Guest Post: China, Business, & Human Rights: "Inside Out"

The following is a guest post by Motoko Aizawa:* 

“Inside out, and outside in, but not inside in.”  According to John Ruggie, now the Berthold Beitz Professor of International Affairs at the Kennedy School of Government at Harvard University, this was the mantra that the Chinese offered as a way to steer Ruggie’s mandate as the Special Representative of the Secretary-General on human rights and transnational corporations and other business enterprises.  Cryptic?  Here’s the translation:  It would be OK for Ruggie’s business and human rights mandate to address the behavior of Chinese companies doing business outside China (“inside out”), and it’s OK for foreign companies operating inside China (“outside in”), but it’s not OK for the Chinese companies operating in China, or “inside in,” as that is the exclusive domain of Chinese law and sovereignty.

The output of Ruggie’s mandate (2005 to 2011) was none other than the UN Guiding Principles on Business and Human Rights (the GPs), an influential soft law instrument endorsed unanimously by the Human Rights Council, including China.  As a soft law instrument, the GPs are not binding international agreements.  On the other hand, they address all business activities, domestic and international.  So how does the Chinese mantra on international and domestic trade and investment measure up against the GPs?

China has been slowly but steadily upgrading its guidance to its fast growing outbound investments and trade by pointing to international benchmarks.  The idea is to help business improve its conduct and reputation, so as to protect China’s national reputation.  Here are three examples of standards of business conduct for Chinese enterprises “going out”.

1. Last year, the Ministry of Commerce (MOFCOM) and the Ministry of Environmental Protection (MEP) co-issued the Guidelines on Environmental Protection inForeign Investment and Cooperation.  They urge Chinese to respect the host country’s environmental protection laws, religions, and customs, and ensure rights and interests of workers; in addition, they suggest that companies follow the international principles and practices of international organizations and multilateral financial institutions.

2.      These Guidelines followed an earlier precedent focusing on the financial sector.  In 2012, China Banking Regulatory Commission (CBRC) issued its Green Credit Guidelines.  According to these Guidelines, banks supporting overseas investments should strengthen environmental and social risk management, and make sure project sponsors observe host country laws on environmental protection, land, health, safety, etc.   And banks “shall make promise in public that appropriate international practices or international norms will be followed as far as such overseas projects are concerned, so as to ensure alignment with good international practices.”  (Article 21). 

3.      There is an even earlier example of standard setting for Chinese overseas forestry firms: the 2009 Guide on Sustainable Overseas Forests Management and Utilization byChinese Enterprises, co-issued by MOFCOM and the Chinese State Forestry Administration.  These emphasize good forestry management practices, compliance with local law, ecological protection, community consultation and development, and respect for the rights of local residents.  They echo the requirements of the Forest Stewardship Council, a very clear international standard.

The common thread running through these “inside-out” guidelines is observance of international norms, principles, standards, or practices, in addition to respect for host country laws and practices, on environmental protection and protection of workers and local communities – a notion that aligns with the corporate responsibility to respect human rights under the GPs.  Of course, when these Chinese companies operate in China, they must obey Chinese law.  A combination of international good practice, and host and home country laws is a lot to juggle for larger companies experienced in FDI, let alone smaller privately-owned companies.  But this is exactly what any multinational enterprise must do today to operate, and these recent Chinese guidelines seemingly affirm the need for Chinese companies “going out” to demonstrate the same level of conduct.  In turn, China expects foreign companies doing business in China, or “outside in,” to do the same.

What about the domestic landscape, then?  Does “inside in” allow Chinese enterprises to race to the bottom inside China?

Actually, China has been upgrading its policies and laws for the last decade to serve its massive economic engine, while also addressing the undesirable effects of rapid economic development.  For example, in 2002, China modernized its environmental impact assessment law from the 1970’s.  In 2012, China issued a novel law mandating social risk assessment, a tool to weed out projects that could cause social unrest.  Parts of its labor laws today go farther than many western companies investing in China would care for.  And China is boldly integrating environmental consideration into economic and market instruments, like taxation, public procurement, securities, credit, and insurance.  Not surprisingly, there are numerous problems with the rapidly changing legal framework, such as overlaps and inconsistencies, vague expressions, and loopholes.  And of course the crux of the matter is lack of monitoring, and weak, inconsistent or non-existent enforcement.

Notwithstanding these challenges, as a policy proposition for guiding business conduct, “inside out, and outside in, but not inside in” should not be at odds with the GPs, so long as China continues and accelerates its current policy and legal reforms.  These are big “ifs,” and yet, China has a vested interest in business responsibility to protect human rights, and the policy mantra could be effective over time in getting Chinese business to respect human rights abroad, and at home.  

*Motoko Aizawa is an expert on environmental, social and governance dimensions of sustainability in international development. Trained as a lawyer, Motoko helped IFC and the World Bank set environmental and social standards in their operations.  She is a member of the International Advisory Board of the Institute for Human Rights and Business.