Bhopal: The deception by Union Carbide and Dow

There is little hope of any justice in the Bhopal gas leak case. If the tragedy and the shock its finale has created awaken us to work on newer laws on corporate responsibility and accountability, it would be a gain, writes Kandaswami Subramanian.

Ever since the long awaited judgment in the Bhopal chemical disaster case was delivered on June 7, there was not a single newspaper, national or international, which had not reported the case without anger or disgust. 

The incident happened on that fateful night of December 2, 1984 and more than a quarter century had to pass before a court in India could convict persons found responsible for the crime, all Indian managers of the plant. Sadly, the punishment is so light and disproportionate to the magnitude of the crime.

Words cannot capture the magnitude of the disaster that struck Bhopal. An author described it as 'the Hiroshima of chemical industry'. A report of an International Medical Commission released in December 1986 said it was 'a tragic model of an industrially induced epidemic'. 

Government figures estimated the immediate toll at 3,500 within three days of the leak, but independent data suggest more deaths. The Indian Council of Medical Research said that up to 1994, 25,000 people also died from the consequences of gas exposure. ICMR's report was not published by the GoI for some years. Social activists and NGOs say that many continue to suffer.

The Centre for Science and Environment reported (external link) on June 7, 2010 that for over 25 years the impoverished residents of Bhopal have been silently suffering the consequences of contamination caused by a ruthless, money-making multinational pesticide company. 'CSE's investigation revealed the extent of contamination in the vicinity of location of the world's largest industrial site was unparalleled. Everything from heavy metals to pesticides were detected in soil and ground water samples at the time in very high concentration.'

The Bhopal tragedy had stirred the global conscience in a manner for which there is no parallel. Hours later it struck, hundreds of 'ambulance chasers' from the U.S. descended on Delhi and Bhopal. In keeping with the U.S. legal tradition, they were keen to litigate and settle compensation for the victims and, in that process, get a whopping share as fees. Unfortunately, they had to leave soon in despair. Alongside, there were global conferences and seminars on corporate responsibility for mass industrial disasters. Some of them were financed by Union Carbide indirectly!

Once litigation commenced, initially in the US courts, these academics retreated. In later years, the initiative for issues relating to pollution, environmental damage, etc would be taken up by civil activists and this was in the coming decade when environmental issues moved to the centrestage.

In the early years after the tragedy, there would be long processions and demonstrations in many parts of the world and, with the passage of time, even this interest waned. There are still hardcore activists both in Bhopal and abroad who pursue the public cause with dedication and determination. Gradually, even they would wither away.

In a world ruled by and for multinational corporations, justice may the native of rocks.

To commemorate its 25th anniversary on December 3, 2009, the Los Angeles Times wrote, "Anguish lingers in Bhopal, 25 years after chemical disaster." It reported the anger of the Bhopal residents with their government, which settled with rich foreigners for what they say was a ridiculously low sum and has failed to care for its people. Prime Minister Manmohan Singh issued a statement that day describing Bhopal as a tragedy that "still gnaws at our collective conscience" and he vowed continued efforts to tackle the issues of drinking water and site decontamination. CSE did not find evidence of this in its latest report.

Initially, the government of India decided to agitate the matter in US courts and it gave rise to issues relating to 'jurisdiction', that is whether it should be heard in the US or Indian courts. Issues relating to 'forum of convenience' were argued before Justice John Keenan in a US court. Ultimately, the case was remitted back to India. It may be shocking to recall the arguments advanced by some of our senior advocates explaining to US judges how Indian courts were unsuited for the purpose! Indian Law Institute has covered the case in a valuable compilation. (Inconvenient Forum and Convenient Catastrophe: The Bhopal Case, N M Tripathy Pvt. Ltd, 1986.)

In a way, it was early and the world was still grappling with the new era of multinational growth and issues governing corporate liability and accountability for mass disasters. Corporate responsibility for environment protection and pollution avoidance was also in emerging modes. Against this background, issues governing 'jurisdiction' had become alibis for evading responsibility, especially in the absence of a globally binding code of conduct for multinationals.

The International Bar Association dealt with these legal issues in a learned article by Adrienne Margolis. As the author explains, 'The problems often arise because multinational corporations operate seamlessly across national boundaries, without sufficiently strong regulations to ensure that they respect human rights. There are many examples of the same multinational operating sensitively in one country while violating human rights in another.' When it comes to litigation, companies tend to use their financial power to over-litigate which is why cases can take a very long time. Finally, 'When victims seek redress, they often fail to get anywhere in local courts, but discover that the head office abroad is a separate entity. This problem -- the 'corporate veil' -- means strong evidence is needed to hold a parent company liable.'

