ITF (Transnational Corporations)
ITF (Transnational Corporations)
These are corporations that operate in more than one country. Usually,
headquarters are in one or more nations and production or services are in other
nations. TNCs have come to dominate the global economy and some large TNCs
are richer and more powerful than many national government.
These are any corporation that is registered and operates in more than one country
at a time; also called a multinational corporation.
These are firms which own or controls production facilities in more than one
country through direct foreign investment. Although multinationals grew most
rapidly in the 1960s, the foundations were laid in the inter-war period, notable
examples being Ford, Vauxhall, and Philips.
TNCs are probably the major force affecting world-wide shifts in economic
activity, since the largest have a turnover greater than the GNP of many less
developed nations. Although a developing nation may benefit from the
construction of a plant for a TNC in terms of jobs and markets, it has been argued
that the price is a loss of local control.
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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 labour in developing countries. A transnational corporation can hold down
costs by shifting some or all of its production facilities abroad.
The number of transnational corporations in the world has jumped from 7,000 in
1970 to 40,000 in 1995. While global in reach, these corporations’ home bases are
concentrated in the Northern industrialized countries, where ninety percent of all
transnational are based. More than half come from just five nations: France,
Germany, the Netherlands, Japan and the United States. But despite their growing
numbers, power is concentrated at the top. i.e., the 300 largest corporations
account for one-quarter of the world’s productive assets.
The United Nations has justly described these corporations as “the productive core
of the globalizing world economy.” Their 250,000 foreign affiliates account for
most of the world's industrial capacity, technological knowledge, international
financial transactions, and ultimately the power of control. In terms of energy,
they mine, refine and distribute most of the world’s oil, gasoline, diesel and jet
fuel, as well as build most of the world’s oil, coal, gas, hydroelectric and nuclear
power plants. They extract most of the world’s minerals from the ground. They
manufacture and sell most of the world’s automobiles, airplanes, communications
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satellites, computers, home electronics, chemicals, medicines and biotechnology
products. They harvest much of the world’s wood and make most of its paper.
They grow many of the world’s major agricultural crops, while processing and
distributing much of its food.
These corporations, together with their host governments, are reorganizing the
world economic structures - and thus the balance of political power - through a
series of intergovernmental trade and investment accords. These treaties serve as
the frameworks within which globalization is evolving - allowing international
corporate investment and trade to flourish across the Earth. They include:
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POLITICAL ACTIVITIES BY TRANSNATIONAL CORPORATIONS:
BRIGHT LINES VERSUS GREY BOUNDARIES
Introduction
This article traces the evolution of international standards and guidelines utilized
by the international community to address the involvement of transnational
corporations (TNCs) in political activities. What historically appeared to be a
narrow “bright line” across which TNCs should not step into a nation’s political
activities has faded into a broader “grey boundary” where the justifications and
limits on corporate actions become blurred. The traditionally dominant dictates of
national sovereignty are challenged by an array of competing but unconsolidated
international standards promoted by the activities of an internationally organized
civil society. Marketplace pressures orchestrated by issue advocacy groups spur
changing social expectations regarding TNC actions that race ahead of national or
international legal directives. These shifts alter both the normative basis for TNC
standards and the scope of potentially affected enterprises.
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rather than process obscures historical warnings against political involvements
without providing clear new guidelines for business decisions.
The following analysis first sketches the broad outlines of historical background
and evolutionary change in international standards regarding TNC political
involvements. The next section examines shifts in expectations regarding TNC
actions and the expanding range of corporations involved. Finally, core issues are
identified that shape a pending agenda for international discussion regarding the
nature and scope of socially responsible TNC involvement in political activities.
Historical context
The principal historical fear of TNC political activity arose from concerns that
foreign firms investing in developing countries could engage in activities against
the national interests of the host country, to promote the TNCs’ goals and/or the
home country’s interests. Events in Chile during the early 1970s presented the
prototypical example of this fear. Charges arose that ITT Corporation engaged in
activities, perhaps in collusion with the United States Central Intelligence Agency,
to promote the overthrow of the democratically elected but socialist government of
Salvador Allende in Chile. Prior to his death in a military coup, President Allende
castigated ITT from the podium of the United Nations General Assembly,
energizing a North-South debate that fuelled a backlash against TNCs, sparking a
wave of expropriation actions against foreign direct investment (FDI) during the
1970s.
