When It Comes to Human Rights, Zero Is Better than Nothing

due diligence law, corporate responsibility, business and human rights, access to remedy, big business news, victims of corporate crime, UN human rights, human rights in business treaty, corporate regulators, international law news

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October 01, 2018 07:59 EDT

Contrary to what its unflattering title suggests, this “zero draft” marks a key milestone in the effort to bring about a UN treaty on business and human rights.

Squeezing a “zero draft” out of nearly four years of intense negotiations may seem like a meager, if not slightly ironic, achievement. Yet there was more reason to see the glass as half-full than half-empty when, on July 19, 2018, Ecuador announced the release of a “victim-oriented draft legally binding instrument on business activities and human rights.” Contrary to what its unflattering title suggests, this zero draft marks a key milestone in the effort to bring about a UN treaty on business and human rights.

An international treaty to regulate the activities of national and multinational corporations with respect to human rights has been on the wish list of civil society activists and state actors, particularly from the “global south,” from the 1970s. Yet the prospect of establishing international legally binding norms to address the potential harmful human rights impacts of business operations, including through direct obligations upon business enterprises, has ultimately always failed.

Domestic corporate law, for its part, has traditionally had little grip on multinational corporations and similar entities. The problem is that the regulatory power of states tends to extend no further than their political borders. What exceptions exist tend to cover only some specific aspects of business activities, such as the extraterritorial application of the Foreign Corrupt Practices Act against US companies for activities abroad. The potential adverse impacts of business activities thus fail to receive sufficient coverage from existing domestic regulations.

International efforts, particularly under the aegis of John Ruggie as the special representative of the UN secretary general, have focused toward creating a polycentric governance system based on a set of global standards that cover all business enterprises and all human rights in all UN member states. Self-regulation by business is an important component of this regulation model, which found its most accomplished expression in the 2011 UN Guiding Principles on Business and Human Rights (GPs). Interest in binding international rules in the form of an international treaty resurged only in 2014.

The path so far, however, has been rough, to say the least. In June 2014, the treaty initiative scored the support of only 20 out of the 47 member states of the United Nations Human Rights Council. Then it limped along, amid boycott by the United States, rebuff by Russia and lukewarm involvement even by most of its potential supporters. Under this dark cloud, the first two sessions of the UN Intergovernmental Working Group in charge of negotiations proved predictably slow in progress, yet still informational. Stalemate loomed larger in 2016, when Ecuador circulated the draft “elements” of a treaty. Their late release, only shortly before the third session of the working group, explains in part their cold reception.

Simmering Disagreements

A broader explanation, however, lies in division over substance. The draft elements brought into the open all sorts of simmering disagreements — the types of corporations to which the treaty should apply, the allocation of legal responsibilities between states and corporations and the extent of parent company liability for supply chains, among others.

Pockets of polarization have likewise surfaced within civil society, for instance in the discourse and use of the UN GPs. For instance, in their harsh comments on last year’s draft elements of a treaty, global business organizations framed the “crucial consensus achieved by the GPs” as being under threat from the possibility — albeit vague — that the treaty would impose direct obligations on business. Others, instead, saw the draft elements as a reaffirmation rather than a weakening of the GPs, particularly in that they made the due diligence approach legally binding.

Dropping the idea of establishing international remedy mechanisms, as envisaged in the previous draft elements, was perhaps a wise move. Yet, aside from its provisions on access to courts, the zero draft contains little novelty in the mechanisms that should inject life into the treaty.

In several aspects, the new text is likely to be more appealing than its infamous predecessor, the draft elements. Gone are many of the elements unpalatable to business and stakes alike. Gone, in particular, is the reference in the elements to international courts or mechanisms for addressing business-related harm, as well as the hint at direct international obligations for business. Mitigated, if not altogether gone, is also the ambiguity on some crucial issues, starting from the “transnational character” element that should determine the scope of the treaty.

Access to remedy and due diligence are the focus of the new draft, and rightly so. This choice zeroes in on the top priorities for victims and nudges — or at least makes a reasonable attempt to nudge — recalcitrant states to put more serious effort into negotiations. The GPs triggered some improvements, particularly in increasing the engagement of corporations in human rights due diligence.

Victims, however, are still in a position of serious weakness and power imbalance when it comes to having access to remedy for human rights abuses involving multinational companies. According to the 2018 Corporate Human Rights Benchmark Progress Report, a collaboration led by investors and civil society organizations to benchmark corporate human rights performance, only 33% of the 98 analyzed companies can demonstrate grievance mechanisms for workers and wider stakeholders, and 33% of companies cannot demonstrate any grievance mechanism at all.

