Attività finanziarie e d impresa

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1 Attività finanziarie e d impresa Towards a Human Rights Treaty on Transnational Corporations and Other Business Enterprises: The First Session of the UN Open-ended Intergovernmental Working Group Sommario: 1. Introduction. 2. The Ratione Personae Scope of Application of the New Instrument: What Type of Companies Should Be Regulated?. 3. The Ratione Loci Scope of the Treaty: The Issue of Extraterritorial Regulation of Corporate Conducts. 4. Final Remarks. 1. On 10 July 2015 the Open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights (hereinafter: OEIGWG) adopted the first Report concerning its session held from 6 to 10 July 2015 in Geneva. The Report and the session of the OEIGWG illustrate the first series of discussions on the proposal, Human Rights Council, Draft Report of the Open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights, 6 10 July 2015 ( Corp/Pages/IGWGOnTNC.aspx) launched one year ago by resolution 26/9 of the UN Human Rights Council, to adopt international binding rules for the business sector (see Human Rights Council, Resolution 26/9. Elaboration of an international legally binding instrument on transnational corporations and other business enterprises with respect to human rights, UN Doc. A/HRC/RES/26/9, of 26 June 2014). Through resolution 26/9, the Working Group was asked to «elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises» (para. 1). More specifically, the resolution instructed the working group to devote its first two sessions «to conducting constructive deliberations on the content, scope, nature and form of the future international instrument» (see para. 2), and recommended to dedicate the first session «to collect inputs, including written inputs, from States and relevant stakeholders on possible principles, scope and elements of such an international legally binding instruments» (see para. 5). The OEIGWG represents a further attempt to establish binding international regulations for private companies in the field of human rights after the failure of prominent predecessors at UN level such as the UN Code of Conduct for Transnational Corporations (see Economic and Social Council (ECOSOC), Draft Code of Conduct on Transnational Corporations, UN Doc. E/1990/94, 12 June 1990) and the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights (hereinafter, the Norms ), adopted by the United Nations Sub-Commission on the Promotion and Protection of Human Rights (see Sub-Commission on the Promotion and Protection of Human Rights, Resolution No. 2003/16, Responsibilities of transnational corporations and other business enterprises with regard to human rights, UN Doc. E/CN.4/Sub.2/2003/L.11, of 13 August As far as the legal literature on the Norms see D. Weissbrodt, M. Kruger, Human Rights Responsibilities of Businesses as Non-State Actors, in Non-State Actors and Human Rights, P. Alston (ed.), 2005, p. 322 ff.). Indeed, DIRITTI UMANI e DIRITTO INTERNAZIONALE Società editrice il Mulino vol. 9, 2015, n. 3, pp ISSN:

2 674 Osservatorio while negotiations over the UN Code of Conduct were suspended in 1992 once changed the economic and political conditions that led to the initial call for a universal instrument laying down obligation for TNCs (i.e. the start of the North-South clash and the beginning of the Cold War era), the project of Norms was abandoned due to the strong opposition of developed States and to the lack of universal consensus over human rights standards to apply to economic entities (See L. Catá Backer, Multinational Corporations, Transnational Law: The United Nation s Norms on the Responsibilities of Transnational Corporations as a Harbinger of Corporate Social Responsibility as International Law, in Columbia Human Rights Law Review 2006, p. 308 ff.). During this first OEIGWG s session both positive aspects as well as critical issues emerged. On the one hand, it is remarkable that, despite the intergovernmental nature of the group, there was ample participation by different social sectors, including NGOs, business organizations, academics and other leading experts of the subject-matter. This had the positive result of preserving cultural pluralism on topics to discuss, thus giving voice to different points of view. On the other hand, however, there were major deficiencies concerning government participation: key home States of TNCs being absent or explicitly boycotting the process (so did the USA) and the European Union delegation abandoning the meeting on the second day. Indeed, since its inception the session has had to deal with several key divisive issues which are historically at the heart of the debates concerning the establishment of an international legal framework applicable to corporations in the field of human rights. These issues involve, amongst other things, the ratione materiae scope of application of the future Treaty (i.e. what human rights should be encompassed?), its ratione personae scope of application (which entities should be regulated by future Treaty provisions?) its ratione loci scope of application (should the Treaty be applied territorially or extraterritorially by future State Parties?); the interactions with the already existing international instruments in the business and human rights area; the typology of remedial mechanisms to be implemented by the future instrument in order to provide its provisions with effective measures of enforcement. It is not possible to examine all these issues here; this paper will therefore focus only on those issues appearing crucial to reaching a sufficient consensus and ensuring a positive outcome to the negotiations. This applies particularly to the ratione personae and ratione loci scope of application of the future instrument: indeed, the existence of conflicting views amongst States on the applicability of these criteria were the main reason for the failure of prior efforts to establish binding international instruments for the private sector. Ultimately, the success of the present codification process will depend on the capacity of negotiations to attain consensus on both these issues. 2. Controversies emerged during the first session of the OEIGWG concerned in the first place the new instrument s ratione personae scope of application and mirrored those occurred during the adoption of Resolution 26/9. The Resolution, in fact, had included in its heading a reference to «transnational corporations and other business enterprises» and, notwithstanding the opposition of EU Countries to a narrow interpretation of this expression, a footnote was added explaining that «other business enterprises denotes all business enterprises that have a transnational character in their operational activities, and does not apply to local businesses registered in terms of relevant domestic law» (See Resolution 26/9; emphasis is added). This led EU member States to vote against its adoption. Hence, during the first session of the OEIGWG 2015, an EU proposal aimed at including this issue in the programme of work was defeated by the opposition of a group of

3 Attività finanziarie e d impresa 675 States, led by Pakistan and South Africa. Their principal grounds for opposition were: a) local companies should be regulated by national governments, without the need for intrusion into their domestic sovereignty by international regulation; and b) the future Treaty should focus on the unique ability of transnational corporations to evade, or escape, national regulation by host States. Therefore, the steady opposition to any compromise from States opposing the enlarging of the future Treaty ratione persone scope of application, led EU States to abandon the session on the second day. However, even though a narrow interpretation of «other business enterprises» terminology is not completely without substance (D. Cassels, Treaty Process Gets Underway: Whoever Said It Would Be Easy?, available at - process-gets-underway-whoever-said-it-would-be-easy, last accessed on 27 July 2015), it cannot be agreed upon for several reasons. In the first place, provisions included in the Preambles of international acts can certainly be considered as falling within the general context in the light of which such acts may be interpreted (see E. Suy, Le Preambule, in Liber Amicorum Judge Mohammed Bedjaoui, E. Yalpo and T. Boumedra (eds), The Hague, 1999, p. 253); also they may well be used to assist in interpretation by providing guidance on the object and purpose of such acts. Nevertheless, they need to be treated with caution since they «tend to be used as a dumping ground for proposals that are not acceptable in the operative paragraphs» (M. Wood, The interpretation of Security Council Resolutions, in Max Plank Yearbook of United Nations Law 1998, p. 86 ff.). From this perspective, therefore, the EU request to include the issue in the work programme had a legitimate basis and the footnote content cannot be considered equivalent to the mandatory part of the Resolution. Secondly, arguments to exclude the national business sector of the host States from the future Treaty scope of application do not place sufficient emphasis on a key problem: the lack of will, or capacity, of many States to effectively regulate not only big transnational corporations but also their own local companies, especially the largest and most influential amongst them. From this perspective, it is a matter of fact that national corporations too beneficiate from the shifting of powers from States to private sector entities which is caused, inter alia, by the deregulation of many economic activities. Also national corporations, therefore, contribute in shaping the contemporary governance gaps «between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse consequences» (see UN Special Representative on Business and Human Rights, Protect, Respect and Remedy: A Framework for Business and Human Rights, UN Doc. A/HRC/8/5, of 7 April 2008, para. 3). Such governance gaps «provide the permissive environment