International documents reflect this concern with potential TNC interference in the
domestic political affairs of sovereign nations. A section of the United Nations
General Assembly’s Resolution of 1 May 1974, declaring a New International
Economic Order (NIEO), addressed the “Regulation and Control over the
Activities of Transnational Corporations” by calling for an international code of
conduct for TNCs that would “prevent interference in the internal affairs of the
countries where they operate” (UNCTAD, 1996a, p. 54). Seven months later, the
United Nations General Assembly adopted a resolution for a Charter of Economic
Rights and Duties of States, which similarly declared that “Transnational
corporations shall not intervene in the internal affairs of a host State.”
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The “should/shall” choice represents the draft Code’s basic disagreement over
whether the Code should be binding or voluntary. However, the bracketed
wording suggests differing opinions among nations regarding how narrowly or
specifically to construe admonitions against TNC political activities.
The main differences in the draft’s first paragraph posit a choice between a general
prohibition against TNC political involvements versus more narrowly proscribed
actions that might be defined by their particular purpose or legality. By inference,
the narrower formulation could mean that other, unspecified types of TNC
political activities are not proscribed. The second paragraph, largely agreed to by
the negotiators, sets a positive standard of national law and practice to evaluate
TNC political actions. Only those activities permitted by established national laws,
policies and administrative practices are appropriate; the principle of national
political sovereignty is maintained.
In 2000, two changes to the OECD Guidelines’ text provided an updated context
for the provision on political activities. A new introductory sentence to the
“General Policies” section (where the political activities’ provision is located)
states: “Enterprises should take fully into account established policies in the
countries in which they operate, and consider the views of other stakeholders.”
(OECD, 2000, p. 19). The reference to established policies appears to reinforce the
role of national standards, encompassing norms beyond legal mandates. However,
the unusual reference to the “views” of undefined “other stakeholders” broadens
the scope of referent standards in a more dramatic fashion, blurring considerations
heretofore focused narrowly on government actors and national sovereignty.
The second notable change in text, in the same “General Policies” section, added a
provision calling on enterprises to “Respect the human rights of those affected by
their activities consistent with the host government’s international obligations and
commitments”. This specific reference to human rights reflects the international
community’s increased concern with such issues. Rather than mirroring the
negative admonition to abstain from improper political activities, the provision
calls on TNCs to “respect” human rights. While this standard certainly includes
the negative notion that TNCs should not violate human rights, “respect” might
also encompass positive actions to support or promote such rights. Nevertheless,
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the provision still couches the human rights standard in the context of the host
nation’s international commitments, raising potential questions about whether and
when international standards constitute national obligations.
Standards provided in the United Nations and OECD documents established the
basic principles reflected in most intergovernmental agreements that address
political involvements by TNCs. Several key issues arise from these formulations.
A central question is whether TNC political activities in host countries constitute
improper interference in a nation’s internal affairs, or whether only “improper”
political involvements should be proscribed. If “proper” TNC political activities
exist, then distinguishing standards are needed, and a positive list of such activities
should be identifiable. Standards might be defined by national law, policies and
government practices, or international standards (law or otherwise) could be used,
raising the question of whether or when TNCs should follow international norms if
they conflict with national standards. A related issue is whether TNCs have
political rights if they are assigned duties or responsibilities regarding political
activities in host nations.
As Governments laid down markers during the 1970s that emphasized strictures
on TNC political activities, a contemporaneous problem stirred passions that
pushed in an opposite direction. The struggle against apartheid in South Africa
confronted the international community with a dilemma. TNC conformance with
national law and policy standards meant participating in an apartheid system based
explicitly on racial discrimination. TNC activities opposing apartheid could mean
violating local law and, arguably, constituted action to overthrow the South
African Government, because white minority rule depended upon the apartheid
structure.
The United Nations NIEO Resolution, cited above, perceived no dilemma. The
Resolution’s full dictum on TNCs sought a code of conduct to “prevent
interference in the internal affairs of the countries where they operate and their
collaboration with racist regimes and colonial administrations” (UNCTAD,
1996A, p.54; emphasis added). The draft United Nations Code expounded on the
subject in a section dealing with “Non-collaboration by transnational corporations
with racist minority regimes in southern Africa”. Although negotiating
disagreements again resulted in bracketed language, the draft provisions would
have sought TNC withdrawal from South Africa or “appropriate activities” to help
eliminate apartheid, in line with United Nations decisions.
