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Article Excerpt
The enforcement framework for the OECD's Guidelines for Multinational Enterprises has long been the subject of criticism, especially by representatives of private and public actors. But two recent cases have suggested that enforcement actions arising from civil society efforts to utilise the national contact points complaint system may be slowly influencing the emerging discourse of corporate behaviour in ways that will have substantial effect. Beyond providing evidence of a more muscular institutional transnational enforcement structure for soft law codes, the cases serve to outline a framework for the interaction of transnational and national systems of corporate regulation. The multilateral system for governing multinational corporate behaviour will affect not only that behaviour, but also the rules through which corporations may be governed as to their internal affairs and with respect to the character of their legal personality. The cases illustrate the way in which advances in governance issues are being crafted, step-by-step, from out of a system that, while formally non-binding, is increasingly developing the characteristics of a binding governance system. These cases suggest the parameters within which the Guidelines for Multinational Enterprises are beginning to serve as the focal point for the construction of an autonomous transnational governance system that is intended to serve as the touchstone for corporate behaviour in multinational economic relationships.
CONTENTS I Introduction II The Regulatory Context III The Cases A RAID v DAS Air (21 July 2008) B Global Witness v Afrimex (28 August 2008) IV The Analytical Context A The Construction of an Interlinked System of International and Municipal Hard and Soft Law B Corporate Law Challenges 1 Respect for the Separate Legal Personality of Separately Constituted Entities 2 Enterprise Liability C Toward Procedural Autonomy V Conclusion
I INTRODUCTION
The problem of the multinational corporation has been at the centre of transnational policy discussion for the greater part of the last half-century. (1) For the last decade, attempts to create hard law and harmonised regulatory structures for multinational corporations have been effectively blocked by a great alliance of business and developed state interests. (2) The most prominent among these failures has been the United Nations' Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights ('UN Norms'), (3) Moreover, attempts to stretch national law to bring the transnational activities of multinational corporations under the regulatory control of at least some states has been largely unsuccessful, (4) except perhaps within the academic literature. (5)
This breach in regulation has been filled with a variety of soft law efforts. (6) Prominent among them has been the UN successor regulatory strategy to the UN Norms--the UN Global Compact. (7) In addition, powerful regional state-private sector organisations have also sought to create soft law regulatory networks that might contribute to a set of behavioural norms among multinational enterprises. (8) Among these has been the Organisation for Economic Co-operation and Development ('OECD'), (9) who has been at the forefront of developing and creating frameworks for the implementation of soft law for corporate governance. (10)
Prominent among the OECD's soft law codes are its Guidelines for Multinational Enterprises ('MNE Guidelines'). (11) The MNE Guidelines are the only multilaterally-endorsed and comprehensive code that governments have committed to promoting. The MNE Guidelines express the shared values of the governments of those countries that are the source of most of the world's direct investment flows, and home to most multinational enterprises. (12) They are meant to be applied to the worldwide operations of businesses that might be subject to their provisions. (13) They are enforced through bodies called National Contact Points ('NCPs'), established usually within one of the trade or commerce ministries of the adhering states. (14) These NCPs are meant to foster respect for the MNE Guidelines (as well as the other related work of the OECD) and provide the institutional framework through which interested stakeholders, usually elements of civil society, (15) can bring allegations of breaches of the behaviour provisions of the MNE Guidelines against businesses subject thereto. (16)
The enforcement framework for the MNE Guidelines has long been the subject of criticism, especially by representatives of private and public actors. (17) Much of this criticism has focused on the purported capture of the MNE Guidelines systems by business interests, and the weakness of the enforcement mechanisms, both in terms of procedure and delay. (18) In addition, the mechanics of the system have been the subject of criticism as well. (19) Some academic writers have not been impressed by either the concept of soft law systems in general (20) or by the OECD and similar efforts at soft law regulation in particular. (21) That, though, may reflect the innate conservatism and public law orientation of this sector of the knowledge production industry, whatever their politics might be, (22) which retains a certain traditionalist fidelity to the idea that the state ought to be privileged in the constitution of governance systems and that positive law ought to be privileged as the means for the expression of that political authority. (23) The focus of these critical efforts is bent to the production of national or global systems of hard law aimed at achieving any number of regulatory goals. (24) Beyond that vector of critique, developing states have criticised the approach as both reflecting the views and values of developed states and as imposed, in fact, on developing states for their own wellbeing but without their consent. (25)