for wrongful acts by companies of all kinds» (ibid.) and may lead to attempts by national corporations to evade regulation by (home) States. So, why exclude them from the scope of an international instrument aspiring to restore a fair balance between private business activities and human rights protection? Thirdly, the interpretation recommended by the footnote is a major departure from what appeared to be an already crystallized principle in previous UN attempts of codification in the subject matter: in particular the 2003 Norms and the 2011 UN Guiding Principles on Business and Human Rights. It is not a coincidence that also during the discussions on the draft 2003 Norms considerable divergences of views emerged exactly on this issue. Some participants saw the need to embrace powerful national business entities as well and a compromise was finally reached whereby the Norms were addressed to transnational corporations and to other business enterprises where these latter had any relationship with the former, the impact of their activities was not entirely local, or their activities involved violations of the right to

4 676 Osservatorio security. Therefore, in the Commentary to the Draft Norms a provision was added explaining that the terminology other business enterprises had to be meant as including «any business entity, regardless of the international or domestic nature of its activities, [ ]» (see Commentary on the Norms of Responsibility of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, U.N. Doc. E/CN.4/Sub.2/ 2003/38/Rev.2, 13 August 2003, para. 20). With regard to the UN Guiding Principles, Principle 14 explicitly acknowledges that even if «the scale and complexity of the means through which enterprises meet that responsibility may vary according to these factors and the severity of the enterprise s adverse human rights impacts» the «responsibility of business enterprises to respect human rights applies to all enterprises regardless of their size, sector, operational context, ownership and structure». The Commentary to Principle 14 confirms this approach by adding that «the responsibility to respect human rights applies fully and equally to all business enterprises» (as far as the Guiding Principles and on the work performed by the UN special representative see A. Bonfanti, Imprese multinazionali e diritti umani: ancora sull attuazione del quadro operativo Protect, Respect and Remedy nei lavori del Rappresentante speciale del Segretario generale delle Nazioni Unite, in this Journal 2010, p. 615 ff.; M. Fasciglione, I Guiding Principles on Business and human rights del Rappresentante speciale delle Nazioni Unite sul tema diritti umani, imprese transnazionali: un ridiculus mus?, in this Journal 2011, p. 598 ff.). Last but not least, narrowing the ratione personae scope of application of the future Treaty by excluding national corporations would paradoxically impair both the principle of the effective protection of human rights and the principle of equality and nondiscrimination. The risk there is, indeed, that by limiting this scope only to transnational corporations, they would restructure their corporate form so as not to fall within the Treaty definitions. This risk has been evoked by the former UN Special Representative on Business and Human Rights who has emphasized how a narrow interpretation of the footnote of resolution 26/9 entail the paradoxical consequence that the «proposed treaty would have covered international brands purchasing garments from the factories in the collapsed Rana Plaza building in Bangladesh, but not the local factory owners employing the more than 1,100 workers who died» (see J. Ruggie, Quo Vadis? Unsolicited Advice to Business and Human Rights Treaty Sponsors, available at The same Author has also underpinned that any useful distinction may be drawn «from a legal point of view between transnational corporations and enterprises that have a transnational character [as] transnational corporations subsidiaries are typically required to incorporate under relevant domestic law, often in joint ventures, including with state-owned enterprises or local businesses» (ibid.). These arguments have been substantially echoed during the Panel II of the OEIGWG s First Session in the statements made by Prof. McCorquodale highlighting the risks involved by limiting «the scope to some business enterprises, such as TNCs» (See R. McCorquodale, Principles for an International Legally Binding Instrument on Transnational Corporations (TNCs) and other Business Enterprises with respect to human rights, p. 3, available at HRC/WGTransCorp/Session1/Pages/ PanelII.aspx). Summing up, narrowing the ratione personae scope of the future Treaty to include only transnational corporations will risk radicalizing clashes amongst TNCs home Countries and host Countries, undermining the support to the initiative of civil society. At the end of the game when human rights victims are concerned «the corporate form of the abuser is irrelevant» (J. Ruggie, op. cit.).

