Filling the Gaps in International Law

CORPORATE RESPONSIBILITY:

FILLING THE GAPS IN INTERNATIONAL LAW

Pablo Zapatero

1. The social meaning of a word

In the beginning was the word. There was talk about “bussiness ethics” and then also about “corporate social responsibility”, which started to shift to “corporate responsibility”, pushed by the contribution of progressive advocacy. Today, one of the most challenging questions regarding global governance is how broad we define its dynamic content: a socially consolidating concept that could imply a historical configuration of the way we approach the relationship between corporations and society, as well as between markets and public institutions. The social implications regarding expectations of “corporate responsibility” on the political agenda are unforeseeable. The concept reaches its social critical point in a vital historical moment in which society tries to formulate new triumphs to confront new powers: the victory of the market economy and its managed internationalization in a scenario of diminishing social protection and private concentration of power worldwide. A new reality in which private organizations exercise private power in coexistence with the exercise of public power by states and international organizations mechanically shifts responsibilities (i.e: realization of certain rights) to the private sector. International law has a key role to play in providing reasoned solutions under this scenario and to specify the degree of corporate involvement in the protection and promotion of public values.

Multiples puzzling questions emerge in relation with corporate responsibility. Society, politicians and the researchers have to leave space for creativity to craft new models on the public and private regulation of corporate responsibility: The social construct of the corporate responsibility scheme undoubtly undoubtedly embraces human rights as well as (socially uncontested) labour standards and the protection of the environment (sustainable development and human rights). The specification of these rules is no doubt challenging in itself (i.e: the horizontal application of human rights law). The legal obligations of private parties in the enjoyment and realization of human rights (civil and political rights as well as social, economic and cultural rights contained in the Universal Declaration and the international covenants) is particularly difficult to specify in private spheres. Additionally, defining how legislators and regulators approach the interaction between corporate behaviour and human rights is a complex and controversial process if one considers the following: The internalisation of the mandate of universality and interdependence of all human rights; and the inevitable expansion of the corporate responsibility discourse to embrace a plurality of other critical social issues such as corporate tax evasion or certain unsustainable modes in corporate downsizing amongst others. The dynamics of a concept like corporate responsibility is not different to other rising ideas that capture changing social values: Once they capture social demands (with relative precision) they enter and re-enter the dynamic public decision making process to define new public legal rules.

2.The tools of international law

International law has been and still is intensely state-centred. However, corporate activity is becoming increasingly more global and corporations are growing in power and gaining more influence on world society. This fact inevitably sets new challenges for international law and its institutional architecture. Although international law establishes legal obligations on individuals, these obligations have historically been applied to private parties in a rather limited and unsystematic way, not to mention to private legal persons, which have been mainly irrelevant to (public) international law. In this sense, the realities of a maze of very complex processes of market internationalization and economic transactions are challenging the foundations of conventional legal theories; the foundations of the way we see and approach international law. As a result, some underpinnings of classical theory of human rights have become a reductionist rationality (i.e: human rights as primary responsibility of states). The same applies to the conventional theories of international subjectivity (i.e: de facto corporate influence in contemporary international legislation). These are not mere examples, but critical factors. There are some “legal mantras” repeated by a significant part of the international legal community (practitioners and researchers) that have to be re-examined. The subsequent question is easy to make and difficult to answer: Is international law ready for a revolutionary change in the ways it approaches world governance? A positive answer to this question would imply an unprecedented and historical political shift in the global political community.

3.Basic models and strategies

Multilateral approaches through international law are still underdeveloped in this field. International society faces new realities in which new global centres of power are derived from (a) a sustained process of private accumulation of capital (facilitated by the instrumental foundation and development of the corporate form and structure) and (b) the expansion of the internationalization of markets. However, presently international law lacks the tools required to provide solutions to problems originating from this world scenario: Nowadays, global governance is basically fuelled by a plurality of dispersed international institutions (generally with limited regulatory capabilities) that monitor the compliance of standards directly and primarilyapplied to states. As a consequence there are some legal and institutional changes that have to be devised. Law, as we understand it, is an instrument of power as well as an instrument to constrain power. Therefore there are two simple basic models to explore and combine:

(A)To employ strategically conventional legal theory and tools to approach the new challenges (Model A) or

(B)To reformulate or re-engineer rules in force in order to devise and construct new institutions to face these new realities (Model B).

