Written by Shamshir Malik
Co-Founder and Editor-in-Chief, Law & Order
B.A (Political Science) University of Toronto, Canada
Disclaimer: Please note that the views expressed below represent the opinions of the article's author. The following does not necessarily represent the views of Law & Order.
Introduction
In spite of public outrage and increasing awareness about the perils of unburdened capitalism, the international legal system continues to lack proper mechanisms of oversight over transnational corporations (TNCs). Since TNCs operate across the borders of multiple countries at once, their extraterritorial operations become more difficult to regulate. The impunity of corporate human rights violations under international law is heavily implied through the several controversies that make headlines every year. This article will provide a short description of the general nature of human rights violations inflicted by TNCs. Second, it will discuss the governance gap in International Human Rights Law that enables corporate negligence in the extraterritorial context. Finally, the article will conclude with a discussion on possible pathways to address this governance gap in international law.
Corporate Human Rights Violations: Examples and Trends
In an analysis of more than 100 major apparel, agricultural and extraction firms conducted by the Corporate Human Rights Benchmark (CHRB), two-thirds of the firms scored below 30 on a scale of 100 (rankings based on public information available on practices and policies related to transparency, forced labor, wages, etc.), with the average score being 27. Famous corporations such as Starbucks, Prada, and Hermes were ranked amongst some of the worst on the list. [1]
Large apparel companies operating garment sweatshops in developing countries with low labor costs such as Bangladesh, India, Thailand, etc. have failed to display transparency in disclosing supplier factory information. For example, Inditex (the parent company of Zara and other brands), has refused to publish any supplier factory information, arguing that it privately discloses the data to global unions with whom it has signed an agreement to improve the labor’s working conditions throughout its operation sites. [2]
In 2013, the collapse of the Rana Plaza factory building in Dhaka, Bangladesh that housed five garment factories in total killed at least 1,130 people and injured more than 2,520. Loblaws, one of Canada’s largest retailers in food and other household items, was left off-the-hook as the Canadian court ruled it had no jurisdiction to consider the claim. Pearl Global and New Wave were the two subsidiaries in a contract with Loblaws to supply clothing for its ‘Joe Fresh’ brand from factories in Bangladesh. [3]
In an on-going class-action lawsuit, Nestle USA has been charged with forced child-slavery in Cote d’Ivoire. The defendant was charged with trafficking slaves and forcing them to work in harvesting and/or cultivating cocoa beans on farms in Côte d’Ivoire, which supply cocoa beans to the Nestle USA. [4] The case was filed under the Alien Tort Claims Act [5] in the United States, a law that allows citizens of any nationality to file cases in the US federal courts for violations of international treaties. In 2017, the motion to adjudicate the case was dismissed and has not yet been appealed.
These cases are only a small handful of the copious amount of corporate human rights violations all over the world, wherein corporations have successfully circumvented international law in order to reap profits through the exploitation of vulnerable communities.
The above-mentioned cases point to some common trends in corporate negligence related to human rights, such as:
1. TNCs with headquarters in the West often operate extraterritorially, and their violations are carried out against the weaker populations of developing nations in most cases
Penelope Simon and Audrey Macklin discuss the ‘governance gap’ with respect to transnational extractive corporations operating in zones of ‘weak governance.’[6] Extractive industries such as mining, oil, and other resources are restricted to the location of the resource for their operations. Therefore, such industries are most likely found in resource-rich, developing countries with weak legal frameworks.
A lot of human rights violations by corporations take place in developing states or ‘weak-zones’, where the courts may lack the resources, infrastructure, technical capacity, and the political will to sue foreign corporations as the governments rely on the operation of these companies for revenue.
In some cases, the interference of international financial institutions such as the International Monetary Fund, take away control from these governments to formulate appropriate trade and investment laws that control foreign investors.[7] In a lot of ways, the tyranny of Western TNCs in developing countries can be seen as a subtle form of neo-colonialism.
2. Human rights violations are often associated with profit-making motives, even in companies with Corporate Social Responsibility (CSR) policies
Corporate Social Responsibility (CSR) policies are supposed to act as deterrents to potential human and labor rights violations within the supply-chains of TNCs. On one hand, companies such as Starbucks that promote “environment sustainability” as a corporate policy are able to use this label for profit-making on the grounds of increased brand-value.[8] On the other hand, severe allegations of child-labor have been made towards the corporation, allegedly with children as young as eight years old that supply coffee-beans to Starbucks from farms in Guatemala.[9] Similarly, countries in the West that follow ethical CSR motives do not seem to follow these policies in developing countries.