5 Attività finanziarie e d impresa Another issue which may potentially lead to a radicalization of the contrasts amongst States during negotiations for a future Treaty is represented by the ratione loci scope of Treaty provisions. Should States be authorized to exercise jurisdiction over human rights violations committed outside their territory by companies incorporated in their Country, or not? Here the starting point for negotiations on the future Treaty might rely upon the results reached under the 2011 Guiding Principles. In effect, while under the 2003 Draft Norm the issue of extraterritorial application of human rights norms by home States was never dealt with, Principle 2 of the 2011 Guiding Principles acknowledges explicitly that States «should set out clearly the expectation» that all business enterprises domiciled in their territory and subject to their jurisdiction «respect human rights throughout their operations». In this respect, the 2011 Principles were highly criticized for their «failing to account for jurisdictional limitations in order to enable extraterritorial application» (see Human Rights Council, Draft Report of the Open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights, 6 10 July 2015, cit., para. 63). Under the Guiding Principles extraterritorial application is implied in the obligations of due diligence to control home States transnational corporations that are operating abroad (ivi, para. 61) and it may be operationalized through various options such as: creating prevention, disclosure, and reporting requirements, removing obstacles to the exercise of jurisdiction, removing the doctrine of forum non convenience, facilitating cross-border cooperation in investigations, and mutually recognizing national judgments. However, the OEIGWG s Report recall that several delegations highlighted how unilateral coercive sanctions imposed by States may constitute by themselves a human rights violation and pointed out the need to take into account the sovereignty of States: these are clear signals of the difficulties that yet exist in admitting extraterritorial application in this field area (ivi, para. 66). In our opinion, it cannot be denied that under the international human rights legal system general obligation on States to exercise extraterritorial jurisdiction with the aim of assuring the protection and promotion of internationally recognized human rights outside their national territory does not exist. However, the fact that certain forms of extraterritorial jurisdiction are not binding under conventional or customary international law does not imply that they have to be regarded as prohibited (as to the extraterritorial application of human rights treaties, see, inter alia, S.I. Skogly, Extraterritoriality: Universal Human Rights without Universal Obligations?, in Research Handbook on International Human Rights Law, S. Joseph, A. Mcbeth (eds), Cheltenham, 2010, p ; F. Coomans, M. Kamminga (eds), Extraterritorial Application of Human Rights Treaties, Antwerp-Oxford, 2004; T. Meron, Extraterritoriality of Human Rights Treaties, in American Journal of International Law 1995, p ). Thus, from a theoretical point of view it seems reasonable to admit that States should be allowed to exercise extraterritorial jurisdiction either, under the principle of universality, in order to contribute to the universal repression of certain international crimes as well as, under the principle of active nationality, when they seek to regulate the activities of their nationals abroad, whether these are natural or legal persons. Justifying the exercise of extraterritorial jurisdiction on the principle of active personality seems useful when corporations with the nationality of the home State are involved in human rights violations. Indeed, since corporate nationals may not be extradited, the extraterritorial application of national legislation on the basis of the principle of active personality ensures that certain crimes would not remain unpunished. Also, by exercising extraterritorial jurisdiction on the basis

6 678 Osservatorio of the active personality principle, a State ensures that its corporate nationals will not be acting in violation of certain fundamental values abroad, by adopting forms of behaviour that would be considered as offences in the forum State: the principle here is that what the nationals of a State are not allowed to do at home, they should not be allowed to do in any other State. Turning to the material practice of the international human rights monitoring bodies, some tendencies aimed at enlarging the reach of States human rights obligations, even when corporate persons are dealt with, may be observed. With regard to economic, social and cultural rights, the Committee on economic, social and cultural rights (hereinafter: CESCR) has identified in General Comment 14, on the right to the highest attainable standard of health, and in General Comment 15, on the right to water, certain obligations that States Parties to the Covenant owe to populations under the jurisdiction of other States when these last