Professional Documents
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SEMESTER
JAMIA MILLIA
ISLAMIA
DATE:-
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Transnational Corporation
Any corporation that is registered and operates in more than one country at a time; also called a
multinational corporation.
A transnational, or multinational, corporation has its headquarters in one country and operates
wholly or partially owned subsidiaries in one or more other countries. The subsidiaries report to
the central headquarters. The growth in the number and size of transnational corporations since
the 1950s has generated controversy because of their economic and political power and the
mobility and complexity of their operations. Some critics argue that transnational corporations
exhibit no loyalty to the countries in which they are incorporated but act solely in their own best
interests.
U.S. corporations have various motives for establishing a corporate presence in other countries.
One possible motive is a desire for growth. A corporation may have reached a plateau meeting
domestic demands and anticipate little additional growth. A new foreign market might provide
opportunities for new growth.
Other corporations desire to escape the protectionist policies of an importing country. Through
direct foreign investment, a corporation can bypass high tariffs that prevent its goods from being
competitively priced. For example, when the European Common Market (the predecessor of the
European Union) placed tariffs on goods produced by outsiders, U.S. corporations responded by
setting up European subsidiaries.
Two other motives are more controversial. One is preventing competition. The most certain
method of preventing actual or potential competition from foreign businesses is to acquire those
businesses. Another motive for establishing subsidiaries in other nations is to reduce costs,
mainly through the use of cheap foreign labor in developing countries. A transnational
corporation can hold down costs by shifting some or all of its production facilities abroad.
Transnational corporations with headquarters in the United States have played an increasingly
dominant role in the world economy. This dominance is most pronounced in the developing
countries that rely primarily on a narrow range of exports, usually primary goods. A transnational
corporation has the ability to disrupt traditional economies, impose monopolistic practices, and
assert a political and economic agenda on a country.
Another concern with transnational corporations is their ability to use foreign subsidiaries to
minimize their tax liability. The Internal Revenue Service (IRS) must analyze the movement of
goods and services between a transnational company's domestic and foreign operations and then
assess whether the transfer price that was assigned on paper to each transaction was fair. IRS
studies indicate that U.S. transnational corporations have an incentive to set their transfer prices
so as to shift income away from the United States and its higher corporate tax rates and to shift
deductible expenses into the United States. Foreign-owned corporations doing business in the
United States have a similar incentive. Critics argue that these tax incentives also motivate U.S.
transnational corporations to move plants and jobs overseas.
Generally, the term “transnational corporation” refers to a corporation with affiliated business
operations in more than one country.1 A more specific definition deems an enterprise a TNC if “it
has a certain minimum size, if it owns or controls production or service plants outside its home
state and if it incorporates these plants into a unified corporation strategy.” According to yet
another definition, a TNC is “a cluster of corporations of diverse nationality joined together by
ties of common ownership and responsive to a common management strategy 2.” The Draft UN
Code of Conduct on Transnational Corporations defines a TNC as [… an enterprise, whether of
public, private or mixed ownership, comprising entities in two or more countries, regardless of
the legal form and fields of activity of these entities, which operates under a system of decision-
making, permit- ting coherent policies and a common strategy through one or more decision-
making centres, in which the entities are so linked, by ownership or otherwise, that one or more
of them [may be able to] exercise a significant influence over the activities of others, and, in
particular, to share knowledge, resources and responsibilities with the others 3.] The Norms
specifically define a “transnational corporation” as “an economic entity operating in more than
one country or a cluster of economic entities operating in two or more countries - whatever their
legal form, whether in their home country or country of activity, and whether taken individually
or collectively.”
The Norms, however, do not limit their application to TNCs but also include other business
enterprises. The working group defines the phrase “other business enterprise” as “any business
entity, regardless of the international or domestic nature of its activities, including a transnational
corporation, contractor, subcon- tractor, supplier, licensee or distributor; the corporate,
partnership, or other legal form used to establish the business entity; and the nature of the
ownership of the entity.” 4 Hence, even though the Norms define TNCs and focus some attention
on transnationals, they are written to include all business entities, regardless of their stated
corporate form or the international or domestic scope of their business. Its’ breadth de-
emphasizes the definition of TNCs and does not restrict the Norms’ scope of application.5
1
Luzius Wildhaber, Some Aspects of the Transnational Corporation in Interna- tional Law, 27 Neth. Int’l L. Rev. 79,
80 (2004).
2
Mary Robinson, Second Global Ethic Lecture, University of Tübingen, Ger- many, (Jan. 21, 2002), at http://
www.ireland.com/newspaper/special/2002/ robinson (last visited Sept. 23, 2005).
3
“Draft UN Code”, para. 1(a), Development and International Economic Cooperation: Transnational Corporations,
UN Doc. E/1990/94; See also Draft United Nations Code of Conduct on Transnational Corporations, May 1983, 23
ILM 626 (1984).
