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: Law at the End of the Day

The OECD Guidelines for Multinational Corporations: Using Soft Law to Operationalize a Transnational System of Corporate Governance

The OECD´s Guidelines for Multinational Corporations has existed in its present form since 2000. It represents one of several quasi-public efforts to create soft law frameworks for developing a customary consensus and culture of appropriate corporate behavior. One of its unique features is its enforcement procedures. These posit the creation of quasi-judicial organs whose purpose is to apply the Guidelines to the actions of multinational corporations. These panels, national contact points, are constituted whenever there is a complaint lodged. These complaints may be lodged by civil society actors. Recently two panel statements illustrate the growing maturity of this system and suggest the way in which these soft law systems can become effective mechanisms for developing global regulatory cultures of corporate behavior. The output of quasi judicial and interpretive statements, like those of the two cases discussed below, will continue to contribute, incrementally, to the institutionalization of transnational systems of multinational regulation, systems that will have legal effect, whether to not this is law, classically understood. These cases continue an effective process of operationalizing soft law to produce the effects of hard law beyond the state, but without challenging state authority directly. For the great projects of corporate governance currently being developed, including those associated with the United Nations Global Compact, these efforts should be instructive.

What follows is a close analysis of these two panel statements. The final version of this paper will be published soon. Comments and reactions welcome.

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SMALL STEPS TOWARD AN AUTONOMOUS TRANSNATIONAL LEGAL SYSTEM FOR THE REGULATION OF MULTINATIONAL CORPORATIONS:
RIGHTS AND ACCOUNTABILITY IN DEVELOPMENT (RAID) V DAS AIR (21? JULY 2008) (1)
and
GLOBAL WITNESS V AFRIMEX (28 AUGUST 2008) (2)

ABSTRACT: The enforcement framework for the MNE Guidelines has long been the subject of criticism, especially by representatives of private and public actors. But two recent cases have suggested the ways in which enforcement actions arising from civil society efforts to utilize the national contacts points complaint system may be slowly influencing the emerging discourse of corporate behavior in ways that will have substantial effect. Beyond evidence of a more muscular institutional transnational enforcement structure for soft law codes, the cases serve to outline a framework for the interaction of transnational and national systems of corporate regulation. The multilateral system for governing multinational corporate behavior will affect not only that behavior but also the rules through which corporations may be governed as to their internal affairs and with respect to the character of their legal personality. This case note first briefly describes the institutional and regulatory framework within which the cases arose. It then reviews the cases themselves, drawing out the more relevant arguments. Lastly contextualizes those arguments and positions within national and transnational corporate and international legal regimes. The cases illustrate the way in which advances in governance issues are being crafted, step-by-step, from out of a system that, while formally non-binding, is increasingly developing the characteristics of a binding governance system. The cases suggest the parameters within which the MNE Guidelines are beginning to serve as the focal point for the construction of an autonomous transnational governance system that is meant to serve as the touchstone for corporate behavior in multinational economic relationships. They continue an effective process of operationalizing soft law to produce the effects of hard law beyond the state, but without challenging state authority directly in parallel to similar efforts through the U.N. Global Compact.

CONTENTS

I. Introduction
II. The Regulatory Context
III. The Cases
A. Rights and Accountability in Development (RAID) v DAS Air
B. Global Witness v Afrimex
IV. The Analytical Context
A. The Construction of an Interlinked System of International and Municipal Hard and Soft Law
B. Corporate Law Challenges
C. Procedural Issues
V. Conclusion

I. INTRODUCTION.

The problem of the multinational corporation has been at the center of transnational policy discussion for the greater part of the last half-century.(3) For the last decade, attempts to create hard law and harmonized regulatory structures for multinational corporations have been effectively blocked by a great alliance of business and developed state interests.(4) The most prominent among these failures has been the U.N.?s Norms.(5) Moreover, attempts to stretch national law to bring the transnational activities of multinational corporations under the regulatory control of at least some states has been largely unsuccessful, except perhaps within the academic literature.(6)

This breach in regulation has been filled with a variety of soft law efforts.(7) Prominent among them has been the U.N.?s successor regulatory strategy to the Norms?the U.N. Global Compact.(8) But powerful regional state-private sector organizations have also sought to create soft law regulatory networks that might contribute to a set of behavior norms among multinational enterprises. Among these has been the Organization for Economic Cooperation and Development. (9) It has been at the forefront of developing and creating implementary frameworks of soft law for corporate governance. (10)

Prominent among the OECD?s soft law codes is its Guidelines for Multinational Enterprises (MNE Guidelines).(11) The MNE Guidelines are the only multilaterally endorsed and comprehensive code that governments are committed to promoting.(12) The MNE Guidelines are said to express the shared values of the governments of countries that are the source of most of the world?s direct investment flows and home to most multinational enterprises.(13) They are meant to be applied to the world wide operations of businesses that might be subject to its provisions.(14) They are enforced through organizations called National Contact Points (NCP), established usually within one of the trade or commerce ministries of the adhering states.(15) These NCPs are meant to foster respect for the MNE Guidelines (as well as the other related work of the OECD) and provide the institutional framework through which interested stakeholders, usually elements of civil society, can bring allegations of breaches of the behavior provisions of the MNE Guidelines against businesses subject thereto.(16)

The enforcement framework for the MNE Guidelines has long been the subject of criticism, especially by representatives of private and public actors.(17) Much of this criticism has focused on the purported capture of the OECD Guidelines systems by business interests, and the weakness of the enforcement mechanisms, both in terms of procedure and delay.(18) The focus of these efforts is bent to the production of national or global systems of hard law aimed at achieving any number of regulatory goals.(19) In addition, developing states have criticized the approach as both reflecting on the views and values of developed states and as imposed, in fact, on developing states for their own good but without their consent.(20)

