39808746 Legal Review on Tnc

[ TNC’S- DEFINITION, ROLE AND SCOPE ]PROJECT SUBMITTED TO MA’AM AKRITI MATHUR IN PARTIAL FULFILMENT OF

THE REQUIREMENTS OF THE DEGREE OF LLB. AT JAMIA MILLIA ISLAMIA

Vth SEMESTER

JAMIA MILLIA ISLAMIA

IRAM PEERZADA

CERTIFICATE

(2015-16)

THIS IS TO CERTIFY THAT IRAM PEERZADA OF B.A.LL.B. Semester V HAS SUCCESSFULLY COMPLETED THE PROJECT ON THE TOPIC “TNC’s- DEFINITION, ROLE AND SCOPE” UNDER THE GUIDANCE OF MISS AKRITI MATHUR

DATE:-

PLACE:-

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 strategy2.” 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 others3.] 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 case 7 , 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.

Brief History of TNCs

From the Origins to the Second World War

The earliest historical origins of transnational corporations can be traced to the major colonising and imperialist ventures from Western Europe, notably England and Holland, which began in the 16th century and proceeded for the next several hundred years. During this period, firms such as the British East India Trading Company were formed to promote the trading activities or territorial acquisitions of their home countries in the Far East, Africa, and the Americas. The transnational corporation as it is known today, however, did not really appear until the 19th century, with the advent of industrial capitalism and its consequences: the development of the factory system; larger, more capital intensive manufacturing processes; better storage techniques; and faster means of transportation. During the 19th and early 20th centuries, the search for resources including minerals, petroleum, and foodstuffs as well as pressure to protect or increase markets drove transnational expansion by companies almost exclusively from the United States and a handful of Western European nations. Sixty per cent of these corporations' investments went to Latin America, Asia, Africa, and the Middle East. Fuelled by numerous mergers and acquisitions, monopolistic and oligopolistic concentration of large transnationals in major sectors such as petrochemicals and food also had its roots in these years. The US agribusiness giant United Fruit Company, for example, controlled 90 per cent of US banana imports by 1899, while at the start of the First World War, Royal Dutch/Shell accounted for 20 per cent of Russia's total oil production.

Demand for natural resources continued to provide an impetus for European and US corporate ventures between the First and Second World Wars. Although corporate investments from Europe declined somewhat, the activities of US TNCs expanded vigorously. In Japan, this period witnessed the growth of the zaibatsu (or "financial clique") including Mitsui and Mitsubishi. These giant corporations, which worked in alliance with the Japanese state, had oligopolistic control of the country's industrial, financial, and trade sectors.

1945 to the Present

US TNCs heavily dominated foreign investment activity in the two decades after the Second World War, when European and Japanese corporations began to play ever greater roles. In the 1950s, banks in the US, Europe, and Japan started to invest vast sums of money in industrial stocks, encouraging corporate mergers and furthering capital concentration. Major technological advances in shipping, transport (especially by air), computerisation, and communications accelerated TNCs' increasing internationalisation of investment and trade, while new advertising capabilities helped TNCs expand market shares. All these trends meant that by the 1970s oligopolistic consolidation and TNCs' role in global commerce was of a far different scale than earlier in the century. Whereas in 1906 there were two or three leading firms with assets of US$500 million, in 1971 there were 333 such corporations, one-third of which had assets of US$1 billion or more. Additionally, TNCs had come to control 70-80 per cent of world trade outside the centrally planned economies.

Over the past quarter century, there has been a virtual proliferation of transnat-ionals. In 1970, there were some 7,000 parent TNCs, while today that number has jumped to 38,000. 90 percent of them are based in the industrialised world, which control over 207,000 foreign subsidiaries. Since the early 1990s, these subsidiaries' global sales have surpassed worldwide trade exports as the principal vehicle to deliver goods and services to foreign markets.

