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The ICESCR as a Legal Constraint on State Regulation of Business, Trade, and Investment: Notes from CESCR General Comment No. 24 (August 2017)

Note from the author:  This post is based on a Keynote delivered in Rio de Janeiro, Brazil, on 28 August 2017 at the Expert Workshop “Transformative Constitutionalism in Latin America and International Economic Law: Avoiding Conflict and Fostering Dialogue”, jointly organised by the Fundacao Getulio Vargas (FGV) Direito Rio de Janeiro Brazil and the Max Planck Institute of Comparative Public Law and International Law, Heidelberg, Germany.

On 10 August 2017, the Committee on Economic, Social and Cultural Rights (hereafter, the “Committee”) released its General Comment No. 24 (2017) on State obligations under the ICESCR in the context of business activities.  General Comment No. 24 is arguably the most impactful document yet released by the CESCR, since it elaborates on the role of the ICESCR as a legal constraint on State regulation of business activities, especially in the area of investment treaty-making.  As I have argued elsewhere in more detail (Public Policy in International Economic Law:  The ICESCR in Trade, Finance and Investment, OUP 2015), the implementation of the ICESCR (and related human rights) in international economic law cannot be relegated to the back end of issues of treaty interpretation and treaty application in world trade law disputes or investor-State arbitrations, but rather, should operate as an inbuilt constraint for States when bargaining the terms of their international economic agreements in the first instance.  When negotiating these international economic agreements, I argued that States have to take into account: 1) the impact of treaty commitments on States’ social protection baselines under the ICESCR (“minimum core obligations”); 2) how the new treaty will affect the future ability of the State to progressively realise ICESCR rights, given the State’s continuing non-retrogression obligations under the ICESCR; 3) the model of development chosen by the State and how it will impact the State’s legal and/or constitutional duties to its citizens to respect, protect, and facilitate ICESCR rights; and 4) whether the design of the dispute resolution mechanism in the international economic agreement preserves the State’s present and future capacity and authority to respect, protect, and facilitate ICESCR rights – including questions of whether there are sufficient ‘exit’ and ‘voice’ mechanisms for local communities impacted by trade and investment operations; meaningful and not mere token participation in monitoring and oversight by all impacted constituencies; and sufficient broadening of the sources of information that either affect the investor’s risk and return calculus with respect to the host State of investment, or that which would affect the exporting firm’s regulatory expectations about the importing country.

Current trends in reforming international economic agreements thus far reveal a kind of “policy of accommodation” for the ICESCR or other human rights obligations that depend more on dispute resolution for application and interpretation.  To this end, more agreements seek to include provisions maintaining compliance with labor and environmental agreements (see for example Articles 12 and 13 of the 2012 US Model BIT), without being altogether clear about the legal consequences (e.g. no breach, excused breach, or mitigated liability, among others) for a host State that purposely breaches an investment protection standard in order to maintain compliance with such labor and environmental agreements. The Canada-European Union Trade Agreement/CETA Investment Chapter  Article 8.9 arguably does a better job at clarifying what these precise legal consequences are when a State commits otherwise investor-injurious acts pursuant to its right to regulate, but even this treaty is pending challenge at the European Court of Justice, due to France’s concerns over environmental and health impacts, as well as Belgium’s objections over the supposed impact of CETA’s investor-State arbitration process on States’ rights to regulate.

It may be inherently futile to rely on such a strategy of ex post interpretation by international economic tribunals to implement international human rights law into international economic agreements.  This cannot be better illustrated than in the apparent stasis of investor-State arbitration, which still dichotomises treaty obligations (presumably binding only States) and contract obligations (supposedly the only mode of binding investors). While recent arbitral awards such as Urbaser v. Argentina (ICSID Award of 8 December 2016) have significantly recognised broad sources of international human rights law from the Universal Declaration of Human Rights to customary norms as (somehow) possible relevant rules for investment treaty interpretation under Article 31(3)(c) of the Vienna Convention on the Law of Treaties, thus far it appears that arbitral tribunals are reluctant to conclude that investors are directly bound by ICESCR or other human rights obligations in a manner that should affect how they perform their contract obligations.  As the Urbaser v. Argentina tribunal stressed: 