But two recent cases have suggested the ways in which enforcement actions arising from civil society efforts to utilize the national contacts points complaint system may be slowly influencing the emerging discourse of corporate behavior in ways that will have substantial effect. One, brought by Rights and Accountability in Development (RAID), a civil society actor,(21) against DAS Air, determined that the activities of a U.K. undertaking outside of the U.K. violated the Guidelines because they constituted breaches of international conventions to which its home country adhered.(22) The other, brought by Global Witness, another civil society actor,(23) against Afrimex, Ltd., determined that the activities of a group of corporations were related as a consequence of which the U.K. undertaking either failed to properly oversee the operations of its supply chain or participated as part of an enterprise in the violation of the Guidelines.(24)

These cases are ripe with possibility. Beyond evidence of a more muscular institutional transnational enforcement structure for soft law codes, the cases serve to outline a framework for the interaction of transnational and national systems of corporate regulation. The multilateral system for governing multinational corporate behavior will affect not only that behavior but also the rules through which corporations may be governed as to their internal affairs and with respect to the character of their legal personality. (25) And this without regard to the law of either home or host state, but instead grounded on transnational law principles derived from out of the soft law regime within which the cases arose. But they do more than that. Arising in the course of global efforts to manage the regional conflict in the Democratic Republic of the Congo, (26) the cases also suggest the strength of what may become a consensus on the applicability of international law directly to non-sovereign entities like multinational corporations. (27) This case note first briefly describes the institutional and regulatory framework within which the cases arose. It then reviews the cases themselves, drawing out the more relevant arguments. Lastly contextualizes those arguments and positions within national and transnational corporate and international legal regimes. These cases suggest an effective method for operationalizing a soft law system to produce the effects of hard law beyond the state, but without challenging state authority directly. The OECD system is moving forward through this form of institutionalizing quasi-judicial organs in parallel with other soft law implementation endeavors, principally those under the umbrella of the U.N. Global Compact. For this reason alone, the cases are important as an instance of developing the law of multinational obligation and the system under which such obligations are overseen.

II. THE REGULATORY CONTEXT

The MNE Guidelines are recommendations on responsible business conduct addressed by governments to multinational enterprises operating in or from adhering countries.(28) The theme of the OECD Ministerial level meeting that approved the revised Guidelines in 2000 was ?Shaping Globalization?.(29) The integration of national economies into one global economy is accelerating and intensifying, driven by new technologies and new opportunities.(30) These new opportunities are not only to reap profit, but also to stimulate development and improved social conditions around the world.(31) The revised Guidelines will be an important instrument for shaping globalization.(32) They provide a government-backed standard of good corporate conduct that will help to level the playing field between competitors in the international market place.(33) They will also be a standard that corporations themselves can use to demonstrate that they are indeed important agents of positive change throughout the developing as well as the developed world.(34)

The MNE Guidelines are framed as recommendations addressed by governments to multinational enterprises operating in or from adhering countries. ?Although endorsed by adhering Governments, the Guidelines are voluntary and are not intended to override local laws and legislation. The Guidelines are not intended to introduce differences of treatment between MNEs and domestic enterprises ? they reflect good practice for all.?(35) They provide voluntary principles and standards for responsible business conduct in a variety of areas including employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, and taxation. (36)

The enforcement and naturalization work of the OECD are affected through its system of national contact points. These entities are established through government ministries and are charged with the implementation of adhering state obligations under the MNE Guidelines and other relevant soft law produced through the OECD. The NCPs serve several purposes. With respect to the MNE Guidelines, a principal obligation is the establishment of procedures for handling complaints brought by proper parties alleging violations by multinational corporations of their obligations under the Guidelines.(37) These procedures vary widely,(38) but all include provisions for complaint intake, mediation, and ultimately more formal hearing on complaints.(39) But because the MNE Guidelines are not legally binding, the usual protections accorded in binding proceedings are not necessarily observed. However, because of the potentially severe consequences to a determination of violation?including adverse consequences with investors and consumers,(40) as well as the possibility that the findings might lead to formal charges of violations of law?multinational entities tend to take these proceedings seriously.(41)

The national contact point structure, however, has come under increasing criticism from civil society actors. (42) They see the structure of the Guidelines and its enforcement mechanisms as a potential means for effecting the creation of a soft law consensus on regulatory frameworks for multinational corporations, and from that to build a hard law transnational regulatory framework. As a consequence they have been working to increase both the visibility and legitimacy of the enforcement mechanisms of these soft law systems. (43) But at the same time, such actors have increasingly turned to the mechanisms of MNE Guidelines enforcement to bring pressure on multinationals to conform to what is hoped to be an increasingly harmonized and consensus standard of global business behavior based on a specific interpretation of the MNE Guidelines.

