Sunday, February 03, 2013

Part 2; The U.S. National Contact Point--Corporate Social Responsibility Between Nationalism, Internationalism and Private Markets Based Globalization

 (Pix Source HERE)

This Blog Essay site devotes every February to a series of integrated but short essays on a single theme. For 2013 this site introduces a new theme: The U.S. National Contact Point: Corporate Social Responsibility Between Nationalism, Internationalism and Private Markets Based Globalization.

Part 2:  The MNE Guidelines

This series builds on some ideas I have been working through for a number of years relating to a fundamental shift in the approaches to corporate governance that broaden the ambit of corporate governance issues from a singular focus on internal governance (the relationships among officers, shareholders and directors) to one that includes corporate behavior and the standards by which officers, directors and shareholders exercise their respective governance authority. This shift also changes the scope of what is understood as "law" to be applied to issues of corporate governance, from one principally focused on national law to governance norms that may be sourced in the declarations and other governance interventions of public and private international bodies. Lastly, it appears to point to an evolution to the role of the state from the principal source of standards and enforcer of law to a vehicle for the implementation of international standards  in which enforcement power is left to global market actors--principally consumers and investors function of the decisions of global actors.  All of this is inconsistent with traditional notions of the role of law, the scope of corporate governance and the nature of corporate social responsibility int he United States.  The extent to which the United States participates in the construction of these autonomous international systems may suggest the direction in which government policy may be moving away from the traditional consensus of corporate responsibility to something perhaps entirely new.

This post focuses on the Guidelines for Multinational Enterprises (2011) (MNE Guidelines) of the Organization for Economic Cooperation and Development, providing background.  Subsequent posts will consider its substantive provisions, the incorporation of more targeted human rights related provisions  and its remedial architecture.  That background will provide the foundation for a review of the way in which the U.S. National Contact Point has functioned within this system.

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The MNE Guidelines:

The NGO OECD Watch, an international network of civil society organisations from across the world promoting corporate accountability and responsibility, has provided a useful history of the development of the Guidelines for Multinational Enterprises. 

The OECD Guidelines for Multinational Enterprises were drawn up in the 1970s, a decade during which the activities of corporations became a topic of discussion among international organisations. The sometimes negative impact of corporations on developing countries was given increased attention and harmful activities of companies to countries where they were established met growing opposition. The legal regulation of businesses was called for and international guidelines controlling their conduct were set up by international organisations such as the OECD.

The Guidelines were adopted on 21 June 1976 by all OECD member states, except for Turkey, as part of a package which consisted of the Declaration on International Investment and Multinational Enterprises, for the facilitation of direct investment among OECD member countries, together with four instruments related to the Declaration.

The last update of the OECD Guidelines was adopted in May 2011. The new text introduces valuable provisions on human rights, workers and wages, and climate change. It establishes that enterprises should avoid causing or contributing to adverse impacts through their own activities or through business relationships, and it recommends that companies exercise due diligence to ensure they live up to their responsibilities. However, despite references to impartiality and equal treatment, the changes to the implementation procedures, which should be the cornerstone of the Guidelines, fall far short of what is needed to ensure that they are an effective and credible instrument. The update failed to provide for a system capable of ensuring observance through investigative powers and the ability to impose some kind of sanction when the Guidelines are breached. (OECD Watch Guidelines for Multinational Enterprises)
That history provides a useful starting point for an analysis of the Guidelines for Multinational Enterprises (MNE Guidelines).  The creation of the Guidelines were rooted in the political turmoil of the 1970s, and especially the controversy generated by speculation about US based corporate support to the Chilean right wing coup led by General Pinochet and his supporters, whose bloody revolution included the killing of the then democratically elected president Salvador Allende in 1973, and subsequent violent repression, (United States Senate, Senate Foreign Relations Committee, "Multinational Corporations and United States Foreign Policy: Hearings before the Subcommittee on Multinational Corporations of the Senate Committee on Foreign Relations" (the "Church Committee"), 94th Cong., 1st sess., 381-86 (1975)).  Also influential was the transformation of national wage labor markets in the early era of modern economic globalization that saw an increase by transnational corporations of the technique of outsourcing as a disciplinary mechanism for workers (Richard J. Barnet and Ronald E. Müller, Global Reach: The Power of the Multinational Corporation (New York: Simon & Schuster, 1974)). It also represented a compromise, of sorts, meant to mute activity in the United Nations which had been considering a new global initiative to regulate foreign direct investment bitterly opposed by OECD countries as well as multinational corporations (Adeoye Akinsanya and Arthur Davies, "The Third World Quest for a New International Economic Order: An Overview," The International and Comparative Law Quarterly, Vol. 33, January 1984, p. 208). “The OECD saw a voluntary set of Guidelines as a way to pre-empt stronger action,” according to Human Rights Watch. Muchlinski reminds us that at the time of its adoption, less developed states were beginning to flex their muscle through the U.N. system in an attempt to wrest control of the drivers of economic regulaiton from developed states.  (Peter T. Muchlinski, Multinational Enterprises and the Law (Oxford: Blackwell, 1999), p. 578).  These included efforts toacquire greater advantage in technology transfers and to create a binding policy on MNE behavior through the ILO.  (Ibid.).  This was also a period of extensive naitonalizations.  To avoid the possibility of binding MNE conduct codes imposed through treaty law developed by coalitions of less developed states, combined with a decision to seek extraterritorial control of the operations of MNE's chartered in OECD states, the OECD decided to act. (Ibid.).

