December 1999


The note has been prepared by the TUAC Secretariat and is in two parts. Part one puts the Guidelines in a historic context, describing the various phases of government activity as regards international investment, and the usefulness of the instrument to trade unions since their inception in 1976. Part two is an up-date on the current Guidelines Review, putting emphasis on those areas where further movement may be expected, and where further pressure from affiliates with their governments could yield results.

I. Background Information on the OECD Guidelines for Multinational Enterprises

What lay behind the decision to implement standards for MNE’s behaviour? Since the early 1970’s government attitudes towards MNE’s have followed three distinct phases. The first period that could be termed the ‘activist’ phase began in the early 1970’s as a response to political interference by home country MNE’s in the domestic affairs of host countries: most visibly where a US based multinational was involved in the coup d’état in Chile. Work began at the UN to develop a binding code of practice for MNE’s. In recognition of the political difficulties in developing a binding code, parallel work began at the OECD and ILO to develop other non-binding instruments. This led in 1976 to the adoption of the broad based OECD Guidelines for Multinational Enterprises, and in 1997 to the ILO Tripartite Declaration on Multinationals and Social Policy, that focussed on employment related issues (that instrument was expected to become the labour component of the binding UN code). As will be highlighted below the Guidelines were a useful tool for trade unions in this period. TUAC raised some 25 cases for clarification between 1978 and 1986.

In response to the economic shocks of the late 1970’s and early 1980’s government policy interest toward international investment and investors moved away from regulation to incentives and inter-governmental competition to attract investment, and later in the 1990’s with its protection through for example Bilateral Investment Treaties (BITs). This led to the halt of UN work on a binding code in 1982, while from the mid 1980’s to the mid 1990’s the Guidelines and the ILO Tripartite Declaration fell into disuse, despite TUAC and ICFTU pressure. The high point of multilateral investment liberalisation was reached in 1995 when the OECD launched its ultimately doomed efforts to negotiate the Multilateral Agreement on Investment. 

Governments’ current policy responses could best be described as mixed. They are unsure how best to respond to the public backlash against globalisation, in part generated by renewed concerns at the unregulated power of multinationals. The current wave of globalisation has fundamentally changed the power relations between MNEs, their workers, suppliers, and importantly - governments. The MNE of the 1970s was typically manufacturing based, with an “octopus” type structure with a head office in an OECD country, and affiliates in other developed and developing countries. 

Today, the typical MNE is just as likely to be service as manufacturing based with suppliers rather than subsidiary plants. In many cases their huge size, dwarfing the national income of some of the countries in which they operate gives owners and managers unprecedented bargaining power over other stakeholders. That has been compounded by investment liberalisation, falling transport costs and technological advances in production and communication methods, that confers a mobility never before witnessed. 

Thus, workers across and within countries may be played off against each other to lower wages, terms and conditions. Suppliers may be played off against each other to produce lower input costs, or to bear the inventory costs of ‘just in time’ production. Governments may also be played off against each other. While market access may well be the determining factor in an enterprises location decision, the bargaining power outlined above allows management to take a regional approach. Intra-regional beauty contests can be held between governments to bid up fiscal incentives over, for example, development, or R+D grants, the provision of infrastructure, training for workers, etc. Or to bid down labour and environmental standards, and at the macro level taxation such as capital gains tax. Not every enterprise has or will take advantage of the new found bargaining power, but enough have to generate the backlash in so many countries, and over so many issues. That is the challenge facing policy makers, and to tilt the confused response toward workable policy action to fill the regulatory void generated by a decade and a half of policy inaction.

Towards MNE Re-Regulation: Filling the Tool-Box

There are currently several strands of thought on how best to respond to the challenges raised by foreign direct investment (FDI) and the activities of MNEs. The first option is the “do nothing” approach, whereby the role of policy is to better explain the benefits that will accrue from further liberalisation. The second option is based on the idea that direct action can somehow ‘stop the world’, by for example shutting down the WTO and the IMF, etc. Governments would retreat behind national borders and protectionism, which would in effect close economies from the undoubted benefits that FDI can bring. The third approach is that governments should develop and then implement at the national level a binding UN Convention on global governance. The fourth approach is to build on and strengthen the existing mechanisms governing FDI, while pushing for new and workable solutions in the existing multilateral institutions. This tool-box approach looks to the development of a range of hard and soft measures to govern FDI, with differing speed limits around the implementation of each measure.

