The UN held its first session of deliberations, in the week beginning July 6, to thrash out an international legally binding instrument to regulate, under international human rights law, transnational corporations (TNCs) and other businesses. The ‘open-ended intergovernmental working group (OEIGWG) on TNCs and other businesses with regard to human rights’ marked an effort that culminated after almost four decades of negotiations in the UN to hold TNCs liable for human rights violations on foreign soil.

These talks, resulting from a resolution at the UN Human Rights Council (UNHRC) in June 2014, have obviously not evoked much enthusiasm from many quarters, including the major source countries for TNCs, notably the US, the EU and Japan. The resolution itself, which was sponsored by Ecuador and co-sponsored by South Africa, was a close shave with 20 ‘yes’ votes, 14 ‘no’ votes and 13 abstentions. India, China, Russia, South Africa voted in favour with only Brazil abstaining among the BRICS bloc while the US, the UK, France, Japan among other countries voted against the resolution.

The OEIGWG was off to a bumpy start on July 6 with the EU raising certain objections, including the necessity to expand the mandate of the WG to include all businesses. Others like India, Pakistan, Cuba and Russia stated that the mandate was reached on consensus by a resolution which could not be expanded. Also, domestic businesses are governed by domestic laws and, hence, the EU proposal was unacceptable to them. Owing to the lack of consensus, the programme of work (POW) could not be adopted in the first half of the session as scheduled.

The first two sessions of the OEIGWG were dedicated “to conducting constructive deliberations on the content, scope, nature and form of the future international instrument, in this regard” and thus the context of the debate.

The extended lunch break saw many negotiations between the EU, Ecuador and civil society organisations. After the break, the EU resumed with its insistence on a footnote to include domestic businesses in the scope of the WG. This was again met by resistance from other countries. Pakistan said that the additional footnote was “in direct conflict with the mandate”, India said that this “undermines the raison d’etre of the mandate”, while Cuba said that this was a “substantial expansion” in the mandate.

Finally, the chairperson-rapporteur of the WG, Maria Fernanda Espinosa Garcés, the Ecuadorian Ambassador, decided to go ahead with the adoption of the POW overriding the insistence of the EU. The EU attended only one session after that.

The US and Japan have not been coming for the sessions. A diplomat said the US and Japan refused to participate in the deliberations, perhaps in an attempt to not legitimise the talks.

The acrimonious start to the talks indicates how challenging it would be to get a consensus on the nature and scope of this legal instrument.

The resistance from various quarters is predictable if one understands the enormity of what is at stake. Today there are over 40,000 TNCs in the world with 85 percent of the parent companies having their headquarters in the Global North.

The combined sales of top 200 TNCs are more than the combined economy of 182 countries. To put matters in perspective, the GDP of China is $10 trillion and that of India is $2 trillion as per market capitalisation. If TNCs were a country, then their collective financial might would be more than that of India and China combined. Many of the TNCs, therefore, are economically and politically more powerful than the states that seek to regulate them. Moreover, many states in their quest for foreign investment, do not seek accountability from TNCs.
According to CETIM Europe-Third World Centre, “The top 25 TNCs alone had an annual revenue of approximately $5.6 trillion in 2014. And of the world’s 100 largest economic entities (including nation states), 37 are TNCs.” It is estimated that 80% of trade takes place in value chains linked to TNCs.

While the rights of TNCs are jealously guarded by various binding agreements, such as free trade agreements (FTAs) and bilateral investment treaties, and agreements made at the World Trade Organisation (WTO), with stringent enforcement mechanisms such as investor-to-state arbitration tribunals or dispute settlement mechanisms (DSMs), the obligations of TNCs belong to the realm of soft law – though the HRC unanimously adopted a resolution in June 2011 endorsing the UN guiding principles on business and human rights, these are non-binding in nature and hence significantly less controversial.

Thus, there are no binding agreements at the international level to address human rights violations and for ensuring justice to victims of transgressions by TNCs resulting in impunity, particularly when the victims are from the Global South.

The complex structure of TNCs – their proclivity to work through affiliates, sub-contractors, franchises, local enterprises (the 40,000 existing TNCs ply overseas markets through some 2,50,000 foreign affiliates) – gives an impression of independence but these are de facto under the control of the parent TNC, making it difficult to pin them down for human rights violations. The proposed international legal binding instrument seeks to address precisely this legal gap.

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(The article appears in the July 16-31, 2015 issue)