|
Governmental
Efforts In recent history, governments have
constituted the agents most responsible for advancing social development and social
integration. Through anti-trust laws, anti-discrimination codes, labour legislation,
consumer protection regulations, welfare assistance programmes, health care plans,
educational facilities and transportation systems, governments have attempted to meet
citizens' basic needs, ensure equal opportunity for advancement and minimize disparities
in living standards. However, in a world where the most dynamic economic entities are
global and yet governments remain local and national, serious problems emerge. As
transnational corporations are increasingly able to play communities and nations off
against one another to receive the most advantageous investment package, governments are
decreasingly able to perform their traditional functions of promoting social welfare:
" The internationalization of once local corporations has placed a growing number
of communities in a terrible dilemma: either cut wages, gut environmental standards, and
offer tax breaks to induce corporations to build new factories or offices, or prepare to
become an economic ghost town." 150
As governments remain concerned with citizens' living
standards, jobs and the environment at home, their largest corporations are slashing jobs,
abandoning communities and competing globally by shaving environmental and labour costs.
Despite these disadvantages and weaknesses, however, governments continue their efforts to
engender socially responsible activities by transnational corporations.
Sub-National
and National Level
Governments attempt to promote social development and
social integration through regulation of transnational corporations and trade-related
investment measures (TRIMs). These measures can assume a number of different forms
including positive law, informal incentive schemes151 and foreign direct investment criteria.152 Furthermore, such measures can cover a broad expanse of
substantive areas, including corporate transparency through disclosure of information
requirements, production processes through local content regulations, workplace conditions
through labour legislation, and employment levels through mandated hiring of nationals.
Governments have also enacted a host of financially oriented measures regulating banks,
stock markets, divestment and the repatriation of profits. Additionally, governments have
implemented legislation mandating local equity participation, property ownership
limitations, transfer of technology requirements as well as responsible environmental and
energy practices. Finally, governments have required transnational corporations to assist
with macro-economic issues through balance-of-payments clauses, anti-trust laws and
import-export limitations.
Although governments have enacted a broad range of
regulatory and trade-related investment measures, it is difficult to ascertain the
effectiveness of such efforts. There exist surprisingly few micro studies on the effects
of TRIMs on corporate behaviour. The studies that do exist indicate that trade-related
investment measures have produced mixed effects. One of the most contentious and complex
issues is the extent to which TRIMs dissuade transnational corporations from investing
within a particular country at all; this concern is especially prevalent now when TNCs are
able to play governments off against one another in efforts to receive the most
advantageous investment package.
Two case studies involving the automotive and computer
industries have demonstrated the ways in which the Mexican government has successfully
used trade-related investment measures to advance social goals. In the automotive sector,
Mexico's domestic content laws and export requirements have been particularly effective.153 In the mid-1970s, the Mexican government announced that
manufacturers who did not comply with these TRIMs would have to withdraw from the market;
Ford, Volkswagen, Chrysler and Nissan all met Mexico's demands. Despite heavy protests
from United States unions, General Motors also decided to comply with Mexico's policies.