The large number of TNCs can be somewhat misleading, however, because the wealth of transnationals is concentrated among the top 100 firms which in 1992 had US$3.4 trillion in global assets, of which approximately US$1.3 trillion was held outside their home countries. The top 100 TNCs also account for about one-third of the combined outward foreign direct investment (FDI) of their countries of origin. Since the mid-1980s, a large rise of TNC-led foreign direct investment has occurred. Between 1988 and 1993, worldwide FDI stock -- a measure of the productive capacity of TNCs outside their home countries -- grew from US$1.1 to US$2.1 trillion in estimated book value.

There has also been a great increase in TNC investment in the less-industrialized world since the mid-1980s; such investment, along with private bank loans, has grown far more dramatically than national development aid or multilateral bank lending. Burdened by debt, low commodity prices, structural adjustment, and unemployment, governments throughout the less-industrialised world today view TNCs, in the words of the British magazine The Economist, as "the embodiment of modernity and the prospect of wealth: full of technology, rich in capital, replete with skilled jobs." As a result, The Economist notes further, these governments have been "queuing up to attract multinationals" and liberalising investment restrictions as well as privatising public sector industries. For TNCs, less-industrialised countries offer not just the potential for market expansion but also lower wages and fewer health and environmental regulations than in the North.

Problems Arising from TNCs

Intra-Company Trade and Manipulative Price Transfers

The post-Second World War period witnessed not merely a rise in TNCs' control of world trade, but also growth of trade within related enterprises of a given corporation, or "intra-company" trade. While intra-company trade in natural resource products has been a feature of TNCs since before 1914, such trade in intermediate products and services is mainly a phenomenon of recent decades. By the 1960s, an estimated one-third of world trade was intra-company in nature, a proportion which has remained steady to the present day. The absolute level and value of intra-company trade has increased considerably since that time, however. Moreover, 80 per cent of international payments for technology royalties and fees are made on an intra-company basis.

Problems stemming from intra-company trade concern TNCs' ability to maximise profits by avoiding both market mechanisms and national laws with an instrument of internal costing and accounting known as "transfer pricing." This is a widespread technique whereby TNCs set prices for transfers of goods, services, technology, and loans between their worldwide affiliates which differ considerably from the prices which unrelated firms would have had to pay.

There are many benefits TNCs derive from transfer pricing. By lowering prices in countries where tax rates are high and raising them in countries with a lower tax rate, for example, TNCs can reduce their overall tax burden, thus boosting their overall profits. Virtually all intra-company relations including advisory services, insurance, and general management can be categorised as transactions and given a price; charges can as well be made for brand names, head office overheads, and research and development. Through their accounting systems TNCs can transfer these prices among their affiliates, shifting funds around the world to avoid taxation. Governments, which have no way to control TNCs' transfer pricing, are therefore under pressure to lower taxes as a means of attracting investment or keeping a company's operation in their country. Tax revenue which might be used for social programs or other domestic needs is thus lost.

Moreover, in countries where there are government controls preventing companies from setting product retail prices above a certain percentage of prices of imported goods or the cost of production, the firms can inflate import costs from their subsidiaries and then impose higher retail prices. Additionally, TNCs can use overpriced imports or underpriced exports to circumvent governmental ceilings on profit repatriation, causing nation-states to suffer large foreign exchange losses. For instance, if a parent company has a profitable subsidiary in a country where the parent does not wish to re-invest the profits, it can remit them by overpricing imports into that country. During the 1970s, investigations found that average overpricing by parent firms on imports by their Latin American subsidiaries in the pharmaceutical industry was 155 per cent, while imports of dyestuffs raw materials by Indian TNC affiliates were being overpriced between 124 and 147 percent.

