International Environmental Standards for Transnational Corporations

Article excerpt

"[W]ith the exception of a handful of nation-states, multinationals are alone in possessing the size, technology, and economic reach necessary to influence human affairs on a global basis."(1)

I. INTRODUCTION

By the early 1990s, there were almost 37,000 transnational corporations (TNCs) in the world,(2) and their influence on the global economy is enormous. In 1990, the worldwide outflow of foreign direct investment (FDI), which is a measure of the productive capacity of TNCs, totalled $234 billion.(3) In 1992, the stock of FDI had reached $2 trillion.(4) Parent TNCs have generated some 170,000 foreign affiliates, forty-one percent of which are located in developing countries.(5) Nevertheless, the reins remain firmly held in developed countries, where ninety percent of parent TNCs are headquartered.(6)

The growth in the number, size, and influence of TNCs has been a matter of international concern, particularly to developing countries, for over twenty years. The expansion of TNCs after the Second World War resulted from a number of factors, including spiralling labor costs in developed countries, the increasing importance of economies of scale, improved transportation and communication systems, and rising worldwide consumer demand for new products.(7) By the early 1970s, TNCs had begun to attract considerable interest and concern. Critics of TNCs have argued that their post-war expansion has become increasingly focused on the exploitation of the natural and human resources of developing countries.(8) Ethical issues arising from TNC activities include bribery and corruption, employment and personnel issues, marketing practices, impacts on the economy and development patterns of host countries, environmental and cultural impacts, and political relations with both host and home country governments.(9)

It is also frequently argued that TNCs have grown beyond the control of national governments and operate in a legal and moral vacuum "where individualism has free reign."(10) The notion of corporate nationality may become obsolete in a global economy.(11) The trend towards integrated international production and the resultant reorganization of TNC structures to establish "non-equity" arrangements which allow some control over foreign productive assets contribute to this situation.(12)

Despite the long-held concerns about ethical and other aspects of TNC activity, promotion of FDI has been a recent global political trend. A new international consensus was reached at the seventh United Nations Conference on Trade and Development in 1987 on "structural adjustment," in the form of privatization, deregulation, and liberalization of national economies in return for the easing of the debt burden on developing countries. This has paved the way for a substantial expansion in TNC activities, particularly in the developing world.(13) This expansion has been assisted by recent regional and global free trade agreements, the principal beneficiaries of which may be TNCs.(14)

One result of these initiatives has been a distinct shift away from earlier proposals for the regulation of TNCs. This is indicated most vividly by the United Nations, recent abandonment of its fifteen-year effort to produce a Code of Conduct for Transnational Corporations.(15) Recent policy initiatives at the international level concerning TNCs focus instead on developing guidelines to facilitate FDI,(16) with the principal issues being the development of standards for fair and equitable treatment, national treatment, and most favored nation treatment.(17)

Environmental matters are one exception to this trend. In this area, there appears to be a broad consensus that it is appropriate and desirable to develop standards to guide or direct TNC behavior.(18) A parallel and related recognition has emerged in free trade negotiations, where the proposed global agreement emerging from the Uruguay Round of GATT and regional agreements such as the North American Free Trade Agreement (NAFTA) have been recognized to require specific, additional measures concerning environmental, health, and safety matters. …