For trade unions options one and two would be foolish. The third option while superficially attractive ignores the problem of getting all governments to implement through changes to their national laws the provisions of a global governance Convention: it is therefore a long-term goal. In the meantime, efforts should be targeted toward option four. 

Based on current experience short-term government responses are likely to mirror, but lag behind this strategy, and be piece meal and ad-hoc. Thus, immediate progress could be made to strengthen existing inter-governmental MNE related instruments such as the Guidelines with parallel work to negotiate where appropriate private sector codes of conduct as a complement, but not a substitute to the former. Simultaneously, pressure should be brought to introduce medium-term hard measures, for example to operationalise labour standards at the WTO through a workers rights clause; to protect “whistleblowers” through the OECD Convention on Combating Bribery; and to introduce labour standards conditionality for Export Credit Guarantees. The Review of the OECD Guidelines falls into the former category. 

The briefing note next discusses key questions about the Guidelines. 

What are the OECD Guidelines for Multinational Enterprises? The Guidelines are government agreed recommendations covering a wide range of business operations that MNE’s should observe. They are a central pillar of the 1976 OECD Declaration on International Investment and Multinational Enterprises, along with non-binding instruments covering National Treatment, Conflicting Requirements and International Investment Incentives and Disincentives. When agreed the follow-up provisions allowed for periodic Reviews of the contents of the Guidelines. Previous Reviews were held in 1979, 1982, 1984 and 1991. Few textual amendments have been made, except to include the environment chapter (1991). Implementation procedures were tightened by the 1979 Decision to oblige all OECD Member governments to set up National Contact Points (NCPs) to deal with Guidelines related matters. The operation of the NCPs was Reviewed in 1996, but with no substantive changes being made.

Are the Guidelines restricted in their coverage to OECD countries? There is some ambiguity about this as the current text is inconsistent. On the one hand paragraph 3 of the Introduction provides that “international co-operation in this field should extend to all states”, whereas there are references in other parts of the text to “the countries in which they operate”. On the other hand paragraph 6 of the Introduction specifies that “the Guidelines set out below are recommendations jointly addressed by Member countries to multinationals operating in their territories”. The following section will develop this issue in the context of the Review. The TUAC view is that the Guidelines do in fact extend beyond the OECD, and that the Review should simply clear up the ambiguity, while addressing the issues of how to involve actors from non-OECD countries in the implementation procedures, which is a political and technical challenge, rather than a barrier.

What is the legal status of the Guidelines? There is much confusion around this issue. Whilst the Guidelines are not a legally enforceable instrument, neither are they a voluntary one, in that MNEs can choose whether they should/should not adhere to their provisions. Rather they should be seen as a non-binding instrument, which nevertheless has moral force. For example, paragraph 6 of the Introduction to the Guidelines states: “The Guidelines set out below are recommendations jointly addressed by Member countries to multinational enterprises operating in their territories.” From this the Guidelines are not legally enforceable on enterprises in a court of law, but there is an obligation on governments through the agreed follow-up process, to ensure that MNEs abide by  the provisions. 

When governments agree a “Declaration” as OECD Members did in 1976 with the Guidelines, its contents become agreed policy, and as such cannot be contested, except though the periodic Reviews. Moreover, governments therefore have a moral duty, if not legal obligation, to ensure that MNEs adhere to the provisions of the Guidelines. The key issue then is one of political will to use the NCPs and CIME procedures to give effective weight to the implementation of the Guidelines.

