DEFINITIONS OF TRANSNATIONAL CORPORATIONS

A multinational corporation (MNC) or transnational corporation (TNC), also

called multinational enterprise (MNE), is a corporation or an enterprise that
manages production or delivers services in more than one country. It can also be
referred as an international corporation.

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.

Transnational are made possible by improved international communications which

provide rapid containerized transhipment and foreign travel, easy communication
of information, and international mobility of capital. When one market is
saturated, the multinational can rapidly develop others, since foreign investment
cuts transport costs, and make possible a rapid response to local markets. It also
eases tariff barriers—the UK has been an attractive location for many Japanese
manufacturers, for example, because it is within the European Union, but has
opted out of the EU's social charter. Transnational can compare costs at different
locations, and can switch activities to different areas as appropriate.

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.

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.

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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.

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.

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.

Given their dominance of politics, economics and technology, it is not surprising

to find the big transnational deeply involved in most of the world’s serious
environmental crises.

Transnational corporations exert significant influence over the domestic and

foreign policies of the Northern industrialized government that host them.
Surprise! Indeed, the interests of the most powerful governments in the world are
often intimately intertwined with the expanding pursuits of the transnational that
they charter. At the same time, transnational corporations are moving to
circumvent national governments. The borders and regulatory agencies of most
governments are caving in (or being paid off) to the New World Order of
globalization, allowing corporations to assume an ever more stateless quality,
leaving them less and less accountable to any government anywhere.

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:

 The Uruguay Round of the General Agreement on Tariffs and Trade

(GATT)

 The World Trade Organization, which was created to enforce the

GATT's rules.

 The proposed Multilateral Agreement on Investment. (MAI)

 The North American Free Trade Agreement (NAFTA).

 The European Union (EU).  

These international trade and investment agreements allow corporations to

circumvent the power and authority of national governments and local
communities, thus endangering workers’ rights, the environment and democratic
political processes.

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 POLITICAL ACTIVITIES BY TRANSNATIONAL CORPORATIONS:
BRIGHT LINES VERSUS GREY BOUNDARIES

Well-intentioned calls for greater social responsibility by transnational

corporations paradoxically may imperil the longstanding admonition against
corporate interference in domestic political activities. Contemporary international
society lacks a specific standard, or even a general consensus, regarding the
permissible nature and extent of the political involvement of transnational
corporations. Although intergovernmental documents generally proscribe the
interference of transnational corporations in political matters, civil society groups
increasingly urge corporate actions that often constitute political activity,
sometimes in direct conflict with national government policies. Governmental
failure to forge international legal mechanisms for emergent norms on human
rights shifts onto firms expanded corporate social responsibilities. Absent agreed
“bright line” rules, transnational corporations test the “grey boundaries” of
permissible political involvements, often relying on process-oriented guidelines
involving voluntary codes, reporting and dialogue with civil society groups. New
principles and processes are needed to guide the actions of corporations on human
rights issues that would override traditional admonitions against corporate
involvement in internal political affairs.

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.

Concern over TNCs causing harm is being supplemented, if not supplanted, by a

focus on a firm’s capability to influence outcomes, whether or not an enterprise is
proximate or causally linked to a problem. This new focus on capability over
causality enlarges the scope of enterprises addressed and broadens the range of
potential actions expected. The relatively new concept of supply chain
responsibilities reflects the extended scope of social responsibility, encompassing
many corporations that lack traditional TNC investment or other direct
connections to overseas circumstances. Notions about “spheres of corporate
involvement” provide uncertain guidance regarding which corporations should act
to influence geographically and politically distant events. The range of expected
business actions is similarly problematic. A heightened emphasis on outcomes

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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

United Nations and OECD standards

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.”

Efforts to draft a United Nations Code of Conduct for Transnational Corporations

confronted this issue but ended in the early 1990s after more than a decade of
deadlock, failing to reach agreement on a full text. The draft TNC code section on
“Noninterference in internal political affairs” reflects the emphasis on prohibiting
TNC political actions, but bracketed language denotes points of disagreement,
reflecting important nuances regarding how narrowly the bright line against
political involvements should be drawn.