These limited provisions linking efforts against South Africa’s apartheid system to
TNC conduct could be viewed as standards that would involve TNCs in political
activities. However, at the time the case appeared to constitute a clear exception
rather than a fundamental challenge to governmental admonitions against TNC
involvement in a country’s internal affairs. Intergovernmental documents stopped
well short of calls from emerging civil society groups for more aggressive TNC
actions. For many Governments, the justification for TNC activities against
national laws and policies in South Africa rested on the illegitimacy of the South
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African Government. However, not all Governments were willing to declare the
apartheid-based Government illegitimate, so intergovernmental disputes remained
over when international standards might override national sovereignty in guiding
TNC conduct.
The civil society movement pressuring TNCs for actions against South Africa’s
apartheid regime favored two alternative paths. One approach urged disinvestment
to damage South Africa’s economy, thereby weakening the apartheid regime.
Under these circumstances, TNC withdrawal could have a political impact,
whether the motivation was to bring political change or simply respond to a
deteriorating economic and business climate. The second approach, based initially
on the Sullivan Principles (Kline, 1991), made continued TNC operations
contingent on operational standards designed to avoid racial discrimination while
improving conditions among the firms’ black workers and communities. This
approach encouraged TNC activities within South Africa that would challenge,
breach and seek to dismantle the apartheid system, undermining the Government’s
base of power.
Implementing the initial Sullivan Principles could lead TNCs to violate petty
apartheid laws and certainly contravened broader national apartheid policies. Later
amplifications of the Sullivan Principles explicitly called on TNCs to participate
more directly in the political process. Among other politically-related goals, TNCs
were pledged to “oppose adherence to all apartheid laws and regulations; support
the ending of all apartheid laws, practices and customs; (and) support full and
equal participation of blacks, coloreds and Asians in the political process”. A clear
contrast appeared between civil society and governmental guidelines for TNC
activities in South Africa, particularly where TNC conduct would involve direct
political actions. For example, when the United States State Department
essentially adopted the Sullivan Principles as standards of conduct required for
firms to qualify for trade assistance programs, the government standard notably
omitted the Sullivan Principle amplification calling for TNC political activities.
The debate over TNC conduct in the struggle against apartheid proved pivotal in
shaping subsequent developments on TNC social responsibility, especially on
politically relevant issues. Learning from the South African experience, when
international issue advocacy groups failed to secure satisfactory actions through
governmental channels, attention shifted increasingly to TNC capabilities to
influence circumstances abroad, including local political processes. These
campaigns sought to direct TNC involvement on issues as diverse as political
repression in Myanmar, regional conflict in Nigeria, religious rights in the Russian
Federation and Northern Ireland, and labour regulations in many developing
countries (Avery, 2000; Kline, 1999). The connection of particular TNCs to these
issues range from direct to distant, but their potential capabilities could affect
outcomes and business often responded more promptly than Governments to civil
society pressures. Most often, calls for TNC action invoked human rights
standards as the basis for asserted TNC responsibilities.
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Expanding political actions to more business actors
Over the quarter century since the first efforts to formulate TNC guidelines,
expectations have shifted toward a more expansive view of corporate social
responsibility, encompassing a broader range of business actors. (1) Governments
and corporations continue to stress setting boundaries that limit TNC political
actions, sometimes acknowledging general responsibilities on the human rights
issues that energize civil society demands for more activist TNC involvements.
Although many standards call upon TNCs to “respect” human rights, most
governmental and corporate guidelines focus on negative injunctions not to violate
such standards, while civil society groups are more likely to add positive
responsibilities to “support” or “promote” human fights. Governments also focus
their attention primarily on firms engaged in traditional FDI operations, even
where guidelines are cited as good standards for all applicable corporations. By
contrast, civil society campaigns actively target many more firms by incorporating
supply chain responsibilities, focusing on the trade-related capabilities of domestic
enterprises to influence overseas behavior indirectly through contractual
requirements and follow-up monitoring. Malleable notions such as “spheres of
business involvement” connect a broad range of business functions to potential
policy targets in other nations.
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corporate social responsibility and presents corporations with certain dilemmas of
how to respond.
Despite this general deference to national law, TNCs can encounter conflicts
between international social responsibility standards and national law and policies.
Many TNCs struggled with such a situation during South Africa’s apartheid era,
but few firms explicitly and publicly discuss how they resolved the dilemma, nor
what lessons the experience holds for guiding future actions. A recent exception is
contained in a case study description of policies followed by British Petroleum
(BP).