Existing Gaps

To tackle the existing gaps, despite the concerns that states appear to resent the structures of international lawmaking as shackles, the working group chose to place its bet on the traditional international law pathway. Aside from reminding that business enterprises shall respect all human rights, the zero draft refrains from granting them additional legal standing under international law. Only states have legal obligations to make business legally accountable and provide victims with access to remedy.

Ironically, though, as Carlos Lopez, a senior advisor at the International Commission of Jurists, has pointed out, the role of states with respect to their own business-related operations fails to come into proper focus. This is a baffling omission, if only considering that in 2014, state-owed enterprises represented 22.8% of Fortune Global 500 companies, with $389.3 billion of profit and $28.4 trillion in assets. The zero draft is nonetheless rather ambitious in scope and content, if not always solid enough, to reach its ultimate regulatory targets — business enterprises — through the obligations it imposes upon states.

For instance, concerning the scope issue, the zero draft is only half a success. Language-wise, the definition of its subject matter in terms of “all international human rights” will need some tweaking, at least to clarify the conventional or customary source of such rights (Article 3.1). Concerning its regulatory target, the draft treaty text pays heed to a footnote indication in the original mandate by the Human Rights Council and opts for covering only “business activities of a transnational character.” This quality applies to all for-profit activities “including by electronic means” that “take place or involve actions, persons, or impact in two or more national jurisdictions.”

The net is thus cast less widely than the GPs, which concern all types of business, but still widely enough to capture local business with some transnational material element, and extend forward to include technology-induced developments in the very form of business operations. The caveat is that it seems at best unclear and at worst undesirable how the current definition may apply in some respects. One is that states shall ensure liability “for violations of human rights undertaken in the context of business activities of transnational character” (Article 10.1).

Does this mean that the specific activities causing harm, or rather the operations in general of a business enterprise, need to occur in two or more jurisdictions? The first option would be unwelcome, particularly in criminal liability. In a typical parent-subsidiary company or a supply-chain type of case, for instance, only the upstream business branch would potentially face liability for conduct at the downstream level. The risk of legal gaps is thus high, considering that the treaty, if ever adopted, will receive patchy ratification.

Things May Change

Likewise, the new draft text strikes a mixed balance on two of the dearest themes to the business and human rights community — due diligence and access to remedy. Here, particularly with respect to prevention, states are the immediate duty-bearers, but the actual addressee and target is business. States indeed have an obligation to enact domestic measures that would in turn oblige corporations with transnational activities to undertake effective human rights due diligence. Failure to abide by this obligation would become a source of liability under domestic law for the faulting enterprise.

To get an idea of how things may change an apt comparison is with the famous Doe v Wal-Mart case in the US. The plaintiffs in this case argued that Wal-Mart had failed to enforce its code of conduct, which required the suppliers to comply with labor and industry standards, and provided that Wal-Mart would undertake measures, such as on-site inspections, to monitor those standards. Failure to implement the standards could result in termination. The court held that although Wal-Mart had reserved the right to inspect, in doing so it had not adopted a duty to inspect, and that the workers of the suppliers did not receive protection by Wal-Mart supply contracts. This conclusion would have been harder to reach had national legislation provided for mandatory human rights due diligence, as the draft treaty text requires.

Also changed is the very content of due diligence (Article 9). This is usually understood as meaning that business should identify, prevent, mitigate and account for how it addresses its adverse human rights impacts. The draft treaty text adds “meaningful consultation” with affected groups, the requirement of financial security to cover potential compensation claims, and the incorporation of some due diligence measures into businesses’ transnational contracts.

Implementing such a sweeping agenda will obviously entail a significant legislative and monitoring burden, and indeed the draft text insists on the need for effective national procedures” to “enforce compliance.” All this may chill states’ willingness to enter into a future treaty deal. However, it may also make them feel to be in the “driver’s seat to adopt legislation of their own choosing to meet broadly stated treaty criteria,” as Doug Cassel put it. On which side the scales will tip will soon became clear over the next round of negotiations in October. Preventative measures are indeed high on civil society’s agenda, and, as shown by the recent French loi de vigilance (due diligence law), they are becoming increasingly high also on the states agendas as well.

Critical Barriers

On access to remedy, the zero draft scores important points for its mission to be a “victim-oriented” text. One point is the recognition of legal liability for human rights violations, plus a half bonus point for the attempt to chip away at the principle of separation of legal entities in the area of civil liability. Victims, indeed, face critical barriers resulting from the corporate form, particularly cases of parent company liability for extraterritorial abuse.