4
Mary Robinson, Second Global Ethic Lecture, University of Tübingen, Ger- many (Jan. 21, 2002), at
http://www.ireland.com/newspaper/special/2002/ robinson (last visited Sept. 23, 2005).
5
Id.
Need for the UN Norms
Before analyzing the efficacy of the norms in view of human rights, it is important to understand
the international community’s need for such norms in order to appreciate why such norms
emerged. First, since the early 1990s there has been a marked increase in the number of cases
filed against TNCs for human rights abuses globally and in the United States in particular under
the Alien Tort Claims Act. Cases such as Wiwa v. Royal Dutch Petroleum Co.6, Nike Labour
Rights Violation Abroad case7, and Rangoon Forced Labour case,8 illustrate the need for a norm
that would ensure TNCs and the international community’s respect for human rights and
punishment where this respect was violated. TNCs operating in today’s global economy face
significant challenges arising from diverse cultural as well as political and economic pressures.
How a TNC responds to the human rights agenda has a significant impact on its business
performance and the public’s perception of such company. For example, Shell International faced
criticism from human rights groups for its muted response to the Nigerian government’s human
rights abuses and execution of nine Ogoni leaders. Talisman Energy was forced to sell its oil
development assets in Sudan as a result of pressure from human rights activists and
shareholders.9 Examples such as cited above have traditionally negatively impacted the TNCs
involved. As such, TNCs realized that it is advantageous to have a corporate human rights policy
in place that is comprehensive, transparent, verifiable and consistently applied. To make sound
investment decisions, investors often wish to know how a company addresses human rights since
an increasing number of investors are concerned with these issues; there is a significant risk
therefore posed to a company that neg- lects these obligations. As such, there arose the need for a
com- prehensive policy dealing with human rights.
Rights, the International Labour Organizations’ core labor conventions and the wide range of
other international agreements related to human rights. 10 The Norms help connect the dots for
companies between international human rights agreements and the obligations of companies. The
Norms provide concrete guidance for companies adopting comprehensive human rights policies
covering such areas as equal opportunity, security, rights of workers, respect for national
sovereignty, con- sumer and environmental protection and provisions for implementation. The
key impact of the Norms for TNCs is the clear definition of the role of corporations as promoters
of human rights “within their respective spheres of activity and influence” while affirming the
primary role of government in promoting human rights and pre- venting abuses. The
commentaries on each provision are especially helpful in providing guidance to companies
designing their own human rights policies and practices consistent with the Norms. The Norms
are therefore a welcome addition to voluntary corporate codes of conduct. While these codes are
6
Aaron X. Fellmeth, Wiwa v. Royal Dutch Petroleum Co.: A New Standard for the Enforcement of International Law
in the U.S. Courts?, 5 Yale Hum. Rts. & Dev. L.J. 241, 244- 45 (2002).
7
Lena Ayoub, Nike Just Does It and Why the United States Shouldn’t: The United States’ International Obligation to
Hold MNCs Accountable for Their Labor Rights Violations Abroad, 11 DePaul Bus. L.J. 395, 400-11 (1999).
8
Anita Ramasastry, Corporate Complicity: From Nuremberg to Rangoon—An Examination of Forced Labor Cases
and Their Impact on the Liability of Multina- tional Corporations, 20 Berkeley J. Int’l L. 91, 131-36 (2002).
9
Submission by ICCR’s Human Rights Working Group to the UN High Commission on Human Rights,
www.iccr.org/news/press_releases/ 2004/pr_hrwgsubmiss100704.htm (last visited Sept. 10, 2005).
10
Anita Ramasastry, Corporate Complicity: From Nuremberg to Rangoon—An Examination of Forced Labor Cases
and Their Impact on the Liability of Multina- tional Corporations, 20 Berkeley J. Int’l L. 91, 131-36 (2002).
important in focusing on some human rights issues such as factory conditions for workers, many
are not built firmly on the internationally recognized human rights standards that make up the
Norms. Some standards are shaped more by the culture of a company than by international
human rights conventions. The Norms provide a common template for all companies,
establishing the expectations of minimum standards for human rights performance, which can
create a level playing field for all companies. The Norms are built on already agreed upon human
rights conventions, covenants as well as treaties and set out the need for clear articulation of the
global community’s expectations for corporate behaviour with regard to human rights.
11
*this legal review was originally made for application of ALSA Forum 2010 selection;25 th april 2010
Huala Adolf, Hukum Ekonomi Internasional:Suatu Pengantar, Jakarta:Rajagrafindo Persada, page 83
12
http://www.geographyjim.org/login/index.php
LEGAL ISSUES
The obligation of MNC has regulated in several multilateral instrument, the most
generally accepted is The Organization for Economic Cooperation and Development (OECD)
Guidelines for Multinational Enterprises (hereinafter the OECD Guidelines) . The OECD
Guidelines rule that MNC should take fully into account established policies in the countries in
which they operate, and consider the views of other stakeholders. In this regard, MNC should:
1. Contribute to economic, social and environmental progress with a view to achieving
sustainable development.