In short, there are too many grey areas and all the issues have not been resolved. However, pressure for spread of multinational corporations is stepped up by advanced countries, especially the US with suggestions that strong regulatory measures would dis-incentivise foreign investment.

The case of Union Carbide is one such and reveals the blind corner in which the Indian government found itself. Truly, as the LA Times explained, 'Over the years, Bhopal has become shorthand for corporate irresponsibility, fuelling debates over multinational morality, the environment and codes of conduct.'

These are the issues which we wish to analyse in this piece, particularly with reference to the relationship between Union Carbide of USA and Union Carbide India Limited. A side show is Dow Chemical Company which acquired Union Carbide, USA, in February 2001.

Within hours after the delivery of the judgment on June 7, Dow Chemical issued a statement that it had sold its entire stake in UCIL in 1994 and the company was renamed Eveready Industries. 'All the appropriate people from UCIL have appeared to face charges. Union Carbide and its officials were not part of this case since the charges were decided long ago into a separate case.' It goes on, 'Furthermore, Union Carbide and its officials are not subject to the jurisdiction of the Indian court as they did not have any involvement in the operation of the plant which was owned and operated by UCIL.'

There is nothing new in the latest disclaimer from the US company. It has been its standard refrain dating back to the first day of the tragedy. In its earliest press release by Union Carbide it made this claim: 'The Bhopal plant was owned and operated by UCIL, an Indian company. The other stockholders included Indian financial institutions and thousands of private investors in India. The plant was designed, built and managed by UCIL, using Indian consultants and workers.'

The company would also elaborate how UCIL was sold to another Indian company and 'as a result of their sale of shares in UCIL, Union Carbide retained no interest in… or liability for... the Bhopal site.' Dow Chemical would also chip in and maintain, 'While Dow has no responsibility for Bhopal, we have never forgotten the tragic event and have helped to drive global industry performance improvements.' Never was such an insult added to any injury!

The plea all along has been that UCIL was an autonomous entity that had freedom of operation and that UCC had no responsibility over it, and thus not accountable or liable for any misdemeanour of subsidiaries. This is indeed the fig leaf which all multinationals wear when they meet with legal problems in host countries.

It is the essence of multinational corporation operations that there should be central control and direction. It is claimed that this is necessary to protect the proprietary nature of high value technology which they develop. The degree of control may vary in individual cases. In the case of UCC, the manner and extent of control over subsidiaries was detailed in 1,300 pages of UCC's corporate policy manual. As Amnesty International commented, UCC's 'attempt to absolve itself of any responsibility for running UCIL is at odds with its corporate charter'.

In the affidavits filed by the GoI before the US District Court, New York, these arguments were challenged with adequate documentation. These documents are included in the Indian Law Institute's publication referred to earlier. In its affidavits, the GoI drew attention to UCC"s manual, which explicitly said, 'Except for certain situations, it is the general policy of the corporation to secure and maintain effective management control of an affiliate. Normally this is accomplished through ownership of 100 per cent affiliate equity where this is consistent with laws, policies and customs of the host country.'

Unfortunately for UCC, it had to wage a long battle with the GoI to retain UCIL as its subsidiary, ie with 51 per cent equity holding. This became a statutory obligation with the framing of the new Foreign Exchange Regulation Act in 1973. That act contained stringent restrictions over foreign ownership of Indian companies and sought to regulate the non-resident holding with reference to the technology contributed by the parent company. Companies with higher levels of technology were allowed even up to 74 per cent equity and those at the lower ends were required to reduce their holding to 40 per cent. Some engage in very low priority areas were advised to wind up their operations. We get back to the FERA battle in a later part of this piece.

Added to the FERA ghost, were its internal (in house!) struggles among various departments over finance, technology, scale, marketing, exports, etc.

Though UCIL had obtained the approval of the government to establish the methyl isocynate based project in 1972 for the manufacture of Sevin (a fertilizer), it was apparent that UCIL and its parent had to face several problems connected with its establishment in India. Sevin was considered to be a pesticide of great value and one involving high technology and required to boost the green revolution. UCIL was under constant pressure from Indian officials to speed up the setting of the project.

UCIL needed assurances from UCC over the project design, safety, etc. It entered into separate technical services agreement with the parent company. There were doubts about the capacity planned and also the designs to keep huge quantities of MIC in storage. In their book  (It was five past midnight in Bhopal, Dominique Pierre & Javier Moro, Full Circle, 2001) the authors refer to the advice of German engineers at Bayer with the caution 'never risk keeping a single litre for more than ten minutes' and to UCC/UCIL planning for storage of several hundred litres!

By the winter of 1978, when the project was half way through, there were worries about overruns and potential demand for pesticides in India, particularly for Sevin. The feasibility of scaling down the plant was discussed in a meeting in New York. As the project had already reached an advanced stage, it was decided to go ahead with it.

