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  • Human Rights Research Center

Extraterritorial obligations: improving human rights accountability of multinational corporations

Author: Clara Bonin

November 8, 2023


[Illustration by Anatoliy Babiy via iStockPhoto]

Nowadays, many transnational companies outsource their production to factories and suppliers in developing countries where labor is cheaper. However, these countries often have fewer regulations and standards for working conditions. Despite this, many of these companies argue that they are not responsible for ensuring decent working conditions in their contractors’ factories (i.e., they believe that they do not have extraterritorial obligations).


One way to make sure that such obligations are respected is to equip states with extraterritorial jurisdiction. This means that a state may attribute to its jurisdiction “a power to adopt decisions which concern situations having arisen abroad,” [1] involving nationals and national entities. Extraterritorial jurisdiction also means that the state may adopt legislation intending to have an external effect, such as establishing norms governing nationals outside the state’s territory [2]. In other words, a parent company that is domiciled in the Global North should be held accountable and tried in its home country even if human rights violations are occurring in its subsidiaries.


There is currently no binding international instrument establishing an obligation for states to exercise extraterritorial jurisdiction, making it difficult to pursue consistent rulings on cases involving extraterritorial commitments.


There exist some successful instances of litigation that demonstrate how domestic law can be utilized to hold corporations accountable. In 2019, 1,826 Zambian villagers filed a successful claim against United Kingdom-based Vedanta Resources and its Zambian subsidiary, KCM. The claim alleged that waste from copper mines owned and operated by KCM had contaminated local waterways, causing harm to residents and property damage. As a result, the UK Supreme Court ruled that a corporation has a duty of care toward third parties if the parent company has assumed control over the subsidiary’s actions and provided relevant advice on risk management – which was the case of Vedanta. Thanks to this ruling, non-UK claimants can now sue UK-based multinational companies in English courts [3].


Based on my research in this area, I am advocating for advocating for the creation and signing of an international treaty on business and human rights which would influence and hopefully become part of states’ domestic law. The goal would be to reach an internationally recognized consensus on the issue of extraterritorial obligations, to acknowledge the issue, and to take legal steps towards its remediation.


Currently, soft law is more commonly used to address business and human rights matters than treaty law, even when the issue concerns extraterritorial obligations. Unlike treaty law, which is binding, soft law only encompasses a set of expected behaviors and normative acts from states. The UN Global Compact of 1999 was the first international document to establish a “social legitimacy” and license of businesses, also known as Corporate Social Responsibility (CSR). The Compact states that businesses should “respect and support the protection of internationally proclaimed human rights” [4] and ensure that they are not involved in any human rights abuses. The UN Guiding Principles on Business and Human Rights (UNGPs) followed in 2011. Also known as the Ruggie Principles, they highlight states’ responsibility to protect human rights, the corporations’ responsibility to respect human rights (which includes “due diligence”), and the need for both to provide channels for remedy. A company’s due diligence involves all “the steps a company must take to become aware of, prevent, and address adverse human rights impacts” [5] in the countries where they operate. Although not binding, this framework should theoretically be sufficient to prevent companies from causing direct or indirect human rights abuses. However, CSR has been criticized because it leaves too much room for businesses to decide what actions to take. That’s why a new movement called Business and Human Rights (BHR) has emerged, to support the creation of legal obligations under international law. While CSR mainly focuses on corporate voluntarism and self-guided action, BHR differs in its aim of imposing a universal human rights yardstick under the form of an international legally binding instrument (such as a treaty) which would renew the emphasis on a proactive role for the state. This shift away from CSR is currently being leveraged to establish a binding instrument and create international norms.


In 2014, Ecuador and an alliance of 600 NGOs urged the UN Human Rights Council to work towards a treaty on business and human rights. Their role was pivotal to the tabling of Resolution 26/9 which established an open-ended intergovernmental working group (OEIGWG) to draft such a treaty. The term “open-ended” specifies that all UN member states, states with observer status, NGOs with consultative status with the UN Economic and Social Council, as well as other actors such as national human rights institutions, can be involved. In 2021, a third draft was released, but negotiations are still ongoing. Such an international treaty would bind states to implement certain norms within domestic law, including the incorporation of extraterritorial jurisdiction.