As a result of these TRIMs, Mexico became one of the world's most important sourcing
countries for auto engines;154 furthermore, Mexican auto exports expanded from 253 million
dollars in 1977 to 3.3 billion in 1987.155
The Mexican government has also successfully implemented
trade-related measures in the computer industry.156 In 1981, when Mexico's market for computers was completely
supplied by imports, the government enacted legislation in the computer sector regarding
local manufacturing, local equity ownership, domestic content, exports, as well as
research and development. By juggling these various requirements in negotiations with IBM,
Apple and Hewlett-Packard, the Mexican government "achieved its goal of stimulating
the local manufacturing of computers. While Mexico has allowed the industry to remain
reliant on foreign investment and technology, it has made considerable progress toward
increasing the percentage of Mexican value-added in the industry".157
Another governmental measure that has successfully
influenced transnational corporate behaviour is a "clawback clause". As
mentioned above, governments have implemented various informal incentive schemes to
attract TNC investment. For example, in efforts to induce Diamond Star Motors, a joint
venture of Chrysler and Mitsubishi to locate a plant in Illinois, the relevant American
state and local governments offered the company 296 million dollars in tax breaks and 10
million dollars in land; in return, the companies promised to employ 28,000 individuals in
their factory.158 A "clawback clause" would require these corporations to
refund to the state and local governments the millions of dollars in incentives they
accepted if the companies were to break their contractual obligations or decide to close
the plant earlier than expected. European governments have repeatedly and successfully
attached such measures to heavy industrial subsidies.159
Another creative idea regarding governmental regulation of
transnational corporate activity includes the extraterritorial application of home country
laws. This measure would require transnational corporations operating in developing
countries to adhere to relevant laws applicable in their home countries, because such laws
in the environmental, consumer and labour fields are often more stringent than the
requirements found in host countries. Extraterritorial application of home country laws
could have a beneficial impact on the activities of US-based pesticide companies, for
example. Under current United States law, pesticide companies wishing to sell their
products in the United States must first obtain approval from the Federal Drug
Administration; however, even if the FDA determines that their products are too unsafe to
sell in the domestic market, these companies are permitted to sell their pesticides
abroad.160 As described above, the marketing and distribution policies of
transnational pesticide companies continue to produce health and environmental problems in
both industrialized and developing countries.161
If the United States were to adopt a law mandating the extraterritorial application of its
drug and pesticide laws, US-based transnational corporations would have to adhere to the
stringent FDA regulations — no matter where they wanted to sell their pesticides.
Unfortunately, no country has enacted such legislation yet.
International
Level
Because trade agreements such as the GATT render
trade-related investment measures more difficult162
and because transnational corporations are increasingly able to play communities and
nations off against one another, it is crucial that there exist international governmental
attempts to promote socially responsible behaviour by transnational corporations.
International governmental bodies can pressure TNCs into socially responsible activities
through two primary methods: the implementation of a code of conduct and regulatory
efforts.
Code of
Conduct
Efforts to formulate a code of conduct for transnational
corporations originated in the early 1970s when the United Nations established the
Commission on Transnational Corporations as an intergovernmental subsidiary body of the
United Nations Economic and Social Council (ECOSOC). The Commission quickly established a
working group to formulate a code of conduct for TNCs and, by 1978, it had completed a
first draft. However, due to disagreements between the business community, industrialized
countries and developing countries, this initial draft underwent a number of revisions
that granted TNCs increasingly broader rights.
The most recent draft emerged in 1990.163 This code of conduct is only a voluntary instrument and
contracting parties do not assume any legally binding obligations. Although the 1990 draft
generally grants transnational corporations broader rights and privileges than earlier
drafts, it covers very similar issues and is divided into two sections: activities and
treatment of transnational corporations. The section on TNC activities is very thorough,
stating that these entities should respect national sovereignty; refrain from interfering
in a government's internal affairs; adhere to the host government's economic, social and
cultural objectives; renegotiate contracts signed under duress; respect human and worker
rights; abstain from corrupt practices; facilitate local employment and ownership;
co-operate on balance-of-payments issues; refrain from transfer pricing and
anti-competitive practices; foster transfer of technology; promote consumer and
environmental protection; and disclose relevant information.164 In return, host governments must grant transnational corporations
fair and equitable treatment as well as national treatment; adequately compensate
transnational corporations for nationalized or expropriated property; permit TNCs to
transfer all payments legally due; disclose to corporations relevant information on laws
and administrative policies; ensure the confidentiality of TNC-disclosed materials; and
facilitate the transfer of TNC employees between entities of the corporation.165
While a significant level of effort has been expended to
draft an international code of conduct for transnational corporations, the utility of
implementing such a code has been subject to debate. Critics assert that this code merely
duplicates existing international standards and agreements; that its voluntary nature
renders it useless; and that it is politically not viable. However, the arguments in
favour of a code are stronger. First, a code of conduct is important because it addresses
TNC activities on an international level — a critical endeavour given the recent rise
in transnational corporate power relative to national governments' regulatory power.
