Transnational Corporations in Developing Countries

Evaristus Oshionebo, University of Calgary, Calgary, AB, Canada

© 2020 Elsevier Ltd. All rights reserved.
This article is a revision of the previous edition article by C. Berndt, volume 11, pp 368–375, © 2009 Elsevier Ltd.

Glossary
Foreign direct investment Capital provided by a foreign investor and invested directly in a subsidiary of the investor in
developing countries.
Investment contracts Contracts between foreign investors and developing countries specifying the terms of investment.
Parent company A company that owns all or majority of the shares of another company, usually referred to as the subsidiary
company.
Transnational corporation A corporation that owns and controls business enterprises in more than one country.

The term “transnational corporation” (TNC) is defined by Hood and Young as a corporation that owns, controls, and manages
income generating assets in more than one country. TNCs consists of a parent company (incorporated and based in one country)
and at least one subsidiary company operating in a foreign country. Some TNCs have a complex web of ownership that involves
parent companies, holding companies, and subsidiary companies spread across multiple countries and continents. TNCs have oper-
ated in developing countries for centuries, beginning from the colonial era when much of the trade between European countries and
their colonies was conducted through companies incorporated in Europe. In Africa, for example, TNCs such as Lever Brothers, the
United Africa Company, and the Royal Niger Company conducted trade between Great Britain and its African colonies. In modern
times, TNCs are omnipresent in developing countries and they operate in virtually every sector of the economy. In fact, TNCs are the
dominant players in many sectors of the economies of developing countries, including the natural resource sector, manufacturing,
utilities, telecommunications, transportation, and construction.
The prevalence of TNCs in developing countries is aided by several factors, including availability of cheap labor, availability of
raw materials, particularly natural mineral resources, and the generous financial incentives afforded to foreign investors by devel-
oping countries. The generous financial incentives include tax holiday, tax credits, depreciation allowances, and other deductions.
Moreover, at the urging of the World Bank, most developing countries have in recent decades implemented neoliberal economic
deregulation policies that have culminated in the opening up of their economies to free market forces. In particular, many devel-
oping countries have removed entry barriers to their domestic economies while also allowing foreign investors to participate in
business activities previously reserved for citizens.
The rise of China and India as economic powers has been influenced by the prevalence of TNCs, particularly in the natural
resource industry. China’s insatiable thirst for minerals and metals for its industrial revolution has resulted in Chinese companies
seeking business opportunities in developing countries in the last few decades. The zou chuqu (“Go Out” or “Go Global”) policy
adopted by the Chinese government encourages Chinese companies to invest in foreign operations in order to source raw materials
for China’s industrial revolution. Thus, Chinese TNCs such as China National Offshore Oil Corporation and the Jinchuan Group of
companies have in recent years invested in natural resource projects in many developing countries.
This article examines TNCs in the context of their operations and activities in developing countries. It notes that while TNCs are
engines of economic growth in developing countries TNCs are equally capable of distorting economic and social development
within host countries through unethical and sometimes illegal practices.

Economic Significance of TNCs in Developing Countries

TNCs dominate the global economy in terms of investment of capital and production of goods and services. A cursory look at the
annual World Investment Report by the United Nations Conference on Trade and Development (UNCTAD) puts beyond question the
domineering and pivotal role of TNCs in global economic development. The economic significance of TNCs is particularly apparent
in developing countries. The economies of most developing countries perform poorly due to a myriad of factors, including lack of
capital, institutional incapacity, mismanagement, and corruption. As opposed to the financial misery apparent in developing coun-
tries, TNCs possess both financial capacity and technological expertise which can be harnessed for economic development.
TNCs are engines of economic development in developing countries. TNCs infuse capital into the domestic economies of devel-
oping countries; create jobs; improve the manufacturing and production capacity; and, in some cases, transfer technology to

International Encyclopedia of Human Geography, 2nd edition, Volume 13 https://doi.org/10.1016/B978-0-08-102295-5.10145-3 375

