I take this opportunity to let folks know that I have recently posted a draft of a new essay entitled: Systemic Constraints and the Human Rights Obligations of States and State Owned Enterprises.
A little bit about the essay: In the contemporary global order constructed through markets and multilateral frameworks of regulatory governance, the state occupies a curious place. The state retains its core function as an apex form of regulation within its territories (even as the forms that this regulation takes shifts from statutes, to administrative rules, to data driven accountability based governance). At the same time, the state has become an important participant within the markets it itself regulates. Through its state owned enterprises (SOEs) and other instruments, the state engages in economic activities within its territories as regulator and producer; outside its territories those instruments of state economic power operate within complex and evolving law, norms and rules functioning like other commercial ventures in global markets. SOEs also share the state's dual character--as market participant and as the projection of state power in markets. This dual character shapes the way in which it is possible to construct (and constrain) regulatory structures for the responsibilities of business to respect human rights. That tension between human rights regulatory structures and the dual character of SOEs is the object of examination of the essay.
A little bit about the essay: In the contemporary global order constructed through markets and multilateral frameworks of regulatory governance, the state occupies a curious place. The state retains its core function as an apex form of regulation within its territories (even as the forms that this regulation takes shifts from statutes, to administrative rules, to data driven accountability based governance). At the same time, the state has become an important participant within the markets it itself regulates. Through its state owned enterprises (SOEs) and other instruments, the state engages in economic activities within its territories as regulator and producer; outside its territories those instruments of state economic power operate within complex and evolving law, norms and rules functioning like other commercial ventures in global markets. SOEs also share the state's dual character--as market participant and as the projection of state power in markets. This dual character shapes the way in which it is possible to construct (and constrain) regulatory structures for the responsibilities of business to respect human rights. That tension between human rights regulatory structures and the dual character of SOEs is the object of examination of the essay.
As always, comments, suggestions, reactions are most welcome. A later version of this essay will appear in Research Handbook on Human Rights and Business (Surya Deva, ed., Edward Elgar forthcoming 2019).
The essay may be accessed HERE. The abstract and introduction follow below.
Larry Catá Backer
Abstract: The state occupies a curious place in the contemporary global order constructed through markets and multilateral frameworks of regulatory governance. The state retains its core function as an apex form of regulation within its territories (even as the forms that this regulation takes shifts from statutes, to administrative rules, to data driven accountability based governance). At the same time, the state has become an important participant within the markets it itself regulates. Through its state owned enterprises (SOEs) and other instruments, the state engages in economic activities within its territories as regulator and producer; outside its territories those instruments of state economic power operate within complex and evolving law, norms and rules functioning like other commercial ventures in global markets. SOEs also share the state's dual character--as market participant and as the projection of state power in markets. This dual character poses challenges and opportunities for the development of a rules based approach to the responsibilities of SOEs to respect, and the duty of their state owners to protect, human rights. Section 2 considers fundamental issues of the nature of state obligations and the definition of SOEs. Section 3 then examines the central question of this essay—given the structures and trends in the development of frameworks for business and human rights, where and how do SOEs fit into these structures? The section first examines the way that emerging international soft law regulatory structures envision the role of SOEs within these human rights based regulatory standards. It then considers future challenges. The section ends with a set of brief recommendations.
The question of the State Owned Enterprise (SOE) is as old as the construction of modernity, at least from the time of the great European colonization that started in earnest in the 15th century. The distinction between the economic activity and its regulation was only loosely conceded, as was the relation of law to government.[1] The state, the Church, the enterprise were bodies corporate[2] whose jurisdiction and powers were different in form but sometimes not in kind from those other bodies corporate which existed in various states of autonomy and dependency from the enterprise of the state.[3] From the state, to the Church, to the enterprise—these bodies corporate constituted a continuum which served individual, corporate and national interests, which during European early modernity were all directed toward the construction of the first era of European globalization characterized by its outward migration and ideologies of colonialism as a basis for international relations.[4]
To speak of the state, then, or of the enterprise, was to speak of related aspects of what the Chinese Communist Party would call in a much later age the development of productive forces,[5] toward the ends some sort or another of social good. This strategic embedding was a constant through the 20th Century, even as the development of the state as the apex organization of political authority produced a utilitarian typology that separated public from private, and economic, social, religious, and economic spheres. The seams of that typology bore a constant tension—the operation of the state in economic life, the governmentalization of the enterprise, the religious foundations or intermeshing between law and religion, and the like. Managing that tension produced the great complex that is the law of sovereign immunity, and for our purposes in this chapter grounded in the efforts to separate the public functions of the state from its commercial endeavors.[6]
Now within the structures of contemporary economic globalization that the question of the SOE has become an issue with institutional, regulatory and, especially, human rights dimensions. The question arises even as the centering character of the organization of societies has shifted from the political to the economic, and from the command of monarchs to the determination of markets. The model was Europe after 1945. “Five years to the day after the end of the War in Europe, the reconstituting mania, the furor constituendi, manifested itself in a surprising new form. Europe would seek to reconstitute itself, not as society, nation, or state but as economy.”[7] Within that economy the roles of states and of enterprises appeared to change, and with it, their respective roles and obligations within regulatory orderings, especially with respect to human rights.[8] These changes were felt most acutely in the construction of an economic global order, and they converged around two foundational trends at the end of the 20th century. The first saw an increasing conflation in the dual roles of states as both sovereign regulators and as sovereign enterprises. The second saw the migration of the sensibilities of the social obligation of the state[9] to the enterprise, but in a context in which the legal order differentiated between states (as regulators and public bodies) and enterprises as private bodies embedded within local, national, and global markets.
After 1948,[10] that social obligation increasingly took on the forms, language, and principles of human rights, the principal lens through which social obligation was focused.[11] Since the last third of the 20th Century, these questions have been complicated by a further wrinkle—one that In the form of the SOE, then, the question became—should it be treated like an enterprise or treated as an expression of state economic power, or as something else? The reason for the complication emerges in part from the ideology of globalization. It embraces the fundamental principles of the post 1945 global economic order. These include the principles that advanced economies are characterized by markets, that the primary role of states is to regulate and manage those markets through systems firmly rooted in rule of law, and that the primary actor in such systems are private (non-governmental) economic actors.[12]
Within that triadic relation that defines contemporary globalization —markets, states, and enterprises—the SOE is an anomaly. SOEs disrupt the fundamental typology in which globalization is founded. That has, in turn produced a great tension—on the one hand, international institutions have sought to ensure that SOEs are operated like and treated as a private enterprise equivalent; on the other hand, the connection to the state is unavoidable and the SOE is also understood to be an instrumentality of government with the burdens of the duties of state and its protections, especially for its owners.[13] Especially in the context of the state duty to protect and the corporate responsibility to respect human (both under international law), the SOE occupies an ambiguous space, as both a state entity (direct or indirectly owned or managed), and as a commercial enterprise engaging with others in global markets. It follows that the SOE, then, occupies a unique space within the construction of both national and international standards for human rights in economic activities. SOEs are not entirely state instrumentalities, nor are they private enterprises. SOEs may be operated as commercial ventures, but their owners have a core duty to advance the political interests of states. SOEs may be regulated internally by their home states—indeed they may be conflated with the home state government—but when they engage in economic activities, especially abroad, they are expected to conform to the generally applicable framework for markets-based economic of private entities.[14] That framework may also give rise to responsibilities within international regulatory regimes beyond and potentially incompatible with the domestic legal orders of the state whose instrumentality they may be.[15] They are both the means of organizing economic activities, and for their governmental owners/regulators they constitute “large portfolios . . . which have risen as significant actors in the global economy, active at home and abroad in diverse sectors such as energy, utilities, infrastructure, transports, telecommunications, and banking.”[16] Within an architecture of human rights regulation that distinguishes between public duty and private responsibility, how does the SOE fit into emerging regulatory and normative structures?
This chapter considers the core issues of SOE responsibility to respect or protect human rights under emerging international standards. Section 2 considers fundamental issues of the nature of state obligations and the definition of SOEs (to be distinguished from sovereign wealth funds covered elsewhere in the Handbook). In that context, regional variations and the basic animating principles of SOEs are considered. With that definition as a baseline, Section 3 then examines the central question of this chapter—given the structures and trends in the development of frameworks for business and human rights, where and how do SOEs fit into these structures. The section first examines the way that emerging international soft law regulatory structures envision the role of SOEs within these human rights based regulatory standards, with a focus on the UNGP, and with reference to the 2016 ‘Report of the Working Group on the issue of human rights and transnational corporations and other business enterprises.’ (WG 2016 Report)[17] Section 4 then considers future challenges. These include issues of sovereign immunity, of hybrid claims, of veil piercing and agency. These serve as the legal principles that may both inhibit and make possible the development of a remedial set of legal obligations on the part of both SOEs, and of their state shareholders. Section 5 concludes with brief recommendations. To understand the nature of the responsibilities of SOEs under regimes of international human rights, then, it will be necessary to untangle the relationship between the SPE and the state, between the state as regulator and the state as owner, and between the conduct of the state and its SOEs within the home state and in the host state.
To speak of the state, then, or of the enterprise, was to speak of related aspects of what the Chinese Communist Party would call in a much later age the development of productive forces,[5] toward the ends some sort or another of social good. This strategic embedding was a constant through the 20th Century, even as the development of the state as the apex organization of political authority produced a utilitarian typology that separated public from private, and economic, social, religious, and economic spheres. The seams of that typology bore a constant tension—the operation of the state in economic life, the governmentalization of the enterprise, the religious foundations or intermeshing between law and religion, and the like. Managing that tension produced the great complex that is the law of sovereign immunity, and for our purposes in this chapter grounded in the efforts to separate the public functions of the state from its commercial endeavors.[6]
Now within the structures of contemporary economic globalization that the question of the SOE has become an issue with institutional, regulatory and, especially, human rights dimensions. The question arises even as the centering character of the organization of societies has shifted from the political to the economic, and from the command of monarchs to the determination of markets. The model was Europe after 1945. “Five years to the day after the end of the War in Europe, the reconstituting mania, the furor constituendi, manifested itself in a surprising new form. Europe would seek to reconstitute itself, not as society, nation, or state but as economy.”[7] Within that economy the roles of states and of enterprises appeared to change, and with it, their respective roles and obligations within regulatory orderings, especially with respect to human rights.[8] These changes were felt most acutely in the construction of an economic global order, and they converged around two foundational trends at the end of the 20th century. The first saw an increasing conflation in the dual roles of states as both sovereign regulators and as sovereign enterprises. The second saw the migration of the sensibilities of the social obligation of the state[9] to the enterprise, but in a context in which the legal order differentiated between states (as regulators and public bodies) and enterprises as private bodies embedded within local, national, and global markets.
After 1948,[10] that social obligation increasingly took on the forms, language, and principles of human rights, the principal lens through which social obligation was focused.[11] Since the last third of the 20th Century, these questions have been complicated by a further wrinkle—one that In the form of the SOE, then, the question became—should it be treated like an enterprise or treated as an expression of state economic power, or as something else? The reason for the complication emerges in part from the ideology of globalization. It embraces the fundamental principles of the post 1945 global economic order. These include the principles that advanced economies are characterized by markets, that the primary role of states is to regulate and manage those markets through systems firmly rooted in rule of law, and that the primary actor in such systems are private (non-governmental) economic actors.[12]
Within that triadic relation that defines contemporary globalization —markets, states, and enterprises—the SOE is an anomaly. SOEs disrupt the fundamental typology in which globalization is founded. That has, in turn produced a great tension—on the one hand, international institutions have sought to ensure that SOEs are operated like and treated as a private enterprise equivalent; on the other hand, the connection to the state is unavoidable and the SOE is also understood to be an instrumentality of government with the burdens of the duties of state and its protections, especially for its owners.[13] Especially in the context of the state duty to protect and the corporate responsibility to respect human (both under international law), the SOE occupies an ambiguous space, as both a state entity (direct or indirectly owned or managed), and as a commercial enterprise engaging with others in global markets. It follows that the SOE, then, occupies a unique space within the construction of both national and international standards for human rights in economic activities. SOEs are not entirely state instrumentalities, nor are they private enterprises. SOEs may be operated as commercial ventures, but their owners have a core duty to advance the political interests of states. SOEs may be regulated internally by their home states—indeed they may be conflated with the home state government—but when they engage in economic activities, especially abroad, they are expected to conform to the generally applicable framework for markets-based economic of private entities.[14] That framework may also give rise to responsibilities within international regulatory regimes beyond and potentially incompatible with the domestic legal orders of the state whose instrumentality they may be.[15] They are both the means of organizing economic activities, and for their governmental owners/regulators they constitute “large portfolios . . . which have risen as significant actors in the global economy, active at home and abroad in diverse sectors such as energy, utilities, infrastructure, transports, telecommunications, and banking.”[16] Within an architecture of human rights regulation that distinguishes between public duty and private responsibility, how does the SOE fit into emerging regulatory and normative structures?
This chapter considers the core issues of SOE responsibility to respect or protect human rights under emerging international standards. Section 2 considers fundamental issues of the nature of state obligations and the definition of SOEs (to be distinguished from sovereign wealth funds covered elsewhere in the Handbook). In that context, regional variations and the basic animating principles of SOEs are considered. With that definition as a baseline, Section 3 then examines the central question of this chapter—given the structures and trends in the development of frameworks for business and human rights, where and how do SOEs fit into these structures. The section first examines the way that emerging international soft law regulatory structures envision the role of SOEs within these human rights based regulatory standards, with a focus on the UNGP, and with reference to the 2016 ‘Report of the Working Group on the issue of human rights and transnational corporations and other business enterprises.’ (WG 2016 Report)[17] Section 4 then considers future challenges. These include issues of sovereign immunity, of hybrid claims, of veil piercing and agency. These serve as the legal principles that may both inhibit and make possible the development of a remedial set of legal obligations on the part of both SOEs, and of their state shareholders. Section 5 concludes with brief recommendations. To understand the nature of the responsibilities of SOEs under regimes of international human rights, then, it will be necessary to untangle the relationship between the SPE and the state, between the state as regulator and the state as owner, and between the conduct of the state and its SOEs within the home state and in the host state.
NOTES:
[1] Larry Catá Backer, ‘Reifying Law - Government, Law and the Rule of Law in Governance Systems’ [2008] 26(3) Penn State Int’lL.Rev. 521
[2] Allison D. Garrett, ‘The Corporation as Sovereign’ [2008] 60 Me.L.Rev. 129.
[3] Neil MacCormick, ‘Beyond the Sovereign State’ [1993] 56 ModernL.Rev. 1, 16.
[4] Antony Anghie, Imperialism, Sovereignty, and the Making of International Law (Cambridge2004)
[5] Deng Xiaoping, ‘To Build Socialism We Must First Develop Productive Forces’ (The Selected Works of Deng Xiaoping: Modern Day Contributions to Marxism-Leninism, April-May 1980) https://dengxiaopingworks.wordpress.com/2013/02/25/to-build-socialism-we-must-first-develop-the-productive-forces/> accessed December 11, 2018.
[6] George W. Pugh, ‘Historical Approach to the Doctrine of Sovereign Immunity’ [1953] 13(5) Louisiana L.Rev. 476.
[7] Philip Allott, The Health of Nations: Society and Law Beyond the State (Cambridge2002), p. 205.
[8] Andrew Clapham, Human Rights Obligations of Non-State Actors (Oxford, 2006); Surya Deva, ‘Huan Rights Realization in an Era of Globalization [2006] 12 Buffalo Human Rts L.Rev. 93, 112-115
[9] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (first published 1776, Edwin Cannan ed., Univ. of Chi. Press 1976) pp. 213-44
[10] See Universal Declaration of Human Rights Res. 217A (III) (10 Dec. 1948) ; discussed in Larry Catá Backer, ‘The Role of Companies in Privatizing Socio-Economic Rights in India and China,’ in Surya Deva, ed., Emerging Free Markets: Comparative Insights from India and China (London: Routledge, 2015), pp. 44-70.
[11] Birgit Spiesshofer, Responsible Enterprise: The Emergence of a Global Economic Order (Oxford: Hart, 2018).
[12] Organization for Economic Cooperation and Development (OECD), OECD Guidelines on Corporate Governance of State-Owned Enterprises (Paris, OECD, 2015), ‘About the Guidelines’ Pp. 11-12 [hereafter ‘OECD SOE Guidelines’]
[13] Clifford Chance, ‘State Immunity and State-Owned Enterprises: Report Prepared for the Special Representative of the UN Secretary General on Business and Human Rights’ (December 2008).
[14] OECD SOE Guidelines; U.N. Guiding Principles of Business and Human Rights (New York and Geneva, U.N., 2011)[hereafter UNGP]; Organization for Economic Cooperation and Development, Guidelines for Multinational Enterprises (Paris, OECD, 2011) [hereafter OECD Guidelines] (“State-owned multinational enterprises are subject to the same recommendations as privately-owned enterprises, but public scrutiny is often magnified when a State is the final owner.” Ibid., pp. 22 (Commentary, General Principles ¶ 10)) .
[15] ‘Report of the Working Group on the issue of human rights and transnational corporations and other business enterprises.’ A/HRC/32/45 (4 May 2016), ¶¶ 12-17.
[16] Press Release, ‘State-owned enterprises must lead by example on business and human rights – New UN report’ [17 June 2016] Office of the High Commissioner for Human Rights.
[17] A/HRC/32/45 (4 May 2016).
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