Does that mean that the Guidelines are more than private sector codes of conduct? Yes. Private sector codes of conduct presently fall into the following categories: those unilaterally developed by enterprises themselves; and those developed or negotiated by a combination of companies/trade unions/NGOs (a minority). The former are for the most part public relations exercises. Some of the latter may over time prove their usefulness to trade unions in gaining collective bargaining rights for workers, especially in developing countries. But due to their infancy the jury is out. Both types however share common characteristics: they remain the property of those that develop them. In contrast the Guidelines are the property of all the OECD governments that were/are parties to the negotiations over their provisions. That distinction also applies to the monitoring, implementation and verification procedures governing their contents. Where codes are concerned the responsibility for monitoring their implementation lies solely with the company concerned or a combination of the parties having agreed the code. Impartial external verification is rare, and where large accountancy firms are involved, the work is ad-hoc, unregulated, with no agreed standards of behaviour. With the Guidelines the ultimate responsibility for these issues lies with governments, and an agreed implementation and follow-up procedure. Within that trade unions have a formalised input, whether at the national level through the NCPs, or at the OECD level through the TUAC. 

What issues do the Guidelines cover? The Guidelines cover a broad spectrum of business activities with chapters on: general policies; disclosure of information; competition; financing; taxation; environmental protection (since 1991); science and technology; and employment and industrial relations. Where overlaps exist with the ILO Tripartite Declaration on Multinational Enterprises and Social Policy, the Guidelines are a parallel instrument and do not conflict with its provisions.

How are employment and industrial relations treated in the Guidelines? This chapter covers a mix of issues, including ILO Conventions 87 and 98 on freedom of association and rights to collective bargaining (but without explicit reference), and more normative recommendations on, for example, training and the use of unfair influence by management when engaged in negotiations. The full list of activities includes: trade union representation; the provision of assistance and information to workers representatives; the provision of information for a true and fair view of the enterprise as a whole; standards of employment relative to others in the host country; training of the local labour force; the provision of reasonable notice of operational changes in an enterprise; non-discrimination in employment practices; the barring of the use of undue influence during negotiations with trade unions and others; and the ability of trade unions and other to conduct negotiations with the level of management authorised to take decision.

Have the Guidelines been of use to trade unions? Yes. However, the usefulness has closely mirrored the three phases of government activity towards MNEs outlined above. So, between 1977 and 1988 twenty-nine trade union cases were raised under the Guidelines, either at the national-level or at the CIME. Activity then began to slow, and from the early 1990s onwards it became practically impossible to get the CIME to take the Guidelines seriously. The low point was reached with the 1993 Hoover case where one government spokesperson argued in the CIME that no reference could be made to the company name during the Committee meeting itself. 

Reflecting the changing times there has been movement of late. Reflected in the current Review of the Guidelines which is to be completed in the summer of 2000. 

II. The Status of the Current Review of the Guidelines

When was the current Review initiated, and will it differ from past Reviews? The OECD Committee (CIME) dealing with the Guidelines first discussed the timing of a Review in December 1997, agreed it in June 1998, and then launched it at a major conference in Budapest in November that year. Against the background of the failed MAI the CIME Chair emphasised the need for a meaningful Review that would focus on implementation procedures, in particular the NCPs along with textual revisions. The conclusions and recommendations are set to be presented for endorsement to the June 2000 meeting of the OECD Council of Ministers. 

To meet that deadline the CIME agreed in April 1999 a new mandate for the Working Party on the Guidelines, to be Chaired by Mr. Marinus Sikkel of the Netherlands. It was also agreed that experts from other international organisations be invited to attend the Working Party meetings when discussions were taking place on matters of mutual interest. Thus, representatives from the ILO participated in the September meeting to discuss proposed amendments to the chapter on Employment and Industrial Relations. In addition OECD Committees and staff from Directorates with expertise in particular fields have worked on draft text: for example the Employment, Labour and Social Affairs (ELSA) Committee have elaborated proposals on the employment chapter. At the national level many governments have actively discussed the Review with TUAC affiliates, while the Nordic NCPs recently met as a block with the social partners.

What has been the TUAC response? TUAC has welcomed the Review itself, the new emphasis on implementation, and the open and transparent way in which it’s being conducted. This constructive approach has included the setting up of a TUAC Email group with the Chair of the Guidelines Working Party. Formal consultations and informal discussions have been held with the Working Party and its Chair, and leading OECD countries. As noted, several governments have discussed the Review with affiliates.

Improved procedural aspects of the Review should not, however, be taken as a blanket endorsement by TUAC and its affiliates of whatever comes out of the Review. Trade union concerns over the ineffectiveness of the Guidelines would only be overcome by a strengthening of the implementation process, and not just textual revisions, however, useful.