“…..While it is thus correct to state that the State’s obligation is based on its obligation to enforce the human right to water of all individuals under its jurisdiction, this is not the case for the investors who pursue, it is true, the same goal, but on the basis of the Concession and not under an obligation derived from the human right to water.  Indeed, the enforcement of the human right to water represents an obligation to perform.  Such obligation is imposed upon States.  It cannot be imposed on any company knowledgeable in the field of provision of water and sanitation services.  In order to have such an obligation to perform applicable to a particular investor, a contract or similar legal relationship of civil and commercial law is required.  In such a case, the investor’s obligation to perform has as its source domestic law; it does not find its legal ground in general international law…” (Urbaser v. Argentina Award of 8 December 2016, para. 1210.  Emphasis added.).

This view – where international human rights law appears detached from having any direct applicability to investors  – echoes similar reasoning from that of the 2010 Decision on Liability in Suez v. Argentina:

“…Argentina and the amicus curiae submissions received by the Tribunal suggest that Argentina’s human rights obligations to assure its population the right to water somehow trumps its obligations under the (bilateral investment treaties or BITs) and that the existence of the human right to water also implicitly gives Argentina the authority to take actions in disregard of its BIT obligations.  The Tribunal does not find a basis for such a conclusion either in the BITs or international law.  Argentina is subject to both international obligations, i.e. human rights and treats obligation, and must respect both of them equally. Under the circumstances of these cases, Argentina’s human rights obligations and its investment treaty obligations are not inconsistent, contradictory, or mutually exclusive.  Thus, as discussed above, Argentina could have respected both types of obligations…” (Suez v. Argentina Decision on Liability of 30 July 2010, para. 262.  Emphasis added.)

The unique genius and foresight behind the Committee’s General Comment No. 24 lies with how it achieves comprehensive internalisation of the ICESCR – by embedding the ICESCR in every step of States’ regulation of the conduct of business activities, trade, and investment, and in a manner more markedly direct than those sought through voluntary corporate social responsibility instruments (such as the UN Global Compact, Equator Principles, UN Principles on Responsible Investment, among others).  General Comment No. 24 provides for modes of attribution of direct State responsibility for the action or inaction of business entities (whether State-owned or privately owned enterprises).  It already anticipates that there will be direct treaty conflicts between the ICESCR and IEL, such that States should, accordingly as a matter of routine practice, conduct human rights impact assessments long before concluding trade and investment treaties, and States should also require business entities to conduct extensive human rights due diligence in order to identify, prevent, and mitigate risks of ICESCR violations.  Because the ICESCR is a long-standing treaty binding 165 States Parties and with 5 further signatory States pending ratification of the ICESCR (and thus bound – pursuant to Article 18 of the Vienna Convention on the Law of Treaties – not to defeat the object and purpose of the ICESCR), the ICESCR constitutes binding international law to hold States to account when they regulate business, trade, and investment activities in ways that are inconsistent with ensuring respect, protection, and facilitation of ICESCR rights. The Committee’s General Comment No. 24 bears significance as an authoritative interpretation of the ICESCR – one that gives States practical guidance on the implementation of the ICESCR in the context of regulating business, trade, and investment activities.  In this sense, perhaps more successfully than the aspirations thus far to arrive at a global treaty on business and human rights based on the Ruggie framework (see Guiding Principles on Business and Human Rights), General Comment No. 24 consolidates much of the previous works of the Committee on these matters into a single authoritative interpretive document. It is precisely this rich blueprint that States and non-State actors can now use to invoke legal constraints inbuilt and guaranteed by treaty under the ICESCR, as States design and plan for the regulation of business, trade, and investment activities.