In the United Kingdom, the U.K. National Contact Point (?UK-NCP?) ?is bipartite, consisting of officials from the Department for Business, Enterprise, and Regulatory Reform (BERR), and the Department for International Development (DFID).?(44) The UK-NCP is one of several entities within the U.K. government concerned with overseeing policy on corporate social responsibility. (45) External members of the UK-NCP include elements from trade unions, business and civil society,(46) who are extensively consulted in all aspects of UK-NCP activities.(47) RAID, for example, has been an active stakeholder in the work of the UK-NCP in the United Kingdom. (48)

The procedures for handling complaints from start to finish, along with bureaucratic commitments respecting to time decision and the like are set forth in a set of published procedures available from the internet site of the UK-NPC.(49) In keeping with the structure of the MNE Guidelines, the UK-NPC?s focus had been on mediation, though it has been turning more often to the assessment process as of late.(50) To date it has considered about fifteen specific instances of complaints brought by elements of civil society.(51)

The intake procedure adopted by the UK-NCP is fairly simple. To commence the process a simple amount of rudimentary information is required. (52) The information provided on the form made available by the UK-NCP (53) is used to make an initial assessment of the strength of the claim and the value of going forward with mediation efforts.(54) The UK-NPC contemplates a multistage procedure consisting of an initial assessment,(55) mediation or examination,(56) and drafting and publication of the final statement.(57) The rules do not contemplate the application of the law of either the place where the purported breaches occurred or the law of the place where the undertaking has its headquarters or is chartered. Neither do the rules impose other rules or procedures that mimic judicial or administrative proceedings with legal effect. And of course, it is precisely because these proceedings are administrative but not binding that this sort of flexibility is possible. As will become apparent, that flexibility permits any NCP to utilize a rules framework detached from municipal law. Indeed, these proceedings suggest the way in which the MNE Guidelines serve as something like an autonomous transnational system, (58) grounded in its own terms and drawing on municipal and international law as a basis for the application of its own norms.

III. The Cases.

The U.K. National Contact Point decisions in Afrimex and DAS Air are described below. The object is not merely to describe the proceedings and outcome, but to suggest a way of reading the Statements that suggest the important developments of each case.

A. Rights and Accountability in Development (RAID) v DAS Air (21?July 2008). (59)

The complaint brought by RAID in 2005(60) was grounded in allegations arising from a purported violation by DAS Air of certain U.N. embargoes within a conflict zone in the eastern region of the Democratic Republic of the Congo (DRC). (61) RAID pointed to a list of specific activities that, it argued, constituted breaches of a number of the general prohibitions of the MNE Guidelines. (62) Much of this was fueled by the worldwide demand for the mineral coltan. ?Coltan is the colloquial African name for columbite-tantalite, a metallic ore used to produce the elements niobium and tantalum.?(63) The specific activities at the heart of the complaint included operating aircraft in aid of the Ugandan invasion of DRC territory, air transport into DRC occupied by the Ugandan military during 2000-2001, operating civilian aircraft in a conflict zone, and the ?transport of coltan from Kigali in Rwanda and the transport of cobalt from Entebbe in Uganda which had a reasonable probability of originating in eastern DRC during the conflict period.?(64)

It was brought against DAS Air in the United Kingdom because, though the activities giving rise to the complaint occurred in the regions around the DRC, the undertaking itself was registered in the United Kingdom.(65) During the course of the complaint resolution process, however, DAS Air and its related entities had become subject to a ban on operations within E.U. airspace (66), as a consequence of which (in part) DAS Air?s assets became subject to liquidation in 2007.(67) This had a substantial effect on the proceedings. From the time of its cessation of operations, DAS Air also ceased participating in the proceedings in late October 2006.(68) That, however, served as no impediment to the proceedings, or the determination of a breach by DAS Air;(69) the proceedings continued with the assistance of RAID only, though the remedies available were accordingly limited.(70) Whether that conclusion to the proceedings serves as an impediment to the use of the conclusions in other cases in the U.K. or by other National Contact Points in their deliberations is another matter.(71)

RAID?s complaint cast its net broadly, seeking a declaration of violation for substantially all of the period of the current conflict in the DRC during which DAS Air operated in the region, commencing in 1998 (the start of the second conflict) to December 2001 (when the airline stopped flying).(72) However, the MNE Guidelines under which the complaint was made did not become effective until 2000, and the UK-NCP would have been required to apply to earlier version of the MNE Guidelines to those flights absent consent form the company, a consent that in this case was not forthcoming.(73) The solution was relatively straightforward. The emphasis of the UK-NCP was on the three flights that occurred after June 2000, when the current version of the Guidelines were released. The other thirty-two flights that constituted the bulk of the evidence of breach were used as circumstantial evidence of continued breach.(74) But the MNE Guidelines themselves were not applied directly with respect to the pre 2000 flights to avoid retroactive application without consent.(75)

The UK-NCP relied heavily in support of its conclusions on factual determinations that appeared to have been generated through the investigative work of an international and a national commission. The first was the work of the UN Panel of Experts on the Illegal Exploitation of Natural Resources and other Forms of Wealth of the Democratic Republic of Congo (the ?UN DRC Panel?). (76) The second was the work of the Ugandan Judicial Commission under Justice Porter, commonly known as the Porter Commission.(77) RAID had relied on three key elements of these reports. The first was a political conclusion of the UN DRC Panel with respect to the character of the conflict in DRC and its relationship to natural resource exploitation. (78) The second was the UN DRC Panel?s recounting of a belief in DAS Air?s participation. (79) The last was the Porter Commission conclusion that Ugandan military bases were being used to hide civilian incursions into the conflict zone. (80)

The later assertions were drawn from supporting records included in the Porter Commission Report.(81) The UK ? NCP rejected DAS Air?s initial response that the Porter Commission data was fabricated for failure to provide any proof beyond its statement to that effect.(82) The proof that DAS Air flights occurred were the crucial foundation to the UK-NCP findings. From the fact of the flights, breach could be inferred in the following way. First, international law required that governments close the air space between Uganda and DRC during the relevant period.(83) Second, the Ugandan Government through its ?Porter Commission Report concluded that it is likely that civilian flights did take place between DRC and Uganda during the period of the conflict in direct contravention of International Conventions.?(84) And third, relying on the data supplied in the Porter Commission Report, the UK-NCP determined that the DAS Air flights during the relevant period were civilian in nature. (85)