Model A would imply a focus on a strategy mainly based on manipulating segments of International Law already in force: Progressive legal practitioners and corporate responsibility advocates in civil society have been pushing this agenda through strategic public interest lawyering and campaigning in domestic tribunals in western societies. To do this, they employ social “brake levers” such as the Universal Declaration and treaties, as well as domestic laws with extraterritorial scope. A clear-cut example can be seen in the fact that for some time part of international legal literature has questioned the exportation of human rights to horizontal relationships among private parties (private person vs. private person, legal person vs. private person, legal person vs. legal person). However, this transnational epistemic community has been advancing its agenda, increasing supporters in the legal community and operating through the dissemination of progressive re-readings and strategic interpretations of international law. This approach is key and instrumental to advance the corporate responsibility agenda on a global level in the short and medium term. However, it has critical structural limitations:

• International law contains general substantive rules -i.e: the prohibition of torture- which arguably could be opposed to corporations (rules contained in Treaties and the Universal Declaration) in a domestic judicial proceeding (progressive lawyering): However, the facts teach us that these type of legal cases are not normally won in court but through the “stochastic court of public opinion”, which undoubtedly affects reputation (moral and reputational sanctions through the publicity of lawsuits) but does not provide any compensation to the victims of corporate misconduct and leaves externalities unattended.

• These international rules were not crafted and designed to regulate corporate conduct (diverging object of regulation) but state conduct: As a result critical practical problems inevitably break out in the specification of these rules (problems of generality and indeterminacy) in relation to private activity (i.e: the right to health in relation to private pharmaceutical research and patentability). These rules are generally static and have wide grey areas which lack of regulatory guidance mechanisms to support specification (i.e: direct violation or complicity with violations of human rights).

• These international rules contain a weak institutional design which does not provide for mechanisms to sanction and enforce corporate infringement (gap of international corporate liability) at the international level (enforceability of international law). The effectiveness of these international rules in relation to the state has severe flaws. Moreover, this is even more accentuated in relation to subjects which were not considered at the time the drafting of these rules was done. In this sense, there are critical flaws in terms of compliance, regulatory screening and infringement disclosure (panoptic audit design[1]) and there is a clear need to deploy and enhance compliance mechanisms.

These issues are critical for effective practice of corporate responsibility in international law and movement towards a more complex and intense international regulatory intervention (Model B). For this reason it is necessary to construct positive New Rules of the Game for global corporate activities in the long term and to back those rules with new institutions. It should be reasonable to consider legislative drafting to adapt and specify human rights and other relevant fields of international law already in force in a newly designed dynamic international regime (capable of developing and adapting new rules in an open regulatory learning process) directed to establish the boundaries of global corporate responsibility. This strategy could be implemented through a new brand of institution or designing legal upgrades in pre-existing institutions (i.e: UN, WTO, IMF and World Bank). A complementary sound policy appears to be to settle and reinforce inter-institutional coordination (amulti-institutional stakeholder approach[2]) in this field. The case for this type or regulatory coordination among international organizations is not only circumscribed to corporate responsibility but many fields of regulation as well. International law is a body of rules composed by different building-blocks that take different directions which can create legal frictions (i.e: trade liberalization and the environment). International law is fragmented in a plurality of international regimes with diverging objects and purposes and with no formal horizontal coordination among them. Specialized and sector-based international legislation has created diverging regulatory inputs. As a result, treaty relations and interactions entail complex problems which cannot be solved by applying the traditional rules of conflict in international law (i.e.: right to health vs. international intellectual property protection). Therefore it is of key importance to deepen inter-institutional coordination in international law.

The rational design of new rules should focus on bargaining and inserting a balance under the master value of granting Rights in exchange for Obligations. To arrive at this trade-off and to settle it in legal terms would inevitably require to some extent involving multinational corporations in the process. This would also inhibit the practice of corporate captures and pressures on key player governmental bodies (revolving doors, business self-contained cultural immersions, etc.). The internal structures of several key public organizations are constrained to different degrees and intensities by the proxies of regulatory corporate captures. These captures do not make it easy to promote progressive international legislation. The avenue therefore, is a Package Deal negotiated and crafted with the involvement not only of states and international institutions but multinational corporations, and subsequently legalized by states (in international and domestic law) and complementarily enforced through strategically selected financial entities (financial markets and banks). The path of linking corporate rights to corporate obligations, interpreted in a wide sense (i.e: trading and legal procedural benefits linked to a precisely predefined rules on corporate behaviour), is a promising and under-theorized avenue in this field. Under this scheme, international legislation towards binding rules could focus in a double regulatory strategy:

Rights and obligations

1. International legislation establishing rights for companies (facilitation of economic transactions and legal guaranties)
2. International legislation establishing corporate obligations

Procedural mechanisms

1. International procedures to enforce those rights
2. International procedures to enforce those obligations

However, it is fair to conclude that in 2004 the corporate rights approach is much in force (rights-indirectly obtained by the proxy of states: i.e: WTO rules and concessions, bilateral investment treaties, etc.), whereas none or almost no rules on international corporate obligations and liabilities. The OECD’s failed Multilateral Agreement on Investment (MAI) and the WTOTRIPS agreement already in force are paradigmatic examples of these imbalanced legislative processes; processes in which multinational corporations obtain triumphs through key states acting as proxies. Rules concerning international responsibility of States have been negotiated for more than 50 years in the UN International Law Commission and there are multiple specialized international legal schemes that regulate to different extents the international responsibility of the state. It is reasonable to assume that it is time to develop rules in this field for corporate actors as well, from the wide angle of responsibility as well as from the narrow angle of liability.