Scope, attribution, and extraterritoriality of acts of business entities and States’ ICESCR duties

General Comment No. 24 makes clear that the ICESCR applies to all business activities – transnational, State-owned or State-controlled, or privately-held – “regardless of whether domestic laws exist or are fully enforced in practice.”  (General Comment, para. 5)  States continue to possess extraterritorial obligations to ensure respect, protection, and facilitation of ICESCR rights.  States’ fundamental duty of non-discrimination requires them to eliminate formal as well as substantive forms of discrimination by non-State entities, including groups disproportionately affected by the adverse impacts of business activities such as women, children, indigenous peoples, disabled persons, constituencies such as peasantry and rural workers impacted by the development, utilisation, or exploitation of lands and natural resources. (General Comment, paras. 7-8)

Most importantly, the Committee finds that States parties to the ICESCR may be held directly responsible for the action or inaction of business entities:

“…(a) if the entity concerned is in fact acting on that State party’s instructions or is under its control or direction in carrying out the particular conduct at issue, as may be the case in the context of public contracts;

(b) when a business entity is empowered under the State party’s legislation to exercise elements of governmental authority or if the circumstances call for such exercise of governmental functions in the absence or default of the official authorities; or 

(c) if and to the extent that the State party acknowledges and adopts the conduct as its own.” (General Comment, para. 11.)

The Committee explicitly points out that “extraterritorial obligations arise when a State party may influence situations located outside its territory, consistent with the limits imposed by international law, by controlling the activities of corporations domiciled in its territory and/or under its jurisdiction, and thus man contribute to the effective enjoyment of economic, social, and cultural rights outside its territory.” (General Comment, para. 28) This can include duties on the part of States not to obstruct fellow State parties from complying with their ICESCR obligations, such as when negotiating trade and investment agreements or financial and tax treaties (General Comment, para. 29); duties of States to take reasonable measures to prevent breaches caused by a private entity’s conduct especially in high-risk projects such as those in mining and the extractive industries (General Comment, para. 32); or to directly require corporations to “deploy their best efforts to ensure that entities whose conduct those corporations man have influence, such as subsidiaries…or business partners…respect Covenant rights” (General Comment, para. 33).

Trade and investment treaty-making, business supply chain regulation must be ICESCR-compliant

The Committee also expressly places the obligation on States to ensure that any trade and investment treaties subsequently entered into after the ICESCR must ensure the former’s consistency with the latter:

“States parties should identify and potential conflict between their obligations under the Covenant and under trade or investment treaties, and refrain from entering into such treaties where such conflicts are found to exist, as required under the principle of the binding character of treaties.  The conclusion of such treaties should therefore be preceded by human rights impact assessments that take into account both the positive and negative human rights impact of trade and investment treaties, including the contribution of such treaties to the realisation of the right to development.  Such impacts on human rights of the implementation of the agreements should be regularly assessed, to allow for the adoption of any corrective measures that may be required.  The interpretation of trade and investment treaties currently in force should take into account the human rights obligations of the State, consistent with Article 103 of the Charter of the United Nations and with the specific nature of human rights obligations.  States partiescannot derogate from the obligations under the Covenant in trade and investment treaties that the may conclude…” (General Comment, para. 13).

The Committee further extends the obligation to ensure respect for the ICESCR and protection of ICESCR rights to downstream operations of the business supply chain, including broader consultation with affected indigenous communities:

“…a positive duty to adopt a legal framework requiring business entities to exercise human rights due diligence in order to identify, prevent, and mitigate the risks of violations of Covenant rights, to avoid such rights being abused, and to account for the negative impacts caused or contributed to by their decisions and operations and those of entities they control on the enjoyment of Covenant rights.  States should adopt measures such as imposing due diligence requirements to prevent abuses of Covenant rights in a business entity’s supply chain and by subcontractors, suppliers, franchisees, or other business partners…businesses should consult and cooperate in good faith with the indigenous peoples concerned through indigenous peoples’ own representative institutions in order to obtain their free, prior and informed consent before the commencement of activities…” (General Comment, paras. 16-17)