Influence in Nations' Political Affairs

TNCs' influence over countries, particularly those in the less-industrialised world, has not been manifest solely in sheer economic power or manipulative price transfers. Such influence has also been reflected in corporations' willingness and ability to exert leverage directly by employing government officials, participating on important national economic policy making committees, making financial contributions to political parties, and bribery. Furthermore, TNCs actively enlist the help of Northern governments to further or protect their interests in less-industrialised nations, assistance which has sometimes has involved military force. In 1954, for instance, the US launched an invasion of Guatemala to prevent the Guatemalan government from taking (with compensation plus interest) unused land of United Fruit Company for redistribution to peasants.

Perhaps the most notorious example of TNCs' meddling in the political affairs of a sovereign state, however, occurred in the early 1970s, when International Telephone and Telegraph (ITT) offered the US Central Intelligence Agency US$1 million to finance a campaign to defeat the candidacy of Salvador Allende in Chilean national elections. Though this offer was refused, and Allende democratically elected, ITT continued to lobby the US government and other US corporations to promote opposition to Allende through economic pressure including the cutoff of credit and aid and support of Allende's political rivals. After copper mines in Chile owned by the firms Kennecott and Anaconda were nationalised, the US government took a series of steps based largely on the recommendations of ITT to subvert Allende.

Disclosure of ITT's efforts to overthrow Allende helped prompt initiatives in the United Nations to draft a TNC Code of Conduct to establish some guidelines for corporate behaviour. This move was part of more general concern about the extent of corporations' economic and political influence which emerged in the 1960s and 1970s, and which led some less-industrialised countries to demand that TNCs divest from certain sectors or to require changes in the terms of a company's investment. Yet such developments have been minor and temporary obstacles to the augmentation of TNCs' economic power, and overall the past three decades have been characterised by increased regional economic integration, the liberalisation of many international markets, and the opening up of new are as such as Central and Eastern Europe.

TNCs and International Politics

Especially since the 1980s, TNCs' involvement at international political negotiations and fora has accompanied and encouraged the rise of global corporate economic power. In an effort to reduce barriers to trade and investment capital flows in the last decade, TNCs have lobbied vigorously to shape to their liking Europe's Single Market agreement, the North American Free Trade Agreement (NAFTA), and the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). For TNCs, so-called free trade lessens governmental restrictions on their movement and ability to maximise returns. "The deregulation of trade aims to erase national boundaries insofar as these affect economic life," economists Herman Daly and Robert Goodland have noted. "The policy-making strength of the nation is thereby weakened, and the relative power of TNCs is increased."

For example, rules established in the GATT's recently concluded Uruguay Round regarding trade-related intellectual property rights (TRIPs) and trade-related investment measures (TRIMs) will be of particular benefit to TNCs. The first gives corporations greater capacity to privatise and patent life forms, including plant and other genetic resources of less-industrialised nations and peoples. TRIMs render illegal certain measures which countries_ notably Southern nations_have employed to encourage TNCs to establish linkages with domestic firms. TRIPs, TRIMs, and other GATT rules fall under the authority of the World Trade Organisation (WTO), a new supranational body which works with the World Bank and other financial institutions to manage global economic policy to serve transnational corporate interests.

In another demonstration of transnationals' growing political might, and perhaps the most striking example to date of organised corporate lobbying on the world stage, TNCs' efforts at the 1992 United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro undermined sections of the Summit's key documents. And well before the Summit took place, TNC pressure had led to the removal from UNCED materials proposals to regulate the practices of global corporations.

This success in Rio underscores a broader issue: although TNCs are collectively the world's most powerful economic force, no intergovernmental organisation is charged with regulating their behaviour. United Nations efforts to monitor and to some extent address TNCs' impacts, notably through the UN's Centre on Transnational Corporations (CTC), have recently been decimated. Under a 1992 restructuring, the CTC lost its independent status, and in 1993 it was dismantled and a 17-year attempt to negotiate the aforementioned Code of Conduct on TNCs was

abandoned. A new Division on Transnational Corporations and Investment emerged_with the aim of promoting foreign direct investment.

