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Master Thesis
Corporate Social Responsibility:
Introducing Investors’ Responsibility
in International Investment Agreements
Magdalini Tsakalidou Student number:12265160
Master of International Trade and Investment Law Faculty of Law
University of Amsterdam Supervisor: Prof. Stephan Schill
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Table of Contents
Abbreviations ……….3
1. Introduction………4
2. What is the role of CSR in international investment regime?...6
3. Alternative ways to introduce investors‟ responsibility in IIAs…,,,,,………….7
4. Benefits from incorporation of CSR clauses in IIA…...………...10
4.1 From states and investment regime‟s scope…...………..11
4.2 From investor-state‟s arbitration scope….………...13
5. Analysis of CSR provisions contained in IIAs...………...18
5.1 Typology of CSR provision in IIAs……….………18
5.2 The legal nature of CSR/RBC clauses contained in IIAs……….. 19
6. Recommendations……….……….24
7. Conclusions………... ………..………..31
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Abbreviations
BIT Bilateral Investment Treaty
CETA Comprehensive Economic and Trade Agreement CSR Corporate Social Responsibility
EEC European Economic Community
EPA Economic Partnership Agreement FDI Foreign Direct Investment
FET Fair and Equitable Treatment
FIPA Foreign Investment Protection and Promotion Agreement
FPS Full Protection and Security
FTA Free Trade Agreement
GATT General Agreement on Tariffs and Trade IIA International Investment Agreement ILO International Labour Organization ISDS Investor-State Dispute Settlement MFN Most Favored Nation
MNE Multinational Enterprises
NAFTA North American Free Trade Agreement
NGO Non-governmental Organizations
OECD Organization of Economic Co-Operation and Development
RBC Responsible Business Conduct UN United Nations
UNCTAD United Nations Conference on Trade and Development WTO World Trade Organization
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1. Introduction
Traditionally, countries considered FDI as a source of maximizing economic growth, reducing unemployment rates and contributing to their social prosperity and modernization.1 Hence, through liberalization reforms and legislative initiatives, they pursued to attract MNEs and promote investments. States participated informally in a “race to the bottom”2
, in order to provide the most beneficiary legislative environments, in which investors will expand their activities.
However, MNEs, in order to increase their profits, engaged in repeated violations of labour, human rights and environmental provisions in the host states. Characteristic examples were the cases of Shell in Nigeria3 and Nike in Vietnam4.
Under this regime, CSR of MNEs appeared as a debatable concept. CSR may be considered as a counterargument in the widespread perception that MNEs cannot be held accountable; an understanding of immunity that was the side effect of the economic globalization5. It is supported that the “roots” of CSR was “philanthropy” that evolved during years and acquired today's content6. Despite repeated efforts from researchers dedicated to conceptualizing the abstract meaning of CSR, up to these days, there is not a widely accepted definition. The most complete and comprehensive definition is that “CSR can be defined as a concept that addresses the social, environmental and economic consequences of corporations‟ activities7. CSR initiatives seek mechanisms to ensure corporations can be held accountable for these consequences, based on internationally agreed standards and principles.
The concept of CSR gradually started being introduced in the policy of many MNEs, even as a voluntary concept, that will improve their public image and as
1
OECD, “Foreign Direct Investment for Development, maximizing benefits, minimizing costs (200332), <https://www.oecd.org/investment/investmentfordevelopment/1959815.pdf> accessed 14 July 2019
2
Emmanuel O. Nuesiri, „ Accountability of Powerful Actors for Social and Environmental Outcomes‟ (2016) NRGF Conceptual Paper <https://www.iucn.org/sites/dev/files/content/documents/accountability_paper.pdf> accessed 10 June 2019
3
Bronwen Manby, „Shell in Nigeria: Corporate Social Responsibility and the Ogoni Crisis‟ (2000) Georgetown Institute for the Study of Diplomacy case 267 < http://sk.sagepub.com/cases/shell-in-nigeria-corporate-social-responsibility-ogoni-crisis> accessed 10 June 2019
4
Ananda Das Gupta, Business Ethics Texts and Cases from the Indian Perspective (Springer 2014) 5
Noreena Hertz, The Silent Takeover: Global Capitalism and the Death of Democracy ( Random House, Arrow Books 2002)
6Archie B Carroll, „A History of Corporate Social Responsibility: Concepts and Practice‟ in Andrew Crane and others, Τhe Oxford Handbook of Corporate Social Responsibility (2008 Oxford University Press)
7
Myriam Vander Stichele and Sander van Bennekom, „Investment agreements and Corporate Social Responsibility (CSR): contradictions, incentives and policy options‟ (2005) SOMO Discussion paper 1
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aftereffect will provide them a competitive advantage. The NGOs also engaged in efforts to lever governments to adopt a more strict legislative approach concerning MNEs‟ CSR. The United Nations Conference on Environment and Development in 1992 flared up the debate about CSR, with attention towards increasing the accountability of MNEs in environmental and social equity issues and contributing to global sustainability solutions.8
Under the current circumstances, the policy that many states have already implemented and will also follow towards the inclusion of CSR in IIAs is of significant importance. Hence, the current thesis is going to address whether the inclusion of CSR provisions in IIAs is a way for states to introduce MNEs‟ responsibility in the investment regime.
In order to answer the above question, the research will follow the head methodology. First of all, it will examine and analyze which the role of CSR doctrine in international investment regime is. Following that, the research is going to answer the question: Are there already "mechanisms" in the international investment regime that can hold MNEs accountable for their misconduct? This question aims to examine whether the inclusion of CSR provisions in IIAs is redundant, as there are already provisions, able to “control” MNEs‟ practice. As a next step, it will present the benefits from the inclusion of explicit CSR provisions in IIAs that will guarantee states‟ protection from MNEs‟ violations. In the next chapter, the research will scrutinize the current policy of states regarding the inclusion of CSR clauses in IIAs. In order to achieve the above goal, it will follow the classification of CSR provisions in IIAs that Gordon et al. has formed in the 2014/019 working paper. It will also address the legal nature of these provisions in order to conclude whether the provisions that are already incorporated in IIAs achieved to address investors‟ responsibility. The research is going to focus on the environmental and labour perspectives of CSR, excluding human rights and corruption from its scope. The main reason for this approach is that anti-corruption and human rights provisions are met rarely in IIAs, reaching 1.5% and 0.5% respectively10. In case the answer is negative,
8„United Nations Conference on Environment & Development‟ (3-14 June 1992) UN Doc
https://sustainabledevelopment.un.org/content/documents/Agenda21.pdf 9
Gordon, K., J. Pohl and M. Bouchard, „InvestmentTreaty Law, Sustainable Development and Responsible Business Conduct: A Fact Finding Survey‟ (2014) OECD Working Papers on International Investment, 2014/01 < http://dx.doi.org/10.1787/5jz0xvgx1zlt-en > accessed on 10 June 2019
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the research aims at presenting ways in order for states to improve the legal effectiveness of CSR provisions and hold MNEs responsible for their violations.