Where does the Review stand in general? Most progress to date has been made to modernise the text. New drafts of all Guidelines’ chapters have been discussed, including a new chapter on Bribery and Corruption. Discussions have also taken place on formalising the extension of the instrument beyond OECD borders. It is expected that the December meeting of the Working Party will be presented with a consolidated text of all draft chapters. New ideas have been floated to revise the implementation process and attention will turn to this issue from December onwards.

What progress has been made to strengthen the implementation process? There is wide spread support for the idea that implementation procedures should be strengthened, but disagreement on how strong that should go. Thus, France and Belgium are thought to be at the strong end of the spectrum, with Australia, Japan, Korea, Mexico and New Zealand at the minimalist end, with a focus on promotion only. The bulk of governments appear at this stage to be reserving their positions. On the basis of documentation produced by the OECD Secretariat the following seems to be under active discussion.

At the national level NCPs should become more proactive, especially to promote the Guidelines and to encourage their observance. The idea of annual meeting and reports of NCPs looks to have been accepted, as has the idea of a Guidelines website, the inclusion of the instrument in promotional packages on countries’ FDI regimes, and ways in which to facilitate an NGO input into the Guidelines procedures. A proposal has been made that NCPs could make regular consultations with the social partners an integral part of annual meetings of the NCP. That goes some way, but not far enough, to meeting the TUAC proposal that NCPs should be encouraged to be tri-partite bodies. The TUAC proposal for the establishment of more general orientations for the operation of NCPs has yet to be adequately addressed. Affiliates should further promote these ideas in discussions with governments.

Much of the promotional effort is geared toward pushing MNEs themselves and business federations to endorse the Guidelines, for example, through registers of companies publicly stating their support for the instrument.

One new proposal is based on the development of a conciliation procedure for dealing with individual cases. Though uncertainty remains whether this would be at the national or CIME level, it merits attention and consideration by affiliates. As presently drafted, and in the event of a Guidelines related problem occurring at the national level, an interested party (perhaps a trade union) could invoke the conciliation process. Other parties to the process would be the company (perhaps NGOs – depending on the issue) and government. “The NCP or CIME/WPG would ‘host’ the meeting, but the question of representation, including outside expertise, as well as the meeting structure and agenda, would have to be agreed by interested parties.” No formal record of the proceedings would be published, unless agreed to by all parties, though participants would retain their right to express their own view publicly. 

The idea is to create a neutral tri-partite problem solving forum. The TUAC Secretariat has signalled a willingness to enter into further discussions around this. However, we have also stated that affiliates would require an element of “contestability” to be built into the system if it is seen to be not working. 

We would propose the following. Where a problem arose the conciliation process could be initiated. A two stage process could then happen. In the event that the conciliation process helped to resolve the problem then no further action would be required. In the event that conciliation failed to resolve the problem, then it could be referred upward to an ‘expert group’ at the CIME level, comprised of government experts, and representatives of TUAC and BIAC. Outside experts would be invited to participate, depending on the issues. So for example, the ILO could be involved on a labour related issue, or UNEP over the environment. The ‘expert group’ would have the right to pronounce its view on the issue as it related to the Guidelines, and make recommendations to resolve the problem. The mechanism would be flexible enough to accommodate NGO concerns through their participation where relevant.

TUAC would strongly urge affiliates to approach their governments to discuss the proposal.

The current OECD Secretariat paper on implementation procedures envisages retaining the present CIME clarification process, while regularising the Review process, with a formalised input from the social partners.

What textual revisions have been proposed? As noted the textual revisions have received most attention by governments, leading to the following developments.

Employment and Industrial Relations Chapter. Paragraph one now contains a reference to the provisions of all four ILO Conventions in the 1998 Declaration. However, still lacking is a reference to the Declaration itself in the chapter (favoured by many delegations). And, as concerns child and forced labour the text simply states that enterprises should “contribute” to their abolition or elimination. The language should be strengthened such that enterprises “refrain” from employing child or forced labour, including by suppliers.