Article 6.3.lit.b of the treaty's third draft requires business enterprises to prevent and mitigate “human rights abuses, which the business enterprise causes or contributes to through its own activities, or through entities or activities which it controls and manages”, as well as to “abuses to which is directly linked through its business relationships.” Interestingly, this third draft looks at transnational companies as “a conglomerate of units of a single entity, each unit performing a specific function, [with] the function of the parent company being to provide expertise, technology, supervision and finance” [6], meaning that if “injuries result from negligence in respect of the parent company functions, then the parent company should be liable” [7]. It hence implies that companies have extraterritorial obligations and that they are responsible for ensuring that extraterritorial corporations and the factories involved in their supply chain do not engage in child labor.


Article 8 deals with the question of the legal liability of corporations for human rights violations through their activities and through the activities of others. Article 8.6 specifically outlines that states should incorporate provisions into their domestic law to address two distinct scenarios. The first one is when a company has a business relationship with another entity or individual and, despite having "control, management, or supervision" over that entity or activity, it fails to prevent them from causing or contributing to human rights abuses. In this case, it is considered to be the company's failure. The second scenario takes into account instances where a company fails to prevent another person from causing or contributing to human rights abuses when it should have foreseen the risks of human rights violations being committed. Interestingly, the first instance does not even require any fault or negligence from corporations but mere causation or contribution to human rights abuses by an entity under control, management, or supervision by the enterprise. These scenarios go beyond the standards that currently exist in many legal systems [8]. There are some limitations to Article 8.6 as it is currently written, however. The proposed legally binding instrument does not specify the circumstances in which 'control' can be assumed, which shows that there is still some work to be done.


Finally, Article 8.7 asserts that while considering corporate liability, adherence to due diligence standards is a factor to be considered. However, compliance with these standards alone does not exempt corporations from liability. This is crucial as it encourages businesses to conduct thorough due diligence and proactively mitigate the risk of human rights violations.


Drafting a treaty would be a strong first legal step towards asserting extraterritorial jurisdiction of states and extraterritorial obligations of companies, especially noting the ground-breaking provisions discussed above. However, not only do governments have to sign and ratify the treaty, they must be ready to implement and enforce it – which is far from being easy. Inherent limitations to the international law system also have to be taken into account to nuance the too-optimistic view that a treaty could solve the issue of human rights violations perpetrated by private actors. One challenge is that the inclusion of international treaty provisions in domestic law is not always automatic. In monist countries, treaties are enforceable in domestic law right upon adoption, meaning that implementing a treaty would have a more direct impact. However, dualist countries make international law subordinate to constitutional review, which could weaken the reach of a treaty on business and human rights. The Supremacy Clause of the United States Constitution establishes, for example, that the Constitution is stronger than any other treaty. Given that many transnational companies are domiciled in the US, they would greatly benefit from this loophole.


The moderate reception by countries of the treaty is an additional reason why a treaty could be beneficial. Resolution 26/9 was not adopted unanimously by the Human Rights Council; 20 states voted in favor, while 14 voted against, and 13 abstained, which is not promising. The U.S., Canada, and Australia have directly expressed their disinterest regarding involvement in the process. Meanwhile, the European Union has been hesitant, and other countries like China and Russia appear less than enthusiastic in their support. Western states’ lack of collaboration is problematic in several regards. To be effective, the treaty would require the support of both host and home states, and usually, home states are from the Global North. Given this situation, finding a consensus to establish internationally recognized norms on which activists can rely would be a milestone and highly symbolic. The international and binding nature of a treaty on businesses would create a “level playing field” and ensure competitive neutrality by establishing a standard that applies to all states and, hence, to all businesses.


Finally, as international lawyer August Reinisch puts it, extraterritorial human rights litigation at the domestic level can be viewed as “a form of decentralized enforcement of international law, acceptable through the shared underlying values of protecting human rights” [9]. The fact that extraterritoriality is already established in criminal law (which addresses genocide, crimes against humanity, and war crimes) through universal jurisdiction shows that states are ready to accept extraterritorial obligations to protect human dignity, a shared value of the international community. Let’s hope that this cooperation can extend to extraterritorial human rights abuses of all kinds!