There were inter-department conflicts. The Ag Product Division was keen to continue with its exports to India as it had over capacity built in the US plant. Both were oversized plants with undersized markets. Thus, export to India was ruled out and, in any case, it would eat into the global profits of UCC.

A Bhopal Task Force was formed to deal with the problems. It had earlier refused permission to export to India. Other options such as making different carbaryl items were not found commercially attractive.

The Sevin project could not be scrapped for more strategic reasons. It became vital for survival in the FERA battle. UCIL had a non-resident equity of 60 per cent and under the FERA guidelines initially laid down, it became eligible to retain 40 per cent non-resident equity. A provisional order was issued by the Reserve Bank of India on the decision of the FERA advisory committee. Such a holding would be contrary to its corporate policy and manual! UCC mounted its pressures on the Indian government as also in Washington.

It was known that UCC has its clout with the US government as a generous campaign donor. In its report, Amnesty referred to these efforts and said, 'The finance plan, referring to negotiations with the government of India on the extent of equity, clearly reveals that UCC never intended to reduce its equity holding to less than what would give it controlling stake in UCIL'

Ultimately, the government of India succumbed to the pressures of companies such as UCIL and relaxed its guidelines -- it was named 'amplified guidelines'!

Under the relaxed guidelines, UCIL was able to maintain its subsidiary status with UCC. Sevin saved the day for the company as it was considered high technology status.

The approval was given by the RBI on July 5, 1980. It was truly a long battle and worthy of celebration. Unfortunately for UCIL and UCC, it came late. In the intervening years, the company had lost the market for pesticides, Sevin in particular.

Demand for Sevin did not pick up and stocks began to accumulate in Bhopal. UCC had neither studied the Indian market nor the psychology of the Indian farmer. Sevin may be efficacious in large US farms, but not in small patches of land in India. Insects fleeing from farms treated with Sevin ravaged neighbouring untreated farms. The Indian farmer was unwilling to switch over to a hazardous pesticide. Moreover, the country faced severe drought and farming was substantially reduced. The Bhopal plant became sick and seemed beyond redemption.

Savage cost-cuts were imposed. Many studies done later clearly revealed that the unwise and imprudent steps taken by UCIL to cut on safety systems. Critical air-conditioning for MIC tanks was shut down. These are in many ways comparable to the cost cutting down by BP in its offshore operations in the Gulf of Mexico!

Net result was that across the Bhopal plant, there were signs of neglect and indifference. As Lapierre and Moro describe, 'Quite naturally there had come a point where people preferred card games in site canteens to tours of inspection around the dormant volcano.'

Even if the hyperbole is discounted, it was known that UCIL was rudderless. By 1981 several instances of neglect leading to gas poisoning and deaths had come to notice. A special team sent from the US drew pointed attention to several lapses and suggested rectification. The warnings of a local journalist, Rajkumar Keswani, went unheeded. (Read his interview to rediff.com). It was very poor satisfaction for him that he got a young journalist award months after the disaster.

By October 1984, the possibility of dismantling the plant and shipping it to another developing country such as Brazil or Indonesia was considered and abandoned. One important factor which worked against the idea was that the MIC plant was so corroded that it would not be dismantled! A week before the tragedy, a decision was taken to sell the plant to a willing Indian buyer. Within days, the disaster struck. UCC blamed it on sabotage by Indian workers and stuck to the story for a long time. It was later that it began to wear the convenient corporate veil.

The above factual narration establishes that at the time the disaster struck, UCIL was a subsidiary of UCC. UCC fought a royal battle to retain it as a subsidiary within in its fold. Its operations were manualised and controlled from the US headquarters. Every decision was taken by or with the approval of the parent company. It would be an act of irresponsibility to claim that UCIL was an Indian company and was operated by Indians and UCC had no role or responsibility. It was later, much later, that Dow took over UCC. Many analysts suggest that the intention behind this sale was, among other things, to pull more cloud over the responsibility of the original owner. It was playing on the weakness of successive Indian governments.

The Guardian, London puts it more carpingly on June 8 when it said, 'The difference between BP and Union Carbide is not just a matter of location of the disaster… It is down to the fact that successive national and state governments of India have rolled over time and time again to the realpolitik of dealing with Dow Chemicals' other investments in India.'

Given the statements already made by spokesmen from the US on the extradition of Anderson or on the reopening of the case, there is nothing that seems possible now. One only hopes that if this tragedy and the shock its finale has created awaken us to work on newer laws on corporate responsibility and accountability, it would be a gain. World has to be ruled by people and not by or for corporates.

Kandaswami Subramanian is a former joint secretary in the Union finance ministry.