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The Rights of
Transnational Corporations The collapse of
the Soviet empire, the dismantling of social welfare programmes in some European nations
and the concomitant predominance of a free-market ideology have transformed the context in
which transnational corporations operate: these entities are currently witnessing an
unprecedented expansion in their privileges and rights. Such an expansion has occurred
both on the international level through trade agreements and investment treaties and on
the national level through privatization efforts and weakened government regulation.
The recent Uruguay Round of the GATT (General Agreement on
Tariffs and Trade) probably constitutes the most important international development
related to transnational corporate rights. Comprised of over 20 separate and complex
agreements, the GATT expands corporate privileges while limiting the regulatory power of
governments. For example, the Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPs) enhances the power of transnational corporations to enforce patents,
trademarks and copyrights; this agreement simultaneously impedes governmental efforts in
developing countries to condition transnational corporate investment privileges upon
corporate assistance with indigenous technological development. The Agreement on
Trade-Related Investment Measures (TRIMs) also expands the rights of transnational
corporations. This agreement prevents governments from requiring as a condition of market
access that TNCs engage in a variety of socially responsible activities, including the
hiring and training of nationals, the promotion of local equity participation, or the use
of domestic content in the manufacturing process. Pursuant to this agreement,
transnational corporations also may not be subject to minimum capital requirements or
trade balancing regulations. Meanwhile, the Agreement on Sanitary and Photosanitary
Measures might enhance the rights of transnational corporations to engage in certain
activities that threaten the health and safety of individuals.121 Finally, the General Agreement on Trade in Services (GATS) limits
governmental attempts to regulate TNC power through restrictions on repatriation of
profits and capital in service sectors.
While the various agreements in the GATT often enhance the
rights of transnational corporations, it is important to note that the relationship
between the GATT, corporate privileges and governmental regulatory power is exceedingly
complex. Furthermore, there do exist some exceptions to these agreements retaining the
authority of governments to regulate TNC activity. For example, many of the agreements,
including the Agreement on Trade-Related Investment Measures, grant temporary exemptions
to governments in developing countries. The Agreement on Trade-Related Intellectual
Property Rights contains clauses addressing the concerns of developing countries regarding
issues of biodiversity and local agriculture. Furthermore, article XII of the General
Agreement on Tariffs and Trade allows derogations to improve balance-of-payments
difficulties and article XX contains a variety of general exceptions, including exemptions
for environmental and safety purposes.
The proliferation of bilateral investment treaties (BITs)
constitutes another important international development that has enhanced corporate
rights. These agreements usually prescribe standards of treatment for transnational
corporations, guaranteeing such entities "fair and equitable treatment" as well
as "national treatment".122 BITs also often protect transnational corporations from
nationalization or expropriation without just compensation and guarantee them the right to
freely repatriate profits and capital. By the early 1990s, governments had created and
signed 440 Bilateral Investment Treaties.123
Developments at the national level have also expanded the
power and rights of transnational corporations. First, privatization efforts in Latin
America and Eastern Europe have provided the opportunity for TNCs to enlarge their scope
of influence. Spurred by the failure of state-owned enterprises to deliver goods and
services effectively, the number of global privatizations quintupled between 1985 and
1990.124
Second, changes in national regulatory ideologies and
structures have also benefited transnational corporations. Many governments have gradually
been lifting national restrictions on TNC activity and removing the conditions they have
traditionally placed upon transnational corporate investment privileges. Between 1982 and
1987, for example, half of all African nations instituted changes in their foreign
investment code to attract more transnational corporate involvement in their economies; by
the early 1990s, almost all the remaining countries in Africa, a region historically
suspicious of foreign corporate activity, had followed suit.125 These more liberalized investment codes replaced national
regulations regarding local ownership restrictions, foreign exchange controls, limits on
remittances of profits and TNC obligations to transfer technology to host countries.126 Many of these nations did, however, retain some restrictions on
transnational corporations, including measures to foster local industrial development,
advance certain domestic sectors and promote exports.127
Many countries outside Africa, including Albania,
Bulgaria, Saudi Arabia and Viet Nam, have also recently liberalized their investment
codes.128 Even India, a nation historically dedicated to import substitution
strategies and cautious of foreign investment, recently liberalized its industrial
licensing procedures, allowed partial convertibility of its currency and proclaimed a more
limited role for the public sector.129 Some other countries that have recently changed their investment
policies include the following: the Philippines now allows 100 per cent foreign equity
ownership in the major areas of its economy; Egypt has expanded permissible sectors for
foreign investment; and Colombia has guaranteed national treatment to transnational
corporations, raised the ceilings on profits that can be remitted and no longer requires
governmental approval for most investment projects.130
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The
Responsibilities of Transnational Corporations As current economic and geopolitical conditions help to expand the
rights of transnational corporations, they simultaneously minimize TNC responsibilities
for advancing social development. Activities promoting such goals are often considered
economically inefficient. Furthermore, advocates for TNCs argue that, as profit-maximizing
entities, transnational corporations are not responsible for advancing social welfare;
instead, they assert that such activities fall exclusively under governmental purview.