376 Transnational Corporations in Developing Countries

developing countries. This explains why developing countries often lobby and incentivize TNCs to invest in their domestic econ-
omies. In turn, TNCs have responded by investing significant capital in developing countries. Since its inception the annual World
Investment Report has reported consistently that the vast majority of FDI inflows to developing countries come from TNCs and other
multinational enterprises (MNEs). In fact, as reported by the UNCTAD, FDI inflow to developing countries amounted toUS$765
billion in 2015; US$646 billion in 2016; and US$671 billion in 2017.
The investments by TNCs have produced significant increases in global productivity and employment. The UNCTAD’s World
Investment Report 2018 indicates that, as of 2017, the foreign operations of the top 100 global TNCs and MNEs “represented 9%
of world foreign assets, 17% of world foreign sales, and 13% of foreign employment.” TNCs aid the productivity and competitive-
ness of domestic economies in the developing world partly through the transfer of production technology and managerial and labor
skills to domestic enterprises. Domestic companies are able to learn and acquire new production and manufacturing techniques
through interactions with TNC subsidiaries.
TNCs also generate forward linkages within the domestic economy by broadening access to markets. Moreover, TNCs often
produce positive spill-over effects within the domestic economies of host countries through the diffusion of technology to local
companies, as well the procurement of local goods and services. Such spill-over effects are accentuated by local content statutes
in developing countries that require TNCs to employ citizens of host countries and procure goods and services from domestic
suppliers. In some African countries, for example, TNCs operating in the natural resource sector are statutorily obliged to employ
and procure specified percentage(s) of goods and services from local producers and suppliers.
The contribution of TNCs to the economic development of host developing countries varies, depending on prevailing local
circumstances in the host country. For example, whether TNCs are able to create spill-over effects and linkages with local enter-
prises depends on the capacity and expertise of domestic producers and suppliers. In developing countries where domestic
producers and suppliers lack the capacity to produce high quality goods TNCs are unlikely to procure goods from such local sour-
ces. In the natural resource sector, for example, TNCs hardly procure goods and services from local suppliers in developing coun-
tries due to the incapacity of these suppliers to meet the quality threshold. Furthermore, many producers and suppliers in
developing countries lack the technological and technical expertise to undertake resource extraction projects which are often
complex in nature. Hence, TNCs in the natural resource sector generally rely on producers and suppliers based in technologically
advanced countries.
There are several problems associated with the operations and activities of TNCs in developing countries. TNCs could distort
economic growth in host countries where they become monopolistic, thus inhibiting free market competition. The national security
of host developing countries may be compromised and threatened where foreign TNCs own and control key or strategic sectors such
as utilities, telecommunications, and transportation. Also, labor rights may be adversely impacted by TNCs particularly in situations
where, for example, unionization of their employees is not permitted.
Moreover, TNCs often adopt risk management strategies designed to avoid or minimize their financial and tax obligations in
developing countries. For example, TNCs often engage in non-arms-length and unethical transactions with subsidiary companies
in order to evade taxes in developing countries. Unethical practices such as transfer pricing, round-tripping, and royalty payments by
subsidiary companies to parent companies are often undertaken by TNCs so as to diminish their tax liability in host developing
countries. As Thomas Baunsgaard aptly explains, through transfer pricing TNCs minimize income and maximize deductible expen-
ditures in high-tax jurisdictions while concurrently maximizing income in low-tax jurisdictions. To achieve this purpose TNCs
sometimes sell products at below-market prices to subsidiary companies located in low-tax jurisdictions, or provide debt financing
for subsidiary companies in developing countries at above-market interest rates, thus maximizing expenditure deductions by the
subsidiaries. TNCs engage in these practices in order to siphon profits from subsidiaries and in the process reduce the taxable
income earned by subsidiary companies in developing countries.

Relationship Between TNCs and Developing Countries

The legal relationship between TNCs and host developing countries is defined and delineated primarily by investment contracts,
bilateral investment treaties (BITs), and multilateral investment treaties (MITs). Investment contracts between TNCs and devel-
oping countries specify the terms and conditions governing investment projects, including the rights and obligations of TNCs,
while investment treaties prescribe general frameworks for investment within the jurisdictions of the governing party. More
specifically, treaties prescribe reciprocal rules governing investment by citizens and nationals, including the legal protections
afforded investors.
In practice, however, the relationship between TNCs and developing countries is one of inequality and dependency. TNCs are
more powerful than the developing countries in which they do business. The annual gross revenue of some TNCs is larger than
the Gross Domestic Product (GDP) of many developing countries. The economic power of TNCs derives from the vast financial
and technological resources of these companies as well as the protections afforded TNCs by their home countries, which are
predominantly the economically advanced Western countries. The economic power of TNCs is accentuated by other factors,
including rampant poverty, corruption, and lack of manufacturing and production capacity in developing countries. Moreover,
because host developing countries lack the expertise to invent and manufacture products, they often rely on TNCs to produce
essential goods for domestic consumption. In essence, TNCs and developing countries are in a dependency relationship that
accentuates the power and influence of TNCs. In strategic industries such as the natural resource sector, the governments of
 Transnational Corporations in Developing Countries 377

