Corporate Lobbies Seek to Expand Binding Treaty’s Scope to “All Business Enterprises” – Why It’s Problematic
The Global Campaign to Reclaim People’s Sovereignty, Dismantle Corporate Power, and Stop Impunity (also known as the Global Campaign) has published a paper on the efforts by corporate lobbies to expand the scope of the future Legally Binding Instrument (LBI) on Transnational Corporations and Human Rights.
The paper argues that the proposed expansion to include “all businesses”—including state-run enterprises without a transnational character—would severely undermine the future instrument’s effectiveness, allowing transnational corporations (TNCs) to deflect their responsibilities and evade cross-border liabilities. It should come as no surprise that the primary actors pushing for this scope expansion are corporate sectors, governments from the Global North, and some countries in the Global South that align with the Global North’s positions.
It is important to note that UN Resolution 26/9, adopted by the UN Human Rights Council in 2014, called for the “elaboration of an international legally binding instrument on transnational corporations and other business enterprises with respect to human rights.” It mandated the establishment of an Open-Ended Intergovernmental Working Group, tasked with meeting annually to draft a proposal.
The reference to “other business enterprises” in Resolution 26/9 is clarified in a footnote, which defines these enterprises as those with a transnational character in their operational activities, excluding local businesses registered under relevant domestic law. Thus, “other business enterprises” refers to those components of TNC-controlled global value and production chains, specifically excluding businesses that operate exclusively within national borders and are not part of these chains.
However, much to the frustration of governments in the Global South, in 2019, the Chair of the Intergovernmental Working Group presented a revised draft of the treaty, unexpectedly and arbitrarily extending its scope to include all business enterprises—State-owned enterprises (SOEs) and small and medium-sized enterprises (SMEs) that lack transnational characteristics or cross-border activities. In March 2023, the Chair even attempted to halt all discussions, once again disregarding the democratic nature of the process.
Why Would Expanding the Scope Be a Problem?
The position paper argues that broadening the scope of the legally binding instrument to encompass “all business enterprises” or “all companies and all business activities” is a key strategy employed by corporate lobbies to avoid liability for human rights violations.
This expansion allows corporations to execute a dual strategy:
- The future instrument would not focus on cross-border liability, weakening its provisions and allowing for the regulation of all types of corporate structures, including those that are not transnational.
- Liability would continue to be pushed down to the smaller, weaker links in the global value and production chains, typically SMEs or local enterprises.
Ironically, these same actors advocating for the scope expansion are often the ones arguing against similar regulations at the national or regional levels.
By equating transnational corporations with entities that do not have a transnational character—such as domestic SMEs or state-owned enterprises operating solely within their national borders—the implementation of the instrument would face significant technical challenges. Obligations, guidelines, and enforcement mechanisms would be rendered ineffective if they were applied to millions of companies worldwide, from TNCs to SMEs and even local peasant cooperatives.
It’s important to clarify that these arguments do not suggest that SMEs or state-owned enterprises operating exclusively domestically can violate human rights with impunity. When violations occur within the domestic activities of such enterprises (i.e., those not part of a TNC’s value chain), they should be addressed under domestic legislation. States have the authority to regulate companies operating solely within their territory, while TNCs exploit their complex structures to evade national regulations.
TNCs are operating on an increasingly decentralized and fragmented scale, with global value and production chains spread across multiple countries. It is estimated that 80% of international trade occurs within these chains, known as “de-territorialization.” This process represents a significant challenge to global governance, as the economic systems are increasingly fragmented and controlled by TNCs. Moreover, these global chains are often not transparent, and business relationships are difficult to trace.
Parent companies and holdings are generally based in “developed countries.” When violations occur in “developing countries” along the global value chains, these companies often manage to avoid national legal systems. Bilateral agreements, weak regulatory frameworks, lack of transparency, and the absence of resources (e.g., legal representation, financial support) for affected communities make it difficult for those impacted to seek justice through domestic courts.TNCs do not function as a single legal entity. Their structures are highly complex, with multiple subsidiaries and contractors registered in various jurisdictions across the world.
Domestic legal systems, in general, are not equipped to address these transnational issues, and there are currently no international mechanisms specifically designed to handle legal claims or enforce judgments concerning corporate activities in third-party countries. This is why social movements have called for a specific, legally binding instrument that can address human rights violations perpetrated by TNCs.
Through strategic lobbying and manipulation, corporate interests are attempting to derail this process. The push to expand the scope of the instrument is one such tactic to overwhelm and undermine the effectiveness of this future instrument.
This article is excerpted from the paper itself. However, for a full understanding of the issue, we strongly recommend that you read the full version.