3. Impunity
As non-state actors, transnational corporations are recognized as non-legal personalities in international law. [10] Since the international law system is state-driven and states are the only recognized actors within the framework, it means that direct obligations of the law cannot apply to TNCs.
The conduct of TNCs is thus left under the jurisdiction of their home state. A lot of corporations that come under fire for human rights abuses extraterritorially are often left scot-free due to the complexities of extraterritorial jurisdiction in international law. In some cases, national courts are not granted jurisdictional authority over the case due to its extraterritorial nature. In other cases, states are unable to exercise enough control over powerful businesses due to conflicts of interest.
How do TNCs avoid liability for Human Rights violations under International Law?
1. The status of TNCs as non-legal actors
Despite their growing influence and accumulation of power, non-state actors such as TNCs are not recognized as independent entities that must be governed directly under international law. [11] Rather, they continue to lie within the jurisdiction of states, notwithstanding the fact that states are often not able to control them. The non-recognition of transnational corporations as integrated entities with direct obligations promotes corporate impunity, especially in developing countries.
2. The non-binding (soft law) status of the UN Guiding Principles on Business and Human Rights
International Human Rights Law is primarily a normative regime of law that derives its authority from international customs and general principles of international law, rather than binding and codified treaties. [12] Human Rights violations perpetrated by State actors and individual actors can be contested in international courts (International Court of Justice and International Criminal Court, respectively.) [13] However, due to the non-legal status of TNCs, no existing binding framework of law can govern them directly. As a general set of guidelines, the United Nations published the UN Guiding Principles on Business and Human Rights. [14]
These Guiding Principles remain under “soft law” status, which makes it easy for corporations to interpret these informal laws in a suitable way to avoid consequences and reject responsibility.
For example, transnational corporations often do not adhere to the international standards for human rights in countries wherein national laws do not adequately comply with human rights standards. The excuse of an action being permitted within national boundaries is then used to defy international standards set under the Guiding Principles. [15]
3. Subsidiaries
By virtue of their non-legal status and lack of direct obligation in international and domestic law, TNCs can structure themselves appropriately in order to avoid regulatory oversight from both jurisdictions. TNC groups that often include sub-components such as “parent company, subsidiaries, foreign affiliates, contractual joint-venture partners, etc.” are treated as disaggregated entities that are not linked to one another, and each entity is subject to the domestic laws of the nation within which it is situated. [16] On the contrary, most TNCs are integrated entities that operate in concert with one another, wherein the parent company often exercises de-facto control over the smaller entities through non-equity partnerships. [17]
As ‘subsidiaries’ or smaller entities within the integrated TNC are recognized as completely separate enterprises from the parent company in legal terms, subsidiaries are often used as tools for corporations to escape liability in the case of risk-taking activities in a foreign land.
First, this makes it difficult to establish a link between subsidiaries and corporations. Second, this enables corporations to resort to out-of-court settlements without taking formal responsibility for their actions. With no link to trace the chain of liability to the responsible parent company, this results in the formation of a ‘corporate veil.’ [18]
4. States do not have enough control over businesses
Scholars such as John Ruggie have advised that rather than imposing direct obligations on corporations, state actors should continue to uphold their obligation to protect human rights (especially in the context of transnational corporations domiciled within their home nations) by holding them accountable for their actions and providing appropriate recourse for those affected. [19]
Although the system of international law has put the fate of TNCs within the hands of states, scholars have argued that states are often unable to regulate the behavior of powerful businesses in the absence of a clear international obligation of states to regulate the extraterritorial activities of TNCs. [20]
As Susan Marks (Professor of International Law, London School of Economics) points out, “even the most powerful [states] face growing difficulty in controlling the activities of the business.”[21]
Due to the relationship of interdependence between many state governments and big corporations, states are often complicit in the extraterritorial violations of TNCs.