The OECD’s MNE Guidelines, then, represented a compromise--substituting soft law frameworks for binding international treaty or for more direct pressure to change domestic law, and was meant to serve as the developed state's answer to the frustration of developing states for the interference of multinational corporations within their territories. As a consequence, the orientation of the MNE Guidelines, to a much greater extent than its companion principles of corporate governance and the governance principles for state owned enterprises, reflect a human rights and internationalist orientation. (See generally Peter T. Muchlinski, Multinational Enterprises and the Law (Oxford: Blackwell, 1999) pp. 3-19; 493-533). Unlike the other principles, the MNE Guidelines standards are focused on the stakeholder relations of the enterprise--its external relations.  The Principles of Corporate and SOE governance, on the other hand, are focused on the  internal relations of the enterprise, between officers, shareholders and directors, which remain grounded in the principles of shareholder welfare maximization.

The MNE Guidelines are grounded in the principle that MNEs ought to produce positive contributions to the economies of home and host states, and by doing so to contribute to the improvement of the global foreign investment climate. (Muchlinski, supra, 579). The MNE Guidelines sought to approach this objective through the establishment of a normative structure that would have a global reach--harmonizing conduct norms in developed and developing states under a structure that reflected the consensus of good conduct of the OECD community. It also suggested that the MNE Guidelines embraced moral as well as "legal" duties to avoid harm to the economies of host states. (Ibid.).  "Given their origins  as a response to the calls of developing countries for a New International Economic Order, the Guidelines represent a 'Western' consensus on the acceptable features of any such regime." (Ibid.,  592).  But there is an important twist, and one that will turn back on its creators in the wake of an evolving global trade system autonomous of any state:  "while states remain free to control the entry and establishment of MNEs on their territory, they must accord to established foreign controlled enterprise treatment equivalent to that given to similar domestic forms which is at the same time consistent with international law." (Ibid.).  And in that conflation of national treatment and the primacy of international standards lies the opening to polycentricity--to the liberation of governance from the unrestrained control of a domestic legal order even within the territory within which it is otherwise sovereign. It is within this space that the human rights orientation of the MNE Guidelines will grow in the 21st century.

The human rights orientation of the MNE Guidelines affect not merely its approach and substance, but also mark a change in the relationships between state, international organizations and private entities as subjects and objects of law. Since the Westphalia Treaty, and later, the construction of the United Nations systems, the duty to protect human rights has been reserved to states. Conventional theorizing of international governance was grounded on a state-centric position. (Austen L. Parrish, “Changing Territoriality, Fading Sovereignty, and the Development of Indigenous Rights,” 31 Am. Indian Law Review 291, 293-97 (2007).) The fracturing of governance altered this view, and the old core premise has been challenged, where many are now arguing that “states are no longer the sole bearers of rights and duties in the international sphere, nor are they the sole actors in the international arena.” (Yishai Blank, “Localism in the New Global Legal Order”, 47 Harvard International Law Journal 263, 265 (2006)).

(Pix OECD, Guidelines for Multinational Enterprises; Transition to a Low-carbon Economy: Public Goals and Corporate Practices).

An aggregate of thousands upon thousands of agreements have opened borders between states allowing transnational actors to operate “beyond the regulatory scope of any organization.” (Larry Catá Backer, "From Institutional Misalignments to Socially Sustainable Governance: The Guiding Principles for the Implementation of the United Nation’s “Protect, Respect and Remedy” and the Construction of Inter-Systemic Global Governance," Pacific McGeorge Global Business & Development Law Journal 25(1):69-171 (2012)). Regulatory authority has seeped to international organizaitons (José E Alvarez, International Organizations as Law-Makers, (Oxford, Oxford University Press, 2005), sub-state and non-state actors (Backer, Larry Catá, Governance Without Government: An Overview and Application of Interactions Between Law-State and Governance-Corporate Systems, in Beyond Territoriality: Transnational Legal Authority in an Age of Globalization 87-123 (Günther Handl, Joachim Zekoll, Peer Zumbansen, editors, Leiden, Netherlands & Boston, MA: Martinus Nijhoff, 2012)).