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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 the 1976 Guidelines for Multinational Enterprises of the Organisation for

Economic Co-operation and Development (OECD), developed countries reached
agreement on a concise but undefined standard for TNC political activities that
largely reflected positions they took in the draft United Nations Code negotiations.
The OECD Guidelines simply state that enterprises should “Abstain from any
improper involvement in local political activities” (OECD, 1986, p. 13). This
formulation again seems to imply that “proper” political activities exist, but the
Guidelines provide no referent standard regarding how to distinguish between
proper and improper actions. The Preface to the OECD Guidelines does provide a
general context for political activity standards by advising that national laws
govern local TNC operations, subject to international law. The international law
qualification represents a traditional position taken by developed nations, although
disputes arise over what qualifies as international law.

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.

Apartheid and civil society pressures

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

7
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.

Civil society moves the line

The proliferation of non-hierarchical civil society groups has generated an array of

documents with diverse formulations of calls for greater TNC social
responsibility. An example of activist expectations can be found in the “Principles
for Global Corporate Responsibility: Bench Marks for Measuring Business
Performance” issued in 1998 by the Interfaith Center on Corporate Responsibility
(ICCR, 1998). Principles in this document call for companies to be “fully
committed to respecting internationally recognized human fights standards”.
Among several benchmark criteria to evaluate such a commitment is the
expectation that: “In instances where legislation or the actual practices of any
public institution violate fundamental human fights, the company does everything
in its power to maintain respect for those fundamental rights in its own operations.
The company also seeks to exercise its corporate influence to contribute to the
establishment of such fundamental rights” (op. cit., p. 4). Compliance with this
standard could involve TNCs in political activities, perhaps even leading to
violations of local laws or policies.

The Core Standards of the World Development Movement urges a similarly

activist approach while identifying some of the specific human rights relevant to
TNC activities. “Multinational companies should respect the right of everyone to
life and liberty; no-one should be subject to torture, cruel treatment or arbitrary
arrest. Companies should promote basic human rights, ensuring they are
universally and effectively observed” (UNCTAD, 2000, p. 455). Clearly, TNCs
are expected to become engaged in the promotion of human rights standards that
could involve human rights violations by local political authorities. Such calls for
increased TNC engagement on human rights issues clearly moves the line for

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corporate social responsibility and presents corporations with certain dilemmas of
how to respond.

Business dilemmas in drawing distinctions

Conduct standards endorsed by TNCs traditionally mirror the focus of

governments on national political sovereignty. For example, the 1972 International
Chamber of Commerce (ICC) Guidelines for International Investment emphasizes
investor compliance with the local legal framework, urging respect for “national
laws, policies and economic and social objectives of the host country in the same
way as would a good citizen of that country” (UNCTAD, 1996b, p. 286). The
Pacific Basin Charter on International Investments, adopted in 1995, promotes
similar norms, stating that: “International investors should fully recognize the
sovereign rights and responsibilities of economies and must accept reasonable
obligations that are placed upon business enterprises in the domestic interest, and
should act in all ways as a good corporate citizen of the host country”.

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).

Although acknowledging a responsibility toward human rights that can supersede

national law, BP also draws a line regarding appropriate actions to carry out its
responsibilities. The BP case study cites “a clear distinction between acting in an
advocacy role for human rights and exerting a positive influence”.

David Rice, Director of BP’s Policy Unit, elaborates on this distinction in a

separate article (Rice, 2002). Although the firm promotes respect for human rights,
“We do not engage in advocacy, nor are we campaigners. This is not our role” (op.
cit., p. 134). He ascribes the advocacy role, described as “complementary”, to
other actors, including non-governmental organizations (NGOs).

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:

“Business and industry must acknowledge that companies bear an ethical

responsibility for protecting universal human rights, workers’ rights and
the environment. At the same time, it is essential that the authorities and
business and industry keep their roles separate. Direct lobbying activities
to promote democracy and human rights in respect of regimes in countries

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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”.

