Memorandum submitted by Amnesty International
UK
Introduction
1. Amnesty International welcomes the International
Development Committee's inquiry on Private Sector Development
(PSD). We share the presumption behind the inquiry that PSD requires
a changed perspective and practice in what donors are already
doing. We also support the implication that there are aspects
of business operations in developing countries that donors traditionally
have little experience of.
2. Our submission addresses two issues, both
of which have considerable influence on the impacts of Foreign
Direct Investment (FDI) in developing countries.
3. The first issue is that of Host Government
Agreements. This relates to the legal vehicle adopted by governments
to create "a favourable investment climate" and by companies
to ensure the stability of their investment. This vehicle, in
the form of a private investment agreement, has far-reaching implications
for the ability of states hosting the investment to respect and
protect human rights in furtherance of international treaties
of which they are signatories. While Amnesty International acknowledges
that governments and investing companies need to address the issue
of how to create a stable environment for business, we believe
that any measures taken should not increase the risk to human
rights of individuals and communities in the host state.
4. The second issue is that of regulatory
mechanisms to hold companies accountable. This relates to
the need for donor governments to promote mechanisms to effectively
tackle the adverse impacts of companies on human rights, especially
in situations where the host government is unwilling or unable
to take administrative and regulatory measures to hold companies
accountable, or when individuals damaged by the operations of
companies are unable to obtain an effective remedy in the country
where the damage occurs.
Host Government Agreements: the need to create
a favourable investment climate without compromising human rights
Background
5. Since the beginning
of 2003, Amnesty International has been looking into the private
investment agreements that companies sign with host states with
poor human rights records. These contracts can be known by various
names, including host government agreements, transnational investment
agreements, concession agreements or state-investor agreements.
They create the legal framework that structures relationships
between the investing company, the host state and affected communities
throughout the lifetime of the project.
6. Amnesty International
has published two reports on the risks to human rights posed by
the state-investor agreements underpinning FDI projects. The first
report, Human rights on the line: The Baku-Tbilisi-Ceyhan Pipeline
Project, was published in May 2003. The second report, Contracting
out of human rights: The Chad-Cameroon pipeline project, was
published in September 2005. Both reports are attached.
7. The main findings of these two reports are
that human rights are placed at risk by certain aspects of the
legal structure of the investment agreements underpinning these
projects, in particular a)"stabilisation-of-law" clauses;
and b) international arbitration provisions.
8. Stabilisation-of-law clauses and international
arbitration provisions are viewed by companies, lenders and governments
as acceptable means of creating a "favourable investment
climate". It is not Amnesty International's position that
stabilisation-of-law clauses and international arbitration provisions
should be eliminated. However, the challenge Amnesty poses to
companies, lenders and the UK government is to approach the need
for "a favourable investment climate" for investors
in a manner that is consistent with encouraging improvements in
good governance, protecting human rights and the international
human rights legal framework.
a) Stabilisation clauses
9. Legal agreements underpinning FDI projects
in poor countries with poor human rights records usually include
stabilisation-of-law clauses. These clauses are commonly viewed
as giving extra protection from political risk to investing companies.
However, Amnesty International is concerned that stabilisation-of-law
clauses undermine the international human rights framework and
provide disincentives to improvements in good governance and human
rights protections.
10. Stabilisation-of-law clauses generally provide
a restriction on the applicability of new law or regulations to
FDI projects. They also provide for compensation to be paid to
investing companies by the host state if new laws or regulations
are applied and impose direct or indirect costs on the FDI project.
11. States are bound under international human
rights law as defined in international and regional treaties they
ratify, by customary international law and by general principles
of international law. States are obligated under international
law to promote, protect and fulfil human rights by:
- Refraining from interfering directly or indirectly
with the enjoyment of a right;
- Taking measures to prevent third parties, including
companies, from interfering with the right in question; and
- Adopting appropriate legislative, administrative,
budgetary, judicial, promotional and other measures towards the
full realisation of rights.
12. The stabilisation-of-law clauses create risks
to human rights protection by:
- Limiting state power to impose environmental,
labour, health, safety and other standards on FDI projects;
- Placing a price tag on human rights protection
for the host state; and
- Undermining the ability of host state authorities
to hold the private company accountable in domestic law for breaches
of standards or involvement in abuses of rights.
Therefore, the ability and willingness of states
to fulfil their duties under international law in the context
of FDI projects are compromised by stabilisation-of-law clauses.
13. Limiting state power to impose environmental,
labour, health, safety and other human rights standards. Amnesty
International's research has found that the state-investor agreements
in both the Baku-Tbilisi-Ceyhan pipeline project and the Chad-Cameroon
pipeline project freeze the application of new regulation or standards
to the FDI project even when these are imposed by the host government
in an effort to fulfil its international human rights obligations.