Though the debates about the nature of law and the legitimacy or effectiveness of soft law are certainly important, these debates fall outside the scope of this case note. Instead, this case note looks to praxis for an understanding of the way in which theory may be developing in the field. In that context, two recent cases have suggested the ways in which enforcement actions arising from civil society efforts to utilise the NCP complaint system may be slowly influencing the emerging discourse of corporate behaviour in ways that will have substantial effect. One case, brought by Rights and Accountability in Development ('RAID'), a civil society actor, (26) against DAS Air, determined that the activities of a UK entity outside of the UK violated the MNE Guidelines because they constituted breaches of international conventions to which the entity's home country adhered. (27) The other, brought by Global Witness, another civil society actor, (28) against Afrimex Ltd, determined that the activities of a group of corporations were related and therefore the UK entity either failed to properly oversee the operations of its supply chain or participated as part of an enterprise in the violation of the MNE Guidelines. (29)
These cases are ripe with possibility. Beyond evidence of a more muscular institutional transnational enforcement structure for soft law codes, the cases serve to outline a framework for the interaction of transnational and national systems of corporate regulation. The multilateral system for governing multinational corporate behaviour will affect not only that behaviour but also the rules by which corporations may be governed as to their internal affairs and with respect to the character of their legal personality. (30) And this is without regard to the law of either home or host state, but instead is grounded in transnational law principles derived from the soft law regime within which the cases arose. But the cases do more than that. Arising in the course of global efforts to manage the regional conflict in the DRC, (31) the cases also suggest the strength of what may become a consensus view regarding the applicability of international law directly to non-sovereign entities like multinational corporations. (32) This case note first briefly describes the institutional and regulatory framework within which the cases arose. It then reviews the cases themselves, drawing out the more relevant arguments. Last, it contextualises these arguments and positions within the national and transnational corporate and international legal regimes.
These cases suggest an effective method for operating a soft law system to produce the effects of hard law beyond the state, without challenging state authority directly. The OECD system is moving forward through this form of institutionalising quasi-judicial organs. These efforts are being undertaken in parallel--and to some extent, informally coordinated--with other soft law implementation endeavours, among the more significant of which may be those of the UN Global Compact, and current projects to operationalise a 'protect, respect and remedy' regulatory framework focused on human rights and transnational corporations. (33) For this reason alone, the cases are important for development of the law of multinational obligation and the system under which such obligations are overseen. The movement towards effective substantive implementation, however, leaves open the question of the content of that obligation. These cases suggest a more open-ended approach to corporate liability; a willingness to ignore corporate legal personality (and the municipal legal framework under which it remains strongly protected); an acceptance of the substitute sovereign obligations of corporations under conditions of conflict or weak public governance; and the direct effect of international conventions to multinational corporations. They provide another step in the reconstitution of supranational governance and the allocation of governance rights and obligations beyond the state. These tendencies ought to be controversial; they are also justifiable or dismissed on the basis of strong, though incompatible, principles. Still, the interrogation undertaken in this case note is not meant necessarily to embrace or reject this normative system in the making. Ideological predisposition is avoided in favour of a stance that seeks to understand the workings of those systems on their own terms. As such, the issue is one of institutional development and tension. (34) It is, in this sense, more a warning than a prescription for action.