risk being threatened by the activities of private actors. More specifically, as far as the right to the highest attainable standard of health is concerned, the Committee observed that «States parties have to respect the enjoyment of the right to health in other Countries, and prevent third parties from violating the right in other countries, if they are able to influence these third parties by way of legal or political means, in accordance with the Charter of the United Nations and applicable international law» (See CESCR, General Comment No. 14 Article 12: Right to the highest attainable standard of health, UN Doc. E/C.12/2000/4, 11 August 2000, para. 39). As far as the right to water is concerned, the Committee, in its 2003 General Comment, called upon States Parties «to prevent their own citizens and companies from violating the right to water of individuals and communities in other countries [w]here States parties can take steps to influence other third parties» (See CESCR, General Comment No. 15 Articles 11 and 12: The right to water, UN Doc. E/C.12/2002/11, 20 January 2003, para. 31). A similar approach may be found in Principle 24 of the 2012 Maastricht Principles on Extraterritorial Obligations of States in the area of Economic, Social and Cultural Rights which is, however, a private codification attempt made by leading experts without any binding force, neither for States, nor for international human rights bodies (as far as the legal literature on this issue see O. De Schutter, Le Protocole facultatif au Pacte international relatif aux droits économiques, sociaux et culturels, in Revue belge de droit international 2006, p. 1-57, and M. Sornarajah, The International Law on Foreign Investment, Cambridge, , p. 144, observing that «developed States owe a duty of control to the international community and do in fact have the means of legal control over the conduct abroad of multinational corporations»). As far as civil and political rights are concerned, promising steps towards the recognition of extraterritorial application of the corporate responsibility to respect may be found in some statements made by the Human Rights Committee in its 2012 Concluding Observations on the Sixth Periodic Report of Germany. Relying on Article 2 of the Covenant, which at para. 1 establishes that States Parties to the Covenant undertake to respect and to ensure to all individuals within its territory and subject to their jurisdiction the rights recognized in the Covenant, the Committee encouraged Germany «to set out clearly the expectation that all business enterprises domiciled in its territory and/or its jurisdiction respect human rights standards in accordance with the Covenant throughout their operations [and] to take appropriate measures to strengthen the remedies provided to protect people who have been victims of activities of such business enterprises operating abroad» (see Human Rights Committee, Concluding observations on the Sixth Periodic Report of Germany, UN Doc. CCPR/C/DEU/CO/6, 15 October-2 November 2012, para. 16 (emphasis is added)).

7 Attività finanziarie e d impresa 679 Such an expansive approach has been somewhat confirmed in civil actions brought before British Courts in which these jurisdictions have applied a due diligence duty (duty of care) to parent companies even to the extent of piercing the corporate veil obstacle and dismissing allegations of forum non conveniens, thus establishing a certain extraterritorial scope to this duty. Indeed, according to this case law, there is no reason, in principle, why, like any other legal entity or person, a parent company responsible for, or in control of, specific functions at overseas subsidiary operations should not be liable for damage arising from those functions or deficiencies (see among the others, Ngcobo and Others v. Thor Chemicals Holdings Ltd and Another, (1995) TLR, p. 579; Connelly v. R.T.Z. Corporation Plc and Another (1997) 2 WLR, p. 251.). On the contrary, in the well-known 2013 opinion released in the case Kiobel v Royal Dutch Petroleum Co., the US Supreme Court denied that the Alien Torts Claims Act (ATCA) might provide the US federal courts with jurisdiction in the so-called foreign-cubed cases, i.e. cases brought by foreign plaintiffs complaining against foreign defendants for international law violations committed abroad and decided to circumscribe, albeit leaving the door still ajar, the ATCA scope of application (See USA, Supreme Court, Esther Kiobel, Individually and on Behalf of Her Late Husband, Dr. Barinem Kiobel, et al., Petitioners v. Royal Dutch Petroleum Co. et al., Case No , certiorari to the United States Court of Appeals for the Second Circuit, argued 28 February 2012, reargued 1 October 2012, 569 U.S. 2013, judgment of 17 April 2013; on this issue see A. Bonfanti No Extraterritorial Jurisdiction Under the Alien Tort Statute: Which Forum for Disputes on Overseas Corporate Human Rights Violations after Kiobel?, in this Journal 2013, p and M. Fasciglione, Corporate Liability, Extraterritorial Jurisdiction and the Future of the Alien Tort Claims