Introduction Multinational Corporations (“MNCs”) are large, politically influential and autonomous entities that can conduct operations from separate countries. MNCs within the international system are economically influential and larger than some national economies. MNCs can exert influence that approaches the level of tates or even surpassing it. !lo"ali#ation and outsourcing has for the past p ast two decades resulted in the development develop ment of complex supply networ$s. %hese are often led " y multinational companies. %hese developments have inflicted less legal o"ligations on paren t companies and instead turned to suppliers that often have wea$ or wea$ly enforced regulation. Crimes committed "y multinational companies in practice involve relations with several actors. &t includes the MNC itself which could consist of several entities around the world, the plaintiffs (often the victims), the host tate and furthermore the ho me tates of the MNCs. %hus 'urisdictional concerns arise when the MNC commits violations in in a host tate. %o deal with such implications and corporate co rporate accounta"ility, international law as well as domestic law provides for remedies. upplementary to these are regional "odies and instruments that offer voluntary policies and mechanisms. tate responsi"ility can "e placed in the domicile of the MNC or the host tate, the feasi"ility of such an inclination will "e discussed throughout the course of this pro'ect. &t is possi"le that the future could produce an option where"y corporate lia"ility could "e asserted directly under international law, however at present such an option does not exist. &n add ition, there is no formal corporate code of conduct or any other multilateral agreement which could h old these companies responsi"le for their wrongdoings. oluntary oluntary instruments are also important means to promote accounta"ility since corporations can adapt the norms to their individual corporate structure. %hus, the focus is now on other initiatives, such as the voluntary corporate codes of conduct. conduc t. owever, implementing and monitoring of these
codes of conduct has proved difficult. difficult.* %his pro'ect will see$ to pro"e into all such measures, voluntary or "inding, domestic or international which would in some form or the other constitute a code of conduct for multinational enterprises.
Objectives
%o understand understand the meaning of the term “multinational corporation”. %o analy#e whether MNCs have international legal personality. %o study study the evolution and development d evelopment of the corporate code of conduct for
MNCs. %o enumerate and study the various o"ligations imposed on MNCs under
international investment law. %o highlight highlight various voluntary measures ta$en up "y MNCs in the light of
corporate social responsi"ility. responsi"ility. %o provide meaningful suggestions for the formulation of an internationally
"inding corporate code of conduct for MNCs vis++vis international investment investment law.
Research Methodology %his pro'ect report is an analytical and descriptive study on
. econdary sources
have "een referred to and electronic sources have "een used at large to gather information a"out the topic.
1 -N/01 C/-N0, -2-!-&3 MC1&33&-M, &/4 M-%%0N, 50/0M6 M77N, 8 7N-3 . &0!03, %0 79:7/ -N2774 7: C7/;7/-%0 7C&-3 /0;7N&2&3&%6, <== (>??@).
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2oo$s and other references as guided "y the faculty of %rade 8 &nvestment 3aw have "een useful in giving this pro'ect its "asic structure and details. 1e"sites, article and dictionaries have also "een used.
:ootnotes have "een provided wherever needed to ac$nowledge the source of information.
Multinational Corporations – Meaning and International Legal Personality
What is a Multinational Corporation?
!enerally spea$ing a multinational corporation refers to a co rporate entity that has "usiness operations worldwide. -ccording to the raft AN Code of Conduct on %ransnational Corporations of *B=, an MNC can "e defined as a corporation that has affiliated "usiness operations in more than two countries.> %he terms multinational and transnational corporations as well as multinational enterprises (MN0s) have "een used interchangea"ly in different international instruments and scholarly wor$s.< &n addition to
2 ection *(a), raft AN Code of Conduct on %ransnational Corporations, *B=. 3 ee ;art &, ection < of the 70C !uidelines for Multinational 0nterprises , *BBBD ee also ection *(a) raft AN Code of Conduct on %ransnational Corporations, *B=D Anited Nations 0conomic and ocial Council, u"+Commission on the ;romotion and ;rotection of uman
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glo"al "usiness operations, there is a twofold criterion to determine whether a corporation is an MNC or not. :irst, there should "e a parent+su"sidiary relationship in terms of existence of a parent compan y at a particular place and its offshoot su"sidiaries in other countries. econdly, effective control of such parent company over its su"sidiaries is a trademar$ characteristic of MNCs. %hus, a vital factor to the definition is the exercise of control, as opposed to a financial sta$e in a foreign venture. %he level of control ena"les co+ordination among the "usiness structure, instead of "eing composed of a networ$ of independent entities.E
o MNCs Possess International Legal Personality?