II THE REGULATORY CONTEXT
The MNE Guidelines are recommendations for responsible business conduct addressed by governments to multinational enterprises operating, or incorporated in, adhering countries. (35) The theme of the OECD Ministerial level meeting that approved the revised MNE Guidelines in 2000 was 'Shaping Globalisation'. (36) The integration of national economies into one global economy is accelerating and intensifying, driven by new technologies and new opportunities. These new opportunities are not only to reap profit, but also to stimulate development and improved social conditions around the world. (37) The revised MNE Guidelines will be an important instrument for shaping globalisation. They provide a government-backed standard of good corporate conduct that will help to level the playing field between competitors in the international market place. (38) They will also be a standard that corporations themselves can use to demonstrate that they are important agents of positive change throughout the developing as well as the developed world. (39)
The MNE Guidelines are framed as recommendations by governments addressed to multinational enterprises operating in or from adhering countries. As the Canadian Government has stated:
Although endorsed by adhering Governments, the Guidelines are voluntary and are not intended to override local laws and legislation. The Guidelines are not intended to introduce differences of treatment between MNEs and domestic enterprises--they reflect good practice for all. (40)
They provide voluntary principles and standards for responsible business conduct in a variety of areas including employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition and taxation. (41)
The enforcement and naturalisation work of the OECD are implemented through its system of NCPs. (42) These entities are established through government ministries and are charged with the implementation of adhering state obligations under the MNE Guidelines and other relevant soft law produced or implemented through the MNE Guidelines. (43) The NCPs serve several purposes. With respect to the MNE Guidelines, a principal obligation is the establishment of procedures for handling complaints brought by proper parties alleging violations by multinational corporations of their obligations under the MNE Guidelines. (44) These procedures vary widely, (45) but all include provisions for complaint intake, mediation, and ultimately more formal hearing of complaints. (46) But because the MNE Guidelines are not legally binding, the usual protections accorded in binding proceedings are not necessarily observed. (47) However, multinational entities tend to take these proceedings seriously because of the potentially severe consequences of a determination of violation, including adverse consequences with investors and consumers, (48) and the possibility that the findings might lead to formal charges of violations of law. (49)
The NCP structure has, however, been criticised by civil society actors. (50) The criticism, in part, derives from what appears to be a renewed interest in the MNE Guidelines, after their revisions in 2000, as an effective alternative to developing structures of multinational enterprise regulation at the transnational level. (51) For some elements of civil society, the structure of the MNE Guidelines and their enforcement mechanisms might be seen as a potential means for creating a soft law consensus on regulatory frameworks for multinational corporations, and building a hard law transnational regulatory framework from that foundation. As a consequence, civil society actors have been working to increase both the visibility and legitimacy of the enforcement mechanisms of these soft law systems. (52) But, at the same time, such actors have increasingly turned to the enforcement mechanisms of MNE Guidelines to bring pressure on multinationals to conform to what is hoped to be an increasingly harmonised, consensus-based standard of global business behaviour based on a specific interpretation of the MNE Guidelines. (53) As RAID suggested on its website:
RAID advocates for binding corporate accountability frameworks, particularly the development of international norms on the human rights responsibilities of companies. A major focus of RAID's work involves demanding corporate adherence to the international human rights framework and other relevant corporate responsibility instruments, including the OECD Guidelines for Multinational Enterprises. (54)
In the UK, the UK NCP employs the expertise of officials from both the Department for Business, Enterprise and Regulatory Reform ('BERR') and the Department for International Development ('DFID'). (55) The UK NCP is one of several entities within the UK Government concerned with overseeing policy on corporate social responsibility. (56) External members of the UK NCP include experts from trade unions, business and civil society, (57) who are extensively consulted in all aspects of UK NCP activities. (58) RAID, for example, has been an active stakeholder in the work of the UK NCP in the UK. (59) This reflects a consensus view among governance elites that civil society participation enhances legitimacy, democratic values and engagement among critical stakeholders in the governance context. (60) Others, however, have criticised civil society as undemocratic autonomous actors who seek to capture transnational governance for their own ends. (61)
The procedures for handling complaints from start to finish, along with bureaucratic commitments respecting time decision and the like, are set forth in a set of published procedures available from the internet site of the UK NPC. (62) In keeping with the structure of the MNE Guidelines, the UK NPC's focus is centred on mediation, though it has been turning more often to the assessment process as of late. (63) To date, it has considered about 15 specific instances of complaints brought by elements of civil society. (64)
The intake procedure adopted by the UK NCP is fairly simple. To commence the process, a simple amount of rudimentary information is required. (65) The information provided on the UK NCP form is used to initially assess the strength of the claim and the value of going forward with mediation efforts. (66) The UKNPC contemplates a multi stage procedure consisting of an initial assessment, (67) mediation or examination, (68) and drafting and publication of the final statement. (69) The rules do not contemplate the application of the law of either the place were the purported breaches occurred or the law of the place where the undertaking has its headquarters or is chartered. Neither do the rules impose other rules or procedures that mimic judicial or administrative proceedings with legal effect. And, of course, it is precisely because these proceedings are administrative and not binding that this sort of flexibility is possible. As will become apparent, that flexibility permits any NCP to utilise a 'rules framework' detached from municipal law. Indeed, these proceedings suggest that the MNE Guidelines serve as something like an autonomous transnational system, (70) subject principally to its own substantive rules that incidentally draw on an aggregated and generalised municipal and international law as a basis for the application of its norms.
