Extraterritorial Application of U.S. Policy on Sexual Discrimination: Risks and Benefits of an Evolving Role of Business “Code of Conduct” in Promoting American Public Policy for Human Rights
Posted March 31, 2009 by Bierce & Kenerson, P.C. · 
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n his book “Coexistence and Commerce,” Samuel Pisar, an international business lawyer who advised John F. Kennedy on economic policy regarding the Soviet Union, argued that commerce with totalitarian countries would be socially as well as economically beneficial, without the need to explicitly seek to change the local political order in the foreign countries. In 2009, Representative Carolyn Maloney (D., N.Y.) proposed the “International Women’s Freedom Act of 2009” (H.R. 606, 111th Cong., 1st Sess.) that attempts to legislate foreign cultural and legal mores. It would mandate the U.S. President to adopt some form of international diplomatic action against countries that fail to meet American standards on protection of women’s rights. Of interest to buyers and sellers of global services, the bill even calls on businesses to engage in politics in their codes of conduct.
Socially responsible business practices in outsourcing may validly include evaluation of women’s rights in a foreign country. However, legislative mandates could be intrusive and counterproductive to basic business principles. The proposed law recognizes this but encourages a standard in “codes of conduct.” The use of federal law to recommend adoption of certain non-binding provisions of a corporate “code of conduct” appears to be a new phenomenon.
Requirement of Presidential Action. Under Section 401, “For each foreign country the government of which engages in or tolerates violations of women’s rights, the President shall oppose such violations and promote the human rights of women in that country” by one of fifteen listed types of actions. The President would need to distinguish between governments of countries that merely violate women’s rights and those that have “engaged in or tolerated particularly severe violations of women’s rights” in such countries. The goal would be to have the President negotiate and enter into binding agreements with foreign governments to obligate such governments to “cease, or take substantial steps to address and phase out,” the act, policy, or practice constituting the violation or violations of women’s rights. The entry into force of a binding agreement for the cessation of the violations.
Economic Sanctions for Violations of Women’s Rights. The “International Women’s Freedom Act of 2009” would, if enacted, require the President to choose remedial action from a list of 15 types of actions. It recognizes that certain actions cannot be taken since the U.S. does not have diplomatic relations with all countries. Aside from diplomatic steps, the list includes economic sanctions and the political use of U.S. leadership roles in multilateral intergovernmental economic institutions to meet the goal of changing foreign governmental policies and practices to protect women’s rights.
Impact on U.S. Exporters. For U.S. exporters of goods or services, this would impair their ability to obtain guarantees, insurance and extensions of credit from the Export-Import Bank of the United States, the Overseas Private Investment Corporation and the Trade and Development Agency. Further, the President would be required consider action to order “the heads of the appropriate United States agencies not to issue any (or a specified number of) specific licenses, and not to grant any other specific authority (or a specified number of authorities), to export any goods or technology” to the specific foreign government or agency. In short, women’s rights would be a factor in applying the Export Administration Act of 1979 (as continued in effect under the International Emergency Economic Powers Act), the Arms Export Control Act, and any other statute that requires the prior review and approval of the United States Government as a condition for the export or reexport of goods or services.
Impact on Government Procurement. The list of Presidential actions would include prohibiting the United States Government from procuring, or entering into any contract for the procurement of any goods or services from the foreign government, agency, instrumentality, or official found or determined by the President to be responsible for the women’s rights violations.
Role of Businesses in Public Policy. Section 701 of the draft law asks American businesses to participate in public policy making. As a preamble, the draft law acknowledges “the increasing importance of transnational corporations as global actors, and their potential for providing positive leadership in their host countries in the area of human rights.” The draft law then proceeds to invite “transnational corporations operating overseas, particularly those corporations operating in countries the governments of which have engaged in or tolerated violations of women’s rights, as identified in the [President’s] Annual Report, [to] adopt codes of conduct–
(1) upholding the rights of their female employees; and
(2) ensuring that a worker’s gender shall in no way affect, or be allowed to affect, the status or terms of his or her employment.
Conclusion. Business executives may wish to consider whether and how to respond to this proposed legislative call to action. There are organizations (such as the Global Sourcing Council, www.gscouncil.org) that promote such policies and identify best practices. Service providers should consider whether such codes of conduct might impact their ability to be selected for offshore outsourcing contracts. Service recipients (multinational companies) should consider how this issue impacts their selection of jurisdictions for establishing shared service captives and for hiring third-party service providers.
Full disclosure: The author is a member of the Board of Directors of the Global Sourcing Council.