Corporations are, of course, su"'ects of law and have a legal personality within the internal legal order of the country where they are registered. 2ut, can they also possess international legal personalityF - code of conduct for MNCs entails accounta"ility on the part of such corporations for their acts and omissions. uch accounta"ility is dependent on the conferment of international legal personality on MNCs. %his is to say that an MNC can "e held accounta"le for its wrong+doings only when it possesses international legal personality. %he proposition that corporations should "e granted international legal personality is not a novel one. 2y the early *BG?s, some writers had already "egun exploring the role of corporations as international legal actors.G %he rise of MNCs was seen "y many tates as a serious threat to their national sovereignty, especially with respect to control over their /ights, Norms on the /esponsi"ilities of %ransnational Corporations and other 2usiness 0nterprises with /egard to uman /ights, AN oc., 0HCN.EHu".>H>??H/ev.>.
4 2eth tephens, The Amorality of Profit: Transnational Corporations and Human Rights , 20/40306 5. &N%I3 3., ol. >?, E= (>??>).
5-/M-N 0 M0%/-3 8 C03&N0 300JA0, &M;/7&N! &N%0/N-%&7N-3 &N0%M0N% -!/00M0N%, *@* (>?*<).
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natural resources. &n this context scholars "egan to discuss ways which would "e "est to control the growing power of MNCs. 7ne method envisaged was the ela"oration of different “codes of conduct” imposing non+"inding o"ligations on corporations investing a"road. Not surprisingly, the ma'ority of scholars strongly re'ected the possi"ility of recogni#ing corporations as su"'ects of international law. owever, in the Reparations Case7 three reKuirements were laid down so as to determine whether an entity possesses international legal personalityL (i) %he said entity should "e a su"'ect matter of international lawD (ii) %he entity must possesses certain rights and o"ligations under international lawD and (iii) %he entity must have a mechanism to protect its rights as conferred "y international law. %he analytical framewor$ developed "y the &C5 in this case has now "een endorsed for all entities. %he fact that an entity has "een granted su"stantive rights in a treaty as well as a direct right of action has "een used as evidence that it possesses international legal personality. %here are two circumstances in which MNCs possess "oth su"stantive rights and the a"ility to "ring a claim on the "asis of those rights "efore an international tri"unal. :irst, state contracts are often gove rned "y international law and typically contain an ar"itration clause. -ccording to the %exacoCalasiatic 8 ar"itral tri"unal the com"ination of su"stantive and procedural rights found in
such contracts, which are the product of direct negotiation "etween an investor and the host+state for the purpose of underta$ing a specific pro'ect, is an indication that corporations possess international legal personality. &nvestors also "enefit from this com"ination of su"stantive and procedural rights under most modern international investment agreements (!II"s# ). Ander such treaties, a tate typically gives its consent to ar"itration in advance to all investors from the other contracting states that meet the
6 Ibid. 7 Reparations for Injuries Suffered in the Seri!e of the "nited #ations, A dvisory 7pinion (*BE=) &C5 /eports *=E.
8 Te$a!o %erseas Petroleum Co. & California Asiati! %il Co. . 'ibyan Arab Republi! , -ward (5anuary *B, *B==) &3/, G<, *B==.
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applica"le standing reKuirements.B %his amounts to granting these investors international legal personality for the purpose of the treaty.*? ConseKuently, a code of conduct and MNC accounta"ility acKuires legitimacy "ased on such international legal personality.
$ro%th o& Corporate Code o& Conduct &or MNCs %he development of a corporate code of conduct for MNCs is fairly recent. :or the sa$e of convenience, the evolution of the code can "e studied in four phases. owever, no specific multilateral treaty or agreement on investment was formulated in an y of these phases. %hus, one has to rely on voluntary guidelines, soft law norms or 'udicial decisions to identify the areas where corporate accounta"ility exists.
Phase '( Phase o& )uspicion
&n the late *B?s and early *B=?s, developing countries loo$ed at MNCs with suspicion. %hese corporations, in many developing countriesI opinion, were instrumental in undermining the sovereignty of the states in which they operated. Many developing nations especially those of 3atin -merica were of the view that MNCs $ept the host+state and its peripheral states in a state of continuous economic dependence. %he formulation of the New &nternational 0conomic 7rder (N&07) in *B= further strengthened this "elief. %he developing countries associated with N&07 were satisfied that they had achieved
9 ee -rticle *** 8 -rticle ***=, North -merican :ree %rade -greement 2etween the !overnment of Canada, the !overnment of Mexico and the !overnment of Anited tates, *BBE.
