Holding transnational corporations accountable

September 20, 2021

Syllabus: General Studies Paper 2

Context:

The UN working group on ‘human rights, transnational corporations (TNCs) and other businesses’ has published a new report on human rights-compatible international investment agreements.

The term “transnational corporation” means an enterprise whether of public, private or mixed ownership, comprising entities in two or more countries, which operates under a system of decision-making, permitting coherent policies and a common strategy through one or more decision-making centres

Key points of the UN report

Bilateral Investment Treaties can be harnessed to hold TNCs accountable under international law.
It emphasises investor obligations at the international level i.e., the accountability of TNCs in international law.
It urges states to ensure that their bilateral investment treaties (BITs) are compatible with international human rights obligations.

About bilateral investment treaty (BIT)

A stable political and legal environment, assurances against taking away of the investment value through legislative or administrative acts, transparent public policy measures, and speedy access to justice are strong guarantees for foreign investors.
A bilateral investment treaty (BIT) between two countries plays a key role in offering these guarantees on an international plane.
In 2015, India replaced the investor-centric 2003 Model BIT with a State-centric model. India terminated BITs with 58 countries in 2017.
The Model BIT stipulates that the aggrieved investor should use all local remedies as well as negotiations and consultations initiating arbitrations against the host State.
Investors can use outside remedies only five years after resorting to all domestic arrangements.

Need for holding TNCs accountable under international law.

Transparency issues: There have been many instances where the misconduct of TNCs has come to light such as the corruption scandal involving Siemens in Germany.
Loopholes in Bilateral investment treaties: These treaties promised protection to foreign investors under international law by bestowing rights on them and imposing obligations on states.
- This structural asymmetry in BITs, which confer rights on foreign investors but impose no obligations, relegated the demand for investor accountability.
States do not impose positive and binding obligations on foreign investors. They fall short of creating a framework to hold TNCs accountable under international law.

Past efforts

Effort was made at the UN to develop a multilateral code of conduct on TNCs. However, due to differences between developed and developing countries, it was abandoned in 1992.
It aimed to use international law to institutionalise the forces of economic globalisation, leading to the spread of BITs.
In 2014, the UN Human Rights Council established an open-ended working group with the mandate to elaborate on an international legally binding instrument on TNCs and other businesses concerning human rights.

Case study: Urbaser v. Argentina (2016)

The issue of fixing accountability of foreign investors came up in an international law case, Urbaser v. Argentina (2016).

It involved a company that was looking after the supply of water and sewerage services in Argentina. Argentina adopted emergency measures to ward off a financial crisis in 2001, which caused losses to the company.
The company brought a claim against Argentina alleging breach of its rights guaranteed under the Argentina-Spain BIT.
Argentina filed a counterclaim charging the investors for floundering in ensuring the required level of investment in the services provided and thus violating the international human right to water.
The tribunal held that corporations can be subjects of international law and are under a duty not to engage in activities that harm or destroy human rights.
The case played an important role in bringing human rights norms to in BIT disputes. It also opened up the possibility of using BITs to hold TNCs accountable provided the treaty imposes positive obligations on foreign investors.

Lessons for India

India’s new Model BIT of 2016 contains provisions on investor obligations. However, these exist as best endeavour clauses. They do not impose a binding obligation on the TNC.
India should impose positive and binding obligations on foreign investors, not just for protecting human rights but also for imperative issues such as promoting public health.
Following best practices: The Nigeria-Morocco BIT, which imposes binding obligations on foreign investors such as making it mandatory for them to conduct an environmental impact assessment of their investment, is a good example.

These reforms would help in harnessing BITs to ensure the answerability of foreign investors and creating a binding international legal framework to hold TNCs to account.

The Hindu Link:
https://www.thehindu.com/opinion/op-ed/holding-transnational-corporations-accountable/article36556709.ece