This article was originally published on OECDONTHELEVEL on 7 July 2018

In the first post of his Legacy Blog Series, Roel Nieuwenkamp takes a look at responsible business conduct in the broader context of trade and investment policies in the globalisation debate.

The world is facing a backlash against globalisation and growing public distrust has significantly impacted a series of national elections. This goes hand-in-hand with a pushback against investment treaties and trade agreements. At the OECD, policy makers are talking about ‘Making globalisation work for all’. If we really want to achieve this, policy makers have to take a critical look at responsible business conduct.

A recurring theme in the area of corporate responsibility is that some governments fail to protect human rights and the environment and that some businesses profit from this by hiding behind these government failures.

In many cases of corporate misconduct, the underlying problem is the failure of a government. Take the example of the Rana Plaza tragedy. There were no adequate government inspections regarding building safety and no enforcement of labour standards. Local factory owners and global brands were able to benefit from extremely low costs partly because of a disengaged government. Following the disaster, the finger pointing started: brands blamed local factories for irresponsible conduct; local factories blamed brands for imposing prices that were too low.

Let’s take another example. The World Wildlife Fund (WWF) filed a complaint regarding SOCO’s exploration for oil in the treasured Virunga Park in the Democratic Republic of the Congo (DRC). Mediation by the UK National Contact Point (NCP) for Responsible Business Conduct that handled the complaint led to an agreement by SOCO not to explore for oil again in UNESCO world heritage sites. But the unanswered underlying question was: who gave the company a licence to explore for oil in the first place? The answer: the government of DRC.

Non-existent, insufficient and unenforced standards

Too often we see that standards are non-existent, insufficient or unenforced. Many governments still use low standards as a competitive advantage in the global economy. This is something the NCP complaints mechanism has revealed. The trade union complaints received by NCPs over the years have one underlying theme in common: many governments do not seriously enforce labour rights.

The best way to balance global trade demands and respect international standards is to make sure governments do what they are expected or obliged to do. States have a duty to protect their citizens from human rights abuses by business. This includes improving the rule of law, the enforcement of standards, and the fight against corruption. Corporate responsibility standards and policies are complementary to, not a substitute for, good governance.

However, a non-judicial complaints mechanism like the NCP system of the OECD Guidelines for Multinational Enterprises is an important vehicle for the promotion of responsible globalisation. If all governments had perfectly developed legal systems and fully enforced international standards, there would be no need for such a mechanism. As we do not live in a perfect world, ways to protect people and the environment outside of national boundaries are necessary.

The hard and soft law dichotomy

In the area of international investment, advanced instruments for protecting investors – wherever the investments may be located – are in place as part of bilateral investment treaties. Governments have developed protection for foreign investors precisely because some states have failing policies and inadequate legal systems to safeguard investor rights. In regions where courts are dysfunctional, corrupt, politically biased or incompetent, foreign investors want extraterritorial protection. This is understandable. Economic activities may also harm people but protection from the consequences of these same failing policies and inadequate legal systems is lacking. Added to this, the victims often do not have access to extraterritorial protection of their rights. A fundamental asymmetry exists between investment protection and people protection. We see hard protection of investments and soft protection of people. We have to ask ourselves why we protect investments with hard law and people with soft law.

This imbalance is fuelling two trends: a declining support for investment protection, which undermines trade policy in general and free trade agreements in particular; and, societal and political pressures towards mandatory legislation on responsible business conduct, such as the recent due diligence law in France and the modern slavery act in the UK. This imbalance has also led to discussions in the UN on a binding treaty on business and human rights.

The way forward

What can be done? First and foremost, governments should work on strengthening the duty to protect human rights, strengthen the rule of law, and improve the enforcement of international standards. Two complementary responses are required:

• Make investment protection more responsible. The current practice of including merely aspirational provisions on corporate social responsibility and co-operation in this field will not do the trick. It will only lead to accusations of ‘greenwashing’ investment treaties. Meaningful reforms of bilateral investment treaties should be undertaken urgently, such as exclusion of investments that are the result of corruption. Arbitrators should also be permitted to take into account breaches of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines when awarding compensation.
• Provide extraterritorial access to remedy for people. This could be achieved, for example, by strengthening the NCP mechanism under the OECD Guidelines. The NCPs, as responsible business authorities, have a unique role to play in making globalisation work for all.

This topic will not disappear from the agenda. The abovementioned imbalance will keep haunting policy makers until they take the measures necessary to address the growing national and international concerns relating to some of the consequences of globalization.