Finally, corporate officials argue that they are responsible only to the company's
shareholders. While in many countries these officials are correct that they are legally
responsible only to shareholders, this assertion evades the issue of whether transnational
corporations are morally responsible for advancing social goals.
However, these claims of transnational corporate advocates
and officials are disingenuous for two reasons. First, while TNC proponents, on the one
hand, argue that promoting social welfare is solely the responsibility of governments, on
the other hand, they are simultaneously attempting to weaken the government regulations
they hail as the protectors of the citizenry. For example, TNCs consciously undermine the
ability of governments to promote the welfare of poorer and less powerful citizens and
groups in society through their direct lobbying efforts for fewer national investment
restrictions; less stringent international regulations; lower environmental, labour and
consumer standards; and the abolition of unitary tax policies. Additionally, by playing
governments off against one another in efforts to receive the most advantageous investment
package, TNCs intentionally weaken the capacity of governments to promote social welfare.
Second, the claims of TNC proponents rest upon suspicious
moral foundations. They argue in essence that, because weak governments are either unable
or unwilling to promote the social well-being of their even weaker citizenry, TNCs
therefore have free reign to engage in potentially harmful activities and have no
responsibility to such individuals. This line of reasoning was evinced in a previous
section on TNCs and consumer issues. As this section demonstrated, TNC officials assert
that attempts to prevent them from selling to developing countries pesticides and
pharmaceuticals banned in their home countries are imperialistic infringements upon the
sovereignty of these nations. However, transnational corporate officials are often aware
of the harmful effects of their products and know that many developing countries do not
possess the governmental resources necessary to conduct tests on TNC products and that
many consumers in such nations do not possess the information necessary to make truly
informed choices. There clearly exist disparities in power and information; the crucial
issue is whether TNCs are morally bound to refrain from exploiting such disparities or
whether their profit-making nature simply frees them from moral obligation and social
responsibility.
It is important to note that critics of current TNC
attitudes do not argue that these entities should replace governments as the primary
advocates for social development. Such critics recognize that the profit-maximizing and
non-democratic nature of transnational corporations renders them incapable of performing
the role that governments fulfil. Instead, these critics argue that corporate officials
have a responsibility to minimize the socially harmful ramifications of their
profit-maximizing activities and that they should consider an expanded definition of "stakeholder",
beyond merely shareholders, when making their decisions.
As advocates of enhanced TNC social responsibility are not
arguing that transnational corporations should replace governments, they are not arguing
either that TNCs must necessarily adhere to higher standards than local firms. As
corporations become increasingly mobile, it makes no sense that the geographical location
of a company's headquarters alone should determine the standards by which it may compete
with other firms.
Take, for example, a German chemical company competing
with local producers in Thailand. If both firms have similar cost structures, access to
technology and opportunities for profit making, they should be held to similar operating
standards. Such a Thai firm that exploits workers, knowingly produces harmful products or
destroys the environment should be subject to the same criticism that would be levied upon
TNCs if these multinational enterprises engaged in such conduct.