14. Placing a price tag on human rights. Amnesty
International's research has found that the stabilisation-of-law
clauses obligate host states to compensate companies, in the context
of FDI projects, for any regulation that directly or indirectly
creates costs for the project or reduces revenue streams. These
clauses therefore impose a price tag on human rights protection
because the host state has to pay the company even when the regulation
imposed is for the purpose of protecting human rights such as
labour rights, the right to health and a healthy environment or
the like. In effect, especially for poor states, these financial
penalties can have a chilling effect on a state's willingness
to regulate the company's behaviour under circumstances where
it has a duty to do so under international law.
b) International arbitration
15. International arbitration clauses, along
with stabilisation-of-law clauses, lessen the host state's authority
to use domestic law to protect rights. Amnesty International's
research has found that the common practice in FDI projects is
to use international arbitration as the sole venue for resolving
disputes in the context of these projects. We are concerned that
the international arbitration provisions, along with the stabilisation-of-law
clauses, have the effect of largely eliminating domestic legal
accountability for the private investor for failures to live up
to contractual standards. Domestic agencies and authorities are
unable to impose new regulations on companies without risking
international arbitration claims for compensation. In effect,
international arbitrators are put in the position of determining
under what circumstances host states are able to take legislative
and administrative actions to protect rights.
Recommendation:
16. In this context, Amnesty International
calls on donor states to take steps to minimise the adverse impacts
on human rights of the extra-territorial operations of their transnational
corporations. The UK Government should require companies listed
in the UK, as well as the UK Export Credits Guarantee Agency,
to ensure that their investment policies and practices are consistent
with the host government's obligations to respect and protect
human rights. This requirement should be applied, inter alia,
to the framework of investment contracts underpinning an FDI project.
Better regulation to effectively tackle the adverse
impacts of companies on human rights
a) The need for National and International regulation
17. Amnesty International recognises that
national law remains the most important means of ensuring legal
accountability in relation to companies' impacts. We also take
the view on the basis of our research, that systems of regulation
are inadequate in many countries, either because the legal framework
itself is weak, or because there is an absence of effective enforcement
mechanisms. Many national governments, especially those of developing
countries, are unwilling, constrained (eg. by lack of resources
or by investment agreements as outlined above) or simply unable
to hold companies operating in their country accountable for their
adverse impacts.
Recommendation:
18. Amnesty International believes that the UK
government should promote an international human rights framework
that can be applied to companies directly, acting as a catalyst
for national legal reform and serving as a benchmark for national
law and regulations. We view the UN Norms on the Responsibilities
of Transnational Corporations and Other Business Enterprises with
Regard to Human Rights as the most credible attempt yet to establish
a set of global human rights standards that will be applicable
to companies wherever they operate.
b) Appraising the effectiveness of voluntary initiatives
19. Amnesty International's participation
in voluntary initiatives such as the UN Global Compact, and the
Voluntary Principles on Security and Human Rights (for the extractive
sector) has led us to believe that it takes many years for commitments
from companies to be reflected in changes in policy and practice.
There is huge variation between companies in their capacity and
will to operationalise standards that they subscribe to. In our
view, the UK Government places too much emphasis on initiatives
that do not have any obvious effect in improving the human rights
impacts of business in developing countries. We would like to
see the UK Government combine its role in encouraging and stimulating
corporate social responsibility with action to address the adverse
impacts of companies; i.e. a 'carrot and stick' approach.
Recommendation:
20. Amnesty International believes that the UK
government should critically appraise such voluntary commitments
on the part of business and not use them as a justification for
opposing regulatory frameworks to hold companies to account for
their behaviour.
c) Improving the OECD Guidelines implementation mechanism
21. The OECD Guidelines for Multinational
Enterprises have been referred to by the UK government in its
international strategic framework for CSR, issued in March 2005,
as a benchmark for its expectations of corporate conduct. Amnesty
International is concerned about the effectiveness of the Guidelines
and has questioned the government's commitment to make them work
in a joint study with Christian Aid and Friends of the Earth published
in January 2006 ('Flagship or failure'). While the Guidelines
are often cited as an integral part of the UK government's policy
towards CSR, it appears to exercise careful control over their
application, unwilling to declare companies in breach of the Guidelines
and lacking the political will to implement them effectively.
A main focus of the NGO study is on the failings of the mechanism
for handling complaints known as the National Contact Point.
Recommendation:
22. Amnesty International
believes that the UK government should strengthen the OECD Guidelines
National Contact Point's complaints process by, inter alia:
- ensuring that adequate expertise is available
to undertake thorough investigations into alleged breaches of
the OECD Guidelines, including, where appropriate fact-finding
missions.
- declaring companies in breach of the Guidelines
in cases where breaches have occurred.
February 2006
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