The UK-NCP lastly considered the internal operations of DAS Air within the DRC in connection with its transport activities.(86) The UK ? NCP first accepted the conclusion by UN DRC Panel that the DRC conflict was fueled by the desire to exploit natural resources in the area and the private sector?s responsibility in those activities.(87) It presumed an obligation on the part of private undertakings to exercise heightened care in such situations to avoid complicity in lawless or illegal activity.(88) It then considered the extent of the influence that DAS Air could have had in its contracts with third parties to transport coltan from Kigali to Europe.(89) The MNE Guidelines commentary suggested a contextual analysis for determination of obligation.(90) The UK-NCP found that DAS Air undertook insufficient due diligence on the supply chain because it failed to question the source of the materials it transported.(91)

On this basis, the UK-NCP concluded that DAS Air had failed to meet the requirements of the Guidelines.(92) The UK-NCP?s affirmed an expectation that all UK MNEs abide by international conventions including the Convention on International Civil Aviation.(93) In addition, the mislabeling of flights as military, when they were not, by UK MNE?s is also prohibited.(94) Lastly, and perhaps of most note is the UK-NCP?s adoption of UN Resolution 1592 as being a ?business requirement? that companies operating in the area must adhere to, despite the fact that the resolution is intended for nations, and not corporations.(95)

B. Global Witness v Afrimex (28 August 2008) (96).

The complaint, brought by Global Witness in February 2007, (97) was also fueled by the global markets for coltan and the turbulence in the DRC. Global Witness alleged that Afrimex paid taxes to rebel forces in the Democratic Republic Congo and that it practiced insufficient due diligence on the supply chain by sourcing minerals from mines which used child labor. (98) These activities were said to constitute breaches of a number of the provisions of the MNE Guidelines.(99) Afrimex vigorously contested the allegations as well as the conclusions suggested therefrom based on its own version of its conduct.(100)

As in the DAS Air proceedings, (101) the complaint sought to bring in activities that occurred before June 2000, when the current version of the MNE Guidelines came into force. Global Witness looked to activities that took place between 1998 (the start of the second conflict in the DRC) and February 2007 (when the complaint was filed). (102) The UK-NCP considered this activity indirectly. It limited its findings to those activities that took place after adoption of the current version of the MNE Guidelines, but considered pre-2000 activity as circumstantial evidence relevant to post 2000 conduct as the UK-NCP determined appropriate. (103)

The complaint was brought against Afrimex, a U.K. registered company founded in 1984. (104) The determination was based on the confluence of two streams of analysis. The first related to the situation in the relevant territory?the conflict zone of the DRC.(105) The second focused on the relationship among a group of entities that together were responsible for the actions at issue, for the purpose of assigning responsibility to any one or more of them.(106) The conclusions and data produced through the field work of United Nations officials proved crucial in making fact determinations and in supporting the UK-NCP?s conclusions about the state of affairs in the region at the time. It was particularly important in the determination of the character and effect of the relationship among Afrimex and to other companies, Société Kotecha (107) and SOCOMI. (108)

As in DAS Air, (109) the work of the UN Panel of Experts on the Illegal Exploitation of Natural Resources and other Forms of Wealth of the Democratic Republic of Congo played a critical role.(110) The reports provided the source for the presumption that the conflict in the DCR was in part about the control of the rights to exploit the region?s natural resources, and that ?Companies trading minerals, which the Panel considered to be ?the engine of the conflict in the Democratic Republic of Congo?, have prepared the field for illegal mining activities in the country.??(111) Among these was included the direct trade of arms for natural resources by international corporations doing business within the DRC.(112) In a crucial part of the report, Afrimex was one of the named companies included in this report.

Afrimex was first mentioned as a company of concern in the Panel?s first report and was subsequently listed in Annex III of the October 2002 report, as the Panel considered Afrimex to be in violation of the OECD Guidelines. After dialogue with Afrimex, the UN classified Afrimex in Category 1, a ?resolved? case that required no further action. The discussions that took place between Afrimex and the UN following this report are summarized in the letter that Ketan Kotecha sent the UN. (113)

In addition, the UK-NCP took note of other U.N. activity related to the conflict in DRC to support the presumption of the ?the explicit link between minerals and funding of rebel groups.?(114) They also noted the resolutions of the U.S. Security Council that also went to the issue of the conflict situation in DRC. (115)

Having satisfied itself of the nature of the context in against which corporate activity of Afrimex was to be judged, the UK-NCP reached the central issue of the case?the connection of Afrimex to both the DRC and the suspect activity?a connection Afrimex vigorously contested.(116) For that purpose it would be necessary to connect Afrimex to two other entities?Société Kotecha and SOCOMI.(117) Although Afrimex was able to present enough evidence to convince the panel that there was clear separation between the businesses,(118) the overlap between the directors of each respective corporation was enough to convince the UK-NCP that Afrimex ?was in a position to significantly influence Société Kotecha and SOCOMI.?(119) It would thus treat the three companies as ?linked,?(120) a ambiguous term, because it neither suggested that the companies were substantially each other?s alter ego nor that one necessarily dominated the other, but that they might tend in that direction sufficiently, at least for the analysis that followed.