10 -/M-N 0 M0%/-3 8 C03&N0 300JA0, &M;/7&N! &N%0/N-%&7N-3 &N0%M0N% -!/00M0N%, *@E (>?*<).
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sufficient cohesion and that they had sufficient resources to come up with regulations for these powerful corporations. -ll these events culminated into the formulation of the raft Code for %ransnational Corporations "y the Anited Nations Commission on %ransnational Corporations in *B=. owever, this Code was never formally accepted.
Phase *( Phase o& Mar+et Liberali,ation
2y the early *BB?s, with the disintegration of the oviet Anion, hostility towards MNCs decreased significantly as developing countries now " egan to fight for limited foreign resources. &n a li"erali#ed mar$et, foreign investment suddenly "ec ame of vital importance to developing countries. %he 1orld 2an$ was of the view that though li"erali#ation was at its pea$, the international investment mar$et was not ripe for a "inding code of conduct for MNCs. -nd thus, 1orld 2an$ came up with its !uidelines on :oreign &nvestment in *BB> which were non+"inding. %he 70C, however, too$ the forefront and started drafting the Multilateral -greement on &nvestment (M-&) in *BBG. M-& provided numerous relaxations to MNCs and foreign investment. oweve r, the draft M-& failed to put forth the o"ligations and responsi"ilities of MNCs and was considered "y many to "e a "iased instrument.
Phase -( .ntry o& N$Os
-ll at once there was sudden discontentment with the system. -s disenchantment with mar$et li"erali#ation and glo"ali#ation pea$ed, the draft M-& was attac$ed "y a num"er of N!7s that were of the opinion that the instrument was "iased to the cause of MNCs. N!7s "elieved that the M-& had failed completely to ta$e into consideration the negative impacts of such corporations especially with regards to the env ironment and the cause of human rights. &n light of such protests against the M-&, gov ernments soon withdrew their support from M-&. %hus, the M-& was discarded.
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Phase /( .ntry o& W0O
%he developing nations now pinned their hopes on the 1orld %rade 7rgani#ation and urged for a non+"iased, 1%7+"ased instrument which would regulate the "usiness and wor$ings of MNCs. %he issue was sought to "e ta$en for consideration at the Cancun Ministerial Meeting in >??<. owever, the issue of investment was never considered at the said meeting. eli"erations continue for a 1%7+"ased multilateral agreement for a code of conduct for MNCs. owever, such a multilateral agreement has not "een formulated till date.
Corporate Code o& Conduct &or MNCs Certain o"ligations have "een recogni#ed and esta"lished internationally which form the corporate code of conduct for MNCs. %hese have "een discussed "elow.
Obligation o& Non1Inter&erence in o2estic "&&airs
Ander this o"ligation, MNCs shall not interfere in the domestic political affairs of the host+state. :urthermore, they shall not influence their home+state to interfere on their "ehalf in the political activities of the host+state. %hey are also under the o"ligation to respect the sovereignty of the host+state.** %his o"ligation of non+interference can "e traced to the Anited Nations eclaration on :riendly /elations 2etween Nations, *B*. %he need for non+interference is "ased on multiple considerations. ome developing countries are of the opinion that MNCs are nothing "ut proxies of their home+state that operate in the host+state so as to ensure there is a pliant government or a pro+"usiness government which shall cater to all its needs and reKuirements. ome countries "elieve
11 oon, %., (ultinational )nterprises and State Soereignty "nder International 'a* , -03-&0 3-1 /0&01, ol. >*, >*B (*BBB).
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that MNCs interfere in the political activities of the host+state on a continuous "asis which is detrimental to the latter. 7n the other hand, some of the developing nations "elieve that MNCs associate with the local ruling elites of the host+state and see to it that the same elites stay in circulation there"y repressing other political factions. %he often cited instance is the overthrow of the !overnment of -llende in Chile, which had "een democratically elected, "y a coup engineered, it is alleged, "y foreign "usiness groups with the covert support of a foreign government.*> :or all such reasons, it seems 'ustified to impose an o"ligation of non interference on MNCs. Many instruments now include a prohi"ition on the involvement of MNCs in the politics of the host+state. %he statements contained in them, however, are only soft law reKuirements. 2ut, the issue does arise in modern law as to whether there is more direct responsi"ility in circumstances in which there is involvement of an MNC or home+tate officers for effecting coups or "ringing a"out changes in the host+stateIs government. uch changes would favour the MNCIs continued activity or would favour the home+ stateIs policies and goals.*< Non+interference as a principle was recogni#ed in the case of U.S. v. Nicargua14 where"y the &nternational Court of 5ustice (&C5) re'ected the A.. argument that suggested that the growth of communism in Nicargua was a matter of concern for the ad'oining tates. %he &C5 held that it was not good for a country to dictate the $ind of economic system that another country should possess and thus it supported the o"ligation of non+interference amongst tates. %he Court also stated that this norm em"odied a prohi"ition against any intervention "earing on matters upon which a state is permitted, "y virtue of its sovereignty, to decide freely. uch matters included the choice of a political, economic, social and cultural system, and the formulation of foreign policy.