An example that highlights this state-business interdependence is the Union Carbide Corporation vs Union of India, etc. case from May 1989. [22] A subsidiary plant (belonging to a British corporation called Union Carbide) which was situated in Bhopal witnessed an accidental Methyl Isocyanate gas-leak, killing and disabling thousands of people. Due to the extraterritorial nature of Union Carbide’s operations in India, the Indian Court was initially not granted jurisdiction over the matter. After five years, the Supreme Court of India finally held that Union Carbide was absolutely liable for the Bhopal disaster, but as noted by multiple legal scholars, “the amount of compensation awarded was an act of mercy ‘for the benefit for the claimants and not as fines, penalties or punitive damages.’”[23] This largely reflects the failure on the part of the judiciary and the executive who gave in to the influence and pressure of UCC.” This is a failure on the part of the Indian government, for it was the state that allowed a plant dealing with life-threatening chemicals to be situated in a populous city like Bhopal in the first place. It is a fact that the same level of security and maintenance systems were not available in the Indian subsidiary of Union Carbide, as they were in the US subsidiary of the corporation. Additionally, the out-of-court compensation agreed upon by Union Carbide and the Supreme Court was called “an act of mercy”, as though it were charity and not punitive damages paid due to the corporation’s liability. This was done to facilitate a one-billion-dollar investment in India by Dow Chemicals, a company that acquired the company Union Carbide in 2001. [24] Corporate negligence, poor maintenance, and underinvestment on the part of the corporation caused long-term devastating effects and on-going contamination in the region. However, this major act of negligence was not punished adequately due to the state’s reliance on the company for foreign direct investment (FDI). In the event of such symbiotic relationships of dependence wherein the corporations tend to be more powerful than the state, how can the accountability of TNCs be left in the hands of state actors?
Conclusion
A general concern that emerges out of this discourse is the status of non-state actors in international law. The legal recognition of non-state entities in international law endangers the system of state sovereignty, which is the foundational principle of international law. However, in a system wherein states are the only actors answerable to the law, powerful non-state actors such as TNCs are left unregulated, with no direct obligations to the system. For the aforementioned reasons, the effectiveness of states in regulating TNCs is questionable.
In the present scenario, what could be a possible approach to solve the governance-gap issues in governing TNCs, especially in the extraterritorial context?
A hands-on approach would be to solidify the regime governing extraterritorial human rights violations by TNCs (UN Guiding Principles) into hard law. However, this would entail the controversial recognition of non-state TNCs as legal entities. A more hands-off approach that upholds the principle of state sovereignty could be an increase in the state’s direct capacity to regulate businesses extraterritorially.
The most viable pathway to solving this issue lies in the shifting of some of the responsibility of human rights violations directly onto corporations, without weakening the legitimacy of the state-led international law-system.
[1] BACCHI, UMBERTO. "Most big companies failing U.N. human rights test, ranking shows." Reuters. November 11 2018. [2] KASHYAP, ARUNA, "Soon There Won’t Be Much to Hide - Transparency in the Apparel Industry." World Report 2018. December 15 [3] PERKEL, COLIN, "Loblaws off the hook for Rana Plaza disaster; Bangladeshi lawsuit fails." CBC News. August 28, 2019 [4] International Rights Advocates. n.d. "John Doe I, et al. v. Nestle USA, Inc., et al." International Human Rights Advocates [5] Legal Information Institute. n.d. "Alient Tort Statute." Cornell Law School. [6] MACKLIN, PENELOPE SIMONS & AUDREY, "Introduction." In The Governance Gap: Extractive Industries, Human Rights, and the Home State Advantage, by Penelope Simons and Audrey Macklin, 1–21. Routledge 2014. [7] Ibid. [8] "Starbucks Ethical Sourcing of Sustainable Products." STARBUCKS. [9] "Children as young as eight picked coffee beans on farms supplying Starbucks." THE GUARDIAN [10] Supra note 6
[11] Supra note 6
[12] OHCHR. "International Human Rights Law." United Nations Human Rights Office of the High Commissioner. [13] Ibid. [14] SIMONS, PENELOPE, "The Value-Add of a Treaty to Regulate Transnational Corporations and Other Business Enterprises: Moving Forward Strategically." In Building a Treaty on Business and Human Rights: Context and Contours, by Penelope Simons eds. Surya Deva and David Bilchitz, 48-78. CAMBRIDGE UNIVERSITY PRESS. (OHCHR n.d.) 2017. [15] Ibid.
