Looking Back, Looking Ahead: What lessons should we learn from past UN efforts to adopt a Code of Co
16 April 2016
By Karl P. Sauvant
What rules should govern the behavior of transnational corporations (TNCs) and other businesses, both in the countries in which they are established and where ever they operate around the world?
In the 1970s, states sought to answer this question by developing a multilateral instrument known as the United Nations Code of Conduct on Transnational Corporations.
These negotiations were the first international effort to arrive at comprehensive and balanced rules governing the rights and responsibilities of governments and TNCs. The negotiations ended unsuccessfully in 1993, against the background of growing efforts to liberalize national foreign direct investment (FDI) regulatory frameworks seen as crucial to national development prospects.
In parallel to these negotiations (and subsequent to them), the OECD, the ILO and UNCTAD all successfully developed their own standards on specific aspects of the activities of TNCs. Although the UN Code negotiations came to naught, they crystallized the interests of the principal stakeholders, and laid bare a number of obstacles still with us today, which await an international solution.
What lessons should we learn from these earlier negotiations, and how should they inform upcoming negotiations on a potential new legal instrument on business and human rights?
If we accept that a global phenomenon requires a global response, reflecting the interests of all major stakeholders, then many of the issues on the international agenda some 40 years ago during the UN Code negotiations are still with us today. If anything, the issues have become more salient, given the growing number of major companies and the considerable growth of FDI. To be sure, substantial progress has been made since then, not only in understanding the nature and impact of business activities and foreign investments, but also through a proliferation of instruments applicable to them. But a comprehensive overarching framework governing international business and investment continues to elude us.
The following seeks to summarize the experience of the previous UN Code negotiations, as well as negotiations of related instruments. First, past efforts confirm that any effort to negotiate a comprehensive multilateral instrument in this area requires careful preparation before actual negotiations begin. While the lack of such preparations was not decisive for the eventual failure of the UN Code negotiations (after all, governments had largely agreed on the guidelines part of the draft, and reached consensus on the OECD, ILO and UNCTAD instruments), it was an issue when it came to more specific and technical treatment provisions.
Negotiators need to be aware of the many technical issues involved, the advantages and disadvantages of various trade-offs, the implications key provisions have for national policy-making, the costs of violating provisions of any agreement, etc. In fact, such a preparatory process would be advisable for the negotiation of any new legal instrument, including the one being considered in the Human Rights Council. Equally important, it must be a process that is transparent and involves all relevant stakeholders.
A second lesson from past efforts concerns the complexity and magnitude of the issues involved. It may simply be too ambitious an objective in today’s environment to forge agreement on an overarching legal instrument relating to business and human rights.
To be sure, a comprehensive instrument provides more scope for trade-offs. But it also requires accommodating all principal stakeholder interests across a wide area of issues. Today, this is more difficult than it was 40 years ago. At that time, the principal stakeholders were governments, TNCs and trade unions. Today, many other vested interests, including parliamentarians and non-governmental organizations (NGOs) focused on various aspects of the problematique play a much more important role. Huge economic and political interests are at stake.
Also important, many new issues have arisen since the time UN Code negotiations began. Today we see the increasing complexity of the subject matter on which agreement needs to be reached. These range from such specific matters as abusive treaty shopping or whether state-owned enterprises need special rules; to the question of where the boundaries are of individual firms (especially in regard to supply chains) and the functioning of the investor-state dispute-settlement mechanism; to such fundamental issues as to whether a new instrument needs to put sustainable international investment and business activities at its core.
On the other hand, the rapid adoption of the OECD Guidelines, the ILO Tripartite
Declaration and the UNCTAD Restrictive Business Practices Set – all negotiated in the shadow of the UN Code effort – suggests it may be easier to focus on specific aspects of the problematique, with a manageable agenda – in other words, to negotiate issue-specific instruments, be they focused on treatment issues, guidelines or other relevant aspects of the wider issue. In such circumstances, a more limited range of interests is typically involved, and stakeholders may be more forceful and focused in moving negotiations forward. It should be noted that the OECD Guidelines were part of a package that involved treatment provisions and were negotiated within a group of like-minded countries. It is true that none of these three instruments are legally binding. Still, they represent a main legacy of the UN Code effort, along with helping bring the issue prominently and permanently to the international agenda and clarifying many of the key issues involved – all of which should inform negotiators involved in considering a new instrument on business and human rights.
A third lesson from past processes concerns the importance of mutual self interest amongst states and other actors, pressure that “something needs to be done” and political will. UN Code negotiations showed it is difficult to maintain political will and overlapping interest over time, especially when circumstances change, pressure dissipates and the general consensus about the overall objectives of negotiations (guidelines and treatment) is fragile. The iron needs to be struck while it is hot.