III THE CASES
The UK NCP handed down two significant decisions in Afrimex and DAS Air. The object of my analysis of those decisions is not merely to describe the proceedings and outcome, but to suggest a way of reading the final statements that draws out the important developments of each case.
A RAID v DAS Air (21 July 2008)
The complaint brought by RAID in 2005 (71) was grounded in allegations arising from a purported violation by DAS Air of certain UN embargoes within a conflict zone in the eastern region of the DRC. (72) RAID pointed to a list of specific activities that, it argued, constituted breaches of a number of the general prohibitions of the MNE Guidelines. (73) Much of this was fuelled by the worldwide demand for the metallic ore columbite-tantalite, colloquially known as coltan. (74) The specific activities at the heart of the complaint included: DAS Air's operation of aircraft in aid of the Ugandan invasion of DRC territory; air transport into DRC occupied by the Ugandan military during 2000-01; operating civilian aircraft in a conflict zone; transporting coltan from Kigali, Rwanda; and transporting cobalt from Entebbe, Uganda, that had a reasonable probability of having originated in the DRC during the conflict period. (75)
The case was brought against DAS Air in the UK because, though the activities giving rise to the complaint occurred in the regions around the DRC, the entity itself was registered in the OK. (76) During the course of the complaint resolution process, however, DAS Air and its related entities had become subject to a ban on operations within EU airspace, (77) as a consequence of which (as one reason among others) DAS Air's assets were liquidated in 2007. (78) This had a substantial effect on the proceedings. From the time of its cessation of operations, DAS Air also ceased participating in the proceedings in late October 2006. (79) That, however, served as no impediment to the proceedings, or the determination of a breach by DAS Air; (80) the proceedings continued with the assistance of RAID only, though the remedies available were limited accordingly. (81) Whether that conclusion to the proceedings serves as an impediment to the use of the conclusions in other cases in the UK or by other NCPs in their deliberations is another matter. (82)
RAID's complaint was structured broadly, seeking a declaration of a continuing violation for nearly the entire period of the current conflict in the DRC during which DAS Air operated in the region, commencing in 1998 (the start of the second conflict) and continuing until December 2001 (when the airline stopped flying). (83) However, the MNE Guidelines, under which the complaint was made, did not take effect until 2000 and the UK NCP would have been required to apply an earlier version of the MNE Guidelines to those flights absent consent from the company; a consent that in this case was not forthcoming. (84) The solution was relatively straightforward. The emphasis of the UK NCP was on the three flights that occurred after June 2000, when the current version of the MNE Guidelines were released. The other 32 flights that constituted the bulk of the evidence of the breaches were used as circumstantial evidence of continued breach. (85) But the MNE Guidelines themselves were not applied directly with respect to the pre-2000 flights to avoid retroactive application without consent. (86)
The political context in which the case arose proved to be a critical factor in framing the analysis and determinations of the UK NCP. The company was operating within the DRC, a territory marked by substantial violence and in which the apparatus of government was weak or absent. (87) The violence was sustained and complex enough to warrant substantial intervention by the UN and regional powers, all dedicated to restoring some semblance of public governance and a reduction in violence and associated apparent lawlessness. (88) The particular object of the RAID complaint appeared to be to contextualise the economic behaviour of DAS Air within this conflict zone. (89) and to elaborate a basis for articulating behaviour norms consonant with the political obligations of state and non-state actors in conflict zones in which the UN or regional governments had taken an interest. (90) The MNE Guidelines were to be applied within a normative political framework in which international organisations were structuring a matrix of controls to contain and manage away the conflict within the DRC and economic activity was viewed as a source of conflict and a cover for illegitimate economic activity in support of illegitimate political activity. (91) In this case, the MNE Guidelines effectively appeared to serve as an interlinked set of norms useful to advance the management goals for that conflict.