2. What is the role of CSR in international investment regime?
First of all, it should be pointed out that nowadays CSR term is used alternately with the RBC concept. Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct, supported that "while the concept of CSR is often associated with philanthropic corporate conduct external to business operations, RBC goes beyond this to emphasize the integration of responsible practices within internal operations and throughout business relationships and supply chains.11 However, as CSR doctrine evolved during the years, its current conceptual framework does not encompass any more philanthropy, and thus, the two terms are going to be addressed jointly in the current research.
Traditionally, the predominant concern of states through the international investment agreements was to attract foreign investors and protect their enterprises' interests from unexpected legislative and executive interventions of the host state. The power of host states was considered as an obstacle for investors, while domestic legislations and courts were treated with suspicion. The first BITs aimed to safeguard investors‟ interests from state interference and more specifically from acts of expropriation. Gradually, the concern of IIAs moved towards the regulative reforms that violated FET, non-discrimination and full protection and security principles. States‟ reforms under specific circumstances were considered that lead to the economic deprivation of the investments and that constitute indirect expropriation12. Under this regime, many arbitral Tribunals followed a one-sided interpretation of BITs, in which the protection of investors' interests had a predominant role.13
It is beyond doubt that host states should “offer” investors a stable environment in order to expand their activities, especially when this environment was guaranteed explicitly by states in their effort to attract investments.
11."Roel Nieuwenkamp, „CSR is dead! What's next?' (2016) OECD INSIGHTS DEBATE THE ISSUES < http://oecdinsights.org/2016/01/22/2016-csr-is-dead-whats-next/> accessed 10 June 2019
12
Peter T Muchlinski, „Corporate Social Responsibility‟ in Peter T Muchlinski, Federico Ortino, Christoph Schreuer, The Oxford Handbook of International Investment Law (Oxford University Press 2008)
13
Grierson-Weiler and Laird, “ Standards of Treatment” in Peter T Muchlinski, Federico Ortino, Christoph Schreuer, The Oxford Handbook of International Investment Law (Oxford University Press 2008)
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However, especially during the first IIAs that concluded, investors were rarely “charged” with responsibilities and they lacked liability for their conducts even in cases of environmental and human rights violations. A characteristic example was the case of Chevron in Ecuador that concerned an oil exploration and exploitation investment14 and ended up causing substantial environmental pollution while also affected citizens‟ health. The unbalanced approach of IIAs has led to broad criticism by states and NGOs. The right of states to regulate for the protection of public policy concerns was restrained in a rather drastic way under the fear of states for violating substantive standards15 and introduced the “regulatory chill” phenomenon.16
The need for incorporating CSR clauses in IIAs was highlighted firmly by the NGOs during the negotiations of the Multilateral Agreement on Investment. The lack of provisions that will address the responsible business conduct of investors and the grant of extended rights and protection to investors emphasized the “disequilibrium” that prevails in the international investment regime17.
The latest years, there is a slight transposition of the international investment regime into a more balanced era. UNCTAD in its 2017 “World Investment Report 2017”18
emphasized on the reform that took place in many new concluded IIAs, which included sustainable development goals while retained and guaranteed an environment that protects investors.
From the abovementioned, it becomes evident that CSR is a principle that has a role to play in international treaties. MNEs are not anymore the weak investors and states are more aware, due to cases in which they were penalized for implementing "authoritative" policies against them. CSR, as will be analyzed in the following chapter, has already penetrated in numerous IIAs in order states to achieve posing limits to negligent investors‟ conduct.
3. Alternative ways to introduce investors’ responsibility in IIAs
14
Yulia Levashova „Chevron-Texaco v. Ecuador: The Environmental Claim within a Claim of Denial of Justice‟, in Y. Levashova et al. (eds.), Bridging the Gap between International Investment Law and the Environment (Eleven International Publishing 2015)
15
Catharine Titi, Right to Regulate in International Investment Law ( Hart Publishing 2014) 16
Kyla Tienhaara, „Regulatory Chill and the Threat of Arbitration: A View from Political Science,' in C. Brown & K. Miles (eds.) Evolution in Investment Treaty Law and Arbitration ( Cambridge University Press 2011)
17
Ibid at 9 18
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As it was emphasized in the previous chapter, states may through the incorporation of CSR provisions in IIAs address the MNEs‟ responsibility under specific conditions. However, it is inevitable for the research to examine whether, in IIAs, there are already mechanisms able to scrutinize the conduct of MNEs, in case of disputes before the Tribunals. If that is the case, then the inclusion of explicitly CSR provisions will be void.
CSR can penetrate under a different guise in IIAs. Some Tribunals recognize that investors‟ illegal or fraudulent conduct excludes the protection afforded under the IIAs19. Worthy of mentioning the case of Metal-Tech Ltd v. the Republic of Uzbekistan20, in which the Tribunal denied its jurisdiction since "the investment was tainted by illegal activities, specifically corruption." Following this approach, gross violations of CSR provisions contained in IIAs may serve as the legal basis for rejecting MNEs' claims by Tribunals or reducing the responsibility of states21.
Following the same logic, the protection afforded to investors can be denied or reduced based on the "legality requirement22. Many BITs contain the “in accordance with the law” requirement in the definition of “investment." Parties may also consent to arbitration for those investments that meet the legality requirement. IIAs that contain requirement will often hold “renvoi” to the law of the host state23. Hence, Tribunals may examine compliance with the CSR provisions in order to conclude whether investors should enjoy protection. However, Tribunals do not follow a common approach regarding the content of the “legality requirement" and the "sanctions" in case of non-compliance.