Having determined the ?link,? the UK ? NCP then applied the MNE Guidelines requirements on the amalgamated entity (whatever the legal nature of their formal or effective connection) in the factual context of the conflict situation in that part of the DRC in which the complained events occurred.(121) The UK-NCP was of the belief that Afrimex was in a strong position to influence SOCOMI with respect to the issue of the character of the taxes and licensing fees paid to RCD-Goma, a rebel group that operated within the DRC conflict zone.(122) The Panel then concluded that Afrimex failed to apply due pressure to SOCOMI to stop these practices.(123)

Because SOCOMI was not the only supplier to Afrimex, the UK ? NCP also considered the issue of the violation of the supply chain conduct rules of the MNE Guidelines.(124) The UK-NCP also found that Afrimex failed to conduct a ?due diligence? inquiry to the supply chain relation among these entities.(125) The UK-NCP looked to the work of the U.N. Special Representative to the Secretary General on the Global Compact, John Ruggie (126), for a transnational definition of the term due diligence for application in the context of the MNE Guidelines.(127) Because Afrimex had such influence over its suppliers that it could have required greater compliance with the Guidelines, the UK-NCP considered that Afrimex failed to perform the sufficient due diligence required when dealing with its suppliers in a conflict zone as the DRC.(128) Indeed, the dangers inherent in doing business in the conflict zone itself evidenced the need for greater scrutiny.(129) But it chose to apply a monitoring standard that, while perhaps acceptable outside of conflict zones, was insufficient in areas where government authority is weak.(130) ?The NCP does not consider the suppliers? statements constitute sufficient due diligence, particularly as it does not deal with rents extracted through the supply chain.?(131) Furthermore, the UK-NCP found that Afrimex failed to encourage its business partners to apply principles of corporate conduct compatible with the Guidelines.(132) The UK-NCP lastly rejected the assertion that Afrimex engaged in conduct that amounted to bribery.(133)

On the basis of this analysis, the UK-NCP, concluded that Afrimex was well aware of the situation in the DRC and especially in the conflict zone.(134) Afrimex was active in the conflict zone during relevant periods, and though it paid no taxes, its associated enterprises did, constituting a breach of the MNE Guidelines.(135) Afrimex also breached its MNE Guidelines obligations by failing to encourage its business partners to embrace the conduct norms of the MNE Guidelines.(136) The UK ? NCP also determined that Afrimex failed to appropriately discipline its supplier chain. ?The UK NCP expects UK business to respect human rights and to take steps to ensure it does not contribute to human rights abuses.?(137)

The UN ?NCP offered a slew of recommendations. (138) These included several that required Afrimex to directly apply a number of international norms and standards. Afrimex offered to formulate a corporate responsibility document under which to better operate in the future. (139) The UK-NCP noted the relevance of the OECD Risk Awareness Tool for MNEs in Weak Governance Zones, which were developed as part of the OECD?s Investment Committee?s follow up to the Guidelines. (140) This decision by the UK-NCP stresses the growing importance that the Guidelines have in influencing corporate behavior across state lines. In particular, corporations may be held responsible for the actions of third parties in their supply chains if they fail to apply a due diligence check on said supply chain. Most importantly, it suggests the importance of soft law principles especially as a substitute for hard law in weak government areas and the power of transnational legal standards to supplement and supplant national standards. (141)

IV. THE ANALYTICAL CONTEXT.

The cases present an interesting advance in both the jurisdiction and jurisprudence. Together they illustrate the way in which advances in governance issues are being crafted, step-by-step, from out of a system that, while formally non-binding, is increasingly developing the characteristics of a binding governance system.(142) They suggest that the political economy of governance no longer necessarily depends on the state and ?law? but now functions in a regulatory context in which municipal and international law converge within hybrid systems of regulation that is not formally law but provides a functionally similar normative framework.(143) But the governance framework is neither municipal nor international, it draws on soft law produced through the organs of the United Nations,(144) the work of the International Court of Justice,(145) and the findings of other national contact points,(146) as permitted under the MNE Guidelines themselves. Instead, the MNE Guidelines are beginning to serve as the focal point for the construction of an autonomous transnational governance system that is meant to serve as the touchstone for corporate behavior in multinational economic relationships. (147)

That transnational system is acquiring its own unique qualities that distinguish it from both the municipal and international law systems from which it draws. There are a number of common, if conventional, points worth stressing relating to that point. First, the cases evidence the way in which international law rules are coming to have a direct effect on multinational transactions. Second, they suggest the way in which governance systems imply an obligation on the part of enterprises to undertake sovereign responsibilities under certain circumstances. Third, the cases point to the process rules being developed for the processing of complaints against multinational corporations. And lastly, the cases suggest the sometimes significant variance there may be developing between the application of MNE Guidelines and the corporate law of the municipalities within which the activities at issue may have occurred.

Ultimately, under the guise of ?soft? law, the OECD may be able to construct a system of customary law and practice as binding as any hard law system because it is hard wired into the practices and routines of the corporate environment in which it is deployed. There is irony here. Through ?voluntary? guidelines, the OECD framework may be able to accomplish what was so fiercely resisted in the form of the more formally binding and institutionalized model of the Norms.(148) But critical to this effort are the quasi-judicial work of the National Contact Points that are meant to serve as the sort of nascent common law courts of this rising customary law transnational system.(149) It is in that respect that the objectives of the Norms might well be realized in a more binding manner than under the more formally binding but disruptive framework of the Norms. This section provides a brief unpacking of these necessarily preliminary but potentially complex interactions between the MNE governance framework and the legal systems against which they operate.