Second, the process of revising and ratifying a code can help build trust between
transnational corporations, non-governmental organizations and developing countries —
an important development as attitudes towards economic activity increasingly favour the
free market. Third, it could help address the afore-mentioned substantive issues and
prevent the downward harmonization of consumer, environmental and labour standards.
Fourth, a code could help streamline the confusing and sometimes contradictory multitude
of charters, guidelines and laws regulating transnational corporate activity. A simplified
system would decrease administrative costs TNCs currently incur to ensure compliance with
a confusing web of regulatory frameworks and could facilitate adherence to minimum
standards. Fifth, a code of conduct would not duplicate many existing instruments, because
very few such documents are explicitly directed towards the activities of transnational
corporations, focusing instead on governmental obligations. Finally, it is important to
note that non-binding agreements can be influential because they engender a normative
environment, form the building blocks of future international law and can provide a forum
for continued dialogue on their subject matter.
Unfortunately, however, the current prospects for a code
of conduct are not promising. The political will behind the initial efforts to formulate
such a code has waned. In May 1994, the United Nations Commission on Transnational
Corporations decided to dissolve itself and fold into the United Nations Conference on
Trade and Development (UNCTAD). Furthermore, last year the Commission's companion body,
the United Nations Centre on Transnational Corporations, was downgraded into a smaller
unit of UNCTAD, and its office moved from New York to Geneva. The Centre's mandate was
also radically transformed: as of 1994, it no longer undertakes valuable studies on TNC
activity but rather seeks only to promote foreign direct investment. Because of the recent
changes in the former United Nations Commission and Centre on Transnational Corporations,
attempts to promulgate an international code of conduct for TNCs must now occur in a
different forum.
In addition to this United Nations document, there exist
two other international governmental codes focused upon transnational corporate conduct:
the Organisation for Economic Co-operation and Development's166 Guidelines for Multinational Enterprises (1976) and the
International Labour Organisation's Tripartite Declaration of Principles Concerning
Multinational Enterprises and Social Policy.167 Similar to the United Nations code, the OECD Guidelines are
directed at TNCs, are voluntary and are not legally enforceable. The critical differences
between the OECD Guidelines and the United Nations code are that, while the Guidelines
apply only to the few industrialized countries that are signatories, the code would apply
globally. Furthermore, the United Nations code is far more comprehensive and restrictive
of transnational corporate activity. The ILO Declaration is also directed towards both
governments and TNCs, is voluntary and is not legally enforceable. While the ILO
instrument is more restrictive of TNC activity than the OECD document, the ILO Declaration
is not as comprehensive as the United Nations code. It is also important to note that not
all countries have ratified this Declaration.
Regulatory
Efforts
International governmental bodies currently regulate the
activities of transnational corporations pursuant to customary law and numerous treaties.
The efforts of these international institutions to promote socially responsible behaviour
by TNCs constitute an expansion of national and sub-national attempts to advance such
goals.
A thorough discussion of the vast and disparate array of
international regulations governing transnational corporations is outside the scope of
this paper. It is important to note, however, that very few of these instruments are
directed explicitly towards transnational corporations — although they might
indirectly affect the legality of TNC activities. Examples of relevant international
instruments include the United Nations General Assembly resolutions on permanent
sovereignty over natural resources,168
the United Nations Charter of Economic Rights and Duties of States,169 the World Health Organization's International Code of Marketing of
Breast Milk Substitutes, FAO's (Food and Agriculture Organization of the United Nations)
International Code of Conduct on the Distribution and use of Pesticides,170 the International Covenant on Civil and Political Rights,171 the Set of Multilaterally Agreed Equitable Principles and Rules
for the Control of Restrictive Business Practices,172 the United Nations General Assembly resolution on consumer
protection,173 the Vienna Convention for the Protection of the Ozone Layer,174 and the International Convention for the Prevention of Pollution
of the Sea by Oil.175
The extent to which these international agreements have
been effective in regulating the activities of transnational corporations is difficult to
determine. As mentioned above, these documents often possess the drawbacks that they are
not explicitly directed towards TNCs, establish weak oversight mechanisms and fail to
create an enforcement authority. Legal realists would contend, therefore, that these
international agreements are completely ineffective. While such agreements are certainly
not ideal, however, the legal realist critique is too extreme because it ignores the more
subtle ways in which law operates. Although these international documents do not possess
enforcement mechanisms and, therefore, no TNC can be legally compelled to comply with
their provisions, these agreements can still influence the behaviour of transnational
corporations by conditioning the normative context in which TNCs operate. The
environmental, consumer, labour and human rights agreements that occupy the international
arena are difficult to ignore. Furthermore, they provide citizen groups with legitimacy as
they campaign against damaging TNC policies. For example, while the World Health
Organization's International Code of Marketing of Breast Milk Substitutes is not legally
enforceable, it provides TNCs with a benchmark by which to judge their operations and
enhances the legitimacy of citizen claims that a TNC might be violating international
moral standards. In sum, these international agreements are not perfect and their lack of
enforceability renders difficult an assessment of their effectiveness. However, they are
simultaneously not irrelevant because they shape the normative environment in which TNCs
operate and possibly constitute the first step in the creation of a more enforceable
international legal régime.
150 50. Shuman, forthcoming.
151 51. Examples include tax breaks for investors, special economic zones for
manufacturers and subsidies to companies engaging in value-added production.
152 52. Governments sometimes require investors to meet certain criteria before
being granted access to a national market. For example, TNCs might be required to
co-operate on balance-of-payments issues or employ nationals as a condition of market
entry.
153 53. Samuels, op. cit.
154 54. Ibid., p. 133.
155 55. Ibid., p. 113.
156 56. DiConti, op. cit., pp. 108-112.
157 57. Ibid., p. 112.
158 58. Shuman, op. cit.
159 59. LeRoy, 1994, p. 43.
160 60. Zuckoff, 1994c.
161 61. See the sub-sections on "Consumer issues and health ramifications" and "Environmental
resources" in part 1 of this paper.
162 62. See the section on "The rights of transnational corporations" in
part 2 of this paper.
163 63. United Nations Centre on Transnational Corporations, 1990.
164 64. Ibid., paras. 7-46.
165 65. Ibid., paras. 49-55.
166 66. The Organisation for Economic Co-operation and Development (OECD) is the
major policy-formulating body for industrialized countries. Members include Australia,
Canada, Japan, New Zealand, the United States and the nations of Western Europe. The OECD
revised its guidelines in 1979 and 1984 (Getz, 1991, p. 569).
167 67. American Society of International Law, 1978, p. 422.
168 68. These resolutions contain more detailed provisions than the United Nations
code regarding countries' sovereignty over their natural resources. However, they
do not explicitly mention transnational corporations, are not legally binding, and possess
no implementation mechanisms (United Nations, 1963, General Assembly resolution 1803, p.
15; United Nations, 1973, General Assembly resolution 3171, p. 52).
169 69. This document states that transnational corporations shall not intervene in
the internal affairs of host countries, but is less detailed than the United Nations code.
This charter is not legally binding, nor does it possess any implementation mechanism
(United Nations, 1975, General Assembly resolution 3281, p. 50).
170 70. This document applies to both private and public entities involved in the
pesticide industry with respect to labelling, advertising, distribution, training of
personnel and disclosure of information.
171 71. Some human rights treaties such as the Covenant on Civil and Political
Rights are binding on their signatories and possess established implementation mechanisms.
On the other hand, there is disagreement as to whether these instruments regulate the
conduct of private actors such as transnational corporations (United Nations, 1967,
General Assembly resolution 2200, p. 52).
172 72. United Nations, 1980, General Assembly resolution 35/63, p. 123.
173 73. United Nations, 1985, General Assembly resolution 39/248, p. 179.
174 74. American Society of International Law, 1985, p. 1529.
175 75. This instrument applies both to public and private shipping entities
(American Society of International Law, 1970, p. 1).
|