Another possible way for the assessment of investors‟ conduct is through the principle of “good faith." In the investment law regime, the Tribunals correlate this
19
Gabriel Bottini, „Extending Responsibilities in International Investment Law‟, The E15 Initiative: Strengthening the Global Trade and Investment System for Sustainable Development (Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum, 2015) < www.e15initiative.org/> accessed 10 June 2019
20
Metal-Tech Ltd. v. the Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award 4 October 2013
21
Yulia Levashova, „The Accountability and Corporate Social Responsibility of Multinational Corporations for Transgressions in Host States Through International Investment Law‟ (2018) 14 (2) Utrecht Law Review < https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3204456 > accessed 10 June 2019
22Myriam Vander Stichele and Sander van Bennekom, „Investment agreements and Corporate Social
Responsibility (CSR): contradictions, incentives and policy options' (2005) SOMO Discussion paper
https://www.somo.nl/wp-content/uploads/2005/12/Investment-agreements-and-Corporate-Social-Responsibility.pdf, accessed 20 January 2019
23Rahim Moloo and Alex Khachaturian, „The Compliance with the Law Requirement in International Investment Law‟ (2011) 34(6) < https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=2310&context=ilj> accessed 10 June 2019
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principle primarily with states‟ obligations24
, thus leaving less space for its invocation as a defense argument from states. However, according to Muchlinski, "It is said that the person who comes to equity must do equity and that the person who comes to equity must come with clean hands. The conduct of the claimant is central to the application of equitable principles”25
. Hence, under the spectrum of the “clean hand” and “good faith” doctrines, the Tribunals are in a position to examine MNEs‟ social and responsible conduct and assess both sides‟ violations in order to extract safe conclusions.
The obligations and the policy of investors can be examined by Tribunals also in the framework of FET. FET is one of the substantive standards contained in the majority of BITs, and the protection of legitimate expectations of investors is one of its aspects. Some Tribunals examine investors‟ “due diligence," in order to conclude whether state‟s policy violated their legitimate expectations.26
The “due diligence” check correlates with the risk assessment that investors pursued in the pro-establishment phase in order for Tribunals to conclude whether the state legislative “environment” created expectations that need protection. What Tribunals consider that “due diligence” assessment of states encompasses cannot be answered in advance. This problem became perceivable in Parkerings v. Lithuania 27 case, in which the Tribunal held that investor should have predicted the regulatory reforms as he had to examine even the socio-political and economic transition that had taken place in Lithuania28.
CSR can be enforced and play the most crucial role in the framework of counterclaims. Under the current investment regime, host states usually do not have the right to initiate arbitration proceedings. But they do have the right to file counterclaims, depending of course from the wording of the arbitration clause. Counterclaims have a strict correlation with the initial claim and provide states with
24Sanja Đajić, „MAPPING THE GOOD FAITH PRINCIPLE IN INTERNATIONAL INVESTMENT
ARBITRATION: ASSESSMENT OF ITS SUBSTANTIVE AND PROCEDURAL VALUE‟ (2012) 3 < https://www.researchgate.net/publication/269660101_Mapping_the_good_faith_principle_in_international_invest ment_arbitration_Assessment_of_its_substantive_and_procedural_value> accessed 10 June 2019
file:///C:/Users/Public.LAPTOP-1CO4SQPC/Downloads/Mapping_the_good_faith_principle_in_international_.pdf 25
Peter Muchlinski, „Caveat Investor? The Relevance of the Conduct of the Investor under Fair and Equitable
Treatment Standard‟ (2006) 55(3) International and Comparative Law Quarterly <
https://www.jstor.org/stable/4092639?seq=1#metadata_info_tab_contents> accessed 10 June 2019 26
Muthucumaraswamy Sornarajah, Resistance and Change in the International Law on Foreign Investments (Cambridge University Press 2015)
27
Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award 11 September 2007 28
Andres Rigo Sureda, „Legitimate Expectations, Risk and Due Diligence,' in A.R. Sureda (ed.) Investment Treaty
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the opportunity to address the misconduct and the responsibility of the investors for violations of human rights, environment, etc. The counterclaim is the response to critiques about the asymmetric nature of the IIAs, but some requirements should be met. However, the IIAs should impose some obligations to investors in order host states to be able to file a counterclaim.
What these approaches have in common is that they entrust to Tribunals the role to define whether the business conduct violated the labor, human rights, etc. provisions and thus they should not be afforded the protection under the investment regime. The problem is that neither states nor Tribunals have agreed what for instance the "good faith" principle, the "legality requirement" encompasses. The only exception appears in cases that the states reached an agreement about the interpretation method that Tribunals are obligated to follow, usually through annexes. But this practice is more common in trade agreements and is rarely met in BITs. Thus bring us to the next problem; where are the limits in order business conduct to be considered that violate the “good faith principle”? How can Tribunals scrutinize the CSR responsibilities of MNEs, when IIAs do not include explicit provisions? Even in case of counterclaims, which the most effective way is in order states to address investors' responsibilities, the IIAs should contain provisions that impose obligations to investors.
Moreover, the Tribunals do not follow a common approach regarding the content of these terms, as they are not bound –only informally- by the decisions of the other Tribunals. This divergence of views in investor-state arbitration will be highlighted in a next section, where the different approaches followed by Tribunals will be presented. In any case, the protection of labour and environmental rights cannot be entrusted in Tribunals‟ interpretation method. It is imperative states to conceptualize the abstract meaning of CSR and to provide some directions to MNEs and interpreters.