2. Respect the human rights of those affected by their activities consistent with the host
government’s international obligations and commitments.
3. Encourage local capacity building through close co-operation with the local community,
including business interests, as well as developing the enterprise’s activities in domestic
and foreign markets, consistent with the need for sound commercial practice.
4. Encourage human capital formation, in particular by creating employment opportunities
and facilitating training opportunities for employees.
5. Refrain from seeking or accepting exemptions not contemplated in the statutory or
regulatory framework related to environmental, health, safety, labour, taxation, financial
incentives, or other issues.
6. Support and uphold good corporate governance principles and develop and apply good
corporate governance practices.
7. Develop and apply effective self-regulatory practices and management systems that foster
a relationship of confidence and mutual trust between enterprises and the societies in
which they operate.
8. Promote employee awareness of, and compliance with, company policies through
appropriate dissemination of these policies, including through training programmes.
9. Refrain from discriminatory or disciplinary action against employees who make bona
fide reports to management or, as appropriate, to the competent public authorities, on
practices that contravene the law, the Guidelines or the enterprise’s policies.
10. Encourage, where practicable, business partners, including suppliers and sub-contractors,
to apply principles of corporate conduct compatible with the Guidelines.
11. Abstain from any improper involvement in local political activities.13
Related with environmental issue, The OECD Guidelines have a special section which
regulate that MNC should, within the framework of laws, regulations and administrative
practices in the countries in which they operate, and in consideration of relevant international
agreements, principles, objectives, and standards, take due account of the need to protect the
environment, public health and safety, and generally to conduct their activities in a manner
contributing to the wider goal of sustainable development. In particular, MNC should:
1. Establish and maintain a system of environmental management appropriate to the
enterprise, including:
a) Collection and evaluation of adequate and timely information regarding the
environmental, health, and safety impacts of their activities;
13
The OECD Guidelines for Multinational Enterprises---General Policy section II
b) Establishment of measurable objectives and, where appropriate, targets for
improved environmental performance, including periodically reviewing the
continuing relevance of these objectives; and
c) Regular monitoring and verification of progress toward environmental, health,
and safety objectives or targets.
2. Taking into account concerns about cost, business confidentiality, and the protection of
intellectual property rights:
a) Provide the public and employees with adequate and timely information on the
potential environment, health and safety impacts of the activities of the
enterprise, which could include reporting on progress in improving
environmental performance; and
b) Engage in adequate and timely communication and consultation with the
communities directly affected by the environmental, health and safety
policies of the enterprise and by their implementation.
3. Assess, and address in decision-making, the foreseeable environmental, health, and
safety-related impacts associated with the processes, goods and services of the enterprise
over their full life cycle. Where these proposed activities may have significant
environmental, health, or safety impacts, and where they are subject to a decision of a
competent authority, prepare an appropriate environmental impact assessment.
4. Consistent with the scientific and technical understanding of the risks, where there are
threats of serious damage to the environment, taking also into account human health and
safety, not use the lack of full scientific certainty as a reason for postponing cost-effective
measures to prevent or minimise such damage.
5. Maintain contingency plans for preventing, mitigating, and controlling serious
environmental and health damage from their operations, including accidents and
emergencies; and mechanisms for immediate reporting to the competent authorities.
6. Continually seek to improve corporate environmental performance, by encouraging,
where appropriate, such activities as:
a) Adoption of technologies and operating procedures in all parts of the enterprise
that reflect standards concerning environmental performance in the best
performing part of the enterprise;
b) Development and provision of products or services that have no undue
environmental impacts; are safe in their intended use; are efficient in their
consumption of energy and natural resources; can be reused, recycled, or
disposed of safely;
c) Promoting higher levels of awareness among customers of the environmental
implications of using the products and services of the enterprise; and
d) Research on ways of improving the environmental performance of the enterprise
over the longer term.
7. Provide adequate education and training to employees in environmental health and safety
matters, including the handling of hazardous materials and the prevention of
environmental accidents, as well as more general environmental management areas, such
as environmental impact assessment procedures, public relations, and environmental
technologies.
8. Contribute to the development of environmentally meaningful and economically efficient
public policy, for example, by means of partnerships or initiatives that will enhance
environmental awareness and protection.14
Moreover, there is another multilateral instrument that regulates the obligation of MNC
related with the rights of people and environment of host country, it is the Norms on the
Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to
Human Rights. It is regulates that MNC should respect economic, social and cultural rights as
well as civil and political rights and contribute to their realization, in particular the rights to
development, adequate food and drinking water, the highest attainable standard of physical and
mental health, adequate housing, privacy, education, freedom of thought, conscience, and
religion and freedom of opinion and expression, and shall refrain from actions which obstruct or
impede the realization of those rights. Furthermore, it is police the MNC to carry out their
activities in accordance with national laws, regulations, administrative practices and policies
relating to the preservation of the environment of the countries in which they operate, as well as
in accordance with relevant international agreements, principles, objectives, responsibilities and
standards with regard to the environment as well as human rights, public health and safety,
bioethics and the precautionary principle, and shall generally conduct their activities in a manner
contributing to the wider goal of sustainable development.15
The obligation concerning permanent sovereignty over natural resources as the main
thing in FDI problem in most of developing countries is first being enunciated in the Charter of
Economic Rights and Duties of States (UNGA resolution 3281 (XXXI) in December 1974).