TNCs, Human Health, and the Environment

The unwillingness or inability of national governments to control TNCs in a period of deregulated global trade and investment does not bode well for people's health or the environment. TNC operations routinely expose workers and communities to an array of health and safety and ecological dangers. All too often these operations erupt into disasters such as the gas release at the Indian subsidiary of the US-based corporation Union Carbide in Bhopal.

To regard such tragedies only as "accidents," however, distracts attention from the larger, inherent harm to the planet and its inhabitants TNCs' industrial development strategies cause. For example, TNC activities generate more than half of the greenhouse gases emitted by the industrial sectors with the greatest impact on global warming. TNCs control 50 percent of all oil extraction and refining, and a similar proportion of the extraction, refining, and marketing of gas and coal. Additionally, TNCs have virtually exclusive control of the production and use of ozone-destroying chlorofluorocarbons (CFCs) and related compounds.

In destructive minerals extraction, TNCs still dominate key industries. In aluminum, for example, just six companies account for 63 per cent of the mine capacity, 66 per cent of the refining capacity, and 54 per cent of the smelting capacity. Four TNCs account for half the world's tin smelting capacity. With respect to their influence on global agriculture, TNCs control 80 per cent of land worldwide which is cultivated for export-oriented crops, often displacing local food crop production. Twenty TNCs account for about 90 per cent of the sales of hazardous pesticides. Additionally, because TNCs control much of the world's genetic seed stocks as well as finance the bulk of biotechnology research worldwide, they are poised to reap large financial rewards from patenting life forms.

TNCs also manufacture most of the world's chlorine _ the basis for some of the most toxic, persistent, and bioaccumulative synthetic chemicals known such as PCBs, DDT, dioxins and furans, chlorinated solvents, and thousands of other organochlorine compounds. These chemicals' impacts on health include: immune suppression; birth defects; cancer; reproductive, developmental, and neurological harm; and damage to the liver and other organs. As a group, TNCs lead in the export and import of products and technologies that have been controlled or banned in some countries for health and safety reasons. For instance, 25 per cent of total pesticide exports by TNCs from the US in the late l980s were chemicals that were banned, unregistered, canceled, or withdrawn in the US itself. And a handful of Northern companies are responsible for the nuclear technology now found at plants in South America and Asia.

TNCs and their business associations claim that deregulated trade and investment will produce enough growth to end poverty and generate resources for environmental protection. The unrestricted free trade and investment-based growth beloved by TNCs, however, is the same kind of development which has led to overexploitation of land and natural resources, air, water, and soil pollution, ozone depletion, global warming, and toxic waste generation. As economists Herman Daly and Robert Goodland observe: "The dream that growth will raise world wages to

the current rich country level, and that all can consume resources at the U.S. per capita rate, is in total conflict with ecological limits that are already stressed beyond sustainability."

TNCs and Occupational Safety

There have been many instances of TNCs failing to control industrial hazards at their facilities in less-industrialised nations as thoroughly as in their home countries. The situation in Bhopal, where comparison of operations of Union Carbide's Indian subsidiary and a similar plant in the US has revealed many double standards, is only the most infamous example of what the Industrial Labour Organisation acknowledges is a prevailing trend: "In comparing the health and safety performance of home-based [TNCs] with that of the subsidiaries, it could generally be said that the home country operations were better than those of subsidiaries in the developing countries." The case of the German TNC Bayer's chromate production factory in South Africa is illustrative. Chromate is a corrosive compound which can cause respiratory illness including lung cancer. Bayer has owned the facility, Chrome Chemicals, since 1968. In 1976, a South African government report noted health problems in nearly half the plant's employees which were related to their work and which, it said, "are extremely disturbing and would appear to indicate a lack of concern regarding the physical welfare of the workers."