The Confederation of Norwegian Business and Industry (NHO) offers one of the
most explicit formulations of standards relating to TNC political activities in its
1998 publication on “Human rights from the perspective of business and industry:
a checklist” (NHO, 1998). In the document’s preface, the NHO specifies several
key areas falling under corporate social responsibility but differentiates between
Government and business role obligations, specifically excluding business
lobbying activities on human rights issues:
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in which Norwegian enterprises have business dealings should be left to
the authorities” (op. cir., p. 1).
Having denied the appropriateness of direct political activity, the statement goes
on to endorse actions that might indirectly affect political outcomes, asserting that,
by following their home country practices in their foreign operations, TNCs can
positively influence local developments: “And although there should be a division
of responsibility between the authorities and business and industry, there will
never be any absolute boundaries. There will inevitably be grey zones where the
players’ spheres of responsibility overlap”.
Despite the cautionary notes, the NHO text suggests that managers of companies
with “considerable influence” in countries with systematic human rights violations
“bear an independent responsibility to try to improve the human rights situations,
either alone or in collaboration with others”. Among possible actions are open
support for the human rights standards of United Nations and of the International
Labour Organization (ILO); support for related educational projects; and contact
with other companies, NGOs, individuals, and local and national authorities. This
discretionary responsibility even contemplates action on individual cases. “Both
companies and individual businesspersons can get involved in defending people
whose human rights have been violated, regardless of whether they are victims of
torture, random arrests, illegal imprisonment or miscarriages of justice”. It is
difficult to read this list without concluding that involvement by a foreign
company in such cases would be viewed by most host country governments as
involvement in their internal political affairs.
The number and range of business enterprises drawn into political activities
expanded with recent changes in the spatial and functional concept of corporate
social responsibility. When the historical focus rested on preventing TNCs from
engaging directly in harmful political activities in host countries, the potential
universe of capable TNC actors was relatively small. Subsequently, not only has
the number of TNCs grown enormously, but many enterprises with low or non-
equity foreign involvement are drawn into the net of potentially relevant actors
through concepts such as supply chain responsibilities and, even more broadly,
spheres of business involvement.
Compared with traditional TNCs, these newly relevant enterprises typically reside
at a greater geographic and operational distance from the foreign locales of
perceived harm, such as human rights violations. The causal link between the
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corporation and the harm is also more tenuous, sometimes resting on vague
notions such as complicity. (2) Alternatively, the argument for corporate
responsibility may rest on the firm’s potential capability to do good rather than
claims that the enterprise is causally connected to the harm. The concept of
business spheres of involvement also enlarges the number of potential corporate
actors, where the image of expanding concentric circles encompasses a broader
range of corporate actors even as their connection to the central problem recedes.
As spatial and functional distance lengthens between an enterprise and the location
of perceived harms, the argument for corporate social responsibility also tends to
shift from allegations of direct causation to notions of more indirect potential
capabilities. Again, the PWBLF/AI document (Frankental and House, 2000) traces
this broadening boundary, concluding that simply doing business with
Governments that violate human rights can incur a corporate responsibility to act.
“Even when a company’s operations do not directly impact upon human rights
issues, the company may nonetheless be called upon to speak out or act when an
oppressive government violates its citizens’ rights” (op. cit., p. 33).
Large TNCs, with substantial FDI in developing countries, may still typify the
type of enterprise usually associated with issues of political involvements in host
countries. Nonetheless, civil society groups and some business organizations now
draw the boundaries for corporate social responsibility broadly enough to
encompass more business actors. Newly encompassed enterprises include
manufacturers, retailers or other services providers with little or no direct overseas
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presence, but who possess some capability to influence foreign economic and
(thereby) political activities.
The Global Compact asks companies to “support and respect the protection of
internationally proclaimed human rights within their sphere of influence” and to
“make sure that they are not complicit in human rights abuses” (UN, 2000). Many
human rights issues (as well as labour standards and the environment) will relate
to areas relevant to TNC operations and, at the same time, constitute matters
central to the internal political affairs of host countries.
The effectiveness of the Global Compact will depend largely on how adhering
TNCs define, apply and report on their implementation of these broad value
principles, as evaluated by civil society and others interested groups, including
governments. Related components of the Global Compact, including policy
dialogues among interested stakeholders and a sharing of “good practice”
examples, can help. On labour standards and the environment, some
complementary guidelines and implementation measures are available in the form
of ILO conventions and monitoring, and the environment-centred Sustainability
Reporting Guidelines promoted by the Global Reporting Initiative (GRI).
