2015 United Nations Forum on Business and Human Rights--Day 3 Sessions: State Owned Enterprises, Supply Chains, and Overarching Trends and Challenges

The closing day of the 2015 UN Forum on Business and Human Rights continued its engagement with the core themes of this year's meetings--measurement, supply chain responsibilities,progress in national action plans, and the connection with the accelerating progress toward the negotiation of a comprehensive treaty on business and human rights.  The UN Guiding Principles themselves served as the centering framework around which these themes played themselves out. The closing high level plenary offered glimpses into the thinking of elites from certain sectors.

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My thoughts on prior sessions of the Forum may be found here:

Day 1 morning sessions 

Day 1 afternoon sessions; and 

Day 2 sessions.

What follows are comments and reactions to the third day sessions.

The third day of the Forum brought the relationship between the UNGP and both state owned enterprises (SOEs) and the comprehensive treaty on business and human rights to more prominence. I consider a very few of the excellent panels organized by the Working Group and stakeholders, and then offer a brief summing up of my sense of the 4th Forum, looking forward to the 5th Forum (14-16 November 2016).

1.  SOEs and the state duty to  protect human rights. SOEs occupy space within both the state duty to protect and the corporate responsibility to respect human rights within the UNGP. The UNGP places the issue within the state pillar--but references its bridging aspect.

¶ 4 THE STATE-BUSINESS NEXUS

States should take additional steps to protect against human rights abuses by business enterprises that are owned or controlled by the State, or that receive substantial support and services from State agencies such as export credit agencies and official investment insurance or guarantee agencies, including, where appropriate, by requiring human rights due diligence.

The Commentary provides in part:

States individually are the primary duty-bearers under international human rights law, and collectively they are the trustees of the international human rights regime. Where a business enterprise is controlled by the State or where its acts can be attributed otherwise to the State, an abuse of human rights by the business enterprise may entail a violation of the State’s own international law obligations. Moreover, the closer a business enterprise is to the State, or the more it relies on statutory authority or taxpayer support, the stronger the State’s policy rationale becomes for ensuring that the enterprise respects human rights.

Where States own or control business enterprises, they have greatest means within their powers to ensure that relevant policies, legislation and regulations regarding respect for human rights are implemented. Senior management typically reports to State agencies, and associated government departments have greater scope for scrutiny and oversight, including ensuring that effective human rights due diligence is implemented. (These enterprises are also subject to the corporate responsibility to respect human rights, addressed in chapter II.)

The place of SOEs produces a number of interesting behaviors by states that ought to be considered in more detail.

First, it appears that the relationship of SOEs, the state and the UNGPs remains ambiguous.  To some extent, it appears that states are tending to put a wall up between SOEs and the self regulatory architecture of government.  That is, that SOEs appear, as a functional matter, to be segregated out of the administrative apparatus of the state.  To that extent, there appears to be a presumption growing that, without more, SOEs ought to be considered first as subject to the corporate responsibility to respect to the same extent as other non state related enterprises.  In effect, the state appears to have taken the position that the state duty to protect extends to its own architecture except to the extent of the state's commercial activities.  With respect to those the state is free to treat "itself" as a stranger to itself--that is that it can treat its own SOEs as if they were no different than, say, foreign enterprises operating within its territory--at least with respect to the extension of the state duty to protect human rights through the activities of these enterprises. This ought to appear to be an odd result--not from a formal level, of course, but from the perspective of UNGP effectiveness and the realities of institutional operation.  In addition, the approach taken by some states to include  business and human rights, and the UNGP, in inter-state memoranda of understanding around trade, is helpful but avoids the issue precisely because it merely acknowledges  in specific context what is already acknowledged in a general context, without moving forward the specific embedding of human rights based behaviors within corporate operations--and does even less in determining the scope of that embedding.  The key here is the determination of the obligation to embed the full array of the state's formal legal duties or whether it is limited to the parameters of compliance under the responsibility to respect.

Second, The UNGP, of course, open the door to this approach, effectively appearing to permit an interpretation of ¶ 4 to permit states to distinguish between its "public" and "private" governmental institutional architecture.  With respect to the latter, only "additional steps to protect against human rights abuses" "should" be taken, and that only to the extent that an ownership or substantial support threshold is met. The Commentary suggests that states ought to cover, at least to some extent, the operation of SOEs under the general state duty to protect human rights.  But that obligation is clearly contextual.  And that may be a good thing too.  States may not always embrace the full array of international human rights norms, and even when they appear to, reservations from treaty adopted, differences between the terms of treaties and the specifics of transposition into a domestic legal order, and significant obstacles to  implementation have effectively render the state duty aspirational and non-binding.  In contrast, the responsibility to respect--with its clear  though narrow delineation of the scope of international norms that must be embedded in corporate operation, and with its processes for implementation--might offer a more robust platform for disciplining behavior in some states.