4. Benefits from incorporation of CSR clauses in IIA
First of all, the lack of a binding international instrument and a uniform environmental and labour benchmark, accepted by states, allow the MNEs to manipulate the legislations. They adopt and follow strategies that disorient both states and public awareness. One such technique is called "greenwashing." Corporations
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either disclose only their positive environmental initiatives, concealing their negative performance artfully or exaggerate about the environmental elements of the product29. Both techniques aim at creating misleading perceptions about their CSR performance. Even the adoption of self-regulated codes of conduct aspires to circumvent the implementation of mandatory ones.30
It becomes obvious that the protection of labor and environmental rights cannot be entrusted to MNEs without the existence of effective enforcement mechanisms. Hence, the chapter is going to examine what are the benefits for states, investment regime and dispute settlement mechanism when states include explicit CSR clauses in international agreements
4.1 From states and investment regime’s scope
The integration of CSR provisions and especially international instruments in IIAs provide benefits that cannot be ignored. It creates a threshold of protection, uniform between the states-parties31. In this way, states will follow a common approach towards MNEs while they will have the option to implement higher standards of protection through their domestic regulation if they consider that the protection afforded is not adequate. As a result, MNEs may not pursue to transfer part of their conducts in countries with lower protection, as they will not gain substantial benefits from the legislative gaps. However, this does not mean that parent companies will be held accountable for the conduct of their subsidiaries. Arbitral Tribunals are somewhat reluctant to "pierce the corporate veil," and when they do, they apply strict tests32. In any case, both parent companies and subsidiaries will be subject to a
29Christopher Marquis, Michael W. Toffel, Yanhua Bird, „Scrutiny, Norms, and Selective Disclosure: A Global Study of Greenwashing‟ (2015) Forthcoming in Organization Science; Harvard Business School Organizational Behavior Unit Working Paper No. 11-115; Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 11-115 < https://ssrn.com/abstract=1836472 or http://dx.doi.org/10.2139/ssrn.1836472> accessed 10 June 2019
30
Magali A. Delmas, Maria J.Montes-Sancho, „Voluntary agreements to improve environmental quality: Symbolic
and substantive cooperation‟ (2010) 31(6) Strategic Management Journal <
https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.826> accessed 10 June 2019 31
Nathalie Bernasconi-Osterwalder, Caroline Dommen et. al., „Harnessing Investment for Sustainable Development: Inclusion of investor obligations and corporate accountability provisions in trade and investment agreements' (2018) (meeting co-hosted by the International Institute for Sustainable Development (IISD) and Friedrich Ebert Stiftung (FES),Versoix, Switzerland, January 11–12, 2018)
32
Y. Kryvoi, "Piercing the Corporate Veil in International Arbitration," (2010) Vol. 1, Global Business Law Review < https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1572634> accessed on 15 July 2019
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common framework of environmental and labour protection that will guarantee the fundamental rights, enshrined already in many developed countries.
At the same time, the inclusion of international instruments with CSR provisions in IIAs will harden their soft core and will provide a solution to the low enforcement power that these instruments guarantee. Their integration into a legally binding regime will elevate their status. This approach does not mean that they will be converted automatically into legally binding obligations, as their legal effect depends primarily on their wording. But it will add legitimacy and may increase acceptance by different stakeholders. Moreover, the compliance with investment treaties is safeguarded through investor-state dispute settlement mechanisms. Tribunals‟ awards are binding and can be enforced in every state either automatically33 either with the aid of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards34. In this way, states will be able to bring claims against MNEs for violations of international instruments, in which they are parties, while MNEs may be bound by these instruments.
The inclusion of CSR provisions may also contribute towards a more sustainable world. The incorporation of this principle may play a crucial role in order states to adopt domestic policies and regulations that aim at addressing the social impact of investments. In parallel, many states initiated already to include in IIAs‟ preambles provisions that point to the protection of non fiscal aims. However, usually, the conceptual framework of this kind of provisions is left to be determined upon the Tribunals. The inclusion of explicit CSR provisions will define the abstract meaning of the principle, and the obligations that arise from them will become more predictable. Hence, MNEs will be familiar with the “codes” and “guidelines” with which their investments should comply.35
The gap between international investment law and law that protects labour and environmental rights will also be minimized. International investment law is not a regime isolated from the other parts of international law. The above argument can be supported from the slow but steady rebalancing approach that IIAs and investment
33
ICSID Convention Regulation and Rules (April 2006), art 53, art 54 34
CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS (adopted 10 June 1958, entered into force, 7 June 1959) 330 U.N.T.S. 38
35
„Corporate Social Responsibility and Regional Trade and Investment Agreements‟ (United Nations Environment
Programme, 2011)
<https://unep.ch/etb/publications/CSR%20publication/UNEP_Corporate%20Social%20Responsibility.pdf> accessed 10 June 2019
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Tribunals attempt.36 Different rights will be brought through claims and counterclaims before the same legal institutions, which will have the opportunity to examine competing interests before releasing the awards.37 In another case, the state will have to bring investors' violations of CSR provisions before domestic courts, which would cause fragmentation, parallel proceedings, additional costs, and perhaps contradictory decisions.
The inclusion of CSR provisions in IIAs will also benefit and modernize the international investment regime. The vast majority of the first generation investment agreements focused on the protection of investors‟ fiscal interests38
, as it was highlighted in a previous chapter. However, this disequilibrium is shifting gradually towards a more quid pro quo approach. Provisions that permit states to regulate for public purposes without violating substantive investment obligations have become a usual practice in the recent IIAs39. This approach reconciles two competing interests: the right of states to take legislative initiatives and the protection of investors‟ rights from unjustified and unpredictable interventions.
4.2 From investor-states’ arbitration scope
Incorporation of CSR responsibilities in IIAs will also assist the Tribunals, in case disputes that concern the irresponsible business conduct of the MNEs are brought before them. In order this argument to become perceivable, the research will present the divergent approaches that Tribunals followed in cases in which states implemented policies to protect their social and environmental interests from investments‟ repercussions.
The most evolutionary award that paved the way for holding MNEs accountable for their conduct was Urbaser V Argentina case40 and thus should be analyzed in details. This case also illustrates the problem that Tribunals face when
36
Steffen Hindelang and Markus Krajewski, „Shifting Paradigms in International Investment Law: More
Balanced, Less Isolated, Increasingly Diversified' (Oxford University Press, 2016)
37Stephan W. Schill, „THE OECD GUIDELINES FOR MULTINATIONAL ENTERPRISES
AND INTERNATIONAL INVESTMENT AGREEMENTS:
CONVERGING UNIVERSES „in Nicola Bonucci and Catherine Kessedjan (ed), 40 years of the OECD
Guidelines for Multinational Enterprises (Editions A. PEDONE,2018)
38
Ibid at 35 39
Ying Zhu, „Corporate Social Responsibility and International Investment Law: Tension and Reconciliation‟ (2017) 1 Nordic Journal of Commercial Law < file:///C:/Users/Public.LAPTOP-1CO4SQPC/Downloads/1983-Article%20Text-6753-1-10-20170928%20(5).pdf>, accessed 10 June 2019
40
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investors‟ violations are brought before them. It concerned a water and sewage concession awarded to a foreign investor during Argentina‟s privatization program. Argentina brought a counterclaim against investors for violation of the human right to water. The implications in its reasoning should be given special attention. First of all, the Tribunal pointed out that the BIT is not isolated from international law. As a result, any rules of international law, even human rights law may be applicable and should be examined. The Tribunal also recognized that human rights might impose obligations to investors, as “corporate social responsibility had become a standard of crucial importance for companies operating in the field of international commerce." Moreover, it held that CSR involves “commitments to comply with human rights in the framework of those entities’ operations conducted in countries other than the country of their seat or incorporation." It also highlighted that “it is no longer the case that ‘companies operating internationally are immune from becoming subjects of international law." However the Tribunal also pointed the shortcomings of CSR by recognizing that “[e]ven though several initiatives undertaken at the international scene are seriously targeting corporations’ human rights conduct, they are not, on their own, sufficient to oblige corporations to put their policies in line with human rights law. The focus must be, therefore, on contextualizing a corporation’s specific activities as they relate to the human right at issue in order to determine whether any international law obligations attach to the non-State individual”. What assumptions should be made from this award is that CSR cannot, even with the most innovative approach, impose obligations to MNEs if its framework is not framed explicitly. Thus the incorporation of CSR provisions and even international instruments in IIA need to address specific commitments to investors. Moreover, it will provide a concrete solution to the problem of Tribunals, which, due to the lack of responsibility provisions, are not able to scrutinize investors' conduct. At the same time, the Tribunal recognized that MNEs do not enjoy immunity anymore, are able to become subjects of international law and as a result, held responsible for their conduct. The approach that the Tribunal followed is groundbreaking and whether it will set a “precedent” for future cases is left to be ascertained. It signalized that Tribunals may become more amenable to balance the rights and obligations of both sides and to step back from the rooted one-sided approach which prevailed for a long time in investment law.