Then it is being regulated in General Assembly resolution 1803 (XVII) of 14 December 1962. It
is noted that the capital imported and the earnings on that capital shall be governed by the terms
thereof, by the national legislation in force, and by international law. The profits derived must be
shared in the proportions freely agreed upon, in each case, between the investors and the
recipient State, due care being taken to ensure that there is no impairment, for any reason, of that
State's sovereignty over its natural wealth and resources. Furthermore, FDI agreements freely
entered into States shall be observed in good faith; it shall strictly and conscientiously respect the
sovereignty of peoples and nations over their natural wealth and resources in accordance with the
Charter and the principles set forth in the present resolution. 16 The permanent sovereignty over
natural resources is later known as established human rights, especially for developing countries
in its relation with FDI.
Unfortunately, the execution of the well-formed regulation has not been great. It is still far from
ideal. The regulation has not being assisted with a lofty system. Those obstacles are fence for
entering FDI and have being a barrier for the economic integration.
14
The OECD Guidelines for Multinational Enterprises---Environment section V
15
Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to
Human Rights, U.N. Doc. E/CN.4/Sub.2/2003/12/Rev.2(2003)---point 12 and 14
16
General Assembly resolution 1803 (XVII) of 14 December 1962
Trans-National Companies –
The development
ABSTRACT: The largest source of external funds to developing countries is not development
assistance — whether bilateral, multilateral, loans, grants, official or other. It is foreign direct
investment (FDI). FDI represents an enormous supply of financial resources, technology and
jobs and is of great potential benefit to emerging economies. FDI comes from the private sector,
from large companies willing to invest anywhere. These companies, called “trans-national
companies (TNCs), are important but accidental participants in the development process. Their
role and importance are described in this paper.
Trans-National Corporations (TNCs) sometimes referred to as multinational companies, are
enterprises that control economic assets in other countries — generally this means controlling at
least a 10% share of such an asset 17. These companies command enormous financial resources,
possess vast technical resources and have extensive global reach. In 2002, the most recent year
for which full data are available, FDI made throughout the world totaled some $651bn 18. While
most FDI goes to developed countries; for developing countries it is by far the largest source of
external finance.
Despite their impact in developing economies, however, TNCs are not development agencies.
They are profit-seeking organizations. These dual roles of funding source and profit
seeker — unrelated roles that are neither conflicting nor complementary — have made
TNCs object of great controversy. Do they help or hinder? Do they give or take? Are their
benign or malign? Are they stakeholders or exploiters? Can they be persuaded to be good world
citizens or are they indifferent to their impact?
Throughout the world, there are some 64,000 TNCs controling 870,000 foreign affiliates.
Globalization, particularly the dismantling of trade barriers, has allowed companies to spread
widely in search of cost efficiency and to implement integrated production strategies across
regions and even continents19. Unquestionably, they bring resources of great potential benefit to
developing countries.
• TNCs, and the FDI they bring, have the potential to “generate employment, raise productivity,
transfer skills and technology, enhance exports and contribute to the long-term economic
development of developing countries.” • They infuse money into an economy where it can
supplement or free- up government revenues and/or development assistance funds. • TNCs also
bolster the private sectors of the countries where they operate, a process deemed important to
overall economic growth and economic health20.
Despite this positive potential, the TNC phenomenon also carries some negative potential. A
number of objections to their behavior in developing countries have been raised:
17
Definitions of TNC, FDI and related concepts
18
UNCTAD (2004a), p 2.
19
One-third of global trade is intra-firm trade. Refer to UNCTAD website
http://www.unctad.org/Templates/StartPage.asp?intItemID=2527&lang=1
20
Refer to G8 (2004) for more on this
1. For both real and ideological reasons, some stakeholders distrust the impact of TNCs on
vulnerable economies. It has been reported that “Twenty-nine of the world’s 100 biggest
economic entitles are multinational companies21.” That degree of economic strength wielded
within a weak economy by an powerful organization required by fiduciary responsibility to give
top priority to shareholder return cannot be counted on to respect the best interests of the host
country22.
2. Specific instances of serious problems with TNC practices — frequently related to
environmental despoilment — have created civil unrest and a backlash against the presence of
multinational companies, especially large and politically well-connected ones. Shell Oil
Company in Nigeria, Bechtel in Bolivia, Union Carbide in India, ChevronTexaco in Ecuador are
cases of major TNC presence that has generated major problems23.