Third, it might be useful to think about the way in which the UNGPs SOE premises might be tied to the architecture of sovereign immunity, and its distinction between a state's public activity on the one hand, and its commercial activity on the other.  It is not clear that this distinction ought to be transposed, in form or effect, into the architecture of the UNGP or int the framework for determining the scope of SOE obligations under the UNGP.  On the other hand, what the UNGP might suggest is the need to rethink the rules of sovereign immunity with respect to the human rights abuses of states through their instrumentalities irrespective of the legal categorization as "commercial" or public.  This is an area that merits further research and policy discussion.

Fourth, the issue of the source and scope of SOE duty/responsibility under the UNGP suggests a subset of UNGP discourse that also merits additional work--the extent to which states apply the UNGP to itself. I had argued, for example, that the United Nations itself ought to have been the first to embed the UNGP in its own operations:

As most states have discovered, the ability of a government to enforce normative standards, and certainly to change approaches to behavior, is less likely where the standards apply to actors other than the government seeking their enforcement.  Where the government community that seeks to have important standards of behavior or rules of conduct and operation embraced by others does not apply these standards to its own operation or conduct, there is likely to be a sense that the standards are not worth applying. That application must be deemed as important an internal governance matter as it is a matter for those enterprises with whom the United Nations deals.  (Statement of Larry Catá Backer: Input and Suggestions to the SG Report, Advancing the Business and Human Rights Agenda of the "Protect, Respect and Remedy" Guiding Principles (23 March 2012))

The same reasoning applies, with perhaps even greater force, to states who own or control enterprises. And it ought to apply to those enterprises over which they assert shareholder ownership control. It is perhaps, of the essence of the state duty to protect human rights to apply that duty to the role of states as shareholders of enterprises.  States as shareholders have a duty to protect human rights by engaging in their shareholder role in ways that ensure that enterprises in which they have a controlling interest comply with both the human rights obligations of the state and fully comply with the 2nd pillar responsibility to respect. 

Fifth, less clear is the role for the state where it holds a minority position in enterprises. Norway provides one example--to use its shareholder power to engage enterprises to undertake compliance with those principles (see, e.g., here).  The other is to do nothing.  But that hardly seems to do justice to the state's duty to protect.  That duty ought to be exercised to the full extent of a state's authority, and that authority extends beyond the public sphere. While they do not a power to compel as shareholder, they might have the authority to embed as regulator.  But that brings us back to the start of the discussion, and the problem--of the manifestation of the state duty to protect both within the territory of the state and through its public and private operations in markets. And ultimately it raises the fundamental question that remains hanging in the various streams of Forum discussion, again: has the state duty to protect human rights been reduced to an obligation to compel enterprises, through law or policy, to comply with the International Bill of Human Rights and human rights due diligence regimes of the 2nd Pillar?  It is perhaps through a deeper analysis of the relationship between states and their enterprises that we will be better illuminate the scope and direction of the state duty to protect human rights.

2.  Supply Chains, Governance and the UNGPs. Stakeholders put together a very interesting panel, "Beyond Auditing: Effective Ways to address human rights violations in garment supply chains".  I am particularly interested in this aspect of the application of the UNGPs (see, e.g., here) because it, like the relationship between states and SOEs (discussed above) tend to illuminate the disjunctions between the regulatory focus of the UNGP--built around the old (and less stable) divisions between states, enterprises, and mass society--and the emerging self referencing regulatory systems that seem to be emerging beyond these antique divisions within global economic orders.  Among the most potent of these self contained regulatory orders may be integrated supply chains--which represent coherent and self contained streams of activity, coherent within its own functional structures.  Yet the traditional approaches substantially fracture governance responses to this integrated activity that ensure the likelihood that the supply chain itself will be able to strategically game these efforts to maximize its own sense of its welfare.   That gaming produces the loss of a significant opportunity to help shape the premises of welfare maximization of supply chain activity that would embed human rights related principles.

