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Holding transnational corporations accountable

Context:

Given the enormous power that transnational corporations (TNCs) wield, questions about their accountability have arisen often. There have been many instances where the misconduct of TNCs has come to light such as the corruption scandal involving Siemens in Germany.

Relevance:

GS-III: Indian Economy

Dimensions of the Article:

  1. Issue regarding TNCs
  2. Background on holding TNCs accountable
  3. Using BITs to hold TNCs accountable
  4. Takeaways for India

Issue regarding TNCs

  • 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 which urges states to ensure that their bilateral investment treaties (BITs) are compatible with international human rights obligations.
  • The UN report lays emphasis on investor obligations at the international level i.e., the accountability of TNCs in international law.
  • There have been instances where the misconduct of TNCs has come to light – like the corruption scandal involving Siemens in Germany.
  • In the last few years, states have started recalibrating their BITs by inserting provisions on investor accountability. However, these employ soft law language. They do not impose positive and binding obligations on foreign investors.
  • The recalibrated BITs of the states also fall short of creating a framework to hold TNCs accountable under international law.

Background on holding TNCs accountable

  • An 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.
  • An integral feature of the neoliberal project was to use international law to institutionalise the forces of economic globalisation, leading to the spread of BITs. These treaties promised protection to foreign investors under international law by bestowing rights on them and imposing obligations on states.
  • In 2011 the issue of holding TNCs accountable gathered momentum again.
  • 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. Since then, efforts are being made towards developing a treaty and finding ways to make foreign corporations accountable.

Using BITs to hold TNCs accountable

  • BITs can be harnessed to hold TNCs accountable under international law.
  • The issue of fixing accountability of foreign investors came up in an international law case, Urbaser v. Argentina (2016).
  • Subjecting corporates to international law: In this case, 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 the fore 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.
  • Recalibrating BITs: In the last few years, states have started recalibrating their BITs by inserting provisions on investor accountability.
  • Issues with BITs: However, these employ soft law language and are hortatory.
  • They do not impose positive and binding obligations on foreign investors.
  • They fall short of creating a framework to hold TNCs accountable under international law.

Takeaways for India

  • The recent UN report has important takeaways for India’s ongoing reforms in BITs.
  • Best endeavour clauses not enough: 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.
  • Example for India: The Nigeria-Morocco BIT, which imposes binding obligations on foreign investors such as conducting an environmental impact assessment of their investment.
  • These reforms would help in harnessing BITs to ensure the accountability of foreign investors and creating a binding international legal framework to hold TNCs accountable.

-Source: The Hindu

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December 2022
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