3. While TNCs can come, bringing jobs, money and technology to areas that need them; they can
also leave, possibly taking some of those benefits away with them. Sony Corporation left West
Java, Indonesia due to a poor business climate. Anglo-American, a mining company, withdrew
copper investments from Zambia as part of a restructuring. Emerging market Asian countries
worry that China will attract investment that had been coming to them24.
4. TNCs, for their part, may be discouraged by obstacles facing them in host countries: opaque
legal/regulatory systems, corruption, inadequate infrastructure, political uncertainty and other
elements of an unfavorable investment climate. Nationalization or expropriation may also be a
concern to them.
5. Developing country governments sometimes fear that powerful TNCs will “crowd out”
domestic industry or damage “infant industries” that they hope to nurture25.
Against these objections, a reasonable case can be made that TNCs are as much, if not more,
dependent on a well-functioning global economic system than is any other stakeholder —
including governments and citizens of poor countries. And, while it can be in their financial
interest to shift FDI from locale to locale, the stability and predictability that comes from longer-
term commitment is better. For such reasons as these, TNCs can function effectively as
good global citizens. It is notable, for example, that they are active in promoting control
of greenhouse gases because they see it as being in their interests 26. Prevention and treatment of
HIV/AIDS is another area of mutual interest to TNCs and to local residents. Coca Cola, for one
example, plans to spend as much as $5m per year on treatment for the employees of its bottlers
in Africa and Microsoft’s Bill Gates is giving $100m from the Bill and Melinda Gates
Foundation to fight AIDS in India.
21
de Jonquiéres (2002). For a concise interpretation of this situation, refer to Bhagwati (2004), p 166.
22
Refer to Christian Aid (2004) for a statement of this concern
23
Shell’s presence has generated civil conflict in the Niger Delta region. Bechtel is suing the government of Bolivia
over cancellation of a water contract for the city of Cochabamba. Union Carbide’s poisonous gas leak, that killed
thousands in Bhopal in 1994, is still being litigated. ChevronTexaco is being sued by indigenous Amazon rainforest
people for environmental damage.
24
China is a huge FDI host country, with an inflow in 2002 of $53bn. Refer to UNCTAD (2003), p 42.
25
Refer to UNCTAD (2003) pp 104-105 for more on this.
26
Maitland (2002), Financial Times 2004
Recognizing the potential for good and bad from powerful multinational companies, several
programs have been initiated to make the TNC/development interface more harmonious and
effective. One program called, “Equator Principles,” applies specifically to banks and their
lending criteria. It requires that they follow social and environmental guidelines of the World
Bank’s private sector lending arm, the International Finance Corporation (IFC) when
lending to developing countries27. Another vehicle for enhancing the TNC/development interface
is the Caux Roundable, which promotes “moral capitalism28.”
Some attempts are even underway to go a step further and incorporate TNCs into development
efforts by persuading them to be actively rather than passively involved in development
strategies. The main vehicle for this is corporate social responsibility (CSR), sometimes referred
to simply as corporate responsibility (CR). In March 2004, a conference was organized in
Stockholm, Sweden to “explore how bilateral and multilateral donors can support business
activity that contributes to sustainable development, particularly in developing countries29.”
In a similar vein, the United Nations Global Compact requested a study by SustainAbility, a
specialized business consultancy, of options for enhancing the role of TNCs 30. The Global
Compact is the foremost program to encourage acceptance by TNCs of their responsibilities to
developing host countries. It was introduced to promote CSR in 1999, as a personal initiative of
United Nations Secretary General Kofi Annan. At its core are 10 principles relating to human
rights, labor, corruption and the environment. TNCs are asked to adhere voluntarily to these
principles in support of UN goals and in their business activitiesGlobal Compact globally 31.
The Compact website currently indicates 1698 participants, though not all are businesses —
NGOs and other relevant parties are also included.
While CSR receives much attention as a concept for bringing companies into the development
paradigm, there is some dispute over its applicability. Corporate social responsibility is an
established business principle encoded in many national laws. Technically it applies to the
responsibility of a company to its shareholders; whether such responsibility is expandable to
other stakeholders is not entirely clear32. This lack of clarity is one reason why the alternative
term, CR, was devised. Some of the confusion about the CSR concept relates to its position
somewhere between philanthropy — what a company does because it wants to — and law —
what a company does because it has to 33. Philanthropy carries no obligation, and may be a shield
to obscure wrong-doing, while law denotes minimally required behavior for which there is no
choice. The debate about CSR is how much of an obligation is an ethical obligation. There is a
spectrum of thinking on this question:
27
“Equator Principles,” should not be confused with the “Equator Initiative,” an international movement to preserve
biodiversity in the Equator belt, for which UNDP acts as secretariat. The Initiative,
http://www.undp.org/equatorinitiative/,began in August 2001 The Principles , http://www.equator-
principles.com/, began in June 2003.
28
http://www.cauxroundtable.org/index.html
29
Fox (2004), p 1.
30
SustainAbility (2004)
31
http://www.unglobalcompact.org/
32
UNCTAD (2001)
33
UNCTAD (1999) and (2003)
• A member of a libertarian think tank, the Hoover Institute in Menlo Park, California, has
written that “businesses do not have social responsibilities; only people do 34.” • Civil groups and
NGOs insist that TNCs have an ethical obligation to incorporate human rights and values into
their activities and that a legal framework for enforcement should be created 35. • Some NGO
analytic and advocacy groups want CSR to encompass strategic support of “sustainable
development.”
As for the companies, themselves, paradoxically it seems that these organizations which exist to
pursue their own interest realize that in an increasingly globalized world it is increasingly in their
interest to be good international corporate citizens. As the Chairman of the International
Chamber of Commerce has recently said:
As business people, it is our responsibility to stand up for the global economy. As the creators of
wealth, we must show by example how the benefits of an integrated world economy can be
harnessed for the good of companies and people and local economies everywhere36.
The international agency which serves as the focal point for most of the elements included in this
complex issue — TNCs, FDI, least developed countries and the trade/development nexus — is
the United Nations Conference on Trade and Development (UNCTAD). UNCTAD is working to
include aspects of CSR (which it sometimes refers to as “good corporate citizenship”) in
international investment agreements (IIAs), the agreements which define the relationship
between TNC home and host country governments.
Binding agreements such as these mean that the developing countries who host TNCs need not
take statements of good intentions as promises, nor rely entirely on the voluntary commitments
of the Global Compact. Agreements allow them to manage TNC presence by pursuing a dual
approach, in keeping with the dual role of the companies: On the one hand, governments can
encourage FDI inflows that bring jobs, technology and money. On the other hand, they can be
careful to preserving their “national policy space,” which is embodied in the right to regulate that
is well-recognized in international trade law.37
38
United Nation Centre on Transnational Corporation, Transnational Corporation in World Development, New
York 1983 s. 28.
39
World Investment Report 2000, Cross-border Mergers and Acquisitions and Development, UNCTAD, Genewa
2000, s. 267.
• involving the ability to carry out many operations simultaneously on different markets, in
order to use the economic differences (in prices, in terms of production, resources, and in the
ax regulations), the effect is the ability for high current or prospective performance40
.
40
A. Zorska, Ku globalizacji? Przemiany w korporacjach transnarodowych w gospodarce światowej, PWN,
Warszawa 2000, s. 50-57.
41
World Investment Report 1994. Transnational Corporations Employment and the Workplace, United Nations,
New York and Geneva 1994, s. 15-17, World Investment Report, World Investment Report. Transnational
Corporations, Agricultural Production and Development, UNCTAD, New York and Genewa 2009, s. 17.
such as UK, Germany, Netherlands, United States, Japan. However, has increased the
importance of developing countries as a place of transnational corporations location. The
reason for the increasing role of TNCs in developing countries is to increase of their number
in: China and India. They now reach the highest rate of economic development, obtain the
best results in international trade and are the top trading partners.
The dominant influence of TNCs on globalization and regionalization processes, determines their
potential in the global economy.
The Roles and Responsibilities of Transnational Corporations with Regard to
Human Rights
Transnational corporations (hereinafter referred as TNCs) –also called Multinational Enterprises
(MNEs) or Multinational Corporations (MNCs)– 42 evoke particular concern in relation to recent
global trends because they are active in some of the most dynamic sectors of national economies,
such as extractive industries, telecommunications, information technology, electronic consumer
goods, footwear and apparel, transport, banking and finance, insurance, and securities trading.
Some transnational corporations, however, do not respect minimum international human rights
standards and can thus be implicated in abuses such as employing child labourers, discriminating
against certain groups of employees, failing to provide safe and healthy working conditions,
attempting to repress independent trade unions, discouraging the right to bargain collectively,
limiting the broad dissemination of appropriate technology and intellectual property, and
dumping toxic wastes. Some of these abuses disproportionately affect developing countries,
children, minorities, and women who work in unsafe and poorly paid production jobs, as well as
indigenous communities and other vulnerable groups. Negative impacts of the activities of
TNCs in host countries, particularly in developing countries, have led to recognition of the need
to strengthen the international legal norms, especially within the framework of UN. Thus, in
1974 UN General Assembly adopted the Charter of Economic Rights and Duties of States, which
lays down that the State has the right to regulate and supervise the activities of transnational
corporations within its national jurisdiction and take measures to ensure that such activities
comply with its laws, rules and regulations and conform with its economic and social policies.43
Furthermore, the activities of TNCs with regard to supporting and respecting the protection of
human rights could be positive in nature, affecting the state through encouraging them to
improve domestic legislation and policies in this field. Moreover, TNCs can assist to promote
public understanding of human rights. Thus, the question of clarification of roles played by
TNCs with regard to human rights is of ultimate significance and it requires a theoretical
examination. In addition, the view of existing initiatives and standards on TNCs and human
rights indicates that there is a gap in understanding the nature and scope of responsibilities of
TNCs with regard to human rights. This fact also determines the relevance of this research study.
In doing so, the authors do not in any way impinge upon the challenge to the classical theory of
international human rights law which establishes that the primary responsibility for
implementing the legislation on human rights is vested in the State. The purpose of this research
is to define clearly the nature of the multifaceted roles played by TNCs in international human
rights law; to examine main international instruments governing the responsibilities of TNCs
with regard to human rights, as well as to provide possible leads on how to improve the
theoretical and practical aspects in order to reduce the number of cases of TNCs’ involvement in
human rights abuses. To achieve abovementioned purpose our research tasks will try to:
• Recognize the close link between TNCs and human rights in the contemporary conditions of
development of society;
42
A transnational corporation can be defined as an economic entity operating in two or more countries –whatever
their legal form–, whether in their home country or country of activity, and whether taken individually or
collectively (Draft Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with
Regard to Human Rights, UN Economic and Social Council of 26 August 2003,
43
Charter of Economic Rights and Duties of States of 1974. Art.2, p.2 (b).
• Identify and define the role, significance and legal status of TNCs in international human rights
law;
• Establish the scope of responsibilities of TNCs with regard to the promotion and support the
protection of human rights, while not exposing the spread of primary liability of States for
implementation of human rights legislation;
• To review, summarize and systematize the international legal instruments governing the
responsibilities of TNCs with regard to the promotion and support the protection of human
rights;
• To develop and examine main international mechanisms for the implementation of the
principles of responsibilities of TNCs with regard to human rights:
• To formulate conclusions and proposals concerning the proper definition of roles and
responsibilities of TNCs with regard to human rights on the basis of the study.
44
Kurtis F. J. Dobbler: Izuchenie mejdunarodnogo prava prav cheloveka [Studying International Human Rights Law],
Tashkentskiy Gosudarstvenniy Yuridicheskiy Istitut, Tashkent, 2004, p. 6
45
Y. M. Kolosov & E. S. Krivchikova: Mejdunarodnoe pravo [International Law], Uchebnik. Mejdunarodnie
otnosheniya, Moscow, 2000, p. 86
adopted. Chapter 30 of this Agenda spells out the role of transnational corporations in sustainable
development, particularly by increasing the efficiency of resource utilization, promotion of
cleaner production, reduction of waste, environmental reporting, and other concerns. Likewise,
The United Nations Millennium Declaration, adopted in 2000 by the General Assembly,
recognizes the role of industry and transnational corporations expressly in making essential drugs
available and affordable in less developed countries and engaging in programs in pursuit of
poverty eradication (Principle 20) and implicitly in most other principles. The corollary of these
instruments is the 2002 World Summit on Sustainable Development Johannesburg Declaration
on Sustainable Development which expressly stated, «in pursuit of its legitimate activities the
private sector […] has a duty to contribute to the evolution of equitable and sustainable
communities and societies.46 Similarly, Principle 29 is adamant that: «there is a need for private
sector corporations to enforce corporate accountability, which should take place within a
transparent and stable regulatory environment.47 On a regional level, the European Union
Parliament in its response to the Commission's Communication concerning Corporate Social
Responsibility and business contribution to sustainable development noted the «widespread and
increasing recognition that undertakings have obligations other than just making profits. 48 More
significantly, the Preamble to the Universal Declaration of Human Rights, which is no longer a
mere standard-setting instrument but an expression of customary international law, proclaims
A common standard of achievement for all peoples and all nations, to the end that governments,
other organs of society and individuals shall strive, by teaching and education to promote respect
for human rights and freedoms.
Let us now analyze the role that transnational corporations play in International Human Rights
Law as well as their capacity to influence government policy and practice. On one hand, the
financial strength of most transnational corporations and the desire of less developed countries to
attract foreign investment make TNCs be able to promote the economy of receiving countries.
Transnational corporations organize modern, high-technological production, provide with new
work places, promote export and import, and train local staff in the use of up-to- date technology
and manufacturing methods. In doing so, many TNCs have also taken steps to help promote
public understanding of human rights. For example, it is widely known that a decade ago the
Italian clothing retailer Benetton launched a successful public advertising campaign to mark the
50th anniversary of the Universal Declaration of Human Rights. Likewise, there is the annual
award to young human rights activists given by Reebok International Ltd. Other TNCs have
chosen to help raise awareness of human rights by creating sections on their web sites devoted to
human rights, many of which offer links to human rights organizations. 49 On the other hand, the
larger the investment of transnational corporation in a given country is, the greater the economic
dependence of the host State becomes. In this respect, powerful TNCs may demand from weaker
States favorable concessions regarding minimum wages, security measures, limitations in
technology transfers, taxation, and others. Similarly, the larger the democratic deficit of less
developed countries public governance, the more likely it is that corruption will be rife and
46
See: Johannesburg Declaration on Sustainable Development of 2002, World Summit on Sustainable Development,
Agenda Item No. 13, para. 27, revised UN. Doc. A/ CONF.199/L.6/Rev.2/Corr.
47
Ibidem, Agenda Item No. 13, para. 29
48
: Commission of the European Communities: Report on the Communication from the Commission Concerning
Corporate Social Responsibility: A Business Contribution to Sustainable Development, Brussels 2 July 2002.
49
UN High Commissioner for Human Rights: Business and Human Rights: A Progress Report, January 2000, p. 15.
pressure to sustain the particular investment status will be maintained. The transnational
corporation will likewise apply significant pressure to the home State in order to achieve the
same results at an inter- governmental level,50 to win contracts, and/or to promote a political
regime that will safeguard the interests of the subsidiary in the host State. On a more global
level, it has been transnational corporations that have persistently lobbied industrialized States
toward trade liberalization through the lifting of tariffs and domestic subsidies. 51 The framework
for determining what human rights issues are linked to transnational corporations is addressed
through the UN Secretary-General’s Global Compact launched in Davos in 1999. Some authors
call these scopes as the core Corporate Social Responsibility Principles. 52 The Global Compact
has identified responsibilities of transnational corporations related to human rights in broad
aspect in connection with two principles:
Principle One: transnational corporations should support and respect the protection of
internationally proclaimed human rights;
Principle Two: transnational corporations should make sure that they are not complicit in
human rights abuses.
50
Arvind Ganesan: «Human Rights, the Energy Industry, and the Relationship with Home Governments», in Asbjørn
Eide, Helge Ole Bergesen & Pia Rudolfson Goyer (eds.): Human Rights and the Oil Industry, Intersentia, 2000, p. 15.
51
Vivien A. Schmidt: «The New World Order, Incorporated: The Rise of Business and the Decline of the Nation
State», Daedalus, Vol. 124, No. 2 (1995).
52
Ilias Bantekas: «Corporate Social Responsibility in International Law», Boston University International Law
Journal, Vol. 309 (2004), p. 25.
53
Report of the Sub-Commission on the Promotion and Protection of Human Rights, cit.
up by the ILO, the OECD, the European Parliament, the UN Global Compact, trade groups,
individual companies, unions, NGOs, and others. The Norms and Commentary provide for the
right to equality of opportunity and treatment; the right to security of persons; the rights of
workers, including a safe and healthy work environment and the right to collective bargaining;
respect for international, national, and local laws and the rule of law; a balanced approach to
intellectual property rights and responsibilities; transparency and avoidance of corruption;
respect for the right to health, as well as other economic, social, and cultural rights; other civil
and political rights, such as freedom of movement; consumer protection; and environmental
protection. With respect to each of those subjects, the Norms largely reflect, restate, and refer to
existing international norms, in addition to specifying some basic methods for implementation.
BIBLIOGRAPHY
Literature:
1. Haffer M., Karaszewski W., Czynniki wzrostu gospodarczego, UMK, Toruń 2004.
2. The Least developed countries report 2009, United Nations, New York and Genewa 2009.
3. World Investment Report 1994. Transnational Corporations Employment and the Workplace,
UnitedNations, New York and Geneva 1994.
6. World Investment Report 2006. FDI from Developing and Transition Economies.
Internet sources:
3.http://www.unctad.org/templates/webflyer.asp?docid=11917&intItemID=1528&lang
BOOKS REFERRED
International trade law- DR. S.R. Myneni
International trade law by Smith Hoff
INDEX
TNC’s- Introduction
Need for the U.N. norms
Brief history of TNC’s
Problems arising from TNC’s
TNC’s and International politics
TNC’s Human health and Environment
TNC’s and Occupational safety
TNC’s and Employement
Definition
Legal issues
TNC’s- The development
Role of TNC’s in international trade
Role of TNC’s with regard to human rights
ACKNOWLEDGEMENT
Before I start off on this endeavor that has been given to me as the INTERNATIONAL TRADE LAW
project in the FIFTH semester of this joyful ride that I have undertaken under the flagship of The
Faculty of Law, Jamia Millia Islamia, I would like to thank everybody who has been instrumental
in my successful completion of my projects.
First, I would like to acknowledge the immense contribution that my teacher of international
trade law has had on this project. By creating the basic framework of the subject in my mind
through his excellent lectures he also contributed in the creation of the basic framework and
limitations of my topic in my mind.
Next, it would be my duty to thank the excellent library staff in the Faculty of Law, Jamia Millia
Islamia for their never ending readiness to help anyone in finding exact readings for any such
subject that he/she is researching.
Lastly, I would like to thank my classmates who never backed off when I needed them to clarify
any concept that I couldn’t catch during the process of the class.
-IRAM PEERZADA
CERTIFICATE
(2015-16)
DATE:-
PLACE:-
DECLARATION
YOURS FAITHFULLY
IRAM PEERZADA
DECLARATION
YOURS FAITHFULLY
MOHD. ADIL