In 1990, a trade union learned that several workers had developed lung cancer, although none had been informed that the disease might be related to their employment. Chrome Chemicals management refused the union's request to review the plant's industrial hygiene records, and in 1991 the firm shut down much of its operation and laid off most of its workers. In South Africa, lung cancer was not added to the list of compensable occupational diseases until 1994, and Bayer has so far refused to provide compensation to a growing number of former employees at Chrome Chemicals who have developed lung cancer. Bayer could not get away with this in Germany, where as early as 1936 lung cancer was considered a compensable occupational disease for chromate workers. Indeed, German compensation authorities consider any labourer with more than three months of chromate work eligible for compensation if lung cancer develops subsequently.

TNCs and Employment

In an era of declining constraints on their mobility and the attraction of cheaper wages in less-industrialised nations eager to draw foreign investment, TNCs are eliminating jobs in their home countries and shifting production abroad. Although overall TNCs' employment in their home countries has changed little in the last decade, among the 300 largest corporations employment in 1989 was lower than it had been in 1980. US-based TNCs have eliminated jobs especially vigorously. Between 1982 and 1993, for example, US TNCs cut over three-quarters of a million jobs at home but added 345,000 jobs outside the United States. For workers in the US and other industrialised countries, TNCs' increased willingness to move operations to lower wage areas along with their greater use of automation, subcontractors, and part-time labour have rendered the strike relatively ineffective and undermined trade unions' collective bargaining power. In the

US, there were one-tenth the number of strikes in 1993 as in 1970, and only 12 per cent of the US workforce is currently unionised, a lower proportion than in 1936.

In less-industrialised regions, the lure for TNCs of fewer costs and regulations offers little promise to workers of decent working conditions, sufficient pay, or job security. Tax breaks and subsidies governments use as incentives are no guarantee that the TNCs will not move on after the benefits have expired, and as cost advantages now found in Singapore appear in, say, Bangladesh, the countries currently experiencing an influx of investment may eventually find themselves in the same position as that of the US and other industrialised nations today.

More fundamentally, as Richard Barnet has emphasised, the transnational corporate order cannot begin to solve the chronically severe unemployment problems in Asia, Latin America, and Africa, where an estimated 38 million new job seekers enter the labor market annually. A comparison of the growth in TNCs' outward foreign investment stock worldwide and their estimated global direct employment in recent decades lays this fact bare. Between 1975 and 1992, outward FDI stock increased almost seven times, whereas TNCs' employment did not even double. In less-industrialised countries, TNCs added only five million employees between 1985 and 1992.

DEFINITION

Multi National Corporations (MNC) or also known as Trans National Corporations (TNC) has become a phenomenon in economic international law since the end of 19 th century. MNC is holding one of the main roles in world development today. Even United Nations itself considers its core position and has a special committee named The United Nations Commission in Transnational Corporations regarding MNC’s issue.

The definition of MNC itself according to The Draft Code of Conduct on Transnational Corporations is an enterprise, comprising entities in two or more countries, regardless of the legal form and fields of activity of there entities, which operates under a system if decision making, permitting coherent polities and a common strategy through one or more decision making countries, 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.11

The existence of MNC in international law has rising some problem, such as its legal status and jurisdiction issue. As we know MNC has some competence as a legal subject, such as its capability to make agreement with other legal entities including states. The least is an issue which emerges after the involvement of MNC in a country has become further than ever, until it is said to be an intervention. It is possible because the investment from MNC is needed by a country to develop them, so the country might be allow some special policy for the sake of MNC’s interest.

Moreover, the MNC still have a big role in the international economic development. MNC, through the Foreign Direct Investment (FDI), is the driving force behind globalization. As the growth of FDI has expanded, the sources and destinations of the investment have become more diverse. This has increase the economic integration of the world economic.12

However, there is another problem that arises from the FDI. It is the activity that sometimes hostile the rights of the people and environment. It happens a lot, most of it is in developing countries. This problem includes the issue regarding permanents sovereignty over natural resource. The developing countries struggle their right in the massive expansion of FDI to their country. Thus, there are some regulations to organize the FDI, to make sure it gives benefits to the host country.