The language on non-discrimination in paragraph 1d should be strengthened to better reflect ILO Convention 111 that includes: “race, colour, sex, religion, political opinion, national extraction and social origin.”

Paragraph 6 on “reasonable notice” should be strengthened to define this concept more clearly.

Paragraph four provides for enterprises to “provide a safe and healthy working environment”. That could usefully be strengthened. 

The Geographical Scope of the Guidelines. A majority of governments support the formalisation of the extension of the Guidelines beyond the OECD area. However, BIAC has opposed that, or argued that non-Member governments adhere to the Guidelines as part of their adherence to all the provisions of the 1976 Declaration, including that on National Treatment. That argument should be resisted as specious. The credibility of the Guidelines would be fatally undermined were governments to restrict the application of the instrument to the OECD area. Moreover, the OECD Council Resolution covering the modalities of non-Member country participation in the work of the Organisation would allow for their adherence to the Guidelines alone.

Outstanding questions do exist around the issue of how best to involve non-Member governments in the follow-up process. However, those are of a technical nature. For its part TUAC can state that trade unions in non-OECD countries would participate in the process through the ICFTU.

Introduction to the Guidelines. It has been suggested that the introductory chapter include language committing governments not to lower labour, health, safety and environment standards to attract investment. TUAC would urge affiliates to support that.

The General Policies Chapter of the Guidelines. The chapter includes text such that enterprises should “respect the human rights of their employees, as well as encourage the respect of human rights by business partners and in the societies in which they operate.” That is a welcome addition, that could perhaps be more clearly defined by a direct reference to the UN Universal Declaration of Human Rights, along with a reference to the 1998 ILO Declaration. The inclusion of “all” between “respect” and “the” would also be helpful. 

Bribery and Corruption Chapter. The proposal to include a new chapter in the Guidelines on Bribery and Corruption should be supported. In particular the language on the protection of “whistleblowers”.

The Disclosure and Transparency Chapter of the Guidelines. The chapter has been radically re-designed and the issues covered should be welcomed. However, a twin track approach has been adopted, whereby enterprises “should” disclose material information, but only “encourages” them to disclose non-material information on relations with employees, risk management systems, and ethical statements and other codes. To be consistent and coherent enterprises “should” disclose both types of information. The importance of this is as follows. From an operational perspective, it would be difficult to query the implementation of those issues that MNEs are only “encouraged” to do. That is also inconsistent with other Guidelines’ chapters where the word “should” is used to determine the actions of enterprises. Second, work under way in other fora, for example the Financial Stability Forum on risk management systems for financial markets  are likely to develop regulatory mechanisms on disclosure. The Guidelines should be consistent with that.

The Environment Chapter of the Guidelines. A chapter on Environment was first added to the Guidelines in the 1991 Review, but was largely devoid of content. The current draft chapter has been substantially rewritten. Recommendations exist with regard to environmental education and training and the protection of whistleblowers. However, the current draft lacks reference to employee’s information disclosure on the right not to undertake dangerous tasks. Clauses should be added to drawing on the OECD’s Guiding Principles from Chemical Accident Prevention, Preparedness and Response, which state that “an employee should have the right to refuse to do any task which he/she believes may create a unwarranted risk of or accident”, or which is dangerous to health or the environment. There should also be a recommendation for the establishment of formal consultation mechanisms and two way flow of information between management and health and safety representatives. 

Concluding Remarks 

The CIME if it is to present its recommendations on the outcome of the Review for endorsement by the June 2000 meeting of the Council at Ministerial level would in practice have to reach a consensus by the early Spring of next year. Little time is left therefore for TUAC, affiliates and ITS’s to influence developments. As regards textual revisions the thrust of the Review is moving in a broadly sensible direction. Further pressure by trade unions at the national level is required on the areas outlined above. Further work is also required to ensure that the extension of the Guidelines’ applicability beyond the OECD area is recognised. The focal point for pressure should, however, remain targeted to improve the implementation procedures. Without meaningful mechanisms such that governments and trade unions have practical and workable ways to ensure the observance by MNEs of the contents of the Guidelines, textual revisions however beneficial will not count for much. The briefing note includes ideas that if agreed by governments would move some way to achieving that aim.

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