As a result, the impermeability of the state has been considerably reduced and governance is no longer concentrated to one political entity, but through a networked arrangement of functionally differentiated systems of management. (Ibid.). The systematization of various governance frameworks operating simultaneous serve as new foundations of an emerging order where law operates beyond the centrality of the state, and where government and the state are no longer synonymous. (Ibid.; Larry Catá Backer, “Reifying Law: Understanding Law Beyond the State”, Pennsylvania State International Law Review, 26:521 (2008)). Peer Zumbansen has suggested that contemporary globalization “reflects deep running transformations of the normative and institutional regulatory landscape…. of intertwining, both public and private, that is hybrid, forms of regulation that can no longer be easily associated with one particular country or, for that matter, one officially mandated rule-making authority.” (Zumbansen, Peer, “Transnational Comparisons: Theory and Practice of Comparative Law as a Critique of Global Governance” (February 7, 2012). Osgoode CLPE Research Paper No. 1/2012. Also see, Gralf-Peter Calliess and Peer Zumbansen, Rough Consensus and Running Code: A Theory of Transnational Private Law, (Oxford, Hart Publishing, 2010)). Contemporary globalization has caused the regulatory powers to seep to IOs and non-state actors. The international governance framework represents this shift in functional governance, creating “flexible methods of control, which may be transferred and adopted” by institutional structures associated with globalized corporatism.

But from these limited and fairly defensive origins, the MNE Guidelines have become much more.  Like the Universal Declaration of Human Rights, the MNE Guidelines have become the kernel around which consensus about international behavior standards for corporations have developed. The MNE Guidelines were embedded in the OECD's Declaration and Decisions on International Investment and Multinational Enterprises (1976). In addition to the  MNE Guidelines, the Declaration consists of three elements (each underpinned by a Decision by the OECD Council on follow-up procedures).  The  first is an adherence to the principle of national treatment as a basis of trade relationships.  It consists of a voluntary undertaking by adhering countries to accord to foreign-controlled enterprises on their territories treatment no less favourable than that accorded in like situations to domestic enterprises.  The second embeds a principle of cooperation in international economic relations where competing national regulations may produce conflicting requirements.  It requires adhering countries tol co-operate so as to avoid or minimise the imposition of conflicting requirements on multinational enterprises. The last is a principle of transparency focused on international investment incentives and disincentives. Adhering countries endeavour to make measures as transparent as possible, recognizing the need to weigh the interest of adhering countries affected by laws and practices in this field. "As at 25 May 2011 adhering governments are those of all OECD members, as well as Argentina, Brazil, Colombia, Egypt, Latvia, Lithuania, Morocco, Peru, Romania. The European Community has been invited to associate itself with the section on National Treatment on matters falling within its competence." (OECD, Text of the OECD Declaration on International Investment and Multinational Enterprises).

Indeed, the OECD has used the MNE Guidelines as a basis for its increasingly intricate norm creating project. The OECD publishes annual reports which describe what adhering governments have done to live up to this commitment. These reports also include the results of annual roundtables on corporate responsibility which address emerging issues and new developments.

2012 - Mediation and consensus building
This edition provides an account of the actions taken by the adhering governments over the 12 months to June 2012 to enhance the contribution of the Guidelines to the improved functioning of the global economy and focuses on how NCPs are working to improve their mediation skills.

2011 - A new agenda for the future
This report enhances the transparency, accountability and public visibility of the Guidelines for MNEs, one of the OECD's most successful instruments, and more particularly the major improvements brought about by the 2011 Update, and highlights the outcome of the 2011 Corporate Responsibility Roundtable, a multi-stakeholder brainstorming on the launch of the work of the updated Guidelines.

2010 - Corporate responsibility - Reinforcing a unique instrument
Ten years after the 2000 revision of the Guidelines, work is starting on an update of the Guidelines to ensure their continued role as a leading international instrument for the promotion of responsible business conduct. This edition focuses on three core issues for consideration during the update: supply chains, human rights, and climate change.
2009 - Consumer empowerment and responsible business conduct
This edition focuses on consumer empowerment and responsible business conduct, notably the positive impact responsible consumers can exercise on international business behaviour through their purchasing decisions and the role of the Guidelines in promoting and protecting consumer interests. Special attention is given to supply chains, financial institutions and climate change.

