Nestlé & Cargill v. Doe Series: The Economic Folly of Human Trafficking for American Business

[Editor’s Note: This article is part of a Just Security series on the consolidated cases of Nestlé USA, Inc. v. Doe I and Cargill Inc. v. Doe I, which was argued before the Supreme Court on Dec. 1. The introduction to the series and all other articles can be found here.]

1861 Revisited

In 1861, the United States went to war over the question of whether economic benefits for the Southern elite could justify enslaving Africans. Slavery’s proponents focused on the financial benefits of the institution. “This country without slave labor would be completely worthless,” William Nugent concluded, and South Carolina Congressman Lawrence Keitt extolled “African slavery [as] the corner-stone of the industrial … fabric of the South.” The moral bankruptcy of this prioritization – profit for a few at the expense of freedom for many – would be unthinkable in today’s America.

Or would it?

Nestlé/Cargill v. Doe revisits these ugly calculations in a modern setting. Corporate defendants and their amici propose that the Supreme Court adopt the principle that boosting the private sector’s bottom line validates forced and child labor. Just as confederate leaders argued that abolition would jeopardize their finances, American companies today propose that U.S. law turn a blind eye to their role in aiding child slavery on African plantations so that they can maximize profit. To that end, defendants argue that the United States must dispense with corporate liability under the Alien Tort Statute (ATS).

While defense attorneys zero in on technical legal arguments to make this argument, , the undercurrent of their policy position is clear: U.S. companies should not be held accountable for aiding and abetting the human trafficking of children because the cost is too much to bear.

We disagree. Nobel laureate Joseph Stiglitz, economist Geoffrey Heal, and Oxfam America argue in an amicus brief to the Court that this position is not simply repugnant, but premised on flawed economic analysis. Examining civil liability under the ATS reveals that the statute does not impose measurable costs on companies, nor does it threaten our country with economic ruin. In fact, the ATS remains an economically efficient tool, both in theory and practice. The statute (1) is not a financial drain on business, as the corporate bar contends; (2) improves companies’ reputations with consumers, investors, and employees, all of which yield long-term financial gains; (3) does not disadvantage American companies vis-à-vis their foreign counterparts, and instead may offer them a leg up; and (4) encourages foreign direct investment in less developed countries (LDCs), profiting U.S. business and foreign nations alike. Our brief urges the Court to consider these economic efficiencies when weighing the fate of corporate accountability under the ATS and to reject putative economic arguments to the contrary.

ATS Liability Has Not Harmed U.S. Business

Perhaps the most obvious sign that ATS liability has stymied neither our economy as a whole nor individuals companies lies in our nation’s economic track record. U.S.-headquartered companies have achieved unparalleled success on the global stage, despite the long-running prospect of civil liability under the ATS. This is in part because the risk of a lawsuit for any given company is imperceptibly small. The ATS is an esoteric and narrowly contained tool. It is rare for communities harmed by corporate operations to become aware of the statute’s existence, let alone have the capacity and finances to sue in U.S. court  A fraction of the 5.6 million U.S.-headquartered corporations have been sued under the ATS – as Justice Breyer noted during oral arguments on Dec. 1, an estimated 180  over the statute’s centuries-long existence – creating a .000025% risk of suit. For context, this is ten times lower than the risk of getting struck by lightning. Furthermore, those few companies that have faced suit would be hard-pressed to argue that the costs of defending these lawsuits outstrip the financial benefits they have reaped to date from cutting corners at the expense of human rights. Indeed, defendants cannot point to a single example of a company imploding or even experiencing a significant financial hit as a result of the ATS. The notion that a typical American company has somehow suffered as a result of this seldom-used statute is a nonstarter.

Civil Liability Generates Financial and Reputational Benefits

Furthermore, if the risk of ATS litigation does motivate businesses to expend resources on strengthening their human rights practices, that will only serve to benefit them. Defendants’ amici argue that ATS liability decreases their likelihood of strengthening human rights due diligence (HRDD) efforts. That claim is not only illogical – increasing liability for a particular behavior typically encourages the governed actor to ensure its behavior aligns with the rules – but it is also incompatible with what companies do in practice. Savvy companies appreciate the long-term financial benefits of strong human rights performance: as the Organisation for Economic Co-operation and Development (OECD) details, they enjoy an increase in stock prices and shareholder returns, improved reputation and brand value, better access to financing, lower operational costs, improved ability to attract and retain talent, stronger risk management, and manifold other benefits. Corporations compete for customers, investors, and employees, and stronger human rights performance catapults businesses ahead of their competitors in all three areas.

Brand-sensitive companies in particular recognize the value of strong human rights safeguards. Indeed, the world’s most sophisticated businesses tout their respect for human rights. For example,  defendant Nestlé dedicates a portion of its website to explain how it assesses and addresses human rights impacts, publishes an annual report detailing its corporate social responsibility efforts, and adopts governance principles that commit to following the international human rights standards outlined in U.N. Global Compact. Corporations undertake these measures because of the economic and reputational advantages such efforts bring and in response to public campaigns that expose abuses. Ironically, the companies that seek to gut the ATS are in fact exposing themselves to costly reputational damage as regressive companies.

All told, the ATS sits in a larger universe of corporate accountability measures, including legal (state tort law, the Torture Victim Protection Act, RICO) and non-legal (public campaigns, media pressure, congressional outreach) strategies. The ATS is among the least frequently called upon of these tools, rending the statute’s overall impact on the U.S. economy or any individual company negligible.  The risk of corporate liability under the ATS may complement these reputational motivations, but as the defendant’s own behavior illustrates, it has in no way undermined or displaced them.