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Other awards also highlight the approach followed by Tribunals when states implemented policies against investors in order to limit repercussions by their conduct. Until today, there are not any awards in which the violations of labour rights from the investors have been brought before international investment Tribunals. Hence, the indicative examples that follow will concern environmental issues.
The Emilio Agustín Maffezini v Kingdom of Spain case concerned an environmental impact assessment required by host state agency in order to approve the production and distribution of chemical products. The Tribunal concluded that “[…]the Environmental Impact Assessment procedure is basic for the adequate protection of the environment and the application of appropriate preventive measures. This is true, not only under Spanish and EEC law but also increasingly so under international law"41.
In Chemtura Corporation v Canada case, the foreign investor challenged measures regarding the registration of a pesticide, which was found to poses risks for the environment and the human health42. Even though the Tribunal pointed out that it is not in a position to judge about hazardousness from the use of the pesticide, it concluded that the implemented measures were in accordance with host state‟s international commitments.
In Gold Reserve Inc. v Bolivarian Republic of Venezuela43 case, state based its defense on the environmental impact of a mining venture, in order to justify the revocation of a construction permit. The Tribunal pointed out that it "acknowledges that a State has a responsibility to preserve the environment and protect local populations living in the area where mining activities are conducted. However, this responsibility does not exempt a State from complying with its commitments to international investors by searching ways and means to satisfy in a balanced way both conditions”.
What becomes clear for the above cases is that there are Tribunals willing to examine and address even partially the foreign investors' responsibilities. They
41
Emilio Agustin Maffezini v Kingdom of Spain, ICSID Case No. ARB/97/7, Award 13 November
2000 42
Crompton (Chemtura Corporation) v Canada, UNCITRAL, Award, 2 August 2010 43
Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/, Award 22 September 2014
16
confirmed that states are able under specific conditions to take measures to protect environmental interests. Moreover, many Tribunals examine the measures under the spectrum of international environmental agreements, in which state-parties undertake some obligations. Such decisions seek that the foreign investors‟ responsibilities started being integrated into international investment arbitration.
However, at the same time, there are a couple of awards that followed a different approach. The Tribunals gave priority to the protection of investors' and disregarded their irresponsible conduct that led to the violation of human and environmental rights.
For instance, the Compañía del Desarrollo de Santa Elena, S.A. v Republic of Costa Rica (“Santa Elena”)44
case concerned an act of direct expropriation, which aimed, according to state, at the protection of flora. The Tribunal rejected states‟ claim and highlighted that “While an expropriation or taking for environmental reasons may be classified as a taking for a public purpose and thus may be legitimate, the fact that the property was taken for this reason does not affect either the nature or the measure of compensation to be paid for the taking. That is, the purpose of protecting the environment for which the property was taken does not alter the legal character of the taking for which adequate compensation must be paid”. What needs to be underlined is not the final decision, but the reasoning of the Tribunal, which considered that the act was ab initio expropriation without proceeding to an examination of measure‟s aim and without pursuing a balance of competing interests45.
Another example is the Metalclad Corporation v. United Mexican States46. The Mexican authorities denied granting the investor a construction permit for reasons that related to environmental concerns and Tribunal concluded that the state's policy constituted an act of expropriation which violated NAFTA‟s provisions regarding FET. Two parts of the award highlight how the lack of specific CSR provisions hampers states from implementing public policy concerns measures. First of all, the Tribunal interpreted article 1110 of the NAFTA in a rather broad way,
44Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1, Award 13 February 2000
45Philippe Sands, “The policy framework for investment: the social and environmental” (LITIGATING ENVIRONMENTAL DISPUTES: COURTS, TRIBUNALS AND THE PROGRESSIVE DEVELOPMENT OF
INTERNATIONAL ENVIRONMENTAL LAW, March 2008)
dimensions<https://www.oecd.org/investment/globalforum/40311090.pdf> accessed on 10 July 2019 46
17
concluding that “expropriation under NAFTA includes not only open, deliberate and acknowledged takings of property […], but also covert or incidental interference with the use of property which as the effect of depriving the owner, in whole or in significant part, of the sue or reasonably-to-be-expected economic benefit of property even if not necessarily to the obvious benefit of the host state”. This broad interpretation enables regulations that protect human rights, labour rights or the environment to be scrutinized and considered “tantamount to expropriation." Moreover, the Tribunal considered as irrelevant the ecological “motivation or intent” of the measure. In this way, it disregarded implicitly the right of states to take actions for the protection of public concerns.47
The Bilcon v. Canada case48 concerned the rejection of a project, after environmental assessment, in order “community core values” to be safeguarded. In its award, the Tribunal concluded that Canada violated its responsibilities to provide FET and national treatment, as the assessment did not recommend investors alternative measures that will address the environmental concerns. When the award was released, it brought up again the debate regarding the Tribunals‟ deference vis-à-vis the protection of investors‟ rights and the low threshold it posed in order to conclude the arbitrariness of the measure.49 Moreover, the dissenting arbitrator outlined that Tribunal‟s approach introduced a new control over environmental assessments, which did not exist before under Canadian law. The Tribunal‟s award entailed the risk of creating “a chill on the operation of environmental review panels.50
As became clear, many Tribunals pursued to disregard the environmental concerns by investors‟ activities or focused on purpose on different aspects in order to avoid providing clear answers. Tribunals do not follow a coherent approach when addressing investors‟ responsibilities. Thus, the inclusion of specific CSR provisions by states in IIAs will provide them with the opportunity to take environmental and labor issues into consideration. At the same time, it will assist Tribunals in setting
47
Lucien J. Dhooge, “The North American Free Trade Agreement and the Environment: The Lessons of Metalclad Corporation v. United Mexican States" (2001) 10 Minnesota Journal of International Law < http://minnjil.org/wp- content/uploads/2015/11/Lucien-J.-Dhooge_-The-North-American-Free-Trade-Agreement-and-the-Environment-The-Lessons-of-Metalclad-Corporation-v.-United-Mexican-States.pdf>, accessed on 10 July 2019
48
Bilcon of Delaware et al. v. Government of Canada, PCA Case No. 2009-04, Award 17 March 2015 49
STEFANIE SCHACHERER “Clayton/BilconVCanada-Environmental and Social Impact Assessment (ESIA);
Environmental Permitting (Extractives); Right to Regulate” in International Investment Law and Sustainable
Development: Key cases from 2000–2010 (IISD 2011) <
https://www.iisd.org/library/international-investment-law-and-sustainable-development-key-cases-2000-2010 > accessed 15 July 2019 50
18
clear arguments regarding the right of states to regulate in order to protect interests of public concern.