A. The Construction of an Interlinked System of International and Municipal Hard and Soft Law.

The two cases highlight four central issues of any supra-national enterprise regulatory scheme: first the conceptual difficulties of direct imposition of international law on non state actors; second, the imposition of soft as well as hard law norms in equal measure; and third, the deputization of civil society actors as a critical element in the enforcement of soft law principles; and fourth, the role of the National Contact Points in a quasi-judicial role unsupported by traditional rule of law limits.(150) In each of these issues, the cases suggest the ways in which, while loudly proclaiming the ineffectiveness of MNE Guidelines proceedings in law, each has been made more effective in fact.(151)

While the MNE Guidelines themselves describe a soft relationship between international law norms, the entities subject to the MNE Guidelines and the state,(152) the National Contact Point in each of the cases appeared to suggest that DAS Air and Afrimex had direct obligations under international law, the breach of which ran contrary to their obligations under the MNE Guidelines.(153) Of course, this presumption would be untenable under traditional notions of international law,(154) and are problematic even under the more ambiguous provisions of the MNE Guidelines. Thus, for example, in the consideration of breaches of the MNE Guidelines by DAS Air, the UK-NCP noted that the ?issue that the NCP considered for the purpose of this specific instance is whether DAS Air participated in these flights which would have been in direct contravention of International Aviation Conventions leading to a failure to meet the expectations of paragraphs 1.7 and II.5 of the Guidelines.?(155) Moreover Afrimex was to be mindful of the effects of its business practices on indirectly violating the arms embargo in the DRC conflict zone. (156) But this suggests a direct relationship between the private actor and international law a relationship about which states had strongly objected. (157)

But the National Contact Points in both cases were able to do what the United Nations establishment was unable to accomplish through the Norms structure precisely because the method used was soft rather than hard law. Because neither are technically law, both could serve as the basis for behavior regulation in effect. The technical monopoly power of the state over law was not affected by regulatory systems that do not bind in law and could thus have an equivalent effect, at least as far as the entity subject to National Contact Point proceedings is concerned. Thus the increasing power of soft law, it is formally non-existent yet can become a powerful effective force of substantive behavior regulation. The MNE Guidelines represent the contemporary way in which soft law systems can create hard international law.(158) The MNE Guidelines thus clearly provide a consensus making formula that eventually will be translated into legislation acceptable to all those stakeholders that have contributed to its terms and whose values are reflected therein. There is irony here.

Critical in that development, of course, is the work of the National Contact Points, the royal courts of this developing common law. This is well understood by the civil society actors that have become a decisive element in pushing this framework forward in its institutionalization.(159) Indeed, civil society actors have played as increasingly large role in managing the development of soft law in the public and private sector across a large variety of subject areas.(160) In this case, the civil society actors, RAID and Global Witness, used these actions to help construct international values and norms through an interpretive elaboration of the MNE Guidelines. They meant to continue to transform moral/ethical consensus into formally binding form, first within bureaucratized systems of soft law and then ultimately into instruments of law in form as well as fact. (161) The cases, then, suggest their power in their form: an institutionalization of dispute resolution in which elements of civil society undertake the traditional enforcement role of the state.(162) The state provides the judge, but not the law. Civil society provides the enforcement mechanism. Economic enterprises serve as both objects and subjects of a law that is derived from both the obligations of states and the presumed rules produced by international actors. (163)

But the cases raise a larger and more potent issue with respect to the division of power between states and private undertakings?the governance role of private economic actors within territories in which state power is weak or illegitimate. (164) In that context, the National Contact Points in both cases suggested that the OECD principles themselves imposed on private undertakings the obligations to like a state and in lieu of the state. In effect, for purposes of the cases, in lawless areas like the DRC-Goma, both DAS Air and Afrimex were meant to operate as the state for purposes of ordering their conduct and the conduct of those they might influence. The relationship between DAS Air and Afrimex (and especially Afrimex) and its controlled entities, and those entities they controlled, thus becomes regulatory rather than commercial in character.(165) ?MNCs have always been powerful players in the international society and have since long been accepted as partners in the conclusion of ?internationalized? contracts with states. In such cases, many have argued, they are endowed with a kind of derived [international legal personality].?(166) The two cases both take small steps in the effectuation of this reality.

Thus, the National Contact Points would, though an interpretive application of the OECD Risk Awareness Tool (167), serve as both undertaking and state?regulator and participant in the markets in a territory in which the state is, to some extent, absent.(168) Multinational enterprises have been asserting this authority on their own for a number of years.(169) What is different here is the incorporation of this idea within the soft law quasi legal framework of the MNE Guidelines framework. We move from private, contract based non-state systems, to hybrid public-private governance framework; another step toward the formal recognition of entities as proper subjects of international law.

Lastly, from a more global perspective, these cases can be understood not so much as efforts to develop systems of transnational regulation of multinational corporations, but as efforts to comprehensively regulate the rules for warfare and violence among state and non-state actors. Both of the cases had much in common on that score. They focused on the conflict in the Eastern DRC both as an internal matter and in the context of foreign invasion. The situation provided an important opportunity to add to the legal mechanisms through which warfare is managed, and constrained by rules.(170) For civil society actors in these cases, the MNE Guidelines provided a means of extending the scope of that regulatory environment both to non state actors indirectly involved by the invocation of and strengthening of the mechanisms of soft law control.(171) And that is perhaps the greatest insight that can be drawn from these cases in the context of international law: both Afrimex and DAS Air cases suggest the way in which international soft and hard law, national law, and transnational custom and customary normative frameworks (institutionalized or not) are converging within a dynamic matrix where each, developing separately, come together to coordinate and resolve issues that arise beyond the state.(172) The MNE Guidelines enterprise thus fits in nicely with what Gunther Teubner describes as polycentric globalization.(173)