Furthermore, even if an instrument is voluntary, its scope, content, implementation mechanism, and standing can be strengthened over time. This was the case for the OECD
Guidelines, through the availability of a clarification mechanism, strengthening of the implementation mechanism and opening it to other interested parties (such as NGOs), as well as expanding topics covered. In the case of the ILO Declaration, an implementation mechanism was agreed after the original instrument was adopted with cross-references to new ILO instruments (e.g., on core labor standards) added, thus expanding its reach.
While this does not change the voluntary character of an instrument, it can make it more effective. Moreover, even voluntary instruments can be strengthened, for instance, by referring to them in binding international agreements. Finally, standards agreed at the international level, even if voluntary, can become hard law in a national context, as happened, for example, with the Dodd Frank due diligence provisions on conflict minerals in the United States, which are based on the OECD voluntary due diligence instrument. This suggests that voluntary instruments should be used to the fullest extent possible.
Thus, the availability and strength of implementation (or follow-up) mechanisms becomes crucial to making any instrument effective, as a text alone risks becoming worthless. Follow-up can consist of a review in regular intervals, as in the annual discussions of the ILO Tripartite Declaration and the review conferences of the UNCTAD Set that takes place every five years. A review can also happen in irregular intervals, as in the case of the OECD Guidelines.
Follow-up is stronger if a dedicated body is established with the mandate to clarify issues that arise under the instrument, as was done in the case of the OECD and (although less effectively) in the cases of the ILO Tripartite Declaration. Moreover, an implementation mechanism can be upgraded over time, as in the case of the OECD Guidelines, through strengthening the role of National Contact Points. It was their implementation mechanisms that made these instruments relatively effective by establishing forums for discussion and creating institutional homes and self-interest on the part of the organizations involved, including by promoting the use of the respective instruments.
Access of key constituencies, in these cases particularly trade unions, to the implementation mechanisms to present cases/issues that involved possible violations was also crucial. In the case of the ILO Tripartite Declaration, workers’ representatives played the key role. In the case of the OECD Guidelines, the majority of cases/issues initially brought for clarification were tabled by trade unions (governments did not often raise issues). Moreover, eventually NGOs obtained access to the OECD’s implementation mechanism, and have used it fully. They made these two instruments, and especially the OECD Guidelines, “living instruments.” Hence, access by key stakeholders to implementation mechanisms is likely to help ensure the effectiveness of any new instruments.
Finally, history tells us that absent a catalytic event, a grand design for a new overarching instrument may be a bridge too far in the foreseeable future. The more likely approach to succeed – already successfully pursued at the beginning of the UN Code negotiations – may involve taking on specific issues, a pragmatic approach to seek agreement on aspects of the broad regulatory framework governing TNCs and other businesses and their activities for which there is shared self-interest, pressure and political will, in whatever forum that is most promising.
Part of such an approach could aim at “hardening” soft law (i.e., voluntary) instruments; the OECD Guidelines are a case in point, covering, as they do, over four-fifths of the world’s FDI stock. Even if the resulting instruments are not perfect, they provide a platform on which further agreement can be built, especially if there is a strong implementation mechanism that provides access to non-governmental groups.
Such an approach can benefit from the somewhat cyclical nature of international rule making, with the pendulum swinging sometimes in favor of one type of instrument and at other times in favor of another. Thus, during the 1970s and early 1980s, the watchword was “control,” while during the later 1980s and 1990s, “liberalization” at the national level and “protection” at the international level was viewed as most important. Since 2000, national policies have become more nuanced, international guidelines have been strengthened and new ones added, and some agreements have become more cautious, although an increasing number is aiming for more liberalization.
Rule making may therefore be haphazard, messy and uneven, depending on what is needed and what is feasible in a given constellation of interests and forces. But, hopefully, over time, the combination of various instruments add up to a regime that covers, comprehensively and in a balanced manner, the range of issues related to international investment, including issues related to human rights.
It should be helpful that the positions of key stakeholders – host and home country governments, TNCs and other businesses – are less confrontational today than they were when the UN Code negotiations took place. However, the core challenges Code negotiators faced remain, namely to bridge the basic interests of key stakeholders, to reconcile the application of national and international law governing foreign investment and the activities of firms in general, and to find the right balance between the rights and responsibilities of firms and governments.
Progress will require great efforts, a considerable amount of time and even more patience. Any new instrument will need to be in the interest of governments, both in their capacity as home and host countries, as well as other key stakeholders, to give it the legitimacy and robustness that every international regime requires to be viable in the long run. Let’s hope lessons from past negotiations can help in reaching this objective.
 The text that follows is the adapted concluding section of Karl P. Sauvant, “The negotiations of the United Nations Code of Conduct on Transnational Corporations: Experience and lessons learned”, Journal of World Investment and Trade, vol. 16 (2015), pp. 11-87, available at: http://works.bepress.com/karl_sauvant/158/ and http://ccsi.columbia.edu/publications/articles-chapters/
 A prime example here is the process that led to the adoption of the UN “Guiding Principles on Business and Human Rights”.
 See in this context the failed negotiations within the OECD of a Multilateral Agreement on Investment and the so far unsuccessful effort to deal with international investment in the WTO.
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