Ecuador’s Proposed Elements of a Treaty on Business and Human Rights: Off to a Good Start

Doug Cassel, Notre Dame Law School

UN Human Rights Council

Negotiating a treaty on business and human rights is daunting.  The treaty must clarify the duties of states and business while providing effective preventive and remedial measures.  It must be able to attract a meaningful number and mix of states parties.  Additionally, it must look ahead to ensure that, if adopted and ratified, its implementation will make a real difference in practice.

None of these goals is sufficient by itself.  All three must be accomplished, otherwise little will have been achieved.  The task is made more difficult by tensions among the goals: the stricter the obligations and the more realistic their implementation, the fewer states will readily join the treaty.

Viewed from this perspective, the draft elements of a treaty prepared by Ecuador are an excellent point of departure for negotiations.  The broad-ranging draft addresses nearly all the points a treaty should cover.  But it is deliberately imprecise; each element is flexibly worded.  This leaves room to relax points, where needed, to attract states during the negotiations, or conversely to tighten points where needed to ensure an effective treaty.

At the outset of negotiations, this approach should achieve the initial objectives of keeping the relevant participants in the room and encouraging them to talk.  States are not faced with rigid drafting faits accomplis, while human rights NGOs can expect their concerns to be heard.

Where this will ultimately lead is beyond anyone’s control.  The dynamics of multilateral negotiations – which begin the day after this commentary is written – will take over.  One hopes that Ecuador’s shepherding of the negotiations will be as deft as its preparation of the draft elements.

Following three years of extensive, multi-stakeholder consultations, Ecuador has put forward a 14-page, single spaced set of elements as a “basis for substantive negotiations”. They cover the general framework of a treaty; its scope of application; the general obligations of states, business, and international organizations; preventive measures including due diligence, consultation and public reporting; legal liability; access to justice and effective remedies; transnational jurisdiction; international cooperation to ensure access to justice and effective remedies; mechanisms for promotion, implementation and monitoring; and general provisions including dispute settlement and the “primacy of this instrument over other obligations from trade and investment legal regimes”.

Achieving even a substantial portion of this ambitious list will be challenging.  In my view, the diplomatic objective should be to attract a combination of states from the global South and Europe.  Forget the United States, Russia, and the United Kingdom (short of a Labour Party government) – as they cannot be attracted by any reasonable treaty.  The same is almost certainly true of China as well, although it may take longer for that reality to become apparent.

Even without those economic powers, a European-South treaty could still be meaningful. If American, Russian, British and Chinese companies are subject to the treaty when they or their subsidiaries operate in Europe or in many states of the global South, there will be multiple opportunities to require them to conform to treaty standards and remedies.

Until now, however, a thorny issue has stood in the way of a European-South coalition in support of the treaty.  The EU has understandably insisted that the treaty should cover, not only transnational corporations (TNCs), but all companies, so as not to put European TNCs at a competitive disadvantage with local companies when they do business overseas.

In contrast, some of Ecuador’s allies from the South, including its chief partner South Africa, have insisted on the opposite: the treaty should cover only TNCs, they demand; let each nation regulate its own domestic companies.  Their insistence forced the inclusion of a footnote in the UN Human Rights Council resolution 26-9, which in 2014 authorised a process to negotiate a treaty to cover “all business enterprises that have a transnational character in their operational activities,” but which would “not apply to local businesses registered in terms of relevant domestic law.”

 In an apparent effort to get around this impasse, Ecuador’s elements propose an innovative formula: the treaty’s coverage will be defined, not by the type of business (transnational or local), but by the type of business activity. Ecuador’s elements propose that the treaty will thus not require a legal definition of the companies to which it applies, “since the determinant factor is the activity undertaken” by a company, “particularly if such activity has a transnational character.”

This focus on activities rather than on companies is politically astute: it may offer a face-saving compromise to both sides.  Granted, it will be legally challenging: In a globalised economy, what business activity has a “transnational character,” and what does not?  For example, if a local factory sells both to its own national and to international markets, while operating in a structurally dangerous building, does the deficient construction of that building have the requisite transnational character? 

Comparably ambiguous examples could be multiplied. But legal line drawing is a problem smart lawyers can solve – unlike the diplomatic face-off that has bedeviled the scope of application of the treaty as framed until now. The Ecuadorian proposal may finally signal a way out of the impasse.

If support by both European and global South states for a treaty can thus be achieved, each will come at a price – perhaps a high price.  For example, Ecuador’s elements call for states to require companies to exercise human rights due diligence over their affiliates, and to report publicly on these activities.  But the French law requiring companies to exercise human rights due diligence – the only such national law to date – is limited to a relatively few large companies. Similarly, the EU non-financial reporting directive covers only the largest companies operating in Europe (among other limitations). 

 Will France (especially under the new pro-business leadership of President Macron) and the EU (or some or all of its member states) now agree to impose due diligence and reporting requirements on far more companies?  Or, in the interests of bringing France and Europe on board, should the treaty’s due diligence and reporting requirements mimic those already imposed by France and the EU?

States from the global South have their own issues.  Two decades ago, when the US Clinton Administration proposed to include relatively mild labor rights standards in the WTO, developing states in the South blocked the initiative. It would, they said, threaten their competitive advantage of lower labor costs.  Will they now fear that a treaty imposing standards for human rights – including labor rights – would undermine their competitiveness?

Some state pushback may already be reflected in Ecuador’s draft elements.  Most sections begin by stating that the treaty “may include” the elements enumerated in the section. But when it comes to extraterritorial jurisdiction and international enforcement – two topics of particular sensitivity to states – the introductory language in each section says only that the listed elements “could be considered.”  There follow “options” for international judicial mechanisms, and a suggestion that states “may decide” to establish a treaty committee.

If states – whether from Europe, the global South or elsewhere – are certain to try to narrow Ecuador’s broad but flexible language, human rights NGOs are equally certain to push to clarify and strengthen the obligations (although not necessarily for international judicial enforcement).  Already Amnesty International and, separately, the International Federation of Human Rights, while generally supporting Ecuador’s elements, have published analyses to clarify and strengthen them.  As Ecuador’s proposed elements are inevitably weakened by negotiations with states, will the NGO critiques become far sharper? 

In other words, can a balance be achieved between a treaty that affords meaningful protection to victims of business-related human rights violations, while also attracting a meaningful number and mix of states to join the treaty? 

As the negotiations begin this week, perhaps the answer will become clearer. Meanwhile all parties owe Ecuador a debt of gratitude for an ambitious but responsible point of departure.

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Doug Cassel is a Notre Dame Presidential Fellow and Professor of Law at the University of Notre Dame Law School (USA).