12 M. 7/N-/-5-, %0 &N%0/N-%&7N-3 3-1 7N :7/0&!N &N0%M0N%, *=E (>?**).
13 Ibid. 14 ".S. . #i!argua, *B@ &C5 *E. Page | 8
%hough such an o"ligation is internationally recogni#ed, what is de"ata"le is the degree of interference that is permissi"le ie. the extent of interference in a countryIs domestic affairs that can "e allowed. -n apt illustration is that of the &raK 1ar. Many theorists are of the view that the change of regime in &raK was not "ecause the A.. government was threatened "y the &raKi government "ut "ecause of &raKIs oil resources which gives a "usiness motive to the war.*G %hus, the extent to which a regime change in a country is permissi"le for "usiness or for investment is moot. %hus, the extent of interference permissi"le should "e determined internationally in order for such o"ligation to acKuire its true purpose.
Obligations Relating to 3u2an Rights
MNCs are not to support a regime that violates human rights. &n addition, MNCs are o"ligated to comply with international la"our standards. &37 has co me up with a num"er of instruments as far as la"our standards are concerned. owever, human rights enforcement is always "lea$ as certain 'urisdictional matters crop up which ma$e it difficult for courts to try instances involving human right infringement. "4 54)4 "lien 0orts Clai2s "ct
- "rilliant piece of legislation is the A.. -lien %orts Claims -ct (!"0C"#) which is a two hundred year old legislation that has "een used to "ring MNCs to the doors of the court for human rights violation. %he A -lien %ort Claims -ct renders vindication to foreign claimants of gross human rights violations committed "y multinational corporations. %he -ct was first employed on tate defendants yet A courts now permit claims against private corporations. %his development has "rought serious allegations against several of the worldIs largest corporations. ome of the allegations
15 M. 7/N-/-5-, %0 &N%0/N-%&7N-3 3-1 7N :7/0&!N &N0%M0N%, *=G (>?**).
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concern severe infringements of human rights such as mass murder, rape and genocide, while other cases address freedom of speech and expression. %he -ct provides civil remedies and distinguishes from legislation in other parts of the world. %here are important procedural hurdles to impose litigation, nonetheless the -ct has instigated a de"ate on the ris$s involved with transnational corporate activities. 1hile several cases have "een dismissed and other settled, corporate aiding and a"etting is the most prosecuted field of the litigation under the -ct. %he first landmar$ case where the -%C- was applied was the *B@? case of Filartaga v. Peña-Irala ,+ prior to which the use of -%C- was not common in human rights
lawsuits. uring the *B@?s most of the suits concerned foreign n ationals suing their own government thus entailing tate action. 2y the *BB?s the litigation expanded to private actors to include suits against MNCs alleged of aiding and a"etting in human rights violations "y foreign tates. &t was not until a!ic v. ara!"ic 17 that courts found private actors lia"le for human rights violations. -fter this decision corporate cases "egan to emerge. #oe v. Unocal Corp .18 was the first lawsuit concerning a private corporation. Anocal was a A.. MNC that was alleged to have participated actively in the mass $illing and torture of a"originals along with the 2urmese !o vernment while it was constructing a pipeline in 2urma. %he court was of the opinion that it had sufficient 'urisdiction to try the matter as the parent company was within the territorial limits of the court. -lso, the court held that where the parent compan y "enefited from the misdeeds of its su"sidiaries in the host+state, they should "e held accou nta"le for such misdeeds. Sosa v. $lvare"-%ac&ain +- is the only A upreme Court decision to this date. %he
case was decided in favor of the defendant, "ut the Sosa case has "een cited "y "oth
16 ilartaga Pe/a0Irala, d @= (>d Cir *B@?). 17 1adi! . 1arad2i!, =? :.<> (>d Cir.*BBG). 18 3oe "no!al Corp., **? : upp. >d *>BE (C.. Cal. >???). Page | 10
sides to support the actiona"le claims for violations of the law of nations. &t holds that private parties, such as corporations, can "e lia"le under the -%C-. -nother claim under the -%C- was that of 5ewish plaintiffs against &2M Corporation and other corporations. %hese plaintiffs alleged that &2M and others had passively participated in the mass $illing and torture of 5ews during the olocaust "y supplying the Na#i government with certain technologies.>? %he Court agreed to entertain the case "ased on the understanding that corporations that had "enefitted from the olocaust were to "e held accounta"le for their misdeeds. Moreover, in the recent years the Courts have "een actively recogni#ing the concept of “universal 'urisdiction”.>* %hus, the Courts are now of the opinion that there are certain offences so gross and violent, that they should "e allowed to "e tried anywhere. %hus, the concept of universal 'urisdiction see$s to put an end to the 'urisdictional issue that crops up when enforcement of human rights is at sta$e. %he num"er of court cases heard is a small fraction when compared to the num"er of lawsuits filed. %his is due to the difficulty in assigning responsi"ility to corporations when they rarely commit direct acts of human rights a"use. -s a result the most important Kuestion that has developed under the -%C- is whether corporations can "e held accounta"le for aiding and a"etting (complicity) in human rights a"uses. &t has proved difficult to gain personal 'urisdiction over individual human rights violators yet legal action on corporations "ased in the A has resulted in more successful outcomes than in other countries.>>