The ATS Does Not Advantage Foreign Competitors

Along similar lines, the ATS in no way disadvantages U.S. companies against their foreign counterparts. There is no evidence that the risk of litigation has forced U.S. companies to lose money vis-à-vis foreign competitors, as defendants claim, or dragged their balance sheets into the red.(And though we explain why this concern is unfounded in theory and practice, Professors Stiglitz, Heal, and Oxfam America also reject the notion that competitiveness compared to foreign competitors is a valid factor for consideration when weighing the application of international human rights law). Indeed, other jurisdictions are pushing ahead of the United States on corporate accountability. For example:

  • France mandates large companies create and publicize HRDD efforts, and recently created a private right of action for plaintiffs to sue French-headquartered companies that fail to respect human rights at home or abroad;
  • The United Kingdom exercises jurisdiction over British companies for human rights abuses committed by their subsidiaries abroad;
  • The Netherlands passed a Child Labor Due Diligence Law that requires domestic and foreign companies selling goods or services in the Netherlands to investigate their supply chains for child labor;
  • Italy has carved out liability for Italian companies that engage in a variety of human rights abuses, including slavery, human trafficking, forced labor, and environmental crime; and
  • Canada’s Supreme Court affirmed that Canadian companies may be held civilly liable for international law violations, including human rights abuses, committed by subsidiaries abroad (see earlier Just Security coverage here; another post in this series discusses the applicability of the Supreme Court of Canada’s ruling to Nestlé).

Similar advances are underway in a host of other jurisdictions that are home to wealthy multinational companies. Indeed, corporate liability for extraterritorial human rights abuses is increasingly the norm. Given the economic benefits of stronger human rights performance as detailed above, retaining liability under the ATS would simply mean the United States is not falling quite so far behind – as opposed to exposing American companies to a unique form of liability. Astute companies should press the United States to keep pace.

The impact of other statutes that impose liability on companies for extraterritorial behavior is also instructive. The private sector initially greeted the Foreign Corrupt Practices Act (FCPA), which penalizes U.S. companies for bribing officials overseas, with horror. Yet rather than harm U.S. corporations compared to foreign competitors, the FCPA paid off for American business in spades. The statute created economic and political environments in which bribery was discouraged by host countries and other countries home to wealthy multinational corporations, sparking what has been described as “a global campaign against corruption [that] steadily convinced more companies that honesty pays if they avoid payoffs to foreign officials.” American business developed a competitive advantage. In addition to creating better business environments, it earned them reputational premiums of being labeled as “good” actors.

Corporate accountability for behavior abroad, whether in the human rights or bribery space, has not hampered U.S. business compared to foreign business. On the contrary, any improvement in human rights compliance that stems from ATS liability may only serve to strengthen the companies’ position compared to their peers.

ATS Liability Does Not Discourage U.S. Investment in LDCs

Finally, our brief rejects the proposition that ATS liability discourages U.S. companies from investing in Less Developed Countries (LDCs), as the defendants’ amici contend. These arguments lack empirical support and do not withstand logical scrutiny.

The idea that ATS liability discourages U.S. companies from investing overseas should be rejected out of hand. Defendants Cargill, Nestlé USA, and thousands of other American businesses routinely invest in low-income states, regardless of the existence of ATS liability for human rights abuses. Corporations make investment decisions based a variety of economic considerations. These include access to raw materials and inputs, labor costs (or lack thereof), taxes (or lack thereof), local regulations, stability and predictability of host governments, access to export processing zones, and a multitude of other factors. If the investment appears net profitable, the comparatively small risk of ATS liability is unlikely to dissuade the venture. The fact that those very companies that have been sued under the ATS continue to invest heavily abroad renders their purported alarm over suffocating investment in LDCs unconvincing.

In fact, Stiglitz and Heal note that over the long-term, increased corporate liability for human rights abuses has the opposite effect. Accountability incentivizes behavior that improves human rights conditions in the LDCs in which U.S. corporations operate. That, in turn, fosters stability and long-term economic development, attracting additional Foreign Direct Investment (FDI) and further benefitting U.S. corporations. Any short-term disinvestment that might occur – and it bears emphasis that there is no evidence that it would – should be more than offset by long-term improvements in the LDCs’ economic and social climate.

Conclusion

The assertion that the ATS poses a financial risk to companies does not withstand even light scrutiny. The imagined harm is premised on faulty logic and has not been borne out in practice. Corporate civil liability under the ATS has proven itself, and remains today, an economically efficient means of enforcing respect for fundamental human rights.

Misinformed  companies – or those with short time horizons – that are fighting to overturn the ATS and perpetuate the institution of slavery appear likely to suffer from a self-inflicted wound. Without understanding the economics that churn underneath, they advocate for a position that is not only morally repugnant, but that threatens to stain their reputations and drain their resources in the long-term. As Frederick Douglas observed, “[n]o man can put a chain about the ankle of his fellow man without at last finding the other end fastened about his own neck.”  Companies battling for impunity would do well to heed Douglas’s warning.

Image: Cocoa producers of the Yakasse-Attobrou Agricultural Cooperative (Cooperative Agricole de Yakasse-Attobrou – CAYAT) carry agricultre kits distributed by the coopeartive at the CAYAT headquarters in Adzope on Agust 31, 2018. – Ivory Coast, the world’s leading cocoa producer, is seeing a fast development of the fair trade label. To obtain the label, a production must comply with environmental standards (regulated pesticides), provide a decent income for the farmers and prohibit child labor. (Photo by SIA KAMBOU / AFP) (Photo by SIA KAMBOU/AFP via Getty Images)

 

About the Author(s)

Diana Kearney

Diana Kearney is Senior Legal Advisor at Oxfam America.