5. Analysis of CSR provisions contained in IIAs
The research presented that the incorporation of CSR provisions in IIAs will not only be beneficial for states but will also lead the international investment regime to reform. A reform which is inevitable, as the IIAs do not anymore reflect the opposed interests of parties in our complex societies. The existent mechanisms are somewhat obsolete and are based on Tribunal's discretion in order to address the MNEs' responsibilities. But a modern international investment system should be proactive and not expect from a posteriori evolutionary interpretations of the dispute settlement mechanisms to provide solutions.
Hence, the research will present in this chapter the CSR provisions that the new IIAs have already incorporated in IIAs. The analysis will be based on the classification that Gordon et al. has formed in the 2014/0151 working paper. Moreover, it will examine the legal nature of the provisions in order to conclude whether these provisions are able to address the responsibility of MNEs.
5.1 Typology of CSR provision in IIAs
Gordon et al. conducted a survey over 2,094 bilateral treaties and 13 multilateral treaties in order to examine whether and how the IIAs pursue to integrate labour rights and sustainability achievements52. The survey covers more than 70% of the global investment treaty regime. While the majority of the new agreements contain CSR/RBC provisions, only 12% of the total agreements address these topics, as the older agreements -still in force- did not. What can be considered problematic is that 96% of the FTA and EPAs- with investment protection chapters- refer to RBC concerns, while this percentage in BITs is meager, reaching 10%.
The classification of RBS provisions is based on their function and aim in the IIAs and will be presented based on the frequency of their appearance. However, the authors recognize that this classification is not absolute, and the lines are not strict.
51
Ibid at 9 52
19
The majority of IIAs contain RBC provisions in the preamble. Although the preamble language does not create direct obligations to MNEs and cannot bind them, it is essential during the interpretation process. Provisions that aim at preserving policy space also appear frequently in IIAs. Their objective is to provide states with the right to regulate on policy concern issues without violating the legitimate expectations of the investors. In 82 of the surveyed treaties, there are provisions either in the preamble or in the main body of the treaties that discourage states from lowering their labour or environmental standards of protection in order to attract foreign investors. Along with the preserving policy space provisions, many IIAs establish that environmental measures for the implementation of public welfare objectives cannot be considered as acts of indirect expropriation. These kinds of provisions intend to disregard state‟s obligation to pay compensation as long as regulations are based on a non-discriminatory basis. Some IIAs include provisions regarding parties‟ commitment to cooperate on SD/RBC matters while 31 treaties establish a link between RBC and ISDS mechanism. Only 1.3% of the surveyed treaties contain provisions regarding the implementation or maintenance of the internationally recognized standards, which states have committed to surveil, as the internationally recognized by conventions labour standards. State parties, in only nine treaties, are committed to promoting the protection of CSR standards among the enterprises. These commitments appear either framed in a general way or through reference to OECD Guidelines for Multinational Enterprises53.
Some general conclusions that writers highlight are the increasing tendency of including provisions that aim at maintaining policy space and restraining relaxation of standards. Simultaneously, some treaties address CSR provisions in one of the abovementioned ways, and others pursue a combination of them.
5.2 The legal nature of CSR/RBC clauses contained in IIAs
CSR/RBC clauses create different kinds of obligations depending on their wording, with distinct levels of binding potentials. Hence, the thesis needs to address
53
OECD (2011), OECD Guidelines for Multinational Enterprises, OECD Publishing
http://dx.doi.org/10.1787/9789264115415-en accessed on 10 June 2019
OECD (2000), OECD Guidelines for Multinational Enterprises, OECD Publishing <
20
the beneficiaries of the responsibilities, the degree of enforceability, and the means that recipients have in their discretion in order to enforce the CSR provisions. The analysis will be based on the typology that was formulated in the previous chapter.
The majority of the IIAs include CSR provisions in their preamble, as the Canada-Jordan FIPA54 which states “that the promotion and the protection of investments […] will be conducive to the stimulation of mutually beneficial business activity, to the development of economic cooperation between them and the promotion of sustainable development”. Despite the fact that they do not create directly binding obligations for investors or states, they crystallize the importance of non-economic objectives along with the rest investment policy objectives. It is rather farfetched to consider that preamble can serve as a legal basis for states in order to implement measures for the protection of labour and environmental rights. Their role is to serve as guidance, among other provisions, for the interpretation of treaties objects and purpose from the arbitration Tribunals55; especially when the right of states to regulate in order to protect competing interests is under question. However, they do not require states or investors to engage in any acts or omissions.
Clauses that aim at preserving policy space are the second most favourable CSR options in IIAs and are found either in the preamble of IIAs or in a distinct article. These provisions grand states the right to legislate in order to safeguard vital public interests, without violating the standards of protection afforded to investors. In this way, the contracting parties pursue to rebalance the one-sided nature of IIAs while preventing the "regulatory chill" phenomenon. Such typical provision is the one in Finland-Namibia BIT56, which states that “Provided that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination by a Contracting Party, or a disguised investment restriction, nothing in this Agreement shall be construed as preventing the Contracting Parties from taking any measure necessary for the maintenance of public order or in circumstances of a threat to the life or health of humans, animals or plants”. While the “preserving policy space” provisions are not uniform along the IIAs, their binding effect is equivalent, providing states with the necessary legislative autonomy.
