘is neither a necessary, nor a sufficient conduction for accountability mechanisms to develop at international level’. ³⁷ In fact, corporations already have direct obligations under customary international law as well as certain instruments under environmental law or international humanitarian law. ³⁸

The Elements of the LBI released in 2017 did contemplate the possibility of direct human rights obligations of MNCs. ³⁹ However, due to resistance on the part of many States and business organisations, subsequent drafts have moved away from taking this pathway. Yet, there are still some subtle hints of direct obligations. For example, the Preamble to the Third Revised Draft of 2021 underlines ‘that business enterprises, regardless of their size, sector, location, operational context, ownership and structure have the obligation to respect internationally recognized human rights’. ⁴⁰ More importantly, Article 2(1) provides that one of the purposes of the LBI is to ‘clarify and ensure respect and fulfilment of the human rights obligations of business enterprises’. Despite these hints, it is doubtful whether there will be consensus around direct human rights obligations of businesses at this stage.

3.4. The treaty’s relation with trade and investment agreements

One of the Treaty Alliance’s demands has been that the LBI should prevail over trade and investment agreements negotiated by States. This demand is underpinned by legitimate concerns about bilateral investment treaties having a chilling effect on the ability of States to ensure that foreign investors respect human rights and the environment. ⁴¹ The Elements of the LBI released in 2017 contemplated establishing a primacy of human rights over trade and investment agreements. Despite a normative case for such a primacy, ⁴² there are practical difficulties in achieving this primacy over thousands of bilateral investment treaties. Such a hierarchy was also objected to by several States during the OEIGWG sessions.

As a compromise, the Third Revised Draft of the LBI requires States to ensure that all existing or new bilateral or multilateral agreements (including trade and investment agreements) are interpreted and implemented in a manner that does not undermine or restrict their capacity to fulfil their obligations under the LBI. Trade and investment agreements have entrenched asymmetries between the rights and obligations of investors and the LBI should have a role to play in addressing this asymmetry. It is to be seen how far the LBI will go toward achieving this goal of policy coherence, in line with Principle 9 of the UNGPs as well as reforms led by the United Nations Conference on Trade and Development (UNCTAD) ⁴³ and the United Nations Commission on International Trade Law (UNCITRAL). ⁴⁴

3.5. Form of the treaty

The ‘form’ of the treaty has been a relatively recent addition to the contentious LBI issues, pushed by proponents of a framework treaty coupled with a statement by a US government representative during the 7^th session of the OEIGWG. ⁴⁵ O’Brien, for example, has proposed a framework convention based on the UNGPs as a model for the LBI. ⁴⁶ She argues that such a model would not only allow a marriage between soft law and hard law but also assist in overcoming deficiencies in the current LBI model. ⁴⁷

The question about the form of a BHR treaty is perhaps not the right one to ask because it tries to put ‘the cart before the horse’. ⁴⁸ The primary question should be: why is a BHR treaty needed and what type of a treaty is most suitable to respond to this need? The ‘form’ question is subsidiary and should be answered in relation to the primary question, rather than overshadowing the raison d'être for such a treaty. Moreover, the devil is in the details, rather than in the label of the form. A framework convention can contain detailed and reasonably specific substantive provisions, including on the obligations of State parties. The WHO Framework Convention on Tobacco Control is a case in point. On the other hand, even a conventional treaty could have an in-built process to negotiate future substantive elements. In fact, Article 15(5) of the Third Revised Draft already provides for this possibility: ‘The States Parties shall meet regularly in a Conference of States Parties in order to consider any matter with regard to the implementation of the (Legally Binding Instrument), including any further development needed towards fulfilling its purposes.’ Article 17(1) further notes that this treaty ‘may be supplemented by one or more protocols’. Therefore, the discussion about the form of the proposed BHR treaty is not binary.

In short, instead of aiming for a catch-all treaty, an incremental approach may be more practicable. What is needed is a middle path between ‘an empty shell’ framework convention and ‘an overly prescriptive’ conventional LBI. This middle path could be achieved through a series of treaties, by following either the conventional treaty or the framework convention approach, negotiated in a sequential manner.

4. THE WAY FORWARD

The demand for an international treaty has not been met so far primarily due to lack of political will on the part of many States. What could be done to bridge this gap between demand for and supply of a BHR treaty?

Several strategies could be employed to make a success out of the third high tide. First, the LBI should build on the UNGPs and other soft international standards to develop consensus. The rise of mandatory HRDD laws in Europe, including the Directive on Corporate Sustainability Due Diligence, should encourage the EU to engage with the LBI more seriously. Otherwise, the Directive might merely shift the problem elsewhere instead of addressing it by creating a global level playing field for businesses.

Second, the needs of the affected rightsholders should be central to the LBI negotiation process. These needs should be the reference point to build political will, rather than taking the latter as a starting point. In other words, the LBI process should also be used to build the necessary political will, because ‘political and economic constraints can be overcome’ to boost up States’ commitment. ⁴⁹ The growing evidence of limitations of soft standards and the bottom-up support for hard standards should push States to take decisive actions.

Third, the LBI should keep in mind the wider policy context. It should, for example, play its part in breaking down the emerging silos between various fields such as BHR, the Sustainable Development Goals, the right to development, climate change, and disruptive technologies. ⁵⁰

Fourth, instead of micro-managing, the LBI text should stipulate broad provisions in terms of various State obligations, while the prospective treaty body could elaborate in due course the ‘constructive ambiguity’ in the treaty provisions. It will also be critical to engage States and other stakeholders in smaller groups in-between annual OEIGWG sessions in Geneva to build consensus bottom up.

Fifth, expectations of civil society organisations should be managed, and legitimate concerns of States and businesses should be addressed. In this context, politically infeasible issues such as imposing direct human rights obligations on corporations, establishing an international court or conferring priority on human rights over trade and investment agreements could be left out for now.

To conclude, while a BHR treaty is required, it cannot overcome all existing regulatory obstacles, especially those which are systemic or structural in nature. Yet, any treaty should keep rights and rightsholders central. It should try to fill ‘black spots’ of the UNGPs, address asymmetries between rights and obligations of corporations, encourage collective action on the part of States, and strengthen access to remedy for corporate human rights abuses.