There has been no COVID-19 peace dividend, writes John Raine. Instead we have seen a proliferation of unilateral, nationalist rules that are unsupportive of the international order. What happens when multilateralism makes way for competitive, nationalist agendas?

COVID-19’s negative impact on geopolitics is becoming clear. There has been no peace dividend. The old conflicts and disputes are still there and some have been exacerbated. The pandemic did not prove a moment for multilateralism; instead, it exposed the shortcomings and divisions within multilateral organisations. Far from ushering in an age of humanitarian cooperation, it has created an atmosphere of blame and recrimination.

But there is an additional consequence of the pandemic: the proliferation of rules. Rather than enhance, as it should have done, a collegiate, equity-based approach to rules both within jurisdictions and the international community, COVID-19 has spawned a culture of unilateral, nationalist rules. Whilst there are rules in abundance, they are not supportive of the international order.


National interest, and rules, first

The near universal response of governments of all political persuasions to the pandemic has been to seek to control its spread through rules. These rules have ranged, sometimes confusingly, from those backed by the force of law to recommendations and guidance.

This proliferation of rules has had administrative consequences − with political overtones − such as the implementation of travel restrictions across previously open borders and the provision of governments with a justification for restricting rights to data privacy and, banal but significant, rights of association and assembly. Overwhelmingly, levels of consent to the use of laws and regulation have been high, either because of the exceptional and manifest nature of the threat or because of authoritarian enforcement.

But the legacy of COVID-19 in this regard may go beyond improved civic awareness and responses to pandemics. It has created a culture of regulation in which rules are intended to protect the national interest, and not necessarily to support an international system of law or principles of regulation. This has chimed nicely with nationalist and unilateral agendas in Beijing, Moscow and several capitals in between. Indeed, there have been few jurisdictions that have not taken a rules-based approach. Those that have opted for light regulation, such as Sweden, have been punished for it by others.

In parallel to the pandemic, the pre-existing trend for states to impose sanctions through unilateral, rather than multilateral, designation has strengthened as governments attempt to give these sanctions global reach. The United States has led the way, but China has its own version (for economic criminals most notably) and now the United Kingdom has one too with the Global Human Rights Sanctions Regulations unveiled in July. Although there will be harmonisation among the like-minded states, there will also be differences and an incentive to compete or retaliate. If this proliferates further, it will be increasingly difficult not to be on ‘someone’s list’. Whilst helpful in denying human rights abusers sanctuary, the unilateral approach to sanctions reflects a lack of faith in multilateralism and feeds into a culture of regulation as a means of national projection.

This throws up challenges for the international community, and creates a treacherous risk landscape for multinational corporations.

Companies with flags

Firstly, nationalist rules, by definition, serve not only a public interest but a political end. Compliance is therefore likely to be policed and non-compliance punished with zeal. The interest of the authorities will lie in encouraging compliance by making an example of non-compliant entities in their jurisdiction, in particular when they are foreign. In an international atmosphere of recrimination that risk is heightened further. Whilst some multinational corporations have sought to distance themselves from their country of historic origin or registration by, say, rebranding, in this atmosphere their national identity will be brought back into play and will be material to the way in which they are treated. It may offer more liability than protection.

Secondly, the scope of the new regulations is already wide and may widen further. Those rules relating to public health may turn out to be easier to deal with than those relating to financial conduct and economic activity where financial institutions and major employers will be expected to be part of a national economic recovery strategy. As economists have noted, the true scale of the economic damage will emerge slowly and may only bite after COVID-19 is contained. Some of the damage, such as long-term unemployment, will be highly politicised by nationalist governments.

Governments, in particular authoritarian ones, will use regulation as a means of ensuring that foreign corporations are directly supporting the local economy. That could take many forms: taxation, licensing, repatriation of profits, employment of nationals and access to data are all in scope. Whilst governments must ensure that they do not stifle recovery with regulation, the approach is, so far, strongly in favour of rules. That will be hard to wind back.

Thirdly, implementing and policing regulations in digitally enabled jurisdictions is relatively cheap and easy: even more so where there are no restrictions on the state’s access to and use of data. In authoritarian regimes that is to be expected, but a digitally enabled approach to COVID-19 creates problems in more liberal jurisdictions where it is already pushing at the current delicate balance between privacy and biosecurity. More access to more data by more governments is likely to be a feature of biosecurity after COVID-19. That brings its own political and ethical challenges, but it may also generate an expectation for data-rich multinationals to support local government agendas by sharing data.

When is a rule a law?

Along with the increase in the quantity of rules, the pandemic has also blurred the line between what a government requests through guidance and what it compels through law. That has not just been confusing for law enforcement but has made it harder to work out where the discretionary space lies. That space is important for multinationals seeking to maintain consistency of practises across multiple jurisdictions. It is even more problematic in jurisdictions that are layered in federal structure or where complex structures create multiple sources of rules. The risks attached to ignoring or interpreting loosely a rule − because it was not a law or because of its source − are particularly high for non-nationals in a nationalist atmosphere.

All this generates conventional, administrative challenges for multinational corporations. It requires more effort dedicated to technical compliance and engagement with regulators and host governments, and maintaining corporate cohesion through standards and practises is harder work. But it also generates the ‘foreign-policy’ challenge of avoiding being caught in the crossfire of state-level disputes. Flying a flag may be more of a liability than an asset, but not flying one may mean having to design an independent company foreign policy. That can be hard work requiring consistency, communication and engagement with both staff and stakeholders.

Rules about rules

For governments, however, there is another, unexpected challenge: how to manage a new culture of rules that is undermining, rather than enhancing, the rules-based international order. The battle to preserve the international order is less, in this context, one over rules as one over the rules about rules. Commentators and international figures have been calling for a multilateral approach to regulation in the context of COVID-19, but the stakes attached to how rules are made are even higher than those of public health. The challenge is to prevent a pandemic silently claiming the concept of equity-based, universal rules amongst its casualties.

*Author John RaineSenior Adviser for Geopolitical Due Diligence