54 Canada-Jordan FIPA (2009) 55 Ibid at 38 56 Finland-Namibia BIT (2002)
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Whether the same provisions, expressed in treaties‟ preamble, can be invoked against investors should be answered by arbitral Tribunals in a case by case analysis.
What should be further emphasized is that regulatory autonomy is neither limitless nor unconditional. The measures implemented by states should not be “arbitrary” or “unjustifiable” nor must they “constitute a disguised restriction on international trade or investment." The prerequisites derive from the chapeau of Article XX of the GATT 194757. According to that, the measures are subject to tests in order any deviations from investor protection to be justified58. They should be both reasonably necessary to achieve the intended environmental objective and proportionate to that aim59.
Similarly, the aim of clauses that clarify that measures taken to protect public welfare objective do not constitute indirect expropriation is to avoid the phenomenon of “shrinking policy space”60
. These provisions usually are traced in annexes that accompany IIAs and target to define the normative scope of the expropriation and other standards of treatment, as FET61. Article 3 of the annexure called “interpretation of expropriation” in India-Mozambique BIT62 stipulates that “Except in rare circumstances, non-discriminatory regulatory actions by a party that are designed and applied to protect legitimate public welfare objectives including health, safety and the environment concerns do not constitute expropriation or nationalization”. This practice was the result of U.S. and Canada‟s long-lasting experience as respondents in arbitration Tribunals under the NAFTA. By regulating the abstract meaning of the investors' rights, a point of predictability is guaranteed. The Tribunals‟ discretion in interpreting the terms is restrained while the states may alter the
57
General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194 [hereinafter GATT].
58Mary E. Footer, „BITS AND PIECES: SOCIAL AND ENVIRONMENTAL PROTECTION IN THE
REGULATION OF FOREIGN INVESTMENT‟ (2009) 18 Mich. St. Int'l L. Rev. <
https://digitalcommons.law.msu.edu/cgi/viewcontent.cgi?article=1005&context=ilr> accessed 10 June 2019 59
Peter Muchlinski, „Corporate Social Responsibility’ (Oxford Handbooks Online, 2008) 60
Stephan W. Schill, „ Enhancing international investment law‟s legitimacy: Conceptual and methodological foundations of a new public law approach‟ Virginia Journal of International Law (2011) 52(1) Virginia Journal of
International Law <
https://heinonline.org/HOL/Page?handle=hein.journals/vajint52&div=5&g_sent=1&casa_token=&collection=jour nals&t=1560621337> accessed 10 June 2019
61
Vid Prislan and Ruben Zandvliet, „Labor Provisions in International Investment Agreements: Prospects for
Sustainable Development‟ (2013) Grotius Centre Working Paper 2013/003-IEL <
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2171716> accessed 10 June 2019 62
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legislative environment in order to protect the environment and labour rights without held responsible for paying compensation.63
The “no lowering of standards” clauses are addressed to states which are responsible for guaranteeing labour and environmental standards of protection64. States provide incentives to investors through diminishing the levels of protection afforded by domestic laws, in order to attract FDI and deal with regulatory competition. OECD study explicitly highlights that “FDI data suggests that core labour standards are not primary factors in the majority of investment of OECD companies. Nonetheless, some governments in non-OECD countries have restricted labour rights […]in the belief that so doing would help attract inward FDI from both OECD and non-OECD investors”65. There is not a consistent approach regarding the nature of commitments undertaken by states. For instance, the Austria-Kosovo BIT66 states that “the Contracting Parties recognize that it is inappropriate to encourage investment by weakening domestic labour laws." Hence, these kinds of provisions do not seem adequate to prevent states from relaxing their legislation standards but remain wishful thinking. At the same time, some clauses contain legally binding language, but differences between them have traced that concern the kind of obligations they impose to parties. The Morocco-United States FTA67 highlights that “each Party shall strive to ensure that it does not waive or otherwise derogate from, or offer to waive or otherwise derogate from, such laws in a manner that weakens or reduces adherence to the internationally recognized labour rights […]”. In this case, the commitments are formulated as obligations of conduct. Contrary, in the Mexico-Switzerland BIT68, the responsibility of parties is more visible, as provisions impose obligations of result. It clarifies that "neither Party should waive […], such measures (domestic health, safety or environmental measures) […]”, while it provides an opportunity for consultation in case of violation of this provision. Moreover, common characteristics of many of these clauses are that they prohibit not only derogations but also any attempts to do so to attract investments.
63
Kathryn Gordon and Joachim Pohl "Environmental Concerns in International Investment Agreements: A Survey," OECD Working Papers on International Investment, (2011) 2011/01, OECD Publishing http://dx.doi.org/10.1787/5kg9mq7scrjh-en accessed on 10 June 2019
64
Ibid at 61 65
OECD, „Trade, Employment and Labour Standards: A Study of Core Workers' Rights and International Trade‟ (OECD, 1996)
66
Austria-Kosovo BIT (2002) 67
Morocco-United States FTA (2004) 68
23
Provisions that establish commitments between the contracting parties to maintain or implement specific internationally recognized standards can be classified as a subcategory of the non-derogation clauses. The Belgium/Luxembourg- Barbados BIT69 points out that " Recognizing the right of each Contracting Party to establish its own domestic labor standards, and to adopt or modify accordingly its labor legislation, each Contracting Party shall strive to ensure that its legislation provides labour standards consistent with the internationally recognized labour rights set forth in paragraph (d) of Article 1 and shall strive to improve those standards.[…]. The Contracting Parties reaffirm their obligations as members of the International Labor Organization and their commitments under the International Labor Organization Declaration on Fundamental Principles and Rights at Work and its Follow-up. The Contracting Parties shall strive to ensure that such labour principles and the internationally recognized labour rights outlined in paragraph (d) of Article 1 are recognized and protected by domestic legislation […].” What should be further clarified is that provisions prohibiting derogations from domestic labour law usually use as a benchmark the international labour standards70. They do not prevent any internal reform but only those that are inconsistent with international labour standards or ILO norms. As a consequence, states that provide a higher threshold of protection can lower their standards until reaching to international labour benchmark. Moreover, differences are traced between the set of international labour rights that states should safeguard.