B. Corporate Law Challenges.

As interesting as the effects of the cases on the construction of complex transnational governance systems might are, the cases also evidence potentially important engagements with traditional notions of corporate law and regulation. These are explored briefly here. There were two potentially significant issues that might affect the way in which corporate law principles are understood and applied under municipal law. These approaches are important if only because they either challenge the supremacy of municipal law as the source of corporate law norms or they will serve as a strong incentive to harmonize these corporate law principles. (174) The first deals with the law respecting the separate corporate existence of separately constituted undertakings. The second concerns an understanding of enterprise liability.

i. Respect for the Separate Legal Personality of Separately Constituted Undertakings. Within Anglo-American corporate law, the protection of the separate legal personality of economic entities operating in corporate form has been strongly defended.(175) Most states have developed rules for the protection of that autonomy, both from people who seek to impose responsibility on shareholders (and object stakeholders) for the obligations running to corporations, and also from people who seek to impose responsibility on corporations for the acts of their stakeholders (principally shareholders).(176) Most states also have quite complicated rules for determining when those rules can be avoided, by ?piercing the veil? of autonomy of these separate legal actors.(177) At the same time, states have been more willing to try to seek to extend their authority over elements of corporate activity stretching across borders when it serves their interests.(178)

Yet, despite the nod to municipal law in the MNE Guidelines, neither National Contact Point panel considered either the law of corporate autonomy nor the rules by which that autonomy could be disregarded under either the law of the home or host states. Instead, the panels relied on the construction of its own standards for making that determination, grounded in something that appeared to mimic English and American equity practice, but subject to its own internal logic. The consideration of the relationship among Afrimex, Société Kotecha and SOCOMI is telling. (179) Because the ?law? of the MNE Guidelines forms part of the arrangements among the relevant stakeholders, municipal law appears irrelevant, ?they are waived by the parties to the contract. However, it is not clear that the board of directors may waive the limited liability rights of shareholders without their consent. Such a power may be beyond the reach of the board or its officers.?(180)

Still, the MNE Guidelines are now read as making hard law municipal provisions irrelevant to their determination. On one level that makes sense: the MNE Guidelines are without legal effect and self referential with respect to the obligations they impose on its community of actors. On the other hand, the MNE incorporates national and international hard and soft law by reference. (181) It is hard to understand that incorporation as so selective as to permit national contact points to choose from among them. But that is precisely what the national contact point does in Afrimex, at least to the extent it first determines the associated status of the three entities and then imposes collective liability on them for actions in a foreign jurisdiction (whose own law of corporate aggregation is disregarded as well). The result, then, can be enforced only unofficially?or through transnational mechanisms. It is unlikely to find enforcement in states, like the United States, where such determinations might be deemed inconsistent with state corporate law, absent modification of municipal law.(182) More likely, the result serves another purpose: ?The legal foundations of the ?legitimating? effect of international declarations regarding the conduct of MNEs are most readily apparent where these declarations, or instruments adopted in reference thereto, affirmatively recommend the transformation of their contents into enforceable rules of domestic law.?(183)

And indeed, it might be possible to consider the National Contact Point cases as important points in the production of a stream of semi-public pronouncements that could lead to the discovery (or evolution) of what, as customary international law, might then be imposed on host and home states. This is an ?alternative mechanism for global legislation . . . custom may serve as a pathfinder for later established more specific treaty rules.?(184) The substance of the Norms? project is now furthered through the institutionalization of soft power mechanisms that affect a governance regime different from that of home or host state law.

ii. Enterprise Liability. One of the more closely guarded legal protections of state law is its rules for avoiding liability between separately constituted parts of a large economic enterprise operating through a large number of subsidiaries. But states have also have tentatively sought to find circumstances under which the aggregate parts of a multi-corporate enterprise can be held collectively liable for the acts of any of its respective parts.(185) And most states recognize the tension between corporate structures that take advantage of the benefits of asset protection under the rules of limited liability and separate legal personality of corporations (and similar entities) and the business organization of the aggregate entity.(186)

The supplier chain governance rules, especially as applied against Afrimex, (187) suggest the construction of a new set of enterprise liability norms in which regulatory responsibility becomes the foundation for regulation of the legal relationships between unrelated companies. Indeed, though the notion of supply chain is itself contested,(188) the National Contact Point assumed that SOCOMI might be part of Afrimex?s supply chain (189), and that the comptoirs used by Afrimex were (as did Afrimex).(190) It is true enough that this sort of regulatory enterprise model is already fairly well advanced, as system, in the construction of contract based private regulatory systems of multinational enterprises.(191) But that sort of private regulatory systems takes on something of a different character when it emanates from the state. The difference, of course, is that the enterprise liability contemplated in cases like Afrimex are also coupled with the transformation of the corporation into a quasi state actor, an entity with publicly infused regulatory obligations, the failure of which to assert correctly can lead consequences.(192)

From a perspective of international law, the formalities remain clear?states remain sovereign, corporations serve in a subordinate capacity as agents, whose powers may increase as the ability of the state to project power diminishes, and in any case, the corporation must ?think like a state? in devising it commercial relationships with other actors. That was, in essence, the perspective of the Afrimex National Contact Point Panel. (193) But the consequences for the municipal regulatory control of corporations?and especially core state public policy about the fundamental character of entities as profit or wealth maximizing private actors?can be significant. (194) Not that the results are ?bad? or unwarranted?but that the failure to discuss and the absence of the state from these developments seems awkward at best.

