Publication: Defying territorial limitations

Abstract by Karin Buhmann (2015)

Defying territorial limitations: Regulating business conduct extraterritorially through establishing obligations in EU law and national law

The problem of regulating the adverse impact of business in countries outside their home state has been a key issue in much of the societal and academic debate surrounding the issue of Corporate Social Responsibility (CSR), economics and business ethics, or human rights and business. The problem has several dimensions, which from the legal perspective include: complex supply chains; impunity due to “forum shopping”, in which businesses establish themselves in states which do not have or enforce legal requirements on conduct and remedy for adverse impact in other states, and; issues related to corporate groups that limit the transparency of the chain of responsibility and therefore the possibility to hold businesses legally to account.

Nothing technically impedes the regulation of companies through international law. Constraints are political rather than legal. Such obligations on companies have been introduced in a limited number of areas, in particular in the environmental field. Until now political will among states as international law-makers has been very limited in terms of introducing binding requirements on companies in terms of their conduct and its environmental and social impact. As Professor John Ruggie indicated several times in his capacity as UN Special Representative on Business and Human Rights, states are not generally required under international human rights law to regulate the extraterritorial activities of businesses domiciled in their territory and/or jurisdiction, but they are also not generally prohibited from doing so, provided there is a recognised jurisdictional basis. As Professor Ruggie notes, states may themselves have interests in clearly setting out the expectation that businesses respect human rights abroad, especially where the state itself is involved in or supports those businesses. These reasons include ensuring predictability for business enterprises by providing coherent and consistent messages, and preserving the state’s own reputation. Still, states largely seem to be locked in a politically guarded intellectual prison that keeps them from legislating with regard to the social impact that companies registered in those states cause in other countries

In this light, it is interesting to observe the evolution of modalities which allow for indirect regulation with territorial effects on the conduct and social impact of businesses. Such modalities may offer an alternative strategy around the political constraints that keep states from engaging in much direct extraterritorial regulation of companies. This chapter addresses the issue from the perspective of two very different modalities: due diligence requirements on the supply chain, which has been introduced by the EU in regard to the legality of timber and timber products, and; CSR reporting as required by law in Denmark.