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States should control corporations across national borders to protect communities from the negative impacts of their activities, UN human rights experts have said in an authoritative new guidance * on the Obligations of States parties to the International Covenant on Economic, Social and Cultural Rights (CESCR) in the context of business activities.

“States should regulate corporations that are domiciled in their territory and/or jurisdiction. This refers to corporations which have their statutory seat, central administration or principal place of business on their national territory,” the experts of the UN Committee on Economic, Social and Cultural rights say in the guidance*, officially termed the General Comment, published today.

In practice, the Committee expects home States of transnational corporations to establish appropriate remedies, guaranteeing effective access to justice for victims of business-related human rights abuses when more than one country is involved.

In light of the practices revealed by the Panama Papers and the Bahamas Leaks, the General Comment emphasizes that States should ensure corporate strategies do not undermine their efforts to fully realize the rights set out in the Covenant.

"To combat abusive tax practices by transnational corporations, States should combat transfer pricing practices and deepen international tax cooperation,” the guidance states.

“Lowering the rates of corporate taxes with a sole view to attracting investors encourages a race to the bottom that ultimately undermines the ability of all States to mobilize resources domestically to realize Covenant rights.”

"This practice is inconsistent with the duties of the States parties to the Covenant. Providing excessive protection to bank secrecy and permissive rules on corporate tax may affect the ability of States where economic activities are taking place to mobilize the maximum available resources for the implementation of economic, social and cultural rights.”

The new General Comment sets out what States can and must do in order to ensure that companies do not violate rights such as the right to food, housing, health or work, which the States themselves are bound to respect.

“If States take seriously their duties to ensure businesses comply with economic, social and cultural rights, markets can gradually contribute to the aims of the Covenant. They will be more sustainable and move societies in the right direction. Communities will also be better protected from the negative impacts of corporate activities where they have had the most damaging consequences, such as in the extractive industry,” said Virginia Bràs Gomes, Chairperson of the UN Committee on Economic, Social and Cultural rights.

The Co-Rapporteur of the General Comment, Olivier de Schutter, emphasized: “Businesses cannot ignore that the expectations of society are changing. The first ones to change shall be rewarded by consumers, whose purchasing choices are increasingly driven by immaterial aspects — the reputation of the company, and the ethical and sustainability dimensions associated with its products.”

The experts highlighted that the issue of business and human rights had been addressed recently in different forums, including the Human Rights Council and the International Labour Conference, and through a combination of tools — regulations, self-imposed codes of conduct, economic incentives and action plans.

“These initiatives show how the field is fast-growing, and this is welcome. It entails the risk, however, that States lose sight of what is obligatory, as opposed to what is simply recommended as a good practice,” added Zdzislaw Kedzia, the Vice-Chair of the UN Committee on Economic, Social and Cultural rights. 

“It also may be tempting for States to seek refuge behind the initiatives taken by the corporate sector, rather than adopting the appropriate regulatory and policy initiatives that they must adopt. Our General Comment seeks to recall their obligations under the Covenant and define the role they must assume in regulating corporate conduct.”

 

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