developing countries often align with TNCs by entering into partnerships, joint venture agreements, and production sharing
contracts. These contractual arrangements culminate in the close integration of interests between TNCs, governments, and polit-
ical elites in developing countries.
This relationship of dependency enables TNCs to exert pressure on developing countries to grant lopsided investments terms in
favor of TNCs. For example, investment contracts usually contain stabilization clauses prohibiting developing countries from
changing or amending the laws and regulations governing investment projects. Stabilization clauses assume various forms
including freezing stabilization clauses, economic equilibrium clauses, and hybrid stabilization clauses. A freezing stabilization
clause freezes the legal and fiscal regimes governing a project by stipulating that the laws governing the project shall be the laws
that existed at the date of execution of the investment contract. For example, Article 27.3 of Mauritania’s Production Sharing
Contract 1994, provides that “The Contractor shall not be subject to any legislative provision which would give rise to an aggrava-
tion, whether directly or indirectly, in the charges and obligations arising from this Contract and from the legislation and regula-
tions in force on the date of signing this Contract, unless as mutually agreed upon by the Parties.” Sometimes, a stabilization clause
freezes only specific aspects of an investment project such as taxes and royalties payable by the investor. For example, Article 12 of
Bolivia’s model Production Sharing Contract for oil and gas projects provides that “the system of royalties and permits to apply to
this Contract shall remain fixed throughout its term.”
The economic equilibrium clause does not prohibit the host State from changing or amending its laws but provides that
when the host State changes or amends its laws in a manner that adversely impacts an investment project, the host State
must restore the economic equilibrium struck by the parties at the time of the contract. For example, Article XIX of the model
Concession Agreement for oil and gas exploration and exploitation in Egypt provides in part that if a change or amendment to
existing legislation or regulations significantly affects the economic interest of an investor “the Parties shall negotiate possible
modifications to this Agreement designed to restore the economic balance thereof which existed on the Effective Date.” Some
stabilization clauses are hybrid in the sense that they encompass features of both “freezing” and “economic equilibrium”
clauses. The hybrid clause may freeze the legal regimes governing a project, while also providing for the restoration of the
economic equilibrium or the payment of compensation in the event that a change to the legal regimes adversely affects the
economic interest of the investor.
Stabilization clauses protect investors by ensuring the stability of the legal regimes governing a project, but are inimical to the
economic and social interest of developing countries. For example, freezing stabilization clauses prevent the governments of devel-
oping countries from increasing royalties and taxes even where the profits arising from a project increase drastically. Moreover,
freezing stabilization clauses adversely impact human rights and environmental rights in developing countries because they insulate
TNCs from complying with future changes to the human rights, labor rights, and environmental protection regimes in host devel-
oping countries.
The power and leverage of TNCs over developing countries is also evident in arbitration clauses that require disputes arising from
investment contracts to be settled through international arbitration. This displaces judicial mechanisms and institutions in devel-
oping countries, thus limiting the host states’ power and authority over foreign investors. In addition, there is a suspicion that the
international arbitration system is biased in favor of TNCs and other investors and against developing countries. In fact, Pia Eber-
hardt and Cecilia Olivethave observed that international investment arbitration overwhelmingly favors TNCs and other investors
because arbitrators often adopt expansive, investor-friendly interpretations of investment contracts and treaties.
Developing countries appear to recognize the lopsidedness of extant investment contracts in favor of TNCs. Hence, in recent
years some developing countries have either terminated or renegotiated the terms of investment contracts with TNCs. In Africa,
for example, several countries including Ghana, the Democratic Republic of Congo, Guinea, Liberia, Malawi, Mali, Sierra
Leone, Tanzania, and Zambia have either renegotiated mining contracts or terminated some contracts. In fact, Tanzania recently
enacted the Natural Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act, 2017, which obliges
the government to renegotiate investment contracts containing “unconscionable” terms. This statute defines “unconscionable
terms” broadly to include: contractual terms that are inequitable and onerous to the State; terms that restrict the right of the
government to exercise authority over foreign investment; and terms that subject the State to the jurisdiction of foreign laws
and fora. The primary motivator for the renegotiation of investment contracts in developing countries is the desire to correct
the lopsidedness of investment contracts. Prominent authors such as Sornarajah have argued that a duty of renegotiation
“should be read into foreign investment contracts of long duration,” particularly where the circumstances have changed
significantly.
BITs and MITs reinforce the terms of the investment contracts between TNCs and developing countries. BITs and MITs usually
contain provisions requiring “full protection and security” and “fair and equitable treatment” of investors. For example, Article 5.1
of the Treaty between the United States of America and the Oriental Republic of Uruguay Concerning the Encouragement and Reciprocal
Protection of Investment provides that “[e]ach Party shall accord to covered investments treatment in accordance with customary inter-
national law, including fair and equitable treatment and full protection and security.” The “full protection and security” clause
requires State parties to BITs and MITs to guarantee the stability of investment, while the “fair and equitable treatment” clause
protects the reasonable expectations of foreign investors as encapsulated in the investment contract between the investor and
the host state. Although TNCs are not parties to BITs and MITs, as investors TNCs are third-party beneficiaries under these treaties
and are thus afforded the legal protections provided for in the treaties. Virtually all developing countries have BITs and MITs with the
economically developed Western countries. Information gleaned from UNCTAD’s website shows that, as of May 2019, there were
2932 BITs out which 2346 are in force. Most of these BITs involve developing countries as parties.
378 Transnational Corporations in Developing Countries

