Rights, Responsibilities and Regulation of
International Business
SOL PICCIOTTO*
This essay discusses the paradox of the emergence of
corporate codes of conduct in the 1990s, following
pressures from consumer and labor activism, in a
period of more general liberalization of international
investment leading to deregulation. It suggests that
the advantages of flexibility and adaptability to
specific circumstances offered by such codes are
counterbalanced by their self-selected content and
inadequate enforcement. Rejecting the assumption
that there is a sharp distinction between voluntary
standards and binding law, the essay analyzes various
ways of grounding codes in legal obligations. It
proposes that a safer and more dependable
environment for international investment could be
provided by a framework agreement, which would link
binding standards for corporate social responsibility
in key areas, such as combating bribery and
cooperation in tax enforcement, with traditional
investor rights based on investor protection and
liberalization rules.
I.
INTRODUCTION
Over the past decade, there has been an intriguing dual
movement in the development of the forms of regulation of business
* Sol Picciotto is Director of Research and of the postgraduate programme in
International Business and Corporate Law at the Lancaster University Law School. He has
previously taught at the University of Warwick School of Law and the Faculty of Law, Dar
es Salaam, and has been a visitor at Nagoya University and the European University Institute,
Florence. He is a member of the editorial committee and was a founding editor of Social &
Legal Studies, and the author of International Business Taxation, and numerous edited books
and journal articles on various aspects of international business regulation.
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in the global economy. Since the 1980s the dominant trend has been
liberalization, i.e., the relaxation or removal of national controls on
international capital movements. It seemed to many that business
firms and investors were close to attaining the goal of a world market,
in which they could be free to manage their assets and activities
globally without hindrance from state legal requirements. This neoliberal form of economic globalization was hailed by its advocates
and excoriated by its critics.
However, by at least the mid-1990s, it was becoming apparent
that the processes at work were more complex.
Although
liberalization has generally entailed the removal of barriers to market
access and the ending of direct forms of state intervention, it has
frequently been accompanied or succeeded by the development of
new forms of regulation or regulatory reform. The result has been the
creation of a complex and multi-layered regulatory framework for the
governance of global economic activity.
As I have argued
elsewhere,1 these new forms of management of the world economy
signal the breakdown of the classical liberal internationalist system,
based on national sovereignty and coordinated by a loose framework
of international rules and intergovernmental organizations. There has
been a transition to denser and more fragmented regulatory networks
with new types of linkages, including combinations of formal and
semi-formal legal arrangements (“hard” and “soft” law). Yet, far
from constituting a smooth transition to a neo-liberal order, these
forms are contested and conflict-ridden processes. The institutional
and legal frameworks for managing and legitimating economic
activities are an important focus of this contestation.
This Essay analyzes the interaction between the development
of international legal provisions for investment protection and
liberalization and the emergence of codes of conduct for international
business. The recent proliferation of corporate social responsibility
(“CSR”) codes and standards has been matched only by the boom in
writings on the subject.2 This Essay will focus mainly on the
interaction between these codes and formal legal requirements, at
national and international levels. It starts from the perspective that
1. See Sol Picciotto, Networks in International Economic Integration: Fragmented
States and the Dilemmas of Neo-Liberalism, 17 NW. J. INT’L L. & BUS. 1014 (1996/97); Sol
Picciotto, Linkages in International Investment Regulation: The Antinomies of the Draft
Multilateral Agreement on Investment, 19 U. PA. J. INT’L. ECON. L. 731 (1998) [hereinafter
Picciotto, Linkages].
2. See, e.g., VIRGINIA HAUFLER, A PUBLIC ROLE FOR THE PRIVATE SECTOR: INDUSTRY
SELF-REGULATION IN A GLOBAL ECONOMY (2001); CORPORATE RESPONSIBILITY AND LABOUR
RIGHTS (Rhys Jenkins et al. eds., 2002) [hereinafter CORPORATE RESPONSIBILITY].
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the recent spate of voluntary corporate codes for transnational
corporations (“TNCs”) must be understood in the context of the
changing environment for foreign direct investment (“FDI”),
including shifting patterns of national and international regulation.