2008 - Employment and industrial relations
This edition highlights corporate responsibility practices in the area of employment and industrial relations, the impact of foreign direct investment on wages and working conditions, development and decent work - new directions for multinational enterprises in shaping a fair globalisation and selected initiatives and instruments relevant to corporate social responsibility.

2007 - Corporate responsibility in the financial sector
This edition includes a stocktaking of corporate responsibility practices in the financial sector, financial sector instruments for responsible business conduct and synergies between the OECD Guidelines and financial sector instruments

2006 - Conducting business in weak governance zones
This edition highlights the completion of guidance for companies operating in weak governance zones. The Risk Awareness Tool for Multinational Enterprises in Weak Governance Zones aims to help companies that invest in countries where governments are unable or unwilling to take up their responsibilities.

2005 - Corporate responsibility in the developing world
This edition provides an overview of corporate responsibility in the developing world.  Many developing countries have officially adhered to the multilateral instruments underpinning the concepts and principles of the OECD Guidelines and there is growing engagement by non-OECD business communities in many areas of corporate responsibility.

2004 - Encouraging the contribution of business to the environment
This edition includes a review of recent developments in current business practices toward the environment, dealing with environmental risk and corporate contributions to environmental policy.

2003 - Enhancing the role of business in the fight against corruption
This edition includes an overview of how the business sector’s contribution to the fight against corruption might be enhanced, focusing particularly on governments’ roles in this effort and on how the Guidelines can be used in synergy with other anti-corruption instruments.

2002 - Responsible supply chain management
This edition provides an overview of the challenges of responsible supply chain management based on contributions from the business, trade union and NGO communities.

2001 - Global instruments for corporate responsibility
This edition includes comparative analysis and comments by the business, labour and NGO communities on the complementarities and differences between the Guidelines and other global instruments for corporate responsibility, such as the UN Global Compact and the Global Reporting Initiative.

As the normative importance of the MNE Guidelines has increased, so has the facilities for seeking remedies for the violation of the MNE Guidelines themselves. The MNE Guidelines are recommendations and not legally binding on states or others. Nonetheless, member states have agreed to adhere to the MNE Guidelines and to promote them within their territory. Even though e voluntary, any country that adopts the MNE Guidelines must establish a National Contact Point (NCP) in order to enforce and promote the integrity of the MNE Guidelines. This allows a party to take a case to the NCP if it believes a company has violated the MNE Guidelines, and some have posted that this could effectuate a jurisprudence that is based on soft law frameworks. The NCPs are created to effectually promote and enforce the MNE Guidelines by providing an avenue to stakeholders to bring allegations of breaches of the MNE Guidelines against private actors in adhering countries.

The NCPs are agencies established by governments who adhere to the MNE Guidelines and want to promote and implement the MNE Guidelines. The NCPs produce and create an edifice for mediation and conciliation to resolve issues that may violate the MNE Guidelines. As noted by the Coercion on the OECD Guidelines for Multinational Enterprise, “Adhering countries shall set up National Contact Points to further the effectiveness of the Guidelines by undertaking promotional activities, handling enquiries and contributing to the resolution of issues that arise relating to the implementation of the Guidelines in specific instances, taking account of the attached procedural guidance. The business community, worker organizations, other non-governmental organizations and other interested parties shall be informed of the availability of such facilities.” (OECD). Even further, “The NCP will offer a forum for discussion and assist the business community, worker organizations, other non-governmental organizations, and other interested parties concerned to deal with the issues rose in an efficient and timely manner and in accordance with applicable law.” (Ibid.). The NCPs may offer conception and mediation, as a mean of dealing with cases. If the parties do not come to an agreement, the NCPs can issue a statement about the appropriate recommendations to implement the OECD guidelines. This allows methods for contending parties to resolve a dispute outside the mechanics of hard law. Both these global initiatives represent a form of jurisprudence that is now operating outside the scope of traditional mechanics of the stat.  The NCP systems has, in a sense, created a governing edifice that produced multiple judicial locations, throughout abiding states, that operate simultaneously to mediate and remedy the MNE Guidelines by abiding countries.

Thus, though these still lack any authority in law, they have produced a somewhat curious hybrid--states now oversee a program of soft law governance rules that have no legal effect within the territories of these facilitating states, but the effects of which have functionally coercive effects within globalized markets. States oversee programs designed to make it easier for private parties to determine violations of rules which have no legal effect within the states whose governments now provide the remedial mechanisms for the determination of violation in accordance to standards and rules that are international and public in character.  The result is a hybrid arrangement between domestic, international and private actors. It is to the MNE Guidelines' its substantive provisions, the incorporation of more targeted human rights related provisions  and its remedial architecture that we turn to next.

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