Tuesday, May 15, 2018

"The Arc of Triumph and Transformation of the OECD Guidelines" Thoughts on the Completion of Roel Nieuwenkamp's Leadership at the OECD/WPRBC

From 2010 Professor Roel Nieuwenkamp was Chair of the OECD Working Party on International Investment and in that capacity chaired the negotiations on the 2011 update of the OECD Guidelines for Multinational Enterprises. From 2013, he has been the Chair of the OECD Working Party on Responsible Business Conduct in Paris.
The OECD Working Party on Responsible Business Conduct (WPRBC), is an intergovernmental body composed of representatives of all governments adhering to the OECD Guidelines for Multinational Enterprises (the Guidelines). Its role is to assist in implementing the Guidelines, support the functioning of the National Contact Points (NCPs), promote policy coherence on responsible business conduct (RBC), pursue the development and implementation of due diligence guidance, and engage with non-adhering countries, partner organisations, and stakeholders.
During his tenure the OECD Guidelines for Multinational Enterprises and its NCP institutions have been slowly assuming a quite definitive character as a system within which global consensus on appropriate and legitimate expectations of states and enterprises with respect the organization and conduct of economic activity has begun to emerge. From the scope of conduct that might be regulated, to the development of approaches to the management of key global production chains, the OECD Guidelines systems has seen substantial development. 

That tenure is now coming to an end. This presents an excellent opportunity to reflect on the changes that have taken place since the great revisions to the OECD Guidelines of 2011, as well as what the future may hold for this quite worthy project.  To that end I have prepared some thoughts on the evolving arc of the OECD Guidelines development under the guidance of WPRBC during Roel's leadership.  Those thoughts follow.

The Arc of Triumph and Transformation of the OECD Guidelines:  Quo Vadis Triumph? Into A Era of Transformation!  Triumphi quo vadis? Temporibus transmutatio parere
Larry Catá Backer
Pennsylvania State University

2011 was indeed an auspicious year.  It was marked by what would come to be understood as two germinal events.  The first was the endorsement of the U.N. Guiding Principles for Business and Human Rights (UNGP); the second was the revision to the OECD’s Guidelines for Multinational Enterprises (OECD Guidelines).  These, together, marked the most visible effects of the “Revolution of 2011.” Both had their genesis in recognition of the substantial transformations of international business as the structures of globalization became clear after 2000. Both represented multi-year efforts and symbolized the transformation of the language and outlook of economic activity, of the enterprises that engaged in them, and of the states that to some extent regulated their conduct within (and to some extent beyond) their territories.  Both also represented efforts to respond to criticisms by  all stakeholders seeking some sort of regulatory coherence in an area that was both new and increasingly central to the legitimate operation of global trading and investment orders.  The UNGP project was overseen by John Ruggie as U.N. Special Representative; and Roel Nieuwenkamp, then Director of Trade Policy & Globalization for the Dutch Ministry of Economic Affairs  and the chaired the equally important effort 2011 update of the OECD Guidelines. It is now impossible to consider one without the other.  While many thought at the time, despite substantial naysaying that these events signaled a fundamental shift in the approach to law, regulation, and the construction of supra national rules based economic orders, I do not think any of us understood the extent of the importance of these efforts, the influence of which is only now being understood.

The UNGP has become the baseline standard around which the human rights obligations of states and enterprises are framed and through which business and human rights advances are measured. The OECD Guidelines  provide the most comprehensive structures for responsible business conduct—the crown jewel of a complex baseline set  of governance  principles that includes the G20/OECD Principles of Corporate Governance (2015) and the OECD Guidelines on Corporate Governance of State-Owned Enterprises (2015). The UNGP catalyzed the 2011 revisions; and the OECD Guidelines served an important guiding role for the development of the UNGP. Both were meant to be situated within what was then (and is still now somewhat more contentiously) labelled the corporate social responsibility field (with its three areas of focus: philanthropy, sustainability and human rights). Both were meant to frame but not displace private platforms for action (e.g., the U.N. Global Compact initiative), or private tools for implementing the development of tools for implementing CSR related activity (e.g., ISO 26,000), or private initiatives (e.g., enterprise codes of conduct and due diligence systems).