Corruption is particularly anathema to the realisation of ICESCR rights, and “leads to the discriminatory access to public services in favour of those able to influence authorities, including by offering bribes or resorting to political pressure…” (General Comment, para. 20.).  While privatisation of traditionally public sectors such as water, electricity, education, or health care “is not per se prohibited” (General Comment, para. 21), States should “retain at all times the obligation to regulate private actors to ensure that the services they provide are accessible to all, are adequate, are regularly assessed in order to meet the changing needs of the public and are adapted to those needs.” (General Comment, para. 22).  Intellectual property rights systems must also “recognise and protect the right of indigenous peoples to control the intellectual property over their cultural heritage, traditional knowledge, and traditional cultural expressions.” (General Comment No. 24, para. 24).  States should also reject impunity for tax evaders who ultimately undermine State capacities to realize Covenant rights: “States should combat transfer pricing practices and deepen international tax cooperation, and explore the possibility to tax multinational groups of companies as single firms, with developed countries imposing a minimum corporate income tax rate during a period of transition.  Lowering the rates of corporate tax solely with a view to attracting investors encourages a race to the bottom that ultimately undermines the ability of all States to mobile resources domestically to realize Covenant rights…”(General Comment, para. 37).

Remedies against Corporate Veil Defences and Corporate Forum Shopping in Transnational Litigation

Finally, the Committee takes note of the unique (and nearly insurmountable) obstacles faced by individual victims of transnational corporate abuses in seeking to access effective remedies, whether from corporations successfully invoking the corporate veil defence or taking advantage of forum non conveniens doctrines.  The Committee observes that States parties to the ICESCR are “require(d)…to remove substantive, procedural, and practical barriers to remedies, including by establishing parent company or group liability regimes, providing legal aid and other funding schemes to claimants, enabling human rights-related class actions and public interest litigation, facilitating access to relevant information and the collection of evidence abroad, including witness testimony, and allowing such evidence to presented in judicial proceedings…States parties should facilitate access to relevant information through mandatory disclosure laws and by introducing procedural rules allowing victims to obtain the disclosure of evidence held by the defendant.” (General Comment, paras. 44-45).  The Committee contemplates that corporate accountability for violations of ICESCR rights can span “criminal liability of corporations and/or of the individuals responsible…administrative sanctions to discourage conduct by business entities that lead, or may lead, to violations of the rights under the Covenant….in public procurement regimes, denying the award of public contracts that have not provided information on the social or environmental impacts of their activities or that have not put in place measures to ensure that they act with due diligence to avoid or mitigate any negative impacts on the rights under the Covenant…” (General Comment, paras. 49-50).  Remedies may also be judicial or non-judicial, in keeping with the particular nature of the harm caused to the individual or group victim of corporate conduct that violates ICESCR rights.  (General Comment, paras. 51-57).

Conclusion

I readily expect that, as with most of the Committee’s General Comments, States will plead latitude during their respective periodic reviews before the Committee with respect to observing the Committee’s recommendations in General Comment No. 24.  That does not, by itself, detract from the ultimate value of these General Comments to current and future policymakers, practitioners, and scholars of international human rights and international economic law.  Indeed, many of the Committee’s General Comments anticipated later treaty developments in labor rights protections, education, and access to health care, gaining resonance in international practice much later than when the General Comments were first issued.  I venture to predict that General Comment No. 24 will follow a similar path.  While this blueprint might be read by some States now as controversial overreaching into their sovereign prerogatives to regulate their domestic economies, the Committee must be credited with taking the bold path of establishing the clear legal nexus between the ICESCR as a treaty binding 165 States to respect, protect, and facilitate economic, social and cultural rights – as well as this treaty’s simultaneous role as a legal constraint on all of these States’ parameters of authority to regulate, plan, and make economic decisions.  More importantly, this treaty-based legal nexus also substantiates the urgent need for direct epistemological, educational, and interdisciplinary linkages between international human rights law and international economic law communities of scholars, practitioners, and authoritative decision-makers.  Finding real solutions to transnational corporate abuses, and devising effective innovations to ensure the implementation of economic, social, and cultural rights, certainly now requires competent engagement from both ends of the public-private spectrum in international law.

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