Monitoring and evaluation procedures are not as developed for follow-up on
human rights value principles, although a new effort encourages companies to use
GRI reporting guidelines to describe their implementation actions on all the
Global Compact’s principles (UN, 2003).
Other recent interactions between business and civil society groups also suggest a
shift from efforts seeking clearly defined standards to establishing acceptable
procedural boundaries within which TNCs can act responsibly on human rights
issues. For example, Amnesty International links general standards with
procedural approaches in a document titled “Human rights principles for
companies: a checklist” (AI, 1998).
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COMMISSION DISCUSSES ROLE OF TRANSNATIONAL
CORPORATIONS IN WORLD DEVELOPMENT
After reviewing the activities of TNCs in South Africa and Namibia and the
responsibilities of home countries towards TNCs operating there, the Commission
recommended a resolution for adoption by the Economic and Social Council
calling upon the home countries to prevent further new investments and
reinvestments and bring about an immediate withdrawal of existing investments in
southern Africa by TNCs.
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Other texts recommended for action by the Economic and Social Council dealt
with preparatory work for public hearings on TNC activity in southern Africa and
a draft provisional agenda for the Commission's 1985 session.
Outgoing Chairman Hassan Gadel Hak (Egypt) said TNCs could provide a link
between developed and developing countries and could help to build an
infrastructure in developing countries, in addition to training personnel. However,
TNCs were not investing enough in developing countries to assure these much-
needed objectives. TNCs claimed the atmosphere in developing countries was not
conducive to investment. The international community must intensify attempts to
deal with that situation and must support developing countries' needs.
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TNCs in World Development
Foreign direct investment flows into developing countries, the report concludes,
are adversely affected by the present crisis and the structural changes taking place
in both the developed and the developing world. For this reason, many host
developing countries are liberalizing their policies towards foreign direct
investment in an effort to substitute equity for debt financing.
At the same time, many of these countries are imposing certain performance
requirements on foreign firms -- requirements that frequently relate to the trading
activities of such firms, for example, by requiring them to export a specific
percentage of their production, by linking permission to import quantitatively to
the firm's capacity to export, or by obliging the firm to purchase a given
percentage of inputs from the domestic economy. These factors, among others, are
likely to change the overall role played by the TNCs in the foreign sector of host
and home countries and give the foreign investment-finance-trade link a new
dimension during the 1980s.
The recovery of developing countries' growth has been impaired by two major
factors, the report states. One is the increase in protectionist measures taken by
developed market economy countries to limit unemployment. World trade in 1983
was, according to the report, virtually the same as in 1979, and its projected real
growth for 1984 is still below the average annual rate for 1974-1979. A second
factor is the sharp post-1982 reduction in voluntary commercial bank lending to
developing countries. Major adjustments are needed to compensate for this
decline, the report states.
Employment: Regarding the extent of employment by TNCs, the report states that
an estimated 44 million people were employed by TNCs in the mid-1970s, of
whom 4 million were in developing countries. Projections suggest that these
figures remained valid at the beginning of the 1980s.
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Investment: With regard to direct investment by TNCs in developing countries, the
report states that, by the end of 1981, the stock of direct investment in developing
countries was $118 billion, of which almost 40 per cent was in the so-called newly
industrialized countries and more than two fifths in the middle-income countries.
Four low-income countries identified as developing countries with a per capita
income of less than $600 in 1981 with large economies (Egypt, India, Indonesia
and Pakistan) accounted for about a tenth of the total, while only 4 per cent was
accounted for by other low-income countries. The stock of foreign direct
investment in the latter group was almost $8 billion.
Responses also confirmed that, in the case of production directed towards the local
market, the existence of adequate demand is by far the most important factor
influencing TNC decisions to invest. In most low-income countries, domestic
markets are relatively small and not sufficient to attract a substantial inflow of
direct investment aimed at meeting local demand.
Finally, responses indicated that new investment appears to be more likely in low-
income countries in which there are existing ties with TNCs and in which there is
a stable investment climate. Little importance seems to be attached by TNCs to the
new incentives being provided by some low-income countries. The survey
suggests that firms appear to be more interested in the elimination of disincentives
and the adoption of consistent policies by host Governments towards their
activities in the long run, the report concludes.
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