19 Sosa . Alare20(a!hain, GE> A.. B>, =>E (>??E). 20 M. 7/N-/-5-, %0 &N%0/N-%&7N-3 3-1 7N :7/0&!N &N0%M0N%, *== (>?**).
21 Pino!het4s Case, *BBB > 13/ @>=D ilartaga Pe/a0Irala, d @= (>d Cir *B@?). 22 Martha 3ove'oy, rom Aiding Pirates to Aiding Human Rights Abusers: Translating the )ighteenth Century Paradigm of the 'a* of #ations for the Alien Tort Statute , 6-30 AM.
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64 Corporate Co2plicity
%he attri"ution of corporate complicity is a rather complex tas$. MNCs acting as accomplices to violations committed "y a host tate can "e responsi"le to a"uses under international law. %hree categories have "een identified "y legal commentatorsL direct complicity, indirect complicity and mere presence in the country coupled with complicity through silence or inaction.>< Corporations can "e responsi"le for the committed a"uses "y facilitation or directly participate in the a"uses in con'unction with government agents. :urthermore, even if the corporation is not involved in the violations, it can "enefit from the failure of governmental p rotection of human rights.>E %o esta"lish whether a corporation has acted in complicity, a few factors need to "e considered. %he corporation must have acted with intent andHor $nowledge or rec$lessness, and the corporation must have contri"uted in a direct and material way to the crime.>G /ecently there have "een several consolidated actions to redress human rights violations committed in outh -frica under the apartheid regime. ;laintiffs include residents that were in'ured from the year *BE@ to *BBE alleging violations "y MNCs that conducted "usiness in the region.> %he district court however, declined to apply the Convention on -partheid since the A had not ratified it at the time and other /%. 8 0. 3.5.,ol. *> , >E (>??B).
23-nn Marie Mc3oughlin, &N%0/N-%&7N-3 %/0N 7: MA3%&N-%&7N-3 C7/;7/-%0 -CC7AN%-2&3&%6 :7/ AM-N /&!% -2A0 -N %0 /730 7: %0 AN&%0 %-%0, 7&7 N.A. 3. /0., ol. <<, *G@ (>??=).
24 Ibid. 25 Ibid. 26 In Re S. Afri!an Apartheid 'itig., d G<@, GG?D 1hulumani . 5ar!lay #at6l 5an7, 'td., G?E :.GE (>d Cir. >??=).
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Conventions concerning criminal lia"ility were found not app lica"le to civil remedies. :urthermore, the 'udges were split on the opinion of “aiding and a"etting”. %hus these matters, to date, remain unresolved. Nonetheless, this doctrine is also universally recogni#ed under customary international law and has "een sustained since the Nure'(erg >= trials. Courts have to a great degree reasoned and de"ated on the doctrine. everal courts have held that aiding and a"etting is appropriate under the -%C-, yet the Kuestion still remains whether international law or federal common law provides for the appropriate standard.>@ %here is, at this present time, no consensus on this issue.
Obligations Relating to the .nviron2ent
-s far as regulation of MNC conduct is concerned in relation to the environment, we find, again, that there are only soft law norms or guidelines which are not sufficient chec$s on the activities of MNCs. :urthermore, the environmental treaty regime prevalent internationally (toc$holmH/io) cannot "e applied to MNCs as (i) %hey are non+state actors and (ii) :or such a regime to apply to MNCs, the country in which they operate would first have to incorporate the said law at the local levels "y means of domestic legislation and then "ring such MNCs under the purview of the said regime ia. local legislation.>B %hus, we see that there is a shortage of environmental regulations that would hold MNCs accounta"le for their misconduct.