Each has served as a catalyst to substantial transformations in the ways states, enterprises and civil society approach the issues of the duties of states, the responsibilities of enterprises and the obligations of individuals and civil society both within states and in the transnational space within which global economic orders are emerging. From each, states, enterprises and civil society organs have sought to adapt their own governance and to develop credible and effective systems of managing economic activity around human rights, sustainability and ethical principles that weave together traditional national and public international law, with new and emerging systems of transnational governance, regulatory governance, and the self-regulatory systems of non-state organs.  Roel played an instrumental role in this development during its critical formative stages and his handiwork will be felt for a long time to come. This is especially the case with respect to the most challenging aspect of the OECD Guidelines—the determined and clear-headed efforts to develop and offer a means of finding, if not remedy, then at least guidance, through the National Contact Point Specific Instance process. If the OECD Guidelines are substantive principles in search of a jurisprudence, then the NCP mechanism tied to a substantive framework and the specific instance process promises a means of providing an engaged and legitimating environment in which shared principles can move from abstraction to application.  That advance, the reconstitution of the NCP and its specific instance process, marks the greatest triumph, its greatest point of transformation, and the most significant unfinished business of the “Revolution of 2011.”  

Mission accomplished?   At the time of its adoption, Hillary Clinton, then U.S. Secretary of State, noted: “If you look at these guidelines, they will be helping us determine how supply chains can be changed so that it can begin to prevent and eliminate abuses and violence.  We’re going to look at new strategies that will seek to make our case to companies that due diligence, while not always easy, us absolutely essential”  (Commemoration of 50th Anniversary of OECD Guidelines 25 May 2011).  She was right in several key respects.  The first was the leadership role of the OECD Guidelines, especially after 2011.  The second was the focus on supply chains rather than on enterprises, an extraordinary transformation of focus. The third was the limited role of states in the process of provided a regulatory base for operationalizing the OECD Guidelines.  And the Fourth was the central importance of using enterprises (not the state) as the organizational apparatus of the supply chain.

The OECD Guideline are voluntary standards that are consistent with laws and international instruments to encourage responsibility business practices. Though not legally binding, many aspects of the OECD Guidelines can be regulated by governments. Though the OECD Guidelines should not act as a substitute for domestic regulation, they can serve as a basis for internationalized readings of state obligations, especially in those territories suffering conflict or weak governance.  And that guidance is directed to the enterprises operating in those areas rather than necessarily or solely to those states (or others)(Concepts and Principles para 2). The ultimate objective is to provide a basis, necessarily grounded in international legal-governance frameworks, within which transnational enterprises may, like states, contribute to economic, social and environmental progress.  This requires the establishment of partnerships between enterprises and states--and that, in turn, requires management at the supra national level.  But that management cannot be understood so much as law but as governance, an international relations without law.  It is in the framing of these relationships between dissimilar enterprises--states and businesses--that the MNE Guidelines are most useful. "Governments can help by providing effective domestic policy frameworks that include stable macroeconomic policy, non- discriminatory treatment of enterprises, appropriate regulation and prudential supervision, an impartial system of courts and law enforcement and efficient and honest public administration." (OECD Guidelines Preface).  But that help cannot substitute for the MNE Guidelines themselves, and the construction and management of a governance space beyond the state.  

The definition of multinational enterprises is not of concern for the OECD Guidelines. Multinational actors could represent public, private, or hybrid institutions. The distinction lies however in that the OECD Guidelines do apply to all organizational structures within a multinational enterprise. And though smaller and medium sized enterprises do not have the same economic advantages and resources as conglomerates, they also have the responsibility to adhere to the OECD Guidelines to the extent possible. And yet this blurred focus on the institution of the multinational enterprise makes it possible to shift focus from the institution, as the apparatus through which governance is organized, to the supply chain, which is the place where the objects of regulatory concern tend to occur. And indeed, from the kernel of conceptual transformation from enterprise to supply chain has come some of the most interesting new work of the OECD—its  Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas; its  Responsible Supply Chains in the Garment and Footwear Sector; its  OECD-FAO Guidance for Responsible Agricultural Supply Chains; its Responsible business conduct in the financial sector; and more to come.

All of this suggests a complex hybridity that itself aligns closely with the complexities of polycentric public-private governance that in the aggregate begins to outline the structures of global regulatory systems. suggested the curious hybridity of the MNE Guidelines operate.  They are not law in the conventional sense, but represent a consensus of appropriate behavior norms for profit making enterprises.  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. They are overseen by the OECD member states through an agency designated for the purpose.  But that agency applies the consensus norms represented by the MNE Guidelines, even where these may not be accepted within the domestic legal order of that state. The application facilitates private efforts by stakeholders who are free to bring complaints against companies that are mediated, using MNE Guidelines standards, for that purpose. 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. "The Guidelines are the only multilaterally agreed and comprehensive code of responsible business conduct that governments have committed to promoting." (MNE Guidelines 2011, Forward).  

                  Coherence and intermeshing with other substantive governance norms. This mission requires a framework for facilitation, but also one that is consonant with the philosophy and approach of the substantive elements of the OECD Guidelines themselves.  To that end the NCP mechanism, in general, and the specific instance tool, specifically, provides an effective means. The NCP system working through layers of specific instance actions provided the necessary jurisprudence for a system of behavior conduct without a center. That this was commonly understood was evident by the strong focus on the NCP in the consultations leading to the 2011 revisions and thereafter to the assessments of those changes in the years following. But the form of the NCP mechanism itself required a delicate balancing.  On the one hand it could most usefully serve as a crucial element in fleshing out the normative standards that constituted the build of the OECD Guidelines themselves. By 2011 the NCP mechanism appeared to exhibit some of the characteristics of a jurisprudence in search of coherence.  It had developed basic principles for application of its procedural rules, including rules of standing; some of its reports were published and widely circulated, and some of its reasoning was proving persuasive. The “output of quasi-judicial and interpretive statements . . .  will continue to contribute, incrementally, to the institutionalization of transnational systems of multinational regulation; systems that will have legal effect whether or not this is law as classically understood. These cases continue an effective process of operationalizing soft law to produce the effects of hard law beyond the state, without directly challenging state authority. The OECD system is progressing through this form of institutionalizing quasi-judicial organs in parallel with other soft law operationalizing endeavors” (Backer, 2008 (10(1) Melbourne Journal of International Law 258)). On the other hand, the OECD Guidelines were not binding. They remain voluntary principles, “recommendations  addressed  by  governments  to  multinational  enterprises” (OECD Guidelines Preface).  Key states would be likely to object to the juridification of the OECD Guidelines or to the establishment of global courts detached from the judicial branches of their domestic governmental apparatus.

By the middle of 2017, Roel Nieuwenkamp himself was able to state: “The successful outcomes of the Heineken, Kinross and Statkraft cases have recently demonstrated that the National Contact Point system for the OECD Guidelines on Responsible Business Conduct can be effective for providing access to remedy in the business and human rights domain” (BLOG - Outcomes from OECD National Contact Point cases: More remedy than you may think!). And on that basis he could conclude looking both back to the NCP’s accomplishments and forward to the challenges that remained: “My conclusion on the effectiveness of NCPs as a non-judicial grievance mechanism on business & human rights is that the glass is half full, but we must take active steps to fill it to the brim. Functioning NCPs which currently have strong track records with respect to outcomes in cases can serve as mentors to those lagging behind. Furthermore, all NCPs can look to recent successes for lessons learned to ensure that remedy in the context of cases handled by NCPs is routine, rather than rare.” (Ibid.).

And, indeed, it is as a remedy embedded within webs of national remedies, that the NCP special instance procedures appear to have their greatest potential. The recent use of the NCPs as a means of effecting significant public-private partnerships and agreement, for example with the Dutch Banking Sector Agreement suggests the future use of the NCP specific instance tool beyond the crafting of yet another quasi-judicial mechanism. But more interesting has been the use of the NCP process as an aid to national litigation—the availability of higher profile NCP proceedings in OECD states is especially useful where the breaches of the OECD Guidelines (and local litigation) occurs out of sight of developing states and their media (e.g., Vedanta).