Hence, although corporate codes have a legitimate place in helping to
ensure compliance with standards through corporate networks, this
Essay suggests that they should be more firmly anchored within a
broader regulatory framework that establishes obligations as well as
rights for business. Such a framework could be based on new
approaches to combining binding hard law with non-binding soft law
standards through a framework convention.3
II.
TRANSNATIONAL CORPORATIONS AND INTERNATIONAL LAW: A
BRIEF REVIEW
International business has a long history, and even the
currently dominant form of the TNC goes back to the end of the
nineteenth century. However, it is only since the 1960s that there has
been an increasing tension between the global reach and visibility of
TNCs and the dualist hierarchy of national and international law
established in the classical liberal period. This dualism regards
corporations as formally private legal persons, and hence subjects of
national law, but not international law, which directly binds only
states. However, the size and importance of TNCs made them a
prime target for regulation, in both home and host states. This
prominence exposed them to multiple and sometimes conflicting
regulatory requirements, which came to the fore in the 1960s. In a
period of lively debate, a variety of proposals were advanced.
Perhaps most radically, George Ball, formerly a U.S. Under-Secretary
of State and United Nations (“U.N.”) representative and currently the
3. The author does not discuss here the appropriate institutional location for the
negotiation or implementation of such a convention. The World Trade Organization
(“WTO”) Working Group on the Relationship between Trade and Investment has conducted
some initial discussions on a possible investment treaty, although many developing countries
consider the WTO to be an inappropriate forum for such a treaty. They have also pointed out:
The proponents of a multilateral framework on investment in the WTO have
been seeking binding rights of foreign investors that the host member
governments should agree to provide. However, not much discussion has taken
place in the Working Group on what could be the obligations on the part of
foreign investors or the home governments.
See Working Group on the Relationship between Trade and Investment, Communication
from China, Cuba, India, Kenya, Pakistan and Zimbabwe, para. 10, WT/WGTI/W/152 (Nov.
19, 2002). It would certainly go far beyond the mandate of the WTO as it now stands to take
responsibility for the more comprehensive framework proposed here.
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Chairman of Lehman Brothers International, proposed the
“denationalization” of TNCs.4 He argued that a supranational
citizenship for TNCs should be provided by treaty, since, in his view,
the pragmatic policy followed by TNCs of obeying local laws in each
country where they operate would not resolve the “inherent conflict of
interest between corporate managements that operate in the world
economy and governments whose points of view are confined to the
narrow national scene.”5
Ball’s proposal remained an abstract one, and instead, a more
piecemeal approach was adopted through international organizations.
Pressures to adopt global standards of responsibility for TNCs were
generally channeled into the formulation of non-binding guidelines or
codes by intergovernmental organizations.6 Some had a broad scope,
such as the International Labor Organization (“ILO”) Tripartite
Declaration of 1977,7 the 1976 Guidelines of the Organisation for
Economic Co-operation and Development (“OECD”),8 and the
aborted U.N. Code of Conduct for TNCs.9 Others had a more
specific regulatory focus, such as the Set of Principles for the Control
of Restrictive Business Practices of 198010 or the World Health
Organization’s (“WHO’s”) International Code of Marketing of
Breast-Milk Substitutes of 1981,11 which was aimed at specific
4. George W. Ball, Cosmocorp: The Importance of Being Stateless, 2 COLUM. J.
WORLD BUS. 25, 28–29 (1967) [hereinafter Ball, Cosmocorp]. See generally GLOBAL
COMPANIES: THE POLITICAL ECONOMY OF WORLD BUSINESS (George W. Ball ed., 1975);
CHARLES P. KINDLEBERGER, A GATT FOR FOREIGN INVESTMENT: FURTHER REFLECTIONS
(1980).
5. Ball, Cosmocorp, supra note 4, at 28.
6. Many of these are conveniently gathered together in UNITED NATIONS CONFERENCE
ON TRADE AND DEVELOPMENT, INTERNATIONAL INVESTMENT INSTRUMENTS: A COMPENDIUM
(1996).