11*this legal review was originally made for application of ALSA Forum 2010 selection;25th april 2010? Huala Adolf, Hukum Ekonomi Internasional:Suatu Pengantar, Jakarta:Rajagrafindo Persada, page 8312 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 V15 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 1416 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 asset17. 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 $651bn18. 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 concepts18UNCTAD (2004a), p 2. 19One-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 interests26. 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 concern23 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 42.25Refer 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 TNCs30. 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 to33. 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.html29 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 do34.” • 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 created35. • 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

Role of transnational corporations in the international trade34 Miller (2004)35 Maitland (2004),36 Fourtou (2004)37UNCTAD (2003) pp 85 and p 145.

In conditions of integration, internationalization and globalization processes, the

activity of transnational corporations is the main driving forces of economic growth. The

leading role of such entities in the world economy raises the broader their presentation,

especially since there are many different definitions of transnational companies (transnational

corporations - TNCs).

According to the United Nations (UN) transnational corporation is one that:

has branches and/or branches with at least two countries,

create a management system to ensure implementation by the branch of the common

strategies and policies,

the linkage forms of subsidiaries which interact each others38

.United Nations sets out the definition of transnational company, as an economic entity with

legal personality or not having legal personality, composed of the mother company and its

foreign affiliaties 39

.Transnational corporations are characterized by:

• the sovereignty consists of the fact that strategic decisions of TNCs are taken independent

of the countries of investment. However the Sovereignty, does not protect them against the

risk of investment (more or less), because they are depending on the economic conditions or the political situation of the country;

• the geographical spread;

• the organizational flexibility in the processes of production;

• the specialization in the production of goods or components depended on the demand of

investments;

• the ability to integrate. Specialization in the production of the TNCS is the main factor of its

efficiency. However, it requires the good coordination of their activities, the perfect flow of

information, technology and human resources between branches and corporate’s offices;

38 United Nation Centre on Transnational Corporation, Transnational Corporation in World Development, NewYork 1983 s. 28.39 World Investment Report 2000, Cross-border Mergers and Acquisitions and Development, UNCTAD, Genewa2000, 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

.

Transnational corporations in the world today

The importance of transnational corporations in the modern world economy stems

not only of the theoretical foundations but of the economic side. The dynamic development of

corporations have started in the fifties of the twenty century. The result of this situation was

the increase of amount of capital invested in different region of world. In 1969, the world,

have about seven thousand transnational corporations41

. In 1992, over 37 thousand TNCs, and about 200,000 foreign affiliates, and in 1996 this figure had risen to over 44,500, which

control more than 270 thousand subsidiaries, and in 2000 to over 62 thousand and of 820

thousand its foreign subsidiaries, and in 2008 the number of transnational corporations in the

world amounted to 82 thousands which controlled 810 thousand subsidiaries

. The main role for the world economy have the largest one hundred transnational corporations. In drawing up its annual rankings by the UNCTAD top positions occupied by the biggest corporations did not change over the years. In 2008, the initial locations on the list were: General Electric, Vodafone and Royal Dutch .

In 2008, most companies out of one hundred largest corporations have their

headquarters in the Triad countries, the United States, the European Union countries and

Japan. However in 1993 none of the 100 largest corporations was the transnational

corporation from developing countries or underdeveloped, while in the 2007 on the list

appeared seven of them: three corporations from Korea, one form China, Hong Kong and

Malaysia and Mexico. Place of choice for doing business of multinational corporations were

mainly developed countries. Place of choice for TNCs from developed countries are countries

40A. 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. TransnationalCorporations, 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;

42A 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.