In this environment, it was logical that the UK NCP rely heavily in support of its conclusions on factual determinations that appeared to have been generated through the investigative work of an international and a national commission. The first was the work of the UN Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealth of the Democratic Republic of the Congo ('UN DRC Panel'). (92) The second was the work of the Ugandan Judicial Commission under Justice Porter, commonly known as the Porter Commission. (93) RAID had relied on three key elements of these reports. The first was a political conclusion of the UN DRC Panel with respect to the character of the conflict in the DRC and its relationship to natural resource exploitation. (94) The second was the UN DRC Panel's recounting of a belief in DAS Air's participation. (95) The last was the Porter Commission's conclusion that Ugandan military bases were being used to hide civilian incursions into the conflict zone. (96) The later assertions were drawn from supporting records included in the
Porter Commission Report. (97) The UK NCP rejected DAS Air's initial response that the data used by the Porter Commission was fabricated for its failure to provide any proof beyond its statement to that effect. (98) The crucial foundation to the UK NCP findings was proof that DAS Air flights occurred. Breach could be inferred from the fact of the flights in the following way. First, international law required that governments close the air space between Uganda and the DRC during the relevant period. (99) Second, the Ugandan Government in its Porter Commission Report concluded that it was likely that civilian flights between DRC and Uganda did occur during the conflict and in contravention of relevant international conventions. (100) Third, relying on the data supplied in the Porter Commission Report, the UK NCP determined that the DAS Air flights during the relevant period were civilian in nature. (101)
The UK NCP also considered the internal operations of DAS Air within the DRC in connection with its transport activities. (102) The UK NCP first accepted the conclusion by the UN DRC Panel that the DRC conflict was fuelled by the desire to exploit natural resources in the area and the private sector's responsibility in those activities. (103) It presumed an obligation on the part of private entities to exercise heightened care in such situations so as to avoid complicity in lawless or illegal activity. (104) It then considered the extent of the influence that DAS Air could have had in its contracts with third parties to transport coltan from Kigali to Europe. (105) The Commentary to the MNE Guidelines suggested a contextual analysis for the determination of obligation. (106) The UK NCP found that DAS Air did not undertake due diligence on the supply chain because it failed to question the source of the materials that it transported. (107)
On this basis, the UK NCP concluded that DAS Air had failed to meet the requirements of the MNE Guidelines. (108) The UKNCP affirmed an expectation that all UK multinational enterprises ('MNEs') abide by international conventions, (109) including the Chicago Convention (110) In addition, the labelling of flights by UK MNEs as military when they were in fact civilian was also prohibited. (111) Perhaps most noteworthy is the UKNCP's adoption of UN Security Council Resolution 1592 (112) as a 'business requirement' that companies operating in the area must observe despite the fact that the Resolution is intended for nations, not corporations. (113)
B Global Witness v Afrimex (28 August 2008)
Like the complaint in DAS Air, the complaint against Afrimex, brought by Global Witness in February 2007, (114) was precipitated by the global markets for coltan, turbulence in the DRC and coordinated efforts to target actors that might have contributed to the continuation of the violence. (115) Global Witness alleged that Afrimex paid taxes to rebel forces in the DRC and that it failed to practice due diligence regarding its supply chain because it sourced minerals from mines that used child labour. (116) These activities were said to constitute breaches of a number of the provisions of the MNE Guidelines. (117) Afrimex vigorously contested the allegations and the resultant legal conclusions. (118)
As in the DAS Air proceedings, the complaint sought to include activities that occurred before June 2000, when the current version of the MNE Guidelines came into force. Global Witness looked to activities that took place between 1998 (the start of the second conflict in the DRC) and February 2007 (when the complaint was filed). (119) The UKNCP considered that activity indirectly. It limited its findings to those activities that took place after adoption of the current version of the MNE Guidelines, but again considered pre-2000 activity as circumstantial evidence relevant to post-2000 conduct to the extent that it determined appropriate. (120)
The complaint was brought against Afrimex, a UK-registered company founded in 1984. (121) The determination was based on the confluence of two streams of analysis. The first related to the situation in the relevant territory--the conflict zone of the DRC. (122) The second focused on the relationship among a group of entities that together were responsible for the actions at issue, for the purpose of assigning responsibility to any one or more of them. (123) The conclusions and data produced from the field work of UN officials proved crucial in making fact determinations and in supporting...
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