Regarding clauses that establish environmental and labour cooperation, it is for states that are committed to engaging in efforts for the improvement of environmental and labour protection standards. A lack of consistent approach regarding the specific commitments that states undertake renders the examination of the clauses rather tricky. In general, the cooperation clauses are not able to create obligations for MNEs as long as states do not pursue initiatives.
A small percentage of IIAs establish a link between RBC standards and ISDS procedures for the protection of the environment. As stated in Chile-Japan EPA 71 “[…] a Tribunal, at the request of a disputing party or, except as the disputing parties agree otherwise, on its own initiative, may appoint one or more experts in the fields
69
Belgium/Luxembourg- Barbados BIT (2009) 70
Ibid at 59 71
24
of environmental, health, safety or other scientific matters to report to it in writing on any factual issue concerning matters of their expertise raised by a disputing party in a proceeding, subject to such terms and conditions as the disputing parties may agree”. This evolutionary provision that appeared for the first time in NAFTA72 pursues to establish a more symmetric approach regarding the IIAs. States are able to invoke experts‟ reports in order either to support that the implementation of specific regulations aims to protect environmental concerns or that MNEs are responsible for their detrimental conduct towards the environment. Investors may also appoint experts to support their arguments. The critical is that this provision guarantees, even partially, that the Tribunal‟s decision will be based on objective evaluations from qualified experts and not on arbitrary assumptions. However, some limited IIAs follow a conservative approach and exclude environmental concerns from dispute settlement mechanisms, signalizing a step back of the rebalancing efforts73.
Provisions that relate to commitments undertaken by states to promote RBC standards also seem unable to follow a trailblazing approach. Article 16 of the Canada-Benin BIT74 points that “[e]ach Contracting Party should encourage enterprises […]to voluntarily incorporate internationally recognized standards of corporate social responsibility in their practices and internal policies, such as statements of principle that have been endorsed or are supported by the Contracting Parties. These principles address issues such as labour, the environment, human rights, community relations and anti-corruption”. In a similar vein, Netherlands-United Arab Emirates BIT states that “Each Contracting Party shall promote as far as possible and in accordance with their domestic laws the application of the OECD Guidelines for Multinational Enterprises to the extent that is not contrary to their domestic laws75 Hence, it becomes evident that the provisions create indirect and rather "soft" obligations to contracting parties for the latter to pursue investors' voluntarily implementation of CSR standards; Even though these provisions stipulate specific rights.
6. Recommendations
72
North American Free Trade Agreement (adopted 17 December 1992, entered into force 1 January 1994), Article 1133.
73
See, e.g., the 2004 US model BIT 74
Canada-Benin BIT (2013) 75
25
The analysis of the legal nature of provisions already incorporated in IIAs highlights that despite states‟ trend towards a more balanced approach, remarkable progress has not been achieved. The majority of provisions is addressed to states and has not the “power” to hold MNEs directly accountable for their policies. It is up to states' discretion to implement domestic measures in order these provisions not to end up to hortatory declarations.76 For this reason, the research will recommend states ways in order to abolish the “barriers” that constitute difficult the accountability of investors.
To begin with, states should incorporate obligations that are directly addressed to investors and control more efficiently their conducts. In order this to become achievable, states should include provisions that do not merely encourage investors to respect the environment or the labor rights but impose specific commitments of conduct that will be enforced before Tribunals. Up until now, the performance of states towards this direction is disappointing. States may adopt the example of Morocco and Nigeria, which included in their BIT several progressive provisions that focus on investors' responsibilities.77. For example, article 24(1) of the Morocco-Nigeria BIT provides that “investors and their investments should strive to make the maximum feasible contributions to the sustainable development of the host state and local community through high level of socially responsible practices." In this way, the protection of investors will be decided based on their conduct toward sustainability goals. Moreover, investors‟ obligations to “maintain an environmental management system”, to “uphold the human rights in the host state;‟ and „to act in accordance with core labor standards required by the ILO Declaration on Fundamental Principles and Rights of Work” are complemented in article 18.
The research emphasized in a previous chapter on the benefits of the inclusion of international instruments in IIAs. States should incorporate more systematically and in a binding way, the observance of these instruments by MNEs. This can be achieved by wording the content of relevant CSR standards. During years, the international instruments have developed a detailed list of substantive standards in which investors should adhere to. However, states have not until now "exploited" their contribution in their effort to control MNEs' conduct. The control can be
76
Ibid at 36 77
26
achieved through provisions that "enforce" investors to comply with international instruments. In this way, the abstract content of CSR obligations will also materialize. In order the approach to become comprehensible, a brief mention of these instruments that address the environmental and labour rights should follow.
In 2011, the OECD released revised Guidelines regarding the RBC of international investment and multinational enterprises78, reaffirming the significant role they play in international markets. The Guideline is an effort to reflect the principles and objectives laid down in Agenda 2179 and in the Aarhus Convention80 regarding primarily the protection of the environment. The revised Guidelines differ from those of 200881, as “countries adhering to the Guidelines make a binding commitment to implement them following the Decision of the OECD Council on the OECD Guidelines for Multinational Enterprises. Furthermore, matters covered by the Guidelines may also be the subject of national law and international commitments”. This commitment elevates the importance of the principles and standards set in the Guidelines.
They address the general principles in which the MNEs‟ policy should be based on and which should aim at fulfilling, like sustainable development, respect of human rights, promotion of good corporate governance, avoidance of discrimination practices between employees, etc. The avoidance of non-discrimination practice between employees is also an essential part of the MNEs' function. A common characteristic of MNEs is that they conduct business and have subsidiaries in different countries of the world with various labour legislative provisions that guarantee lower or higher standards of protection. Hence, the guidelines point that MNE should "observe standards of employment and industrial relations not less favourable than those observed by comparable employers in the host country” and indirectly urge them to avoid being incorporated in states with low labour standards of protection in order to take advantage of them.
78
OECD (2011), OECD Guidelines for Multinational Enterprises, OECD Publishing
http://dx.doi.org/10.1787/9789264115415-en accessed on 10 June 2019 79
United Nations Conference on Environment and Development. (1992). Agenda 21, Rio Declaration, Forest
Principles. New York: United Nations
80
Convention on Access to Information, Public Participation in the Decision-Making Process and Access to Justice in Environmental Matters, the Aarhus Convention, (adopted 25 June 1998, entered into force 1999) 38 ILM 517
81
OECD (2000), OECD Guidelines for Multinational Enterprises, OECD Publishing <