This panorama does not imply, however, a lack of international regulatory advances in terms of corporate responsibility. Nowadays, there is a growing and wide variety of regulatory projects underway in this field within the international community. Unfortunately, all of them are of a non-binding nature, based on self-regulation and corporate voluntarism (ironically “mimicking” the state consent approach in international law production) with no enforcement mechanism (as understood in a technical acception) in place, and not even planned in the future. Consequently, these projects do not provide the regulatory public goods required to solve the imbalances of control between private power on one side and citizens on the other.

There have been some public efforts to regulate corporate responsibility in the past (i.e: UN Commission on Transnational Corporations 1974-1990) and there are some that are already in place. ILOTripartite Declaration of Principles Concerning Multinational Enterprises and the OECD Guidelines for Multinational Enterprises are arguably the first general regulatory steps and main institutional expressions of the value of corporate responsibility in international society. The specialized “applier communities” of these international instruments are and have been strongly trying to upgrade them by different means. Likewise, a UN specialized agency (ECOSOC) has pushed for UN Norms on Responsibilities of Transnational corporations (crafted by a working group of the UN Sub-commission on the Promotion and Protection of Human Rights). The Norms are a last and additional critical step. But acting as the devil’s advocate one should say, after all the drafting process, that perhaps it has not been the best of ideas to approach the issue in a single working group. This group has proceeded through a round of meetings, without sufficient intervention of affected stakeholders and lacking certain social science technologies instrumental to law and rule design. Deriving problems of regulatory complexity as well as the problem of institutional enforcement gaps can be overcome through a dynamic regulatory process in the medium and long term, perhaps through a framework treaty as has been proposed. If this is the case, it should provide the mechanisms to moor additional protocols in order to provide the required progressive regulatory learning and updates.

The growth or new centres of private power in global governance requires not a redesign, not a reinvention, but the incorporation of a second pier in the architecture of modern international law. The architectural analogy would never be more pertinent: the international law construct can advance the corporate responsibility agenda through adding tiers, new levels built on pre-existing ones or building entirely new piers in parallel to complement that construct. This architecture of international law has been mainly and basically focused on regulating the behaviour of public entities (state actors) since its recent conception five centuries ago (as shared rules of interaction among political communities). Nowadays the central critical task is to fill the gaps of the international legal system: the gaps in international law understood as a legal system. If international legislation does not proceed in this track, inevitably, international law -as a central tool of global public policy- will mutate towards imbalance (subjects not covered by law) while foreseably private powers will keep on permeating and capturing the structures of international law in order to improve and develop rather different public agendas based on special interest. The advance of the empire of international law, or if we wish, the advance of the international empire of the law is desperately needed for these up-grades. Not to ignore that the international regulatory program of corporate responsibility contains a complex cluster of technical and political tasks that cannot predictably be concluded soon, not even in a decade of future feasible developments in international legislation (i.e: the specification of corporate obligation in terms of human rights). To craft new international rules and institutions for corporate conduct takes time. However, the success of this regulatory journey would be undoubtedly revolutionary for international law.

4.Private additional regulatory avenues

In the meantime, while cosmopolitan civil society and politicians promote the development and design of new effective and reasonable rules and institutions to deal with the social, economic and technological changes of globalization, complementary corporate approaches are required through self-policing and self-regulatory initiatives through private auditing and certification, private regulation through contracts and creative and future private regulatory markets (markets as regulators[3]). The first generation of private international business regulation through codes of conduct has passed by (first generation regulatory tools of corporate responsibility). Codes of conduct remain useful in corporate responsibility strategy as central by-laws and protocols to inform corporate officials of the behaviours expected, promoted, controlled, applied and centrally enforced at the apex of global corporate headquarters by advanced strategic boards of directors. The private regulatory road ahead involves crystallising international standardisation on corporate responsibility (coordinated strategies of international and national standarization agencies). The establishment of international private standards is key to global corporate governance building; a path in which modern corporations developing progressive corporate cultures should have a critical positive voice and role to play. These types of international (i.e: ISO) and national private standards (i.e: Chinese SAC, USANSI or European CEN) could be instrumental to advance international corporate responsibility through private standardisation (private soft-law). This strategy can have a prominent relevance due to the fact that these standardisation programs can be reinforced through incorporation by reference in international law (i.e: WTO law on technical rules and standards) and domestic law (i.e: domestic market law and regulation).