But one uses the tools one has available.  And one conceives of the use of those tools with reference to the ideologies within which they were shaped.  And so it becomes almost inevitable that the international community, in the face of the rise of integrated global systems of production, offers only the instrumentalities and conceptual structures of a state system grounded in and jealously protective of the powerful divisions between public and private, between law and norm, and between state and enterprise.  So in the face of integration of operation one offers only fracture and incoherence in regulatory responses.   We are told, to embed human rights concerns in supply chain operations one must change the "brand" to induce action grounded in the protection of brand reputation (and therefore value in the market).  We are told that to embed human rights concerns within supply chains, the state must change and apply its law, which for developing and poor states means opening their borders to the internationalization of their law.  We are told that to embed human rights in supply chains that remedial procedures must reach through SMEs downstream and focus on upstream brand holders, effectively creating governance structures in which small and medium sized enterprises in country are understood as regulatory objects of states, international standard setters and enterprises.  We are told that to successfully incorporate private governance, the community of MNEs must unite, coordinate their efforts and establish something like a common regulatory body to which all of its members are bound; that multinational enterprises within supply chains establish legislatures whose efforts might bind themselves, their downstream suppliers, and in some ways the states in which they operate. We are told that all that is needed to center this anarchic and polycentric order is to ensure that all regulatory centers adhere to the principles and are adequately socialized within the norm structures of the UNGP, and through them, to the normative universe of internationalized human rights in economic activity; except perhaps to the extent these are superseded by the constitutional orders of developed states.  And we are told that these constitutional orders of developed states may treat host states the way that brand holders treat down stream suppliers--as objects of regulation and as obedient receptacles of internationalized law making that bypasses whatever democratic  rule of law structures those states might otherwise seek to preserve.  We are trained to laud efforts, like those of the United States and the EU that effectively project their view of internationalized law onto states which house downstream suppliers through their trade deals (e.g., U.S. and labor rights ("Protecting workers’ rights is a top priority for the Obama Administration, and the Office of the United States Trade Representative (USTR) and the Department of Labor (DOL) are leading the Administration’s efforts to improve labor laws and working conditions with trading partners in virtually every region of the globe. These efforts are made in close coordination with other U.S. agencies and in collaboration with Congressional and other stakeholders, as well as international partners such as the International Labour Organization (ILO)." US Office of the Trade Representative, Standing Up for Workers: Promoting Labor Rights through Trade 2015)).

That, of course, was much in evidence in the course of the Rana Plaza factory building collapse--where the focus was on building safety standards and worker rights, which might or might not apply only to those factories in which transnational brands have an interest (see, e.g., here).  And it remains the operative structure for the weaving together of (hopefully) intermeshed but autonomous governance and law systems which cross cross integrated supply chains.  But the centrality of the UNGP and internationalize business and human rights norms seem to play a residual role in these fractured governance impulses.  Brands respond to pressure from media, civil society, consumers and investors. States respond to pressure form powerful states (and international financial institutions) that hold their macro-economic policy hostage.  States impede worker rights by reinforcing labor monopolies that produce substantial disparities in wage labor market pricing across the globe.  One is left with a number of actors chasing regulation that affects portions of but does not manage the systemic behaviors of supply chains. And that failure necessarily follows from the structural and ideological constraints of the governance actors bound by the limits of their authority.

And, indeed, supply chains cut across regulatory space in ways that makes any coordinated approach to governance difficult--as governance "borders" are currently framed.And these borders create large gaps.  Consider labor policy: while state focus on labor associations and bargaining rights, and business considers their margins, there is little space to consider the issue of productivity capture and the extent to which productivity gains ought to be captured upstream or shared downstream.  The example--a pair of jeans retailing for 75€ represents a substantial capture of productivity to the brand holder and decreasingly smaller amounts downstream, with labor at the lowest end of that capture.  Ought the discussion about business human rights and the state duty focus on issues of the distribution of productivity gains.  States fail to consider the issue--looking only at aggregate gains. Business  tends to view this as a measure f market imperatives and bargaining power.  And labor tends to be oblivious, focusing on profit rather than productivity capture in its negotiations, assuming it negotiates at all (see, e.g.,  here and  here and here).   The UNGP might be viewed, as advertised, as a set of centering principles.  But that effort will remain frustrated by the insistence of incoherence between the structures of economic activities and the limits of regulatory institutions.  The key is coordination, but that is the heart of the difficulty as well.

