How is the state ownership of companies regulated in international law? What are the main limitations and opportunities inherent in each system of regulation, as far as human rights are concerned? Mihaela Barnes’s PhD thesis not only sheds light on these understudied questions, but also makes suggestions that could be used by legislators, regulators and academics to design future regulatory regimes for state-owned entities that adequately take into consideration human rights.
How did you come to choose your research topic?
My first encounter with state-owned entities was during my LLM studies, when I researched whether sovereign wealth funds could be classified as a protected investor under Article 25(2) of the ICSID Convention. At that time, however, I discovered that sovereign wealth funds were just one type of state-owned entities and that there were many other types of corporate entities that were owned by states, such as – among others – national oil companies, state-owned enterprises and export credit agencies. Those entities not only played crucial roles in the economies of many states but were also becoming more and more internationalised as well. For example, state-owned enterprises are some of the largest and most important actors that engage in business activities, while national oil companies own and control most of the world energy supply. Sovereign wealth funds also played a critical role in the stabilisation of the financial markets during the last financial crisis and have recently grown in size and importance, having almost USD 8 trillion in assets. As the internationalisation in the activities of many state-owned entities was increasing, it became apparent that these entities suffered from similar “accountability gaps” as privately owned multinational entities did, as more and more evidence of less than exemplary behaviour by many state-owned entities was being brought to light across the world. It also became apparent that when human rights violations are perpetrated by entities that are connected with a state, this issue generally resonates differently. Since states have an obligation in international law to “protect, respect and fulfil” human rights, how could states expect privately owned entities to behave any better if the entities that they themselves owned or control did not? While lately there has been a growing body of literature and increased awareness about the adverse impacts that privately owned transnational corporations could have on human rights, not much has been written on this topic as far as state-owned entities are concerned. Consequently, the main aim of my thesis is to close this gap in literature and to make suggestions that could be used in the design of regulatory regimes that appropriately take into consideration the human rights concerns associated with state ownership.
And what is its main finding?
Overall, its main finding is that while there are serious limitations and gaps in the international regulatory framework of state-owned entities, international law also offers opportunities to support the effective regulation of the concerns associated with the human rights dimension of state ownership. The main limitations are primarily found in “hard-law” regulatory regimes such as international investment treaties and international trade agreements, which in many instances do cover state-owned entities, but remain mostly silent as far as human rights protection is concerned. This is clearly a missed opportunity, likely caused by the fact that the main traditional issues associated with state ownership have been connected principally with unfair competition, national security and resource security rather than with human rights. Being thus largely anchored in competitive neutrality as a conceptual basis for regulation, the regulatory responses that have been built over the past fifty years say very little on the matter of human rights. Moreover, sovereign immunity and the rules of attribution for the purposes of establishing state responsibility create further limitations in this context. Some of the traditional avenues used for holding a parent company accountable for the acts of its subsidiaries, such as agency, piercing the corporate veil and enterprise entity, are also fraught with difficulties as far as their applicability to state-owned entities is concerned.
Yet, in international law there are also several “soft-law” regimes that offer opportunities for addressing the challenges and concerns associated with the human rights dimension of state ownership. Relevant in this context are, among others, the United Nations Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises, the OECD Guidelines on Corporate Governance of State-Owned Enterprises, the Extractive Industries Transparency Initiative and the ILO Tripartite Declaration. These soft-law regimes can influence state practice – and my thesis demonstrates that in some cases this has already been the case – which could ultimately lead to the formation of new customary norms applicable to states as the owners of corporate entities. My thesis also seeks to find an adequate theoretical basis upon which a regime of enhanced legal obligations, from a human rights perspective, could be built for states as owners. For this purpose, it builds on recent scholarly developments that use fiduciary theory to reconceptualise the role of the state as an owner.
So your thesis is resolutely policy relevant.
Absolutely. My research could be extremely relevant for academics, government departments and regulators, as well as the in-house legal departments of state-owned entities. For example, several sections in my thesis have been reserved for practical recommendations, which could be used as a baseline for the design and implementation of policies and measures aimed at ensuring that state-owned entities become model corporate citizens. I have also designed a Model State Ownership Policy for this purpose.
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Mihaela Barnes defended her PhD thesis in International Law on 7 September 2018. Visiting Professor Thomas Schultz presided the committee, which included Professor Zachary Douglas, thesis director, and Dr Michael Waibel, Senior Lecturer from the Faculty of Law, University of Cambridge, UK.
Full citation of the PhD thesis:
Barnes, Mihaela Maria. “State-owned Entities in International Law.” PhD thesis, Graduate Institute of International and Development Studies, Geneva, 2018.