To give a recent example, in May 2018 a US federal court dismissed a case brought by Peruvian farmers against Newmont and its local subsidiaries over alleged attempts to unlawfully evict the claimants from their land. The reason for the dismissal was lack of jurisdiction by US courts, which the federal court upheld, notwithstanding that the plaintiffs were unable to obtain justice in Peru.

According to the new treaty draft, companies would incur liability in connection with the actions of their subsidiaries and business partners, depending on factors of control, foreseeable risk, or a “strong and direct connection” between the company’s conduct and the wrong (Article 10.6). This catch-all language will predictably stir debate, yet it still gives all parties a signal that the principle is on the negotiating table.

On remedy mechanisms more specifically, the lion’s share goes to judicial remedies. Special rights and provisions — including that “in no case shall victims be required to reimburse any legal expenses of the other party to the claim” — find their way in the draft to foster access to courts. This strong focus, albeit overall laudable, still ignores to a great extent the role of alternative forms of remedy in the area of business and human rights.

Non-judicial mechanisms have indeed gained traction in the post-GPs era. Their proliferation at all levels of governance — domestic, international and private — has raised increasing debate, civil society scrutiny and policy guidance. A series of research studies by the Office of the UN High Commissioner for Human Rights in particular has produced substantive recommendations on how to strengthen and use the links between judicial mechanism and other forms of remedy. The working group could have drawn precious insights from this in-house research, which is now at its third and final stage on private remedy mechanisms.

Poverty of Imagination

Its regrettable failure to do so reveals what is perhaps a broader weakness of the draft treaty text: its limited institutional inventiveness. Dropping the idea of establishing international remedy mechanisms, as envisaged in the previous draft elements, was perhaps a wise move. Yet, aside from its provisions on access to courts, the zero draft contains little novelty in the mechanisms that should inject life into the treaty.

This poverty of imagination or courage is also visible when it comes to monitoring and implementation. Here the choice is for a committee of experts in charge of receiving and reviewing progress reports by states, making general comments and issuing state-specific recommendations for improvements (Article 14.4). The principle is that of self-reporting and non-binding review, typical of early human rights treaties such as the International Covenants on Human Rights.

Those who wished for robust international enforcement, or who have simply grown disillusioned with the current international system of international oversight, will be disappointed, and rightly so. Their concerns have serious merit, even when weighted against the need to create incentives for a critical mass of states to join the treaty. For there is no reason why the zero draft should follow a shabby model without even trying to cherry-pick what works and capitalize on it.

There is room to think more creatively, even within the box apparently chosen by the working group. Gráinne de Búrca, for instance, recently offered an interesting view on the international human rights system, characterizing some parts of it as an example of transnational experimentalist governance. The premise is that broadly articulated goals at the international level may provide a solid basis for regulation when “elaborated over time through the practice of those affected by and in a position to help implement them, and routinely monitored and revised through a form of peer review.”

A key ingredient to this is a sustained, if not formal, involvement of civil society and other stakeholders in the downstream functioning of the treaty regime. For instance, the Convention on the Rights of Persons with Disabilities, which is the most recent of the UN human rights treaties, explicitly provides an active role for civil society. Various stakeholders, including organizations of persons with disabilities and their representatives, enjoy formal standing under the 2016 Guidelines on Independent Monitoring Frameworks and their participation in the work of the committee of experts that comprises the treaty body. This is not to suggest that civil society is the magic bullet for the international human rights treaty systems in general, nor for a future treaty on business and human rights. The intent is rather to set the background for why the lack of avenues for institutionalizing participation by non-state actors is a major fault of the new draft treaty.

The failure here is twofold. First, it is a failure to strike a reasonable balance in dealing with the transnational quality necessarily built-into any future treaty on business and human rights. Insofar as business enterprises are the ultimate regulatory targets of the future treaty, providing for continuous contact with them and with human rights activists would have been a wise move — all the more so for counterbalancing the choice to impose direct obligations only on states.

Second, participation by non-state actors has been the hallmark of the negotiation process. For treaties affecting business activity, argues Kish Parella, the treaty process itself involves indirect effects “within the shadow regions of the treaty where voluntary industry regulation occurs.” Such effects include “identification of deficiencies with current self-regulatory projects, articulation of policy recommendations, increased coordination among stakeholders, and reputational shaming.” From this perspective, the zero draft misses the opportunity to create continuity between the present and the future, and to make room for penumbral effects to thrive in the monitoring and implementation process. Hopefully, the next round of negotiations will lift institutional inventiveness from the shadows, rather than of penumbra, where it currently lies.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

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