3. Multi-Stakeholder engagement.  The Working Group sponsored a reprise of a case study approach to multi-stakeholder engagement involving a U.S. indigenous group and then focusing on Cambodia. The case studies were useful to describe the history and politics of of engaging in the business of human rights sensitivities in domestic and transnational supply chains. They suggested both the difficulties and possibilities of using the coherence of supply chains to leverage regulatory intervention.  Many of the lessons were embedded in stories of successful negotiation--leveraging reputation risk and market power to force reluctant downstream members

Conspicuously absent from the discussion, however, was any mention of a role, either as a normative standard or as a  remedial facility, for the Guidelines for Multinational Enterprises and the institutional apparatus of the OECD National Contact Points.  In the case of the story from the United States, it was notable for the presence of a representative for the U.S. Department of Labor, but no representative from the U.S. State Department, in which the U.S. NCP is lodged. No doubt an oversight, it might have added an interesting wrinkle, and a broader willingness of the United States to facilitate the broadest engagement, had the NCP been able to offer something tat might have been useful for other efforts beyond that highlighted on the panel.

4. Closing High Level Plenary. This last session was well attended. The Working Group Chair, Margaret Jungk, sought to weave together the multiple Forum themes.  Other speakers touched on related themes.

Mention was made of the Global Compact Sustainable Development Goals.  The focus, as usual, however, was to single out business and treat as an object of regulation.  That is an easy fallback for international organizations and states--one that permits it to spotlight  business as an actor-object, and in so doing draw away attention from their own complicity and failures in the attainment of either sustainability goals to the deepening of rule of law and human rights in economic activity.  Even more regrettable was the focus on what ought to be changed in business without considering that the other partners in this enterprise--states and civil society ought to be subject to the same sort of analysis.  The obsession with changing business rather than drawing them into sustainable governance systems in accordance with the logic of their own environment will continue to hobble efforts to deepen the governance "bones" of a three pillar framework that is dependent on states, business and civil society as partners--and all as both object and sources of regulation.

National action plans have been a great focus of the Working Group over the last several years.  They remain hobbled by the logic of their own organization and objectives (see, e.g., here).  For all that, NAPs serve a useful, though quite limited, purpose.  That purpose is focus and the most generalized framework of sustaining political discussion within domestic legal orders of something that approaches the obligation to fulfill a state's duty to protect human rights, sensitive to both its constitutional traditions and its international obligations. And NAPs appear to be the only form in which states have been willing to do more than engage in speechmaking in the context of the UNGP. But they remain a flabby exercise, and for the moment a means through which developed states appear to be setting template for developed states to follow. And that utility will be tested by the exercise of national will to turn action plans into legislative action.  For developing states it will also serve as a test of the constraints on national approaches that my not be consonant with the approaches of developed states. But in any case, the NAP project lamentably exemplifies the quite limited willingness of states to actually engage with the enterprise of business and human rights as a law reform project, or more ambitiously as a project of the internationalization of domestic law. This was noted by at least one of the last plenary speakers, to great applause.

For developing states, of course, the business and human rights project becomes a more complicated affair.  Developing states must balance (1) political independence from the depredations of developed states all too eager to leverage their power into the domestic legislative space of developing states, (2) financial assistance in investing in the infrastructures, including remedial infrastructures, to push forward the project, and (3) macro-economic policy that must favor development as a basis for social stability and the betterment of the health and welfare of their societies.  But like businesses, developing states might be understood erroneously and all too easily as objects rather than as subjects of the business and human rights normative project within the UNGP framework.  That is regrettable but  its remediation ought not to be viewed as a means by which developing states can seek to avoid blame for their own complicity in the human rights wrongs that occur in their territories.   Developing states may not hide behind the efforts to negotiate a treaty for human rights as a means of avoiding their already existing duties under international law to protect (as limited as that might be in actuality). 

The last of the interesting suggestion that the UNGP ushered in the need for for corporations to radically rethink corporate relationships with rights holders.  This is both correct and under inclusive.  First, the UNGP ushered in a similar obligation to radically rethink the relationship between states and rights holders.  That radical rethinking must occur in both governance and legal space, in both domestic legal orders and the societal governance orders of globalized economic cultures.  Second, the UNGP also ushers in a need to radically rethink both enterprises and states, themselves, as rights holders within international normative governance frameworks.  There are or ought to be a sensitivity to the notion that individuals, enterprises and states now play a variety of roles--as objects and subjects of norm making.

On that note a very exciting Forum concluded.   Looking forward to next year and a greater emphasis on measurement and on supply chains!