However, a German firm competing with local firms in
Thailand often will not experience similar operating variables. That is, its marginal
costs of production might be lower, its access to technology better and, therefore, its
profit-making opportunities greater. Under these circumstances, it is not unreasonable to
expect the German firm to adhere to higher labour, consumer or environmental standards
particularly when it can still turn a sizeable profit despite following these more
stringent standards; advocates for enhanced TNC responsibility do not argue that
transnational corporations should adhere to higher standards if such actions would put
them at a significant comparative disadvantage with local firms, preclude them from making
profits or compel them to withdraw from the host country's market. Instead, they argue
that, when competing with a Thai firm that is less efficient and/or has less access to
technology, a socially responsible firm will sacrifice a few marks in profits, especially
when such marks might only buy lunch in Berlin but when converted to bhat can sustain a
Bangkok family for two weeks.
In fact, such arguments do not always go unheeded. While
most transnational corporations deny that they are obliged to foster social development,
some accept a duty to be "good corporate citizens". This less stringent standard
prohibits transnational companies from affirmatively engaging in activities that produce
harm: for example, breaking the law or knowingly distributing faulty consumer products.
However, as "good corporate citizens", TNCs are obliged only to refrain from
participating in harmful activities; they are not obliged to pursue socially beneficial
policies. The distinction between a "good corporate citizen" and a "socially
responsible corporation" is important. While the former refrains from knowingly
breaking environmental laws or causing ecological disasters, the latter unilaterally
implements policies designed to reduce toxic emissions and develops technologies to
minimize environmental degradation. While the former pays its employees the minimum wage
and complies with workplace safety laws, the latter ensures that wages rise with increases
in productivity and guarantees safe working conditions even if government regulations or
administrative policies do not require them to do so. In sum, while the former complies
with its minimum legal requirements, the latter advocates social development even if
such goals are not always in the corporation's best economic interest.
It is important to note, however, that some observers
believe that socially responsible policies can sometimes actually advance the financial
interests of transnational corporations and are, therefore, not always a drain on the
company's budget. Such individuals argue that there exists a growing consumer awareness of
corporate behaviour and that consumers are increasingly willing to consider the policies
of a corporation when choosing a product brand. The growth of socially responsible
investment funds constitutes further evidence of this trend.
Codes of
Conduct
Transnational corporations engage in two primary forms of
socially responsible activities: donating to philanthropic causes131
and implementing codes of conduct. Business associations and individual corporations are
both involved in the establishment and implementation of such codes. Business association
codes are self-regulatory efforts that a trade association attempts to impose upon all
firms operating within an industry. Trade association codes are particularly prevalent in
the environmental arena as the Conseil Européen des Féderations de l'Industrie Chimique,
the American Chemical Manufactures Association and the Japanese Keidanren132 have all recently promulgated their own environmental standards.133 The International Chamber of Commerce has even recently
established its Business Charter for Sustainable Development.134
A particularly interesting form of corporate codes derives
from broader business organizations publicly dedicated to promoting social responsibility.
For example, the Minnesota Center for Corporate Responsibility, founded in 1978, is a
coalition of over 200 companies that has promulgated the "Minnesota Principles".
This code of conduct mandates fairness, honesty, respect for human dignity and respect for
the environment. Furthermore, it expands the notion of corporate stakeholders to include
not only investors, but also customers, employees, suppliers, developing countries and
communities. Business for Social Responsibility constitutes another US-based organization
that has grown from 54 founding companies to more than 700 member and affiliated
businesses since it was launched in June 1992. Although this organization has not
formulated a code of conduct, it attempts to foster corporate social responsibility
through seminars, support networks, coalition building and a data base that contains
socially responsible alternatives for corporations to follow.
Individual corporations have also formulated codes of
conduct for their own operations. A recent United Nations survey of 169 relevant firms
found that 43 per cent had developed some form of international environmental policy.135 Additionally, a few firms have refused to do business in countries
with poor human rights records. For example, the Levi Strauss Company does not operate in
the People's Republic of China or in Myanmar. Some transnational corporations have been
credited with making a positive contribution to social change in South Africa. General
Motors, for example, was particularly influential in drafting the Sullivan Principles
which attempted to regulate US-based corporate activity in South Africa. Finally,
individual firms have been particularly active in formulating codes of conduct for
subcontractors in developing countries. Many transnational manufacturing corporations no
longer own and operate the plants in which some components of their products are made.