[16] Supra note 6
[17] Supra note 6
[18] Supra note 6.
[19] Supra note 14.
[20] Extraterritorial Jurisdiction as a tool for improving the Human Rights Accountability of Transnational Corporations. Business and Human Rights.
[21] Supra note 6.
[22] MELIK OZDEN, Transnational Corporations, and Human Rights, CETIM
[23] DEBOSMITA NANDY, Making Transnational Corporations Accountable for Human Rights Violations, NUJS LAW REVIEW 2. (2009)
[24] Supra note 22. BIBLIOGRAPHY
BACCHI, UMBERTO, "Most big companies failing U.N. human rights test, ranking shows." Reuters. November 11 2018. https://www.reuters.com/article/us-global-rights-forced-labour/most-big-companies-failing-u-n-human-rights-test-ranking-shows-idUSKCN1NH02F.
Business and Human Rights. n.d. Extraterritorial Jurisdiction as a tool for improving the Human Rights Accountability of Transnational Corporations. Business and Human Rights. https://www.business-humanrights.org/sites/default/files/reports-and-materials/Olivier-de-Schutter-report-for-SRSG-re-extraterritorial-jurisdiction-Dec-2006.pdf.
DALEY, SUZANNE, "Guatemalan Women’s Claims Put Focus on Canadian Firms’ Conduct Abroad." New York Times. April 2 2016 https://www.nytimes.com/2016/04/03/world/americas/guatemalan-womens-claims-put-focus-on-canadian-firms-conduct-abroad.html.
DEBOSMITA NANDY, Making Transnational Corporations Accountable for Human Rights Violations, NUJS LAW REVIEW 2. (2009) http://nujslawreview.org/wp-content/uploads/2016/12/debosmita-nandy-and-niketa-singh.pdf
International Commission of Jurists, "Corporate Complicity & Legal Accountability: Facing the Facts and Charting a Legal Path." 1-31 2008.
International Rights Advocates. n.d. "John Doe I, et al. v. Nestle USA, Inc., et al."International Human Rights Advocates. http://www.iradvocates.org/case/africa-multi-country/john-doe-i-et-al-v-nestle-usa-inc-et-al.
KASHYAP, ARUNA, "Soon There Won’t Be Much to Hide - Transparency in the Apparel Industry." World Report 2018 December 15 https://www.hrw.org/world-report/2018/essay/transparency-in-apparel-industry.
Legal Information Institute. n.d. "Alient Tort Statute." Cornell Law School. https://www.law.cornell.edu/wex/alien_tort_statute.
LESLIE JOHNS, KRZYSZTOF J. PELC & RACHEL L. WELLHAUSEN. "How a Retreat from Global Economic Governance May Empower Business Interests." Journal of Politics 81(2) 731-738 2019.
MACKLIN, PENELOPE SIMONS & AUDREY, "Introduction." In the Governance Gap: Extractive Industries, Human Rights, and the Home State Advantage, by Penelope Simons and Audrey Macklin, 1–21. Routledge 2014.
MELIK OZDEN, Transnational Corporations, and Human Rights, CETIM http://www.cetim.ch/legacy/en/documents/bro2-stn-A4-an.pdf
OHCHR. n.d."International Human Rights Law." United Nations Human Rights Office of the High Commissioner.
PERKEL, COLIN, "Loblaws off the hook for Rana Plaza disaster; Bangladeshi lawsuit fails."CBC News. August 28 2019. https://www.cbc.ca/news/politics/rana-plaza-disaster-loblaws-supreme-court-1.5240493.
SIMONS, PENELOPE, "The Value-Add of a Treaty to Regulate Transnational Corporations and Other Business Enterprises: Moving Forward Strategically." In Building a Treaty on Business and Human Rights: Context and Contours, by Penelope Simons eds. Surya Deva and David Bilchitz, 48-78. Cambridge University Press 2017.
Starbucks. n.d."Starbucks Ethical Sourcing of Sustainable Products." Starbucks. https://www.starbucks.com/responsibility/sourcing.
THE GUARDIAN. n.d. "Children as young as eight picked coffee beans on farms supplying Starbucks." The Guardian. https://www.theguardian.com/business/2020/mar/01/children-work-for-pittance-to-pick-coffee-beans-used-by-starbucks-and-nespresso.