7. International Labour Organization, Tripartite Declaration of Principles Concerning
Multinational Enterprises and Social Policy, 17 I.L.M. 422 (Nov. 16, 1977).
8. The OECD Guidelines for Multinational Enterprises have been reissued and
amended following reviews in 1979, 1982, 1984, 1991 and 2000. See Organisation for
Economic Co-operation and Development, Directorate for Financial, Fiscal and Enterprise
Affairs, Committee on International Investment and Multinational Enterprises, The OECD
Declaration and Decisions on International Investment and Multinational Enterprises: Basic
Texts at 20, OECD Doc. DAFFE/IME/(2000) (2000).
9. Draft United Nations Code of Conduct on Transnational Corporations, U.N.
ESCOR, Spec. Sess., Supp. No. 7, Annex II, U.N. Doc. E/1983/17/Rev.1 (1983).
10. The Set of Multilaterally Agreed Equitable Principles and Rules for the Control of
Restrictive Business Practices, U.N. Conf. on Restrictive Business Practices, 35th Sess., U.N.
Doc. TD/RBP/CONF/10 (1980).
11. World Health Assembly, International Code of Marketing of Breast-milk
Substitutes, U.N. Doc. A34/Vr/15 (1981).
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industry practices.12
Not surprisingly, the impact of these instruments greatly
depended on the effectiveness of the mechanisms for monitoring and
ensuring compliance, and especially on the strength of social
pressures brought to bear mainly through civil society organizations,
such as trade unions and other social movements. Too often the fact
that these codes were not legally binding was used to justify failure or
even refusal to back them up with adequate procedures for monitoring
compliance or dealing with alleged violations.13 Thus, “non-binding”
was assumed to mean “aspirational,” which is not at all the same
thing.14
In the meantime, states sought to define and assert their
sovereignty to regulate economic activities taking place within their
national jurisdiction.
Capital-importing host states, especially
developing countries (many of which had recently gained political
independence), sought to attain economic independence by asserting
their right to control foreign investment.15 This desire was most
clearly expressed in the Charter of Economic Rights and Duties of
12. See JUDITH RICHTER, HOLDING CORPORATIONS ACCOUNTABLE: CORPORATE
CONDUCT, INTERNATIONAL CODES AND CITIZEN ACTION ch. 4 (2001). For a collection of
articles on codes for international business, see generally REGULATING INTERNATIONAL
BUSINESS: BEYOND LIBERALIZATION (Sol Picciotto & Ruth Mayne eds., 1999) [hereinafter
REGULATING INTERNATIONAL BUSINESS].
13. Despite pressures from its Trade Union Advisory Committee (“TUAC”), the
OECD’s Committee on International Investment and Multinational Enterprise (“CIIME”)
insisted that the OECD Guidelines should remain non-binding and that the CIIME should not
reach conclusions on the conduct of individual enterprises. The CIIME wanted to avoid
being seen as a “judicial or quasi-judicial forum.” See ORG. FOR ECON. CO-OPERATION &
DEV., INTERNATIONAL INVESTMENT AND MULTINATIONAL ENTERPRISES: REVIEW OF THE 1976
DECLARATION AND DECISIONS para. 84 (1979) [hereinafter REVIEW OF THE 1976
DECLARATION AND DECISIONS]. At most, the CIIME was willing to use the details of specific
cases as illustrations of problems arising under the OECD Guidelines and issue
“clarifications” where appropriate. Id. For an account and discussion of the early operation
of the OECD Guidelines, see R. BLANPLAIN, THE OECD GUIDELINES FOR MULTINATIONAL
ENTERPRISES AND LABOUR RELATIONS 1976–1979: EXPERIENCE AND REVIEW (1979)
[hereinafter EXPERIENCE AND REVIEW]; R. BLANPLAIN, THE OECD GUIDELINES FOR
MULTINATIONAL ENTERPRISES AND LABOUR RELATIONS 1979–1982: EXPERIENCE AND MIDTERM REPORT (1983).
14. The CIIME described the OECD Guidelines as “an efficient and realistic
framework for further encouragement of the contribution which multinational enterprