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Corporate rights and the backlash against globalization

LiveMint logoLiveMint 28-06-2017 Sudeep Chakravarti

This is as good a reason as any to work up a nice human rights sweat. “At present, we are faced with a system that prioritizes corporate rights over human rights, and as a result, there has been an increasing worldwide backlash against globalization and its ill effects.”

That statement is the trigger for a position paper released earlier in June by the watchdog coalition International Corporate Accountability Roundtable (ICAR), a project of San Francisco-based Tides Center, and Amsterdam-based SOMO, Stichting Onderzoek Multinationale Ondernemingen which translates as Centre for Research on Multinational Corporations.

I’ve written about the work of both organizations in this column. A couple of years earlier I referred to ICAR’s Parent Company Accountability Project, to remedy what it called “One of the largest barriers to remedy for victims of human rights violations by business”: the “limitation of liability of parent companies for the actions of their subsidiaries.” This was unfair, ICAR maintained, as business groups readily accept tax and other financial benefits given to their subsidiaries.

SOMO I mentioned last year in the context of its interesting suggestion, the threat of disengagement by a principal to ensure rights compliance and human rights due diligence by supply chains or partners.

Their collaborative effort, titled Investment-related Dispute Settlement: Towards Comprehensive Accountability and Inclusive Access to Remedy takes ahead their stated pursuits. It’s an excellent and compact “sit-rep” on the investor-state dispute settlement process, commonly referred to as ISDS, and the aspect of bilateral investment treaties, which many countries including India are in the process of renegotiating. It also dovetails with ongoing moves by some African, South American and Asian countries to bring about a United Nations binding treaty on human rights to hold multinational business accountable.

The paper highlights how investors use ISDS clauses to jettison state courts and directly approach private arbitration tribunals even over “public interest measures” as taxes, and measures to protect environmental and public health. “Cases are heard by arbitral tribunals that consist of three private attorneys who often rotate between bringing claims on behalf of corporations and serving on tribunals.” Besides concerns of bias, the paper flags the point that “ISDS clauses give foreign investors, and only foreign investors, a private right of action to access remedy for perceived wrongs perpetrated by the State.” On the other hand, individuals and communities who may suffer on account of such investment have “no recourse to specialized remedy in the international system.”

The paper lists several instances, from relatively minor to massive, going back nearly two decades, in an attempt to highlight that resentment against businesses has been building for some time. In 2000, a tribunal in the Metalclad v. Mexico case, the Mexican government was directed to pay American waste management and landfill specialist Metalclad Corp. $16.7 million. The government had denied permission for a landfill citing environmental and health hazards. The company went ahead anyway, without appropriate permits; the government responded by declaring it a reserve.

As with this case, I looked up the 2015 judgement in the case of Occidental v. Ecuador, in which a tribunal at the Washington, D.C.-based International Centre for Settlement of Investment Disputes (ICSID) reduced the earlier $2.3 billion awarded to Occidental Petroleum Corp. Ecuador had accused Occidental of breach of contract and national law, and in 2006 seized its properties including at an oilfield.

While this notable case involves a determinedly socialist-minded country (Ecuador also leads in efforts for a binding UN treaty), instances include Germany which actually weakened its environmental law to accommodate a thermal power plant.

Several countries are now seeking to move away from what they see as a broken process. Ecuador actually withdrew from ICSID. Indonesia scripted a model investment treaty. For its part India, as the paper notes, has responded by formally writing to 58 countries in 2016 to scrap existing bilateral investment treaties and renegotiate treaties which insist on what the paper terms “prior exhaustion of local remedies” before matters reach overseas investor-state dispute settlement. This echoes the approach of the Southern African Development Community, a grouping of 15 countries including South Africa, Congo, Mauritius, Namibia and Tanzania.

“However,” as the paper notes in an aside, “India’s model (bilateral investment treaty) contains no binding social, environmental, and human rights responsibilities for foreign investors, but continues to rely on the voluntary adoption of international corporate social responsibility frameworks.”

It would help if the government itself first displayed binding social, environmental and human rights responsibilities, but that’s a subject for another time.

Sudeep Chakravarti’s books include Clear.Hold.Build: Hard Lessons of Business and Human Rights in India, Red Sun: Travels in Naxalite Country and Highway 39: Journeys through a Fractured Land. This column, which focuses on conflict situations and the convergence of businesses and human rights, runs on Thursdays.

Respond to this column at rootcause@livemint.com

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