The OECD Guidelines on Multinational Enterprises: One tool of Corporate Social Accountability

John Evans, General Secretary,
TUAC

Labour rights and Foreign direct investment - a paradox?

The current wave of globalisation and in particular the role of foreign investment as one of the main motors of this has reopened the policy debate about the international rights and obligations of multinational enterprises. There is a strange paradox in the evidence and international debate about the impact of foreign investment on labour rights and "decent work". Surveys on foreign investors' intentions suggest that, in most sectors, market access, good governance, skills and education levels are more important in attracting investment than low wages or submissive workers. Yet rather than improving living and working conditions, the race to attract foreign investment often appears to pressure governments into reducing workers' rights to minimise labour costs.

The most brutal examples are often in export-processing zones (EPZ's) where semi manufactured or raw materials are processed into goods for export by foreign companies, outside the normal laws and regulations of the host country. They may operate very differently in different parts of the world, but EPZ's tend to have one over-riding characteristic in common: trades unions are tolerated in few, if any, of them. This is disturbing. An update in 2000 to an OECD report on trade and labour standards noted that the number of export processing zones worldwide had risen from some 500 in 1996 to about 850, not counting China's special economic zones. EPZ's have become common place in many parts of Asia and Central America and are now spreading to Africa as development model. Multinational companies may also simply decide to switch country, or at least threaten to do so, when faced with labour dissatisfaction or the prospect of a cheaper labour market, and this in good as well as in hard times. This risk increases the imbalance of relative power of unions and employers in the labour market.

The trade union response to foreign investment must be to ensure that, in terms of labour conditions, it is a "race to the top" rather than a "race to the bottom" between multinational companies. To achieve this we have to take a strategic view of the use of a range of different tools of corporate social responsibility and accountability whose relevance will vary in different circumstances. We also have to achieve synergy between the different instruments.

The OECD Guidelines -one element of a response

At the level of TUAC in close cooperation with our global union partners, the International Confederation of Free Trade Unions (ICFTU) and Global Union Federations as well as the WCL (World Confederation of Labour and the European Trade Union Confederation (ETUC), we are giving priority to maintain and encourage enforcement of the OECD Guidelines for Multinational Enterprises, revised and substantially developed by governments in consultation with labour unions, businesses and NGOs in 2000. The Guidelines are governmental recommendations for good corporate behaviour, primarily addressed to corporations based in countries that adhere to them but applying to their operations worldwide that covers 85% of total foreign direct investment.

The OECD Guidelines for Multinational Enterprises were first agreed upon in 1976 following public concern that multinational enterprises were becoming too powerful and unaccountable in the light of the role of some US based companies in the Pinochet Coup d'Etat that overthrew the Allende government in Chile. They were rapidly followed by the ILO (International Labour Organisation) Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy and negotiations opened at the UN in New York to establish a UN Code on Transnational Corporations. The UN Code did not survive the political shift to deregulation in the 1980's and the OECD Guidelines themselves fell into partial disuse as most OECD governments showed little political will to enforce them.

The collapse of negotiations on the Multilateral Agreement on Investment at the OECD in 1999 and the appearance of company codes and other initiatives of corporate social responsibility in the late 1990s led to a swing back in the political climate on company responsibility and opened the way for a substantial revision of the Guidelines and in particular their implementation procedures in 2000. The revision was concluded in June 2000 and resulted in major changes such as the strengthening of the implementation procedures, clarifying their global applicability, the coverage of all core labour standards, and their extension to suppliers and sub-contractors.

The Guidelines are recommendations for good corporate practice primarily addressed to enterprises based in those countries that adhere to them. These include the 30 OECD countries (Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, the United States, Japan, Finland, Australia, New Zealand, Mexico, the Czech Republic, Hungary, Poland, Korea and the Slovak Republic), plus Argentina, Brazil, Chile, Estonia, Israel, Lithuania and Slovenia. But the Guidelines also apply to any OECD based company's operations worldwide. More countries are now in the process of adhering to them.

The Guidelines are comprehensive with chapters covering: general policies, disclosure of information, employment and industrial relations, environment, combating bribery, consumer interests, science and technology, competition and taxation.

Implementation

They may not be binding in a legal sense at the international level, but they are not optional for corporations either. If companies could simply pick and choose among the provisions of the guidelines or subject them to their own interpretations, then they would have no value. Their application does not depend on endorsement by companies. They are the only multilaterally endorsed and comprehensive rules that governments have negotiated in which they commit themselves to help solve problems arising with corporations. Most importantly, the ultimate responsibility for enforcement lies with governments. The key therefore is implementation.

Every adhering government has to set up a National Contact Point (NCP) for promotion and implementation. Some involve a single government agency, while others are multi-agency (involving several ministries). Some are tripartite (government, labour and business), e.g. in France, Belgium and Sweden, but governments are ultimately responsible. Representatives of labour, business and NGOs must be informed of the availability of the NCP. It is also expected to develop and maintain relations with these groups.

When a company is believed to be in violation of the Guidelines, a trade union, a NGO or another interested party can raise the case with the NCP. 25 cases have been raised by trade unions since the review, and a further half dozen have been raised by NGO's. So far only a handful of cases have been settled. A majority of the cases refer to corporate conduct in non-adhering countries and/or violation of trade union rights. Another common issue is the closure or transfers of companies or parts of companies.

2000-2003 -an assessment

TUAC conducted a survey of our affiliates and Global Union Federations to evaluate the impact in the two years since their revision. On the basis of this we made some tentative assessment of how they are functioning in practice and what could be done to improve their implementation.