The NHO checklist further differentiates between necessary and discretionary

corporate actions. “Companies’ primary direct ethical responsibility is to protect
the fights of their own employees and to see to it that corporate activities are
conducted in a manner that does not violate human rights”. Hence, the negative
“do not harm” mandate applies to all company operations and a more active duty
exists to help protect the fights of employees. But broader responsibilities for
human rights activities are deemed discretionary.

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.

Expanding the number of responsible business actors

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.

These evolving expectations on corporate social responsibility appear explicitly in

“Human rights principles for companies: a checklist”, a joint publication from The
Prince of Wales Business Leaders Forum (PWBLF) and Amnesty International
(AI) (Frankental and House, 2000). The report asserts that “Civil society in
developed and developing countries alike is demanding more and more that TNCs
actively seek to protect human rights within their legitimate sphere of influence.
This sphere is perceived as extending to all business partners. Society is
increasingly seeing TNCs as responsible for the human rights context of both the
sourcing of their products and their end use” (op. cit., p. 24). The report sketches a
TNC’s sphere of influence in concentric circles that begin with core operations
and then expand to cover relations with business partners, host communities and
finally “advocacy/policy dialogue” with Government.

In applying this standard to labour conditions, the report acknowledges that “A

company’s influence over working conditions obviously lessens as it moves away
from its direct operations into joint venture partners and subcontractors down the
supply chain. Nevertheless, society at large will hold a company responsible for
violations occurring in plants from which it sources products or services, and
therefore over which it has a degree of influence”. This view is endorsed by the
Social Accountability 8000 standard that specifically elaborates how companies
should extend social and labour accountability requirements to suppliers/
subcontractors and sub-suppliers by evaluating, selecting and contractually
requiring conformance with accepted standards, even to the level of supplies
obtained from homeworkers (SAI, 2001, p. 7).

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

12
presence, but who possess some capability to influence foreign economic and
(thereby) political activities.

From defined bright lines to procedural grey boundaries

As traditional bright line definitions are challenged by expanding social

expectations of more business actors, some groups are turning toward alternative
approaches that outline procedural grey boundaries for good TNC conduct. The
United Nations Global Compact, initiated by Secretary-General Kofi Annan in
January, 1999 and formalized the following year, offers a new process-oriented
approach that has drawn significant interest among governments, TNCs and
NGOs. This effort relies heavily on voluntary TNC adherence to broad value
principles involving human rights, labour standards and the environment. The
Global Compact is an initiative of the Secretary-General rather than an action by
the nation-State members of the United Nations. Seeking a careful balance
between calls for greater corporate involvement and potential sensitivities
regarding government policies and prerogatives, the document omits any “bright
line” standards for political activities that may infringe on national sovereignty.
Instead, the Global Compact adopts several concepts that suggest broad, grey
boundaries for corporate responsibilities.

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).

13
 COMMISSION DISCUSSES ROLE OF TRANSNATIONAL
CORPORATIONS IN WORLD DEVELOPMENT

Discussions on the role of transnational corporations (TNCs) in the current

international economic situation and on the modern phenomenon of transborder
data flows highlighted the work of the Commission on Transnational Corporations
at its tenth regular session, held from 17 to 27 April in New York.

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.

During the debate on the proposed code of conduct on TNCs -- a Commission

priority since 1977 -- its multilateral character was emphasized and it was said that
other instruments, bilateral or regional, could not serve as a substitute for it. The
body urged that every effort be made at its second reconvened special session for
1984 (held from 11 to 29 June in New York) to complete the code (see
accompanying story).

The Commission reaffirmed the importance of work by the Centre on TNCs on

transborder data flows and noted its intention to focus in the coming year on
research related to the rise in trade in data services.

During its two-week session, the Commission also considered international

standards of accounting and reporting, other international arrangements relating to
TNCs than the code of conduct, policy analysis and research, a comprehensive
information system on TNCs, technical co-operation projects, and work related to
the definition of TNCs.

The 48-member Commission postponed action on a draft resolution that would

have had the United Nations Centre on Transnational Corporations prepare a study
on the activities, both qualitative and quantitative, of State-owned enterprises from
both market and centrally-planned economies conducting transnational operations.
The postponement, under a procedural motion of the German Democratic
Republic, was approved by a roll-call vote of 30 in favour to 11 against, with no
abstentions. The proposal for a study on State-owned TNCs had been submitted by
Canada, the Federal Republic of Germany, Italy, Japan and Sweden.