Act: Some Remarks after Kiobel, in this Journal 2013, p ). Summing up, at the current state of development of international law, a clear obligation for States to control private actors such as corporations, operating outside their national territory, in order to ensure that these actors will not violate the human rights of others, has yet to be crystallized. At the same time, the simple fact that certain forms of extraterritorial jurisdiction are not binding under conventional or customary international law does not imply that they are to be considered as prohibited. Therefore, national legislations intended to apply outside the national territory, with a view to contributing to the protection of internationally recognized human rights abroad, may be regarded as consistent with international law. 4. Globalization has contributed to the increase of the power of transnational corporations and of private business sector entities. However, with great power comes great responsibility and consequently attention has been progressively focused on the human rights conduct of companies and on the need to strengthen both the international authority and the national legal framework in order to deal with transnational corporations when their operations impact on human rights. In response to this demand several attempts to regulate business behaviour from a human rights perspective have been made through the years, the negotiation process begun in July 2015 being the latest. At the end of the day, the inception of a credible and effective Treaty process in the business and human rights subject matter should be based upon, and draw lessons from, past failures. The negative experience of the UN Code of Conduct and, most of all, of the 2003 Norms, should teach us that without a compromise on the main divisive issues, it will prove very difficult to build a consensus on such a complex issue. It is no coincidence that the lack of effort in building large consensus was the primary reason for the Norms garnering

8 680 Osservatorio little support among States, North or South. Nonetheless, present Treaty negotiations appear to be gaining broad areas of consensus, including the need for the OEIWG to complement rather than compete with the 2011 UN Guiding Principles. The OEIWG can play a crucial role in encouraging States to develop and implement National Action Plans, in urging companies to roll out due diligence, and in requiring reports to be submitted to UN supervisory mechanisms. However, other issues are tougher: should the Treaty impose direct obligations only on States or it will impose direct obligations on companies as well? What companies are to be regulated transnational corporations or all corporations, including local companies? Should States be expressly authorized or required to exercise jurisdiction over human rights violations committed outside their territories by companies domiciled in the State, or not? Independent of the answers that might be given to these issues, what is needed is flexibility so that «no issue be ruled off the table before negotiations even begin» (D. Cassels, op. cit., p. 9) and no State be prevented from expressing its own ideas and proposals on the process. It is only in this manner that a credible and effective Treaty drafting process can take place and hope to reach concrete results. Marco Fasciglione * ABSTRACT. Towards a Human Rights Treaty on Transnational Corporations and Other Business Enterprises: The First Session of the UN Open-ended Intergovernmental Working Group On 10 July 2015 the Open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights adopted the first Report concerning its session held from 6 to 10 July 2015 in Geneva. The Report and the first session of the OEIGWG illustrate the first series of discussions on the proposal, launched one year ago within the UN Human Rights Council, to adopt international binding rules for the business sector in the field of human rights after the failure of prominent predecessors at UN level such as the UN Code of Conduct for Transnational Corporations and the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights. This paper focuses on some issues that appear crucial in order to reach a sufficient consensus and ensure a positive outcome to the negotiations. This applies in particular to the ratione personae and ratione loci scope of application of the future instrument: indeed, the existence of conflicting views amongst States on the applicability of these criteria were the main reason for the failure of prior efforts to establish binding international instruments for the private sector in the field of human rights. The success of the codification process will depend on the capacity of negotiations to attain consensus on both these issues. Keywords: corporations and human rights; Treaty; international regulation; Open-ended intergovernmental working group; extraterritorial jurisdiction. * Ricercatore di Diritto internazionale del Consiglio Nazionale delle Ricerche Istituto di Ricerche su Innovazione e Servizi per lo Sviluppo, m.fasciglione@iriss.cnr.it.