Regulation of TNCs

The regulation of TNCs is multi-faceted and it consists of several participants, including governments, international organizations,
and nongovernmental organizations. TNCs are regulated by the governments of the countries in which they operate and by the
government of the country in which the parent company is incorporated. For the most part, the operations of TNCs in developing
countries are governed by the domestic laws of the host countries, including the terms of the investment contracts between govern-
ments and TNCs; however, as Jedrzej G. Frynas has observed, many developing countries lack the capacity and expertise to effec-
tively regulate the technically sophisticated operations of TNCs. Even the few developing countries that possess regulatory
expertise are fearful that stringent regulation could dissuade TNCs from investing in their countries; hence they generally refrain
from regulating the activities of TNCs.
For their part, the home countries (usually the industrialized countries) of TNCs are reluctant to regulate the operations of TNCs
in foreign countries because such extra territorial regulation could make their TNCs uncompetitive in the international business
arena. TNCs could become uncompetitive where the home country imposes stringent regulation while other countries do not
do so. The reluctance of the industrialized countries to regulate TNCs is particularly apparent in relation to the human rights
and labor practices of TNCs in foreign developing countries; however, as discussed below the home countries of TNCs are more
amenable to regulate TNCs in relation to corruption and bribery of foreign government officials.
TNCs are equally regulated by international organizations such as the Organization for Economic Co-operation and Develop-
ment (OECD) through instruments such as the OECD Guidelines for MNEs. The United Nations has also initiated instruments such
as the Global Compact and the UN Guiding Principles on Business and Human Rights. These international instruments prescribe
guidelines and best practices for the conduct of business globally. In addition, TNCs that are clients of the International Finance
Corporation (IFC), the private-sector arm of the World Bank, are subject to the IFC’s regulatory instruments including the policy
and performance standards on environmental and social sustainability. In practice, the IFC incorporates its Performance Standards
into loan agreements with corporate borrowers, thus making the Performance Standards obligatory for companies. Nongovern-
mental organizations (NGOs) participate in regulating TNCs by creating rules and standards for the global conduct of business.
In the extractive sector, for example, the Extractive Industries Transparency Initiative has helped developing countries to craft rules
requiring financial transparency and accountability by TNCs and governments alike. In some cases, NGOs collaborate with govern-
ments and TNCs in devising rules for corporate conduct in developing countries. For example, the voluntary principles on security
and human rights are the product of collaboration between governments, TNCs and civil society organizations.
Lastly, TNCs engage in self-regulation through corporate codes of conduct, which are often adopted by individual TNCs or issued
by industry associations. A corporate code of conduct is a policy document stipulating how a company conducts its business,
including the company’s relationship with employees, host communities, and the general public. Corporate codes of conduct
are useful regulatory tools particularly in developing countries lacking the capacity to enforce regulatory standards. Corporate codes
of conduct also provide a platform upon which TNCs could influence and promote the ethical conduct of employees, suppliers, and
contractors. In reality, however, corporate codes of conduct are ineffective for a variety of reasons including the voluntariness of the
codes and the lack of sanctions for violation of the codes.