Instead, they subcontract out for such goods and then act as global distributors. This
de-coupling of manufacturing and distribution has prompted TNCs to assert that they are
not responsible for the work conditions or wage levels in factories that manufacture their
products. In efforts to promote responsible labour practices, some companies such as NIKE,
Levi Strauss, Sears and Reebok have established codes of conduct for their subcontractors.
The Levi Strauss Company probably possesses the most
admirable and responsible code of conduct for subcontractors. This code covers
environmental, ethical, health and safety standards, and prohibits child labour, prison
labour and discrimination. Furthermore, it requires that Levi Strauss subcontractors pay
the minimum wage and employ their workers at most 60 hours per week with one day off.136
Levi Strauss attempts to ensure compliance with this code through detailed subcontractor
evaluation forms and periodic monitoring by corporate employees. The company has fired 35
of its 700 subcontractors for failing to comply with Levi Strauss guidelines.137
Although firms continue to implement codes of conduct,
there is some question as to whether these measures actually produce positive social
effects. Advocates of such codes assert that they send a serious message from senior
management to all employees and that they facilitate the efforts of those employees who do
want to engage in socially responsible activities.138 On the other hand, critics state that corporations establish these
codes only to advance their own self-interest. These sceptics assert that companies
maintain codes of conduct to produce a good public image which they then market to
socially conscious consumers; to escape attention when they do cause harm; to distance
themselves from employees who engage in practices against the code of conduct, thus
diminishing corporate legal liability; and to shield themselves against litigation.139 Furthermore, there is some evidence that companies are unwilling
or unable to enforce their codes of conduct.140 According to critics, therefore, such codes generate only marginal
effects on employment, environmental or consumer practices, and, in fact, might obfuscate
the true intentions and policies of transnational corporations.
While the actual consequences of corporate codes are
difficult to ascertain with respect to specific firms, on a general level these
instruments are most likely benign. Despite critics' claims, there is little evidence that
transnational corporations have been able to use their codes of conduct to minimize their
legal liability or generate a public image that is a complete fabrication. On the other
hand, it should not be expected that these codes will magically transform a transnational
corporation into a socially responsible actor. For example, although Reebok has
established guidelines for its subcontractors, employees sewing Reebok shoes in Indonesia
still make only the minimum $1.80 daily wage, and no Reebok subcontractor has ever lost an
order for failing to comply with Reebok's code.141
Furthermore, some companies that do not have codes of
conduct might be more responsible than corporations that have established such guidelines.
For example, as mentioned above, the Gillette Company operates in the same Indonesian
environment as Reebok. Although Gillette has not established a code of conduct, it pays
its workers three to four times the legal minimum wage and also provides its employees
American-style retirement and health benefits.142
121 21. For a good discussion of the effect the GATT might have upon current safety
and health regulations, see Public Citizen, 1994.
122 22. The principle of national treatment requires governments to treat domestic
and foreign investors equally.
123 23. United Nations Transnational Corporations and Management Division, 1992, p.
77.
124 24. Ibid., p. 83.
125 25. UNCTAD, 1994c, p. 5, para. 3.
126 26. Ibid., p. 6, para. 6; p. 10, paras. 16-18.
127 27. Ibid., p. 6, para. 4.
128 28. United Nations Transnational Corporations and Management Division, 1992, p.
79.
129 29. Ibid., p. 82.
130 30. Ibid., pp. 337-339.
131 31. See the section on "Non-governmental/citizen organization efforts" in
part 1 of this paper.
132 32. This is an association of various Japanese industries.
133 33. United Nations Transnational Corporations and Management Division, 1992, pp.
91-92.
134 34. Ibid.
135 35. Ibid., p. 92.
136 36. Although the Levi Strauss guidelines are most likely the best in the
industry, they have still been subjected to criticism for their non-binding nature; for
not prohibiting sexual harassment; for guaranteeing only a legal wage and not a "living
wage"; for not prohibiting the forced transfer of workers from
one country to another; and for not providing special benefits to employees who have
worked for a long time to make Levi Strauss products.
137 37. Zuckoff, 1994a.
138 38. Pitt and Groskaufmans, 1990, pp. 1634-1635.
139 39. Ibid., pp. 1630-1633.
140 40. Ibid., p. 1604.
141 41. Zuckoff, 1994a.
142 42. Ibid.
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