The Commission selected 16 expert advisers--eight from developing countries,

seven from developed market-economy countries and one from the socialist
countries of Eastern Europe. Five experts are businessmen, five are from trade
unions, and six have academic or other backgrounds. Advisers are elected for two-
year terms and are eligible for re-election for one additional two-year term only.

14
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.

Newly-elected Chairman Philippe Levy (Switzerland) said the internationalization

of economies was characterized by growing parts of gross national product earned
abroad, an increase in the number of TNCs -- some "new-comers" being small and
medium-sized corporations and others coming from new home countries -- and a
continuing unequal overall distribution of host countries of TNCs.

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.

Sidney Dell, Executive Director of the Centre on Transnational Corporations, said

many host countries were in the process of adopting specific regimes for dealing
with TNCs, due in part to greater confidence in the management of their relations
with these corporations. Also many TNCs have to respond to the need to orient
their activities in host countries to comply with national regulations and to take
into account their development policies. Finally, acute balance-of-payments
pressures had prompted many countries to look to TNCs as a potential additional
source of funds at a time when the flow of resources, both from public instutions
and commercial banks, was lagging. Most host countries were, however,
concerned about the impact on balance of payments, the potential for flight of
capital, and transfer pricing.

Commission members for 1984 are: Algeria, Bahamas, Bangladesh, Brazil,

Canada, Central African Republic, China, Colombia, Congo, Costa Rica, Cuba,
Cyprus, Czechoslovakia, Egypt, France, German Democratic Republic, Federal
Republic of Germany, Ghana, Guinea, India, Indonesia, Iran, Italy, Jamaica,
Japan, Kenya, mexico, Morocco, Netherlands, Nigeria, Norway, Pakistan, Peru,
Philippines, Republic of Korea, Swaziland, Switzerland, Thailand, Togo, Trinidad
and Tobago, Turkey, Uganda, Ukrainian SSR, USSR, United Kingdom, United
States, Venezuela and Yugoslavia.

In addition to the Chairman, other officers elected were: Vice-Chairmen --

Vladimir Philippov (Ukrainian SSR); Ahmed Rhazaoui (Morocco); and Ransford
Smith (Jamaica) and Rapporteur -- Irtiza Husain (Pakistan).

International Economic Situation

The Commission reviewed reports relating to transnational corporations in world

development and the role of TNCs in implementing the International Development
Strategy for the Third United Nations Development Decade.

15
TNCs in World Development

The report on TNCs in world development (E/C.10/1984/2) deals with the

changing nature of the world economy, with emphasis on its increasing
interdependence, both among countries and between the public and private sectors.

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.

The increasing indebtedness of the developing countries in the post-1973 period,

the report goes on, is directly related to their worsening trade-balance position.
The estimated deficit for the developing countries, including oil-producing States,
was $91 billion in 1983.

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.

Other estimates indicate that in developed market economy countries, employment

by TNCs is equivalent to more than 10 per cent of the labour force and accounts
for a third of total employment in the manufacturing sector. In developing
countries, on the other hand, employment by TNCs is small in comparison with
the size of their labour forces and in relation to levels of unemployment and under-
employment. Nevertheless, employment by TNCs in the manufacturing sector in
developing countries is frequently important, both in quantitative and qualitative
terms.

16
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.

Poor economic conditions and prospects make low-income countries relatively

unattractive to TNCs for investment, the report goes on. A questionnaire on factors
responsible for limited foreign investment in these nations was sent to more than
50 major TNCs representing all major home countries and most economic sectors.
Replies from more than 20 corporations indicated that suitable soil and climatic
conditions are essential for export-oriented investment by TNCs in the production
of agricultural commodities. The proved presence of raw materials is a
prerequisite for investment in non-agricultural raw materials. Many low-income
countries do not have the necessary geophysical characteristics for investment in
export-oriented agriculture, the report states. Very often the obstacle to foreign
investment in raw materials is the lack of adequate surveys of mineral resources in
low-income countries.

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.

17