27 The #urnberg Trial , :./.. B, = (*BE). 28 Nilay ora, ederal Common 'a* and Alien Tort Statute 'itigation: 8hy ederal Common 'a* Can 9and Should Proide Aiding and Abetting 'iability , -/. &N%O3 3.5., ol. G?, *BG (>??B).
29 M. 7/N-/-5-, %0 &N%0/N-%&7N-3 3-1 7N :7/0&!N &N0%M0N%, *@? (>?**).
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&n this "ac$ground, there are various instances which further show that the international courts have "een reluctant to chec$ MNCs activities which are detrimental to the environment. 7ne such tragic event was the 2hopal !as 3ea$ %ragedy where the A.. Court refused to entertain a case against the parent company Anion Car"ide. -fter a careful study of the facts of the 2hopal !as 3ea$ %ragedy, we can conclude that A.. MNCs often ta$e advantage of the ill+governance on the part of the host+state and thus escape rules and regulations, get easy clearances and do not a"ide "y the environmental norms that they would normally have to follow in their own country. &t is shoc$ing how a Court can fail to hold such an MNC accounta"le for its misconduct, more so in the aftermath of tragedy. %he second instance is where 1estinghouse Corporation (A.. MNC) sold a nuclear power plant to the ;hilippines and the reactor of such power plant was situated on an earthKua$e fault+line "elow a volcano. :urther, the designs of the plant did not conform with the international A.. standards. e re, the A.. government sanctioned the plant without any second thought to MNC lia"ility. owever, not all hope is lost and we see that Courts are now "eing sympathetic to the cause of the environment. %hus, the case of )eanal v. Freeport %c'oran *+ the Court agreed to entertain a case against a A.. MNC in relation to the rights of local &ndonesian people which were affected "ecause of certain mining operations. owever, enforcement of environmental norms and standards is meager on the international front as of today.
Obligation to Pro2ote .cono2ic evelop2ent
-lmost every multilateral agreement on investment is "ased on the premise that foreign investment shall ultimately lead to economic development of the host+state. %he ANC%C raft Code of *B= provided that foreign investment can "e "eneficial for the economic development of the host+state provided the positive effects of MNCs are harnessed to the economic goals of the host+state.<* :urthermore, the ;ream"le of the raft M-&, *BB G also assumes that foreign investment is "eneficial for the economic goals of the host+state and
30 5eanal . reeport (!moran, *B= :.BH*BBB). Page | 14
what is "eneficial must "e protected. %hus, such agreements are "ased on an assumption that foreign investment will definitely lead to economic development. owever, it may not always "e the case. -nd so, certain concrete efforts have to " e made "y MNCs to see to it that they contri"ute to the social, cultural and economic upliftment of the tate in which they function.<> &t is therefore imperative to search for methods of holding MNCs accounta"le and to regulate their operations so as to "enefit local communities as well as the international economic system. 1ith respect to the implementation of economic, social, and cultural rights, the Maastricht !uidelines on iolations of 0conomic, ocial and Cultural /ights inform that a state is responsi"le to ensure that transnational corporations do not deprive individuals of these rights.<< :urther, the duty of governments is clearly expressed in the pream"le and first article of the &nternational Covenant on 0conomic, ocial and Cultural /ights. %he ;ream"le affirms that all parties to the Covenant agree to the principlesL ;Re!ogni2ing that, in a!!ordan!e *ith the "niersal 3e!laration of Human Rights, the ideal of free human beings enjoying freedom from fear and *ant !an only be a!hieed if !onditions are !reated *hereby eeryone may enjoy his e!onomi!, so!ial and !ultural rights, as *ell as his !iil and politi!al rights.< 7ther specific o"ligations vis++vis economic development include the dut y not to engage in corrupt practices, duty to not engage in restrictive "usiness practices, to a"ide "y various la"our standards and practices, o"servance of customer protection guidelines of the host+state etc.
31 ;ream"le, raft AN Code of Conduct on %ransnational Corporations, *B=. 32 Claudio !rossman 8 aniel . 2radlow, Are 8e 5eing Propelled To*ards a People0Centered Transnational 'egal %rder=, -M0/&C-N AN&0/&%6 57A/N-3 7: &N%0/N-%&7N-3 3-1 8 ;73&C6 *, ol. B, *@ (*BB<).