Liability of TNCs for the Wrongful Actions of Subsidiary Companies in Developing Countries
Human Rights Violation and Environmental Pollution
Although TNCs promote economic development in host countries, TNCs are also sometimes complicit in human rights abuse, envi-
ronmental pollution, labor rights violation, and corruption in developing countries. Instances of TNC complicity in human rights
violation and environmental pollution have been reported in all parts of the developing world. For example, the Interim Report of the
Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises
indicates that human rights abuses by TNCs were reported in 27 developing countries. The reported human rights abuses include:
crimes against humanity committed by public and private security forces protecting company assets and property; large-scale
corruption; labor rights violations; and violations of the rights of local communities, especially indigenous people. The report
also indicates that the natural resource sector dominates the sample of reported abuses with two-thirds of the total, followed by
the foods and beverages industry, the apparel and footwear industry, and the information and communication technology sector.
As mentioned earlier, the ownership structure of some TNCs involves an intricate web consisting of parent companies, holding
companies and subsidiary companies. This ownership structure is deliberately adopted by TNCs in order to shield the parent
company from liability for any wrongful actions of its subsidiary companies. This ownership structure creates a significant distance
between the parent company and its subsidiaries and makes it seem that the parent company does not exercise direct control over its
subsidiaries. In the absence of evidence that the parent company exercises direct control over the subsidiaries, it is impracticable to
impute liability to the parent company for the wrongful actions of its subsidiaries. In essence, TNCs often utilize this complex
ownership structure to minimize or evade liability for the actions of their subsidiaries in developing countries.
The ownership structure of TNCs also enables parent companies to take full advantage of the doctrine of separate legal person-
ality established in Salomon v. Salomon & Co. [1897] A.C. 22 (H.L.) to the effect that, upon incorporation, a company is vested with
a legal personality that is separate and distinct from its shareholders. Based on Salomon v. Salomon & Co., a subsidiary company is
separate and distinct from its parent company even though the latter owns all of the shares of the former. Thus, in law, the assets and
 Transnational Corporations in Developing Countries 379