 

Glossary


  1. Dualist countries – Countries in which international law is subordinate to constitution review. In other words, that domestic law and the national constitution are above international law.

  2. Due Diligence – A company’s due diligence is made up of all the steps a company must take to become aware of, prevent, and address adverse human rights impacts in countries where their business activities take place. The OECD (Organisation of Economic Cooperation and Development) has developed a five-step framework: businesses shall (i) establish strong company management systems, (ii) identify and assess risk in the supply chain, (iii) design and implement a strategy to respond to identified risks, (iv) carry out an independent third-party audit of supply chain due diligence and (v) report annually on supply chain due diligence. Source: OECD, OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, 3rd edition, 2016.

  3. Extraterritorial Obligations – Whether home countries will have to regulate the operations of their corporations abroad and hold them accountable.

  4. Monist countries – Countries in which international treaties are enforceable in domestic law right upon adoption. In some countries, the constitution even states that treaties have standing above domestic laws.

  5. Negligence – Corporate negligence can include inadequate corporate management, control or supervision of the conduct of one or more of its employees; and failure to provide adequate systems to mitigate the consequences of poor management.

  6. Soft Law – A set of expected behaviors and normative acts from the states. It is authoritative but not binding. Even if a state can violate it, it must have a strong reason.

  7. Subsidiary – In the corporate world, a subsidiary is a company that belongs to another company, which is usually referred to as the parent company. Subsidiaries are separate and distinct legal entities from their parent companies.

  8. Treaty Law – Includes any document that is legally binding upon states. The creation of a treaty requires negotiation by states, signature, and domestic ratification of the treaty.


 

In-text References


[1] [2] De Schutter, Olivier. Extraterritorial Jurisdiction as a tool for improving the Human Rights Accountability of Transnational Corporations, November 2006


[3] Unknown, “UK Supreme Court clarifies issues on parent company liability in Lungowe v Vedanta”, Norton Rose Fulbright, April 2019


[4] UN Global Compact, The Ten Principles of the UN Global Compact, https://www.unglobalcompact.org/what-is-gc/mission/principles


[5] UN Guiding Principles on Business and Human Rights, 2011


[6] [7] Coexistence, Cooperation and Solidarity (2 vols.). Leiden, The Netherlands: Brill | Nijhoff, 25 Nov. 2011. https://doi.org/10.1163/9789004214828


[8] [9] Krajewski, Markus. Analysis of the Third Draft on Business and Human Rights, October 2021


 

Additional References


Altschuller, Sarah A, et Amy Lehr. « Corporate Social Responsibility ». The International Lawyer; Chicago, 2009.


Bernaz, Nadia; Pietropaoli, Irene. « The Role of Non-Governmental Organizations in the Business and Human Rights Treaty Negotiations ». Journal of Human Rights Practice, no 9 (2017): 287‑311. https://doi.org/doi: 10.1093/jhuman/hux011.


Grama, Ben et al., “Policy Brief 2021: Third Revised Draft on Business and Human Rights: Comments and Recommendations”, Asser Institute, October 2021


Kinley, David; Augenstein, Daniel. “When Human Rights ‘Responsibilities’ become ‘duties’: the extra-territorial obligations of states that bind corporations”, Legal Studies Research Paper No. 12/71, September 2012.


OECD. « OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas », s. d.


OEIGWG Chairmanship, Legally Binding Instrument To Regulate, In International Human Rights Law, The Activities Of Transnational Corporations And Other Business Enterprises, August 2021


Ramasastry, Anita.“Corporate Social Responsibility Versus Business and Human Rights: Bridging the Gap Between Responsibility and Accountability”, Journal of Human Rights, 14:2, 237-259, 2015, DOI: 10.1080/14754835.2015.1037953


Reinisch, August. “Human Rights Extraterritoriality: Controlling Companies Abroad”, Community Interests Across International Law, 2018. https://doi.org/10.1093/oso/9780198825210.003.0021


Ruggie, John. « The Corporate Responsibility to Respect Human Rights ». Harvard Law School Forum on Corporate Governance, May 15, 2020. https://corpgov.law.harvard.edu/2010/05/15/the-corporate-responsibility-to-respect-human-rights/.

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