Prospects for the future.  The prospects for the future build on the challenges of the present. And these, in turn, return us to the insights of then Secretary Clinton at the 50th Anniversary Commemoration of 2011. The leadership role of the OECD Guidelines, the focus on production chains rather than on the enterprises that oversee these chains, the limited though critical role of states, and the central role of the enterprise at the center of the nexus of transnational economic activity and the institutional apparatus through which the “soft” power of the OECD Guidelines can be hardened and globalized should serve as the framework for future revisions. These four foundational insights about the character and role of the OECD Guidelines, ushered in with the changes of the 2011 Revisions, can realize their transformative potential in any future revisions—can carry forward the vision of the Revolution of 2011. 

The leadership role of the OECD Guidelines can be furthered in a number of ways. The first is through the ongoing project of keeping its provisions current.  The current multi-stakeholder consultations on  the future revision of Chapter IV, “Administrative Approaches to Avoiding and Resolving Transfer Pricing Disputes” of the Transfer Pricing Guidelines, and  the future revision of Chapter VII, “Special Considerations for Intra-Group Services”, of the Transfer Pricing Guidelines serve as a useful template. But leadership also requires a greater ability to move NCPs toward common consensus on their role in general and on the use of specific instance proceedings in particular.  That has been a key challenge with substantial potential adverse consequences—from the development of NCP “power centers” in states with strong and active NCPs, to the effective closing off of NCPs which develop barriers to accessibility either formally or through their habits of practice.  National variation around a core is the essence of leadership; but the absence of or a weak core undoes much good work since 2011. Lastly, greater leadership will be required to embed sustainability goals into the OECD Guidelines—and more importantly to enmesh sustainability into the core current substantive areas of OECD concern.

The focus on production chains has already begun to bear fruit. In a sense, the OECD Guidelines have always been about the coherent management of supply chains across borders.  A future challenge will center on the need to move beyond the traditional relationships between law and a natural or juridical person on which it is applied, in this case the multinational enterprise,  to a recognition of the importance of drawing a direct regulatory connection between law (broadly conceived) and crafting one between regulatory structures and production chains. The supply chain guidance is a strong step in the right direction.  But the OECD may need to tackle the complex transformations of states (which now regulate and operate commercial enterprises), enterprises (that operate commercial enterprises and to which governmental responsibilities are being devolved) to civil society (which begins to serve as substitute representative bodies of key stakeholders in economic relations).

The OECD Guidelines will likely have to deal with the state.  The state, of course, is the foundation of the OECD (itself a multilateral international organization).  But the state, and the state system itself is changing.  At some point it will be necessary to consider the way that China’s One Belt One Road Initiative and the U.S. America First Project will substantially reshape the nature of global trade and trade regimes.  Those changes will necessarily create opportunities for OECD Guidelines to fill gaps and serve to provide a framework for translation and coherence.  And, of course, a number of important states require outreach.

Lastly, the focus on the enterprise (within production chains) remains a central element of the OECD Guidelines. The trend toward governmentalization of multinational enterprises continues.  Enterprises will continue to grow as centers for governance within their production chains.  To some extent they will serve as important a role as states within the sphere of their control.  For that reason, the rule of law principles at the center of state-based law legitimacy will likely have to find expression in enterprise governance regimes as well, including those of the OECD Guidelines themselves.

The governmentalized enterprise will also require heightened attention to accountability measures, foremost among them due diligence.  And it is here that the essay comes full circle.  One of the great sources of innovation for accountability and due diligence is the UNGPs, now written into that framework as human rights due diligence.  And so one sees the seeds of the Revolution of 2011 bearing fruit and the work for which Roel  Nieuwenkamp laid the foundation now serving its instruments well to guide the project that is the OECD Guidelines into the next stage of its development. 

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