liabilities of the subsidiary company do not belong to the parent company. In this sense the separate legal personality principle is
a significant barrier to the imposition of liability on parent companies for the wrongful actions of their subsidiaries.
To be sure, the veil of incorporation can be lifted by a court in order to make a parent company liable for the wrongful actions of
its subsidiary company; however, lifting of the corporate veil seldom occurs and even then, the veil is lifted only in specific instances
where the court finds that the subsidiary company is completely dominated, controlled, and used by the parent company as a shield
for fraudulent or improper conduct. In order not to be seen as controlling and dominating their subsidiary companies, parent
companies usually assign their shares in the subsidiary companies to a holding company. By doing so, parent companies avoid
exercising any direct control over the subsidiary companies, thus rendering it impossible to lift the corporate veil.
In recent years, a number of cases have been filed in courts in developed Western countries seeking to hold parent companies
liable for the wrongful actions of their subsidiaries in developing countries. In the United States, for example, transnational tort
litigation is premised primarily on the Alien Tort Statute (28 USCs. 1350), which vests original jurisdiction on District Courts in rela-
tion to “any action by an alien for a tort, committed in violation of the law of nations or a treaty of the United States.” Most of these
cases have been dismissed on procedural grounds including the forum non conveniens doctrine. This allows a court to dismiss an
action where it believes that a more convenient forum exists for adjudicating the dispute. More significantly, the United States
Supreme Court held in Kiobel v. Royal Dutch Petroleum Co. 569 US 108 (2013) that the Alien Tort Statute does not apply extra terri-
torially to facts that occurred in foreign countries because “nothing in the text of the statute suggests that Congress intended causes
of action recognized under it to have extra territorial reach.” The Kiobel decision is effectively the death knell of law suits seeking to
impute liability to parent companies for the wrongful actions of their subsidiaries in developing countries.
Notwithstanding, there is some hope as in the England and Wales Court of Appeal which has held in Chandler v. Cape PLC [2012]
EWCA Civ. 525 that, in appropriate cases, parent companies owe a duty of care to the employees of their subsidiaries operating in
foreign developing countries. The court held (at paragraphs 73, 78–79) that in circumstances where the policy of the parent
company “on subsidiaries was that there were certain matters in respect of which they were subject to parent company direction,”
the parent company owes a direct duty of care to the employees of its subsidiary companies in relation to those matters. The court
held further (at paragraph 80) that the circumstances in which a duty of care is imposed on the parent company include a situation
where “(1) the businesses of the parent and subsidiary are in a relevant respect the same; (2) the parent has, or ought to have, supe-
rior knowledge on some relevant aspect of health and safety in the particular industry; (3) the subsidiary’s system of work is unsafe
as the parent company knew, or ought to have known; and (4) the parent knew or ought to have foreseen that the subsidiary or its
employees would rely on its using that superior knowledge for the employees’ protection.”
The parent–subsidiary relationship does not in and of itself create a duty of care. Rather, whether a parent company owes this
duty of care depends on the degree to which it exercises supervision and control over its subsidiaries. Where there is evidence that
the parent company subjects its subsidiaries to its rules and policies the duty of care will readily be imposed on the parent company.
This duty of care has been expressly affirmed by the United Kingdom Supreme Court in the more recent case of Vedanta Resources
PLC and another v. Lungowe and others [2019] UKSC 20 where the court held (at paragraph 49) that the parent company’s duty of care
“depends on the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in,
control, supervise or advise the management of the relevant operations (including land use) of the subsidiary.” More significantly,
the UK Supreme Court held (at paragraph 52) that, in appropriate cases, a parent company owes a duty of care to third parties (such
as host communities in developing countries) that are adversely impacted by the operations of subsidiary companies. The UK
Supreme Court articulated (at paragraph 53) instances where a parent company may owe a duty of care to third parties as including
instances where the parent company does not merely proclaim group-wide policies, but takes active steps, by training, supervision,
and enforcement, to see that the policies are implemented by its subsidiaries. Also, a parent company may incur the duty of care “to
third parties if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even
if it does not in fact do so.” The new duty of care thus obliges parent companies to ensure proper supervision and management of
their subsidiaries operating in developing countries.

Bribery and Corruption

TNCs are sometimes complicit in bribery and other forms of corruption in developing countries. Subsidiaries of TNCs in developing
countries sometimes pay bribes to government officials in order to secure favors. The problem of corruption is being addressed by
developed countries through the enactment of anticorruption statutes that not only prohibit the bribing of foreign public officials
but also impose significant financial penalties on TNCs. Prominent among these statutes are the United States’ Foreign Corrupt Prac-
tices Act; Canada’s Corruption of Foreign Public Officials Act; and the United Kingdom’s Bribery Act 2010. These statutes impose liability
on parent companies for the bribery of government officials by subsidiary companies in developing countries.
In the recent past some developed countries have successfully charged and prosecuted TNCs for bribing government officials in
developing countries. In 2017, for example, Halliburton paid US$29.2 million to settle criminal charges arising from the illegal
payments it made to government officials in Angola. Earlier in 2014, Alcoa agreed to pay US$384 million fine in relation to criminal
charges stemming from bribes paid by its subsidiaries to government officials in Bahrain. In Canada, Griffiths Energy International
Inc. was fined $10.35 million for bribing government officials in Chad, while Niko Resources was fined $9.5 million for bribing the
Energy Minister of Bangladesh.
The fight against corruption is aided by legislation requiring TNCs to disclose payments made to foreign governments. In Can-
ada, for example, the Extractive Sector Transparency Measures Act 2014 requires TNCs and other entities in the natural resource sector
380 Transnational Corporations in Developing Countries

to make annual disclosures of payments to designated “payees” including “(a) any government in Canada or in a foreign state; (b) a
body that is established by two or more governments; [and] (c) any trust, board, commission, corporation or body or authority that
is established to exercise or perform, or that exercises or performs, a power, duty or function of government.”A few years ago, the
United States’ Securities and Exchange Commission (SEC) imposed similar disclosure requirements on “resource extraction issuers”
through Rule 13q-1 but a United States District Court has vacated Rule 13q-1 as ultra-vires the powers of the SEC.