C. Procedural Issues.

One of the more interesting aspects of the cases has been the freedom with which the National Contact Points have fashioned their own procedural and evidentiary rules. These tend to deepen both the institutional legitimacy of the process and its separation (autonomy) from the municipal and international law systems which are referenced in its substantive rules. (195) A fully developed and autonomous system of dispute resolution contributes greatly to the autonomy of rule systems. ?To the extent that states discharge their responsibility by taking the difficult political decisions which are needed to formulate new legal principles, they strengthen the process of adjudication by providing courts and tribunals with a legitimate basis for their decisions.?(196) The two cases point to the development of this autonomy, especially in the freedom with which the National Contact Points sought to develop their own rules for burdens of proof, sufficiency of evidence, applicability of the rules, and issues of mootness are illustrative.

Both the Afrimex and DAS Air panels considered the effects of instances of rule violation that occurred before the adoption of the MNE Guidelines in the current form. (197) Both reached the same conclusion, reasonable in the context of English jurisprudence, that only those actions that occurred after the adoption of the rules would be the subject of consideration. But the panels did not disregard prior conduct completely. Instead they determined that such conduct was pertinent in considering the behavior of the entities. The distinction, thus, made little difference in the proceedings. For all practical effects, prior conduct was dispositive in both cases, though they were not the direct subjects of the complaints. This procedural rule might well be in accord with the rules recognizable in English courts. But the panels did not stop long enough to consider that issue. Instead, they made their determination on the basis of their consideration of the objectives, principles and context of the MNE Guidelines themselves?without reference to the law of the state in which they sat. The fig leaf over this determination, of course, was that the proceedings had no formal legal effect. But they did have substantive effect that in some respects mimicked proceedings before a state tribunal. In that context, assertion of a power to determine the effects of evidentiary facts is strong evidence of the autonomy of the rule system grounded in the MNE Guidelines.

The National Contact Point panels asserted a similar autonomy in constructing rules of burdens of proof without reference to those either of the establishing institution (the OECD) or the home or host state. Thus, for example, in Afrimex, the National Contact Points panel suggested that Afrimex had the burden of proving that its minerals were not sourced from mines that used child or forced labor rather than the complainant, Global Witness, bearing the burden of proving that they were sourced from such operations. (198) There was no basis for this determination other than the principles inherent in the MNE Guidelines framework, perhaps. In DAS Air, the panel determined that the failure of DAS Air to respond, principally because the company was being liquidated, would not affect the evidentiary determinations, or better, might be read against them, was also made without reference to procedural rules outside of those constructed by the panel. (199)

This is not meant as a criticism of the procedural choices of the panels, but rather as a suggestion that the freedom of those panels to choose the procedural rules under which their consideration of the complaints would proceed suggest an autonomy that begins to more clearly establish the autonomy of the normative systems within which these entities were judged. And it was clear that procedural autonomy was on the minds of the panel. This is nicely illustrated by those instances in which the panel was quite sensitive to the applicability of the host state process rules in arriving at their own determinations. For example, in DAS Air, the panel gave greater weight to evidence offered by RAID produced by the Ugandan Porter Commission because it ?gathered extensive documentation. It worked only with sworn evidence given in public. The Commission adhered to the Evidence Act in its proceedings.?(200) But an international imprimatur was important as well.(201) On the other hand, in the Afrimex complaint, the National Contact Point was satisfied to judge the credibility of evidence produced through a Belgian NGO by the receipt of assurances from the Belgian National Contact Point ?who confirmed the credibility of the organization and its work.?(202) Contrast the same panel?s consideration of the issue of mootness.(203) This was striking in the DAS Air panel statement, with respect to the basis for the panel determination in which the panel determined to give no effect to the liquidation of the entity in proceeding with the complaint.(204)

V. CONCLUSION.

?If a proper balance is to be achieved, the law must continue to develop to reflect the reality of TNC operations and adapt to counter TNC methods of avoiding legal responsibility.?(205) The idea of state intervention in transnational private activity, and the understanding of private economic activity as laced with public policy ramifications, and burdens, has been growing as the economic crisis has deepened after 2005. Indeed, in early 2009, the G-7 ministers declared an intention to work toward ?setting up a set of common principles on integrity, transparency and propriety in global financial and business transactions.?(206)
Though there are great differences between political camps--all agree that the state--that is the collective holders of political power, have a duty to intervene directly, and in a coercive manner, in the markets. That intervention is necessary because the effects of market collapse are no longer merely social and economic but political as well. Financial sector collapse would result in political instability. In that context intervention is necessary for the state to protect itself--even if it had no interest in protecting economic and social actors. (207)

The OECDs soft law initiatives, and importantly its growing body of interpretive reviews of complaints through its National Contact Points, will likely be influential in developing these attempts to renew efforts at global harder governance of multinational corporations and other economic activity.(208) But the efforts will be uneven.(209) The OECD, itself, will be examining its own regulatory posture, taking advantage of the insights and opportunities presented by the global economic downturn. ?The OECD will be looking at existing legal instruments, guidelines and conventions in the coming months to see if they need to be improved or extended.?(210)

For all that, the output of quasi judicial and interpretive statements, like those of the U.K National Contact Point in the matters of DAS Air and Afrimex, will continue to contribute, incrementally, to the institutionalization of transnational systems of multinational regulation, systems that will have legal effect, whether to not this is law, classically understood. These cases continue an effective process of operationaliz

Full post as published by Law at the End of the Day on March 05, 2009 (boomark / email).