The results of the survey are mixed. There have been some positive developments and improvements in the functioning of NCPs. This includes the establishment of NCPs in Chile, Estonia, Lithuania and Slovenia, and the successful handling of cases by the Czech NCP. But there are also problems in several countries. The central problem is that probably still less than half of the signatories of the OECD Guidelines have National Contact Points which are really functioning. Though an improvement on the situation before 2000, we have still not arrived at a critical mass of governments who take their responsibilities seriously.

How NCPs respond to these cases is crucial. Although NCPs need to take some time to establish procedures to deal with the cases, it generally takes too long for them to actually respond. The "worst" case in this respect is the United States where five cases have been raised by trade unions in the US NCP, of which not a single one has led to conclusions. It could be difficult to agree on a time frame, but CIME (the OECD committee responsible for the Guidelines) should give guidance on this. TUAC is concerned that some NCPs are not making a serious effort to deal with the cases raised quickly enough.

Four of the cases have so far led to conclusions by NCPs. They concern Siemens, Bosch, Marks and Spencer and French companies' operations in Burma. Siemens was raised by the Czech trade union confederation CMKOS with the Czech NCP as the company prevented the workers from establishing a trade union. The case was settled after the company agreed to negotiate and take part in a social dialogue. One reason for the good outcome, according to the CMKOS, was the fact that it was raised in the NCP. The case also got some attention in the press, which helped reach a solution. Some others have been withdrawn following satisfactory outcomes.

Another problem is that the guidelines are relatively unknown, compared with some other instruments, such as UN Global Compact. To combat this TUAC has organised a project to raise awareness among trade unions, including the publication of a User's Guide for trade unionists that is now available in fourteen languages. With our partners we are running workshops and seminars on the guidelines, particularly in non-OECD countries. In 2003, with the support of the European Union and the Friedrich Ebert Foundation, we are organising workshops in Central America, North and Southern Africa and Asia. The Asian and Pacific Region of the ICFTU is also organising a series of workshops in Asia. Overall, however, we feel governments must do much more.

The 2003 G8 Evian summit has, as one of its themes, "responsibility" and TUAC has called on the OECD and OECD governments to put in place a programme to improve the effectiveness of the Guidelines so as to:

• Ensure that all NCPs are operating and meet the standards of the best performers;
• Set targets on efforts to promote the Guidelines;
• Raise awareness of the Guidelines, both in the OECD so that the Guidelines are included in relevant meetings and activities, but also in other relevant intergovernmental fora;
• Establish an outreach programme with non-members on the Guidelines including regional meetings/seminars to raise awareness of the Guidelines;
• Review the experience with particular chapters of the Guidelines and,
• Provide guidance on the time frame for dealing with cases.

Linking government support to Guidelines observance

Governments also need to do more to link government support to observance of the Guidelines. No government has yet made observance a condition for the receipt of public subsidies, although some are going in this direction. It would be a powerful stimulus to Guidelines observance. Dutch companies have to state that they comply in order to receive export credits guarantees. French enterprises have to sign a letter saying that they are aware of the Guidelines. Furthermore, trade unions in the Czech Republic, Finland and Sweden have noted that discussions with their governments on linkages with credits are still ongoing.

There are also other areas where a linkage should be developed. References to the Guidelines should be made in bilateral investment treaties between adhering and non-adhering countries. This would make non-adhering countries aware of the expectations multinational enterprises are facing. In addition, the European Union has a number of instruments operating under the direction of the European Commission that the Guidelines could be associated or linked to, so as to create conditionality or leverage on European based multinationals. Trade unions have requested the Commission to audit these mechanisms as a first step towards this goal.

The link to Global Framework Agreements

There are other instruments in an evolving "tool-box" that the global union movement can use to counteract the social downside of globalisation. They include work by the global union federations to develop collective bargaining relationships with companies at an international level. Some 20 global framework agreements have been concluded, most in the last two years, between the federations and companies in sectors such as mining, chemicals, food, forestry, services and automobiles. The Guidelines could become a benchmark alongside ILO standards in these agreements.

Some trade unions are using the Guidelines in a broader context of corporate social accountability. They have been used in connection with shareholder resolutions in Canada and the US. The Lithuanian Trade Union Confederation is using the Guidelines in their discussions with multinational enterprises and in collective bargaining. The Finnish trade union confederation SAK is planning to raise the Guidelines in European Works Councils in Finnish-based companies. The Guidelines have been used as criteria for studies on multinational enterprises operating in Brazil carried out by the Social Observatory. LO (Danish Confederation of Trade Unions) has let the Guidelines form the basis for some discussions on corporate social accountability. TUAC is also part of a joint Global Unions Committee reviewing the social performance of enterprises in which workers' pension and saving funds are invested and beginning to train union trustees.

Conclusion

The Guidelines are not an alternative to effective legal regulation of companies, workers' capital strategies or the negotiation of collective agreements, but they can be an important complement. In the end, their effectiveness depends on governments and if they will make sure that they have properly functioning NCPs. The Guidelines can be an effective instrument if governments take their responsibilities seriously. But trade unions and NGOs must also take their responsibilities and make use of them. For labour perhaps the greatest danger is not globalisation itself; it is rather to argue policy paralysis as a result of it. Some of the tools to prevent this paralysis are there - the union movement to make sure it uses them effectively, but governments cannot absolve themselves from their own ultimate responsibility for managing markets globally.

For further information about the Guidelines and how to raise cases, consult the TUAC Users' Guide on TUAC website (www.tuac.org). It is available in fourteen languages including: English, French, Spanish, Italian, Portuguese, Hungarian, Russian, Korean, Czech, Latvian and Estonian, Thai and Indonesian.

For more information, please contact:

Trade Union Advisory Committee to the OECD

tuac@tuac.org

+33 1 55373737

www.tuac.org