33 Maastricht !uidelines on iolations of 0conomic, ocial and Cultural /ights, *BB=. Page | 15
-lso, the capacity of governments to utili#e foreign investment for domestic growth is contingent on the interaction effect of foreign investment with democratic an d effective institutions. eveloping countries must first improve their level of domestic institutional development in order to increase the capacity to negotiate and manage foreign investment to promote economic growth.
Corporate )ocial Responsibility
!lo"ali#ation has had dramatic effects on developing co untries. ;rospective investment and economic growth will continue to have social and environmental impacts. Corporate ocial /esponsi"ility (!C)R#) is a term applied to descri"e the role of "usiness in developing countries and can "e viewed together with terms such as "usiness ethics, corporate citi#enship, corporate sustaina"ility or sta$eholder management. No general standard description of the concept is employed. 7nly recently have corporations initiated rather noteworthy evidence of C/ in the strategic management and sta$eholder social reporting. %he responsi"ility is often communicated towards employees and sta$eholders affected "y the decisions of the company. %he inherent pro"lematic aspect of codes of conduct in the area of C/ is that there is a "road diversity in the codes. ifferent standards and verification mechanisms ma$e it hard to compare corporations, or even appreciate the achievements of the specific code. &t also ma$es it difficult to interpret whether a code is credi"le or not, especially for consumers. 1hile C/ and other voluntary initiatives "y MNCs can affect human rights norms, it has proved that voluntary instruments do not currently "enefit the victims of gross violations. C/ represents the “privatisation” of human rights regulation as governments are una"le or unwilling to control MNC activity. 1hile private initiatives such as corporate codes of conduct and voluntary reporting are definitely steps in the right direction,
34 50NN6 /020CC- 403, :7/0&!N &N0%M0N% 8 7M0%&C 0037;M0N% P MA3%&N-%&7N-3 8 %0 %-%0, *<* (>??B).
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legitimate attempt "y the "usiness community to address ethical conc erns, they have serious deficiencies. %he primary concern is with the voluntary nature of such practices. %he non+"inding nature of such codes means that an organisationIs performance does not necessarily correlate with the organisationIs policy.< -dditionally, the fear is that while they may "e adhered to in economical good times, the voluntary nature of the codes of conduct will allow them to "e the first to go during an economic downturn or times of international insta"ility. Moreover, the lac$ of implementation and enforcement procedures monitored "y impartial agencies gives rise to a perception of the codes as pu"lic relations exercises "y MNCs. &t is of significant concern that self+regulation is designed to avoid government or international regulation from occurring.<= Many codes of conduct fail to address all of the human and la"our rights that are guaranteed to all of humanity. Many codes “volunteer” the co rporation to adhere to standards that are mandatory and "inding according to international human rights and la"our laws anyway. 0nacting a code of conduct that pledges a company not to use slavery or child la"our should not "e necessary. MNCs should "e a"iding "y human rights norms to "egin with. owever, these non+"inding codes of conduct serve as an ac$nowledgement "y corporations that they are "ound "y human rights law and that their activities do affect the en'oyment of human rights within there sphere o f influence. %his has caused some corporations great concern as these promises could "ecome difficult to rescind upon and could create competition "etween corporations causing them to concede to external regulation and "inding rules.<@
36 2art, 4enneth and 2aet#, M., The Relationship 5et*een (ission Statements and irm Performan!e: An )$ploratory Study , 57A/N-3 7: M-N-!0M0N% %A&0, ol. <<, @>< (*BB@).
37CANN&!-M, N. 8 /00, 5., &NA%/6 03:+/0!A3-%&7NL -N &N%&%A%&7N-3 ;0/;0C%&0, <=? (*BB=).
38 %A&N! /73:, “Codes of Condu!t: A >ro*ing Con!ern for (ultinational )nterprises,” 2A330%&N 7: C7M;-/-%&0 3-27A/ /03-%&7NL MA3%&N-%&7N-3 0N%0/;/&0 -N
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Certain 7udicial ecisions Regarding MNC "ccountability %he Nurem"urg %ri"unal perhaps "est su"stantiates this notion of applying general rules of international law to individuals as well as corporations. %he Nurem"urg Charter permitted the prosecution of a “group or organisation” and allowed the tri"unal to declare that an entity is a criminal organisation. %he %ri"unal "ecame a foundation of human rights law in statingL ;That international la* imposes duties and liabilities upon indiiduals as *ell as upon States has long been re!ogni2ed. ... Crimes against international la* are !ommitted by men, not by abstra!t entities, and only by punishing indiiduals *ho !ommit su!h !rimes !an the proisions of international la* be enfor!ed.???).
39 udgment of the International (ilitary Tribunal for the Trial of >erman (ajor 8ar Criminals. :./.. B, = (*BE).
