Business-NGO Alliance Marks “New Diplomacy,” Pell Says

February 10, 2006

Owen PellIncreasing cooperation between nongovernmental organizations and multinational corporations is creating a new type of diplomacy, attorney Owen Pell explained during a lecture Feb. 6 at an event sponsored by the Career Services office.

Pell, a 1983 graduate of the Law School, is a partner at White & Case, LLP in New York, where he specializes in complex litigation. His professional accomplishments include formulating a framework for dealing with looted art in the European Union. Pell’s proposal was the first to gain traction in the European parliament, where it currently is under consideration.

It was through experiences such as this and others that he and his partners identified an emerging trend.

“We think that a process is emerging that will change the way international law will be formed and the shape of that law as it develops,” Pell said.

International law traditionally has been limited, uncertain, difficult to implement, and “remarkably tedious,” often requiring decades to be formulated. Because of these obstacles, international law around the end of the 19th century and the early 20th century mostly was limited to issues such as piracy, wartime embargoes, the rights of diplomats, and the status of combatants and neutrals during times of war.

“It was all about states,” Pell said. “States were the motivators — states had to provide the impetus.”

Based in this state-powered system, multinational corporations have flourished since at least the 1600s by “taking advantage of differing and competing legal systems” in different countries to move money or profits and consequently pay less taxes and increase profits.

“We have a historical tendency among multinationals to seek areas of less regulation, areas of less transparency, areas where they are perhaps willing to become agents of state policy, even if it means committing human rights violations to the extent it helps their business interests,” Pell said.

Things began to change following World War II, however, when there was an “explosion” of U.N.-generated conventions, especially focusing on human rights. Still, these new conventions had serious limitations; they often were ill-defined or not practiced. Although the conventions were further weakened by a lack of remedies at the state or international level, they were helpful in some respects: they drew attention to human rights and environmental issues, collected information that helped with consensus forming, and encouraged the formation of NGOs and intergovernmental organizations (IGOs).

The new NGOs and IGOs, although significantly more numerous than prior to the 20th century, were “hamstrung” by the developing Cold War system. Politics between the United States and the Soviet Union complicated the appointment of officials, and balance-of-power politics polarized the process.

Pell said he believes that at the end of the Cold War, “certain forces were unleashed that were probably already there before but had perhaps been stymied by the Cold War.” These forces began changing the roles and strategies of multinational corporations (MNCs) and NGOs.

“I think there’s a significant argument, certainly from my perspective as a business lawyer, that we have entered an age of accountability,” Pell said.

Companies face mounting national and international pressure to be responsible and responsive to the people with whom they interact, and consequently MNCs and NGOs are changing how they interact with states. (NGOs began gaining ground in comparison to IGOs because they are more maneuverable and have matured in how they raise money and in their professionalism.)

“I think we’re seeing now in a lot of places around the world as political systems get more similar…more pressure to change rules of law to make for greater accountability within societies, whether it’s government to people, whether it’s companies to people, whether it’s companies to government.”

Pell cited increasing focuses on anti-terrorism, anti-money laundering and securities regulations as examples of the ways in which pressures and rules are changing, especially since 9/11.

“Where does that lead you?” Pell asked. “Well where you are now is, standards are converging.”

The increasing focus on accountability and transparency has made MNCs prefer standardized rules to avoid problems that may arise from inconsistencies. The same focus on accountability also has transferred to relationships between NGOs and IGOs.

“What you’re beginning to see is a recognition that there is an efficiency to be gained by coordination, and that’s really what a number of my partners and I have come to call the new diplomacy,” Pell said. “So to state it concretely, rather than waiting for states to address among themselves a problem, NGOs and MNCs are in fact engaging with each other, where they used to be sworn enemies, wouldn’t be seen in the same room together, let alone the same conference or convention.”

In this new diplomacy, NGOs and MNCs work toward a solution together and then attempt to impose it on IGOs and states.

“Sort of turning the whole system upside-down, so rather than a top-down system, much more bottom-up,” Pell said. “It’s definitely something that you would argue is in its infancy, but I think it’s hard to say there isn’t a trend.”

Many of the issues these new MNC-NGO alliances have been focusing on are those avoided by states in the past due to states’ own self-interest. Because NGOs and MNCs have different agendas from states, they are able to tackle these problems.

Successful examples generally require NGOs to unify several MNCs in order to represent a large market share.

In the case of the Cocoa Harvesting Accord, NGOs united companies representing 99 percent of cocoa buyers to form a cartel to negotiate child labor practices. The MNCs agreed to buy cocoa only from areas with minimal use of child labor, as determined by a survey of local labor markets funded by the MNCs. Ultimately, around 20 African states agreed to participate in the program.

Similarly, the Kimberly Accord on Mercenary Diamonds aimed to eliminate the use of child labor to mine diamonds that fund African civil wars.

Pell also pointed to the Equator Principles, which originated in the auspices of the World Bank and ultimately resulted in an agreement between approximately 50 banks worldwide—representing 80-90 percent of the project finance market—not to lend money to projects exceeding $50 million that violate certain U.N. conventions. Lenders also made an unprecedented pledge to monitor the compliance of these projects, which include developments such as toll roads, power plants, dams, and ports. Projects that violate U.N. conventions are reported to the World Bank and may be shut down.

Such partnerships aren’t always successful. The Dam Commission gathered NGOs and large engineering firms to agree on a set of principles under which engineering companies would not build dams that weren’t needed. Although the NGOS and engineers reached an agreement, the exclusion of lenders from the discussion has kept the commission from success.

Other companies are choosing to monitor their own behavior. When British Petroleum began operating in the Aceh Province of Sumatra, the company hired an independent committee to report human rights violations to the board. Although knowledge of the violations could open BP to lawsuits, the company decided to self-monitor because it did not want to be associated with human rights violations.

 “You’re beginning to see people trying to figure out a way to put into practice, even where we do not yet have a consensus on an issue, a remedial structure designed to address a specific problem—not waiting for state consensus,” he said.

This new diplomacy is much faster than the traditional state-motivated model and may spread to issues such as industrial safety, toxic waste, over-fishing, certain public health emergencies, and others, Pell added. He also predicted a potential increase in NGO-NGO alliances and the cooperation of less powerful countries with NGOs to gain traction in state-to-state issues.

“States are going to have to start paying attention to [the new diplomacy] and figuring out what role they want to play in regulating it,” he said.

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