FDI in Indian economy

Holding transnational corporations accountable

Note4Students

From UPSC perspective, the following things are important :

Prelims level : BIT

Mains level : Paper 3- Using BITs to hold TNCs 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.

Holding TNCs accountable: Background

  • The 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.
  • Role of BITs: Aim was to use international law to institutionalise the forces of economic globalisation, leading to the spread of BITs.
  • Asymmetry in BITs: These treaties promised protection to foreign investors under international law by bestowing rights on them and imposing obligations on states.
  • This structural asymmetry in BITs, which confer rights on foreign investors but impose no obligations, relegated the demand for investor accountability.
  • 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.
  • The latest UN report is a step in that direction.

UN report on human rights-compatible international investment agreements

  • 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.
  • It urges states to ensure that their bilateral investment treaties (BITs) are compatible with international human rights obligations.
  • It emphasises investor obligations at the international level i.e., the accountability of TNCs in international law.

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.
  • Impose positive binding obligations: 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.
  • The Nigeria-Morocco BIT, which imposes binding obligations on foreign investors such as conducting an environmental impact assessment of their investment, is a good example.

Consider the question ” Ensuring that the bilateral investment treaties (BITs) are compatible with international human rights obligations in the need of the hour. In light of this, assess the progress made globally on this issue and suggest way forward for India in framing its BITs.”

Conclusion

Reforms would help in harnessing BITs to ensure the answerability of foreign investors and creating a binding international legal framework to hold TNCs to account.

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