THE ROLES AND SIGNIFICANCE OF TRANSNATIONAL CORPORATIONS IN INTERNATIONAL HUMAN RIGHTS LAW

The classical theory on Human Rights does not accept any link other than that between people and State. In other words, from the very emergence of a State being as a main actor in the international society, the protection of fundamental human rights has been traditionally applicable to its scope of responsibility. Therefore, in modern society, States carry out both the protection and the violation of human rights.44 However, since International Human Rights Law appeared in the twentieth century, more and more attention has been paid to the question of the legal personality of transnational corporations. Although TNCs themselves do not possess legal personality in order to participate in international relations as well as in the creation of norms of international law, we subscribe to the opinion of Professor Y. M. Kolosov who considers that

Transnational corporations correspond to a drastically new level of international differentiation of labour which gives the right to talk about the foundation of so-called Transnational Law as a branch of International Economic Law within the framework of which TNCs could hold not only rights but also obligations.45

While speaking about the legal personality of transnational corporation in International Human Rights Law, one should not neglect the fact that the whole structure of sustainable development including human rights is necessarily dependent on transnational corporations’ direct participation. It is evident in Principles 5 and 27 of the Rio Declaration on Environment and Development of 1992, where the obligations arising from sustainable development are addressed to «all States and people». At the same conference Agenda 21 of the Rio Declaration was

44 Kurtis F. J. Dobbler: Izuchenie mejdunarodnogo prava prav cheloveka [Studying International Human Rights Law], Tashkentskiy Gosudarstvenniy Yuridicheskiy Istitut, Tashkent, 2004, p. 645 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

46See: 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. 2948 : 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.

developed countries public governance, the more likely it is that corruption will be rife and 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.

The UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights

On August 13 2003, the United Nations Sub-Commission on the Promotion and Protection of Human Rights approved the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights (hereinafter referred to as the Norms) in its Resolution 2003/16. The Norms represent a landmark step in holding businesses accountable for their human rights abuses and constitute a succinct, but comprehensive, restatement of the international legal principles applicable to transnational corporations with regard to human rights, humanitarian law, international labour law, environmental law, consumer law, anticorruption law, and so forth. In fact, the Norms are the first non-voluntary initiative accepted at the international level. The Norms attempt to impose direct responsibilities on transnational corporations as a means of reaching comprehensive protection of all human rights –civil, cultural, economic, political and social–. Thus these Norms constitute an attempt in filling the gap in understanding the expectations on transnational corporations in relation to human rights.53 The Norms not only reflect and restate a wide range of human rights, labour, humanitarian, environmental, consumer protection, and anticorruption legal principles, but also incorporate best practices for corporate social responsibility. Besides, the Norms do not endeavor to freeze standards by drawing on past drafting efforts and present practices; they incorporate and encourage further evolution. The Norms appear to be more comprehensive and more

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. 25.53Report of the Sub-Commission on the Promotion and Protection of Human Rights, cit.

focused on human rights than any of the international legal or voluntary codes of conduct drawn 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.

BIBLIOGRAPHYLiterature:

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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

ACKNOWLEDGEMENTBefore 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)

THIS IS TO CERTIFY THAT MOHD. ADIL OF B.A.LL.B. Semester V HAS SUCCESSFULLY COMPLETED THE PROJECT ON THE TOPIC “TNC’s- DEFINITION, ROLE AND SCOPE” UNDER THE GUIDANCE OF MISS AKRITI MATHUR

DATE:-

PLACE:-

DECLARATION

I, IRAM PEERZADA, STUDENT OF B.A.LL.B.(Hons.) SEMESTER V AT JAMIA MILLIA ISLAMIA HEREBY DECLARE THAT THAT THE INFORMATION GIVEN IN MY PROJECT IS TRUE AND ORIGINAL TO THE BEST OF MY KNOWLEDGE.

YOURS FAITHFULLY

IRAM PEERZADA

DECLARATION

I, MOHD. ADIL, STUDENT OF B.A.LL.B.(Hons.) SEMESTER V AT JAMIA MILLIA ISLAMIA HEREBY DECLARE THAT THAT THE INFORMATION GIVEN IN MY PROJECT IS TRUE AND ORIGINAL TO THE BEST OF MY KNOWLEDGE.

YOURS FAITHFULLY

MOHD. ADIL