40 "nited States . li!7 , Council 3aw No. *?, *>* (*BEB). 41 "nited States . 1rau!h et al4 (Case &), %rials of 1ar Criminals, ol. @, **B (*BG>). 42 "nited States . 1rupp -vaila"le httpLHHwww.ess.uwe.ac.u$HgenocideHcntrl*?Qtrials.htmR4rupp
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&n I/ano/a v. For! %otor Co.EE it was o"served that no logical reason exists for allowing private individuals and corporations to escape lia"ility for universally condemned violations of international law merely "ecause they were not acting under color of law. :urther in 0ast'an o!a, Co. v. avlin4 the Court agreed that su"'ect matter 'urisdiction existed in an -%C- action against a 2olivian corporation. %he Courts of !reat 2ritain have "egun to relax forum non !oneniens rules in order to allow for plaintiffs to "ring cases against 2ritish corporations in 0ngland rather than in the place where the violation too$ place.E %his has opened the door for numerous cases concerning health and la"our standards.E=
Conclusion -ccounta"ility of multinational corporations can ta$e two directions. %he international community can rely on countries to regulate the conduct of MNCs on tate level, or international law can directly impose lia"ility on the corporations. 2oth levels can promote voluntary approaches and corporate self+regulation or provide a "inding legal framewor$. Consensus on the international level is nevertheless hard to o"tain. ome international measures have failed or fallen short due to lac$ of consensus while self+ regulation has prevailed. %he first international level currently does not codify an y
43 The Dy7lon 5 Case (%rial of 2runo %esch and %wo 7thers), * 3aw /eports of %rials of 1ar Criminals B< (2rit. Mil. Ct. *BE).
44 I*ano*a . ord (otor Co., = :. upp. >d E>E, EEG (.N.5. *BBB) 45 )astman 1oda7 Co. . 1alin, B=@ :. upp. *?=@, *?B?+BG (.. :la. *BB=) 46 Sithole & %thers . Thor Chemi!al Holdings 'td. and Another , %3/ *G :e"ruary *BBB 47 #g!obo and %thers . Thor Chemi!al Holdings 'td ., %3/ *? Novem"er *BBGD Sithole & %thers . Thor Chemi!al Holdings 'td. and Another , %3/ *G :e"ruary *BBBD Connelly . RTD *BB > 13/ >G*D 'ubbe & %thers . Cape P'C D Afri7a and +E?- %thers . Cape P'C *BBB - No. E?D (phahlele & ?? %thers . Cape P'C *BBB M No. *E.
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consistent legal pattern. &t merely promotes principled corporate conduct "y flexi"le standards. &f the tate level is chosen to permit domestic law and regulations to govern and control the implication of multinational enterprises, it is highly li$ely that there will "e less conformity "etween tates, and MNCs will struggle to recogni#e the scope of responsi"ility. %he discussion of accounta"ility mainly revolves around the extent of corporate lia"ility, how responsi"ility can and should "e encouraged. - Kuestion of interest is the preference of how to confront corporate misconduct, whether a legal and hence "inding resolution is favora"le, or rather self+regulation and voluntary measures are "eneficial to the corporate structure. owever since corporate structures may vary to such a great extent, self+ regulation is essential. %he emerging corporate structures, with outsourcing and the utili#ation of su"+contractors and supply chains, has also altered the approach of corporate accounta"ility. &t is also reasona"le to conclude that guidelines and recommendations concerning multinational conduct will soon "ecome "inding and standardi#ed in corporate practice. Codes of conduct and C/ may have a vital impact and "e of legal importance if given consideration "y implementation in contracts or in mar$eting efforts "y companies. Corporate accounta"ility is very much at a formative stage of development. %he prospects of promoting good corporate conduct are su"'ect to how tates choose to govern corporate responsi"ility and corporations choose to apply self+regulation. %he international level can promote uniform corporate standards, which is essential to assert good corporate conduct. %hus "oth an approach on the international level as well as through the act of tates is reKuired in order to "attle the impunity of MNCs. 2oth levels have positive and negative aspects. %he distinction "etween legally "inding and voluntary measures should not "e strictly drawn since self+regulation and codes of conduct are essential to promote good corporate governance and particularly in the long term legal remedies may "e invo$ed from these same codes and practices.
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•
The )"0ACP Conte$t , -%&N! &N%O3 8 C7M;. 3. /0., ol. <>, >??B. Claudio !rossman 8 aniel . 2radlow, Are 8e 5eing Propelled To*ards a People0Centered Transnational 'egal %rder=, -M0/&C-N AN&0/&%6
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