Is BDS here to stay?

The government may want to wish it away, but the rule of law disagrees, reports Peter Frankental

Imagine that a foreign government declared that its people may only invest their pension funds in companies that reflect the state’s defence and foreign policy interests. We would probably view it as an outrage that any government should try to dictate to its citizens how they should invest their savings.

So why wasn’t there more public concern at the UK’s attempts to impose a mandatory requirement on the administrators of public pension schemes that they “should not pursue policies that are contrary to UK foreign policy or UK defence policy.” It was left to Palestine Solidarity Campaign (PSC) and a member of a local authority pension fund to pursue a largely crowd-funded challenge to the government on this.

In 2016 the Department for Communities and Local Government issued guidance which prohibited Local Government Pension Schemes (LGPS) from pursuing divestment from foreign nations and UK defence industries even if such divestment was consistent with the will of a Scheme’s members.

In June 2017, PSC brought a Judicial Review which resulted in the Administrative Court ruling that the decision to prohibit LGPS funds from this kind of disinvestment was unlawful. The Court of Appeal then overturned the Administrative Court’s decision at a hearing in May 2018. In November 2018, PSC was granted permission to appeal this judgement to the Supreme Court.

In a landmark judgement issued on 29 April 2020, the Supreme Court ruled the government was acting unlawfully as it was beyond the powers of the Secretary of State to impose such requirements:

“Power to direct HOW administrators should approach the making of investment decisions by reference to non-financial considerations does not include power to direct (in this case for entirely extraneous reasons) WHAT investments they should not make.” (para 31 of judgement)

The wider significance of this victory for PSC, supported by representations from the Campaign Against  the Arms Trade and the Quakers, is that the government will not have it all its own way in attempting to prohibit public bodies from initiating Boycotts, Divestment and Sanctions (BDS). The Supreme Court’s decision provides a reminder that the government cannot abuse its powers and must abide by the law.

The battle lines on BDS are clearly drawn. In the Queen’s Speech in January 2020 the Government set out a legislative commitment to “stop public institutions from imposing their own approach or views about international relations, through preventing boycotts, divestment or sanctions campaigns against foreign countries and those who trade with them.”

Where does this leave UK public authorities, including Swansea, Leicester and Gwynedd Councils that have passed motions to end the procurement of goods from Israeli settlements in occupied Palestinian territory? These decisions were challenged on grounds of antisemitism. In June 2016, the High Court of Justice affirmed their legality. The Court of Appeal subsequently rejected claims by Jewish Human Rights Watch (no relation to Human Rights Watch) that Leicester City Council was antisemitic, pointing out that the condemnation was “in line with a respectable body of opinion, including the UK government, the United Nations General Assembly, the European Union and the International Court of Justice.”

One of the obstacles the government will face in trying to outlaw BDS is that procurement processes are framed by the Public Contracts Regulations 2015. These can’t easily be amended because they are a transposition of an EU Directive on public procurement which was intended to establish a level playing field across the EU. Any post-Brexit trade deal the UK strikes with the EU is almost certain to require the UK to give effect to the EU’s public procurement rules.

Current UK legislation provides a basis to exclude a tenderer on human rights grounds, “where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable”.

In 2014 the Scottish Procurement Office issued guidance to public bodies in Scotland advising against procuring from companies that conduct business with Israeli settlements on the grounds that “Exploitation of assets in illegal settlements is likely to be regarded as constituting ‘grave professional misconduct’ for the purposes of procurement law”.

No matter how the government frames its proposed legislation, it is bound to have a chilling effect on public officials who have to take these purchasing decisions. They will err on the side of caution to avoid running the risk of committing a criminal offence or facing legal challenges from companies that are excluded because they fall below certain standards of conduct.

At a time when there is so much concern about the impact of unethical business practices, it is more important than ever that companies be held to account by denying public contracts to those that fall short of international standards. Otherwise the government is creating moral hazard whereby responsible companies may be denied business opportunities by rogue companies that undercut them.

If that were not enough, these new anti-BDS measures are likely to fly in the face of the government’s existing policies and legislation – such as the Modern Slavery Act, which requires companies to publish the steps they are taking to eradicate slavery and human trafficking from any part of their business. The whole point of this provision is to enable purchasers to take decisions based on what companies are doing about slavery. It doesn’t make any sense for public sector organisations to be prohibited from taking such decisions.

Amnesty International has documented many cases where UK companies have caused or contributed to human rights abuses. By preventing public bodies from making ethical decisions about whom they buy goods and services from, the government is facilitating a situation where multinational corporations operate to unacceptably low standards.

The government’s motivation may be to protect trade with certain countries, such as Israel, and certain industries that have been the subject of boycott calls, such as arms manufacturers. But there is a risk that such draconian measures could actually undermine the rule of law, by deterring local authorities from upholding international standards that the UK is, in principle, committed to.

The government should face up to such realities rather than preventing public bodies from taking effective action to support human rights.

Peter Frankental is Economic Relations Programme Director at Amnesty International UK