Conclusion

Although TNCs aid economic development in developing countries, the degree varies depending on prevailing local circumstances
as well as the terms of the investment. Investment contracts in developing countries are often lopsided in favor of TNCs. These
contracts contain terms that appear to be inimical to the economic and social interest of developing countries. For example, stabi-
lization clauses in investment contracts hinder the ability of developing countries to make laws for the good governance of business
and citizens alike, while arbitration clauses displace domestic judicial institutions in developing countries in favor of international
arbitration mechanisms. Given the dire economic realities coupled with the lack of institutional capacity, developing countries will
likely continue to rely on TNCs for manufacturing and production of essential goods; however, TNCs ought to forge a sustainable
relationship with developing countries not only by ensuring that investment contracts with developing countries contain terms that
are mutually beneficial to both parties, but also by conducting their operations in a socially responsible manner. This would create
a more conducive environment for business to thrive, thus enhancing the economic fortunes of both TNCs and developing
countries.

Further Reading

Adeyeye, A.O., 2012. Corporate Social Responsibility of Multinational Corporations in Developing Countries: Perspective on Anti-Corruption. Cambridge University Press, Cambridge.
Anaf, J., Baum, F., Fisher, M., London, L., 2019. The health impacts of extractive industry transnational corporations: a study of Rio Tinto in Australia and Southern Africa. Glob.
Health 15 (1). https://doi.org/10.1186/s12992-019-0453-2.
Baunsgaard, T., 2001. A Primer on Mineral Taxation. IMF Working Paper WP/01/139. https://www.imf.org/external/pubs/ft/wp/2001/wp01139.pdf.
Cameron, P.D., 2010. International Energy Investment Law: The Pursuit of Stability. Oxford University Press, Oxford.
Eberhardt, P., Olivet, C., 2018. Modern pirates: how arbitration lawyers help corporations seize national assets and limit state autonomy. Am. J. Econ. Sociol. 77 (2), 279–329.
Frynas, J.G., 2009. Beyond Corporate Social Responsibility: Oil Multinationals and Social Challenges. Cambridge University Press, Cambridge.
Hood, N., Young, S., 1979. The Economics of the Multinational Enterprise. Longman, London.
Lu, J.W., Li, W., Wu, A., Huang, X., 2018. Political hazards and entry modes of Chinese investments in Africa. Asia Pac. J. Manag. 35 (1), 39–61.
Luo, Y., Zhang, H., Bu, J., 2019. Developed country MNEs investing in developing economies: progress and prospect. J. Int. Bus. Stud. 1–35.
Muchlinski, P.T., 2007. Multinational Enterprises and the Law, second ed. Oxford University Press, Oxford, UK.
Oshionebo, E., 2009. Regulating Transnational Corporations in Domestic and International Regimes: An African Case Study. University of Toronto Press, Toronto.
Oshionebo, E., 2010. Stabilization clauses in natural resource extraction contracts: legal, economic and social implications for developing countries. In: Asper Review of International
Business and Trade Law, vol. 10, pp. 1–33.
Sornarajah, M., 2010. The International Law on Foreign Investment, third ed. Cambridge University Press, Cambridge.
Stiglitz, J.E., 2007. Multinational corporations: balancing rights and responsibilities. American Society of International Law Proceedings 101, 3–60.
UNCTAD, 1992. World Investment Report 1992: Transnational Corporations as Engines of Growth. United Nations, Geneva.
UNCTAD, 1993. World Investment Report 1993: Transnational Corporations and Integrated International Production. United Nations, Geneva.
UNCTAD, 2018. World Investment Report 2018: Investment and New Industrial Policies. United Nations, Geneva.
United Nations, 2006. Interim Report of the Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business
Enterprises. U.N. Doc. E/CN.4/2006/97. http://hrlibrary.umn.edu/business/RuggieReport2006.html.

Relevant Website

United Nations Conference on Trade and Development, World Investment Reports. https://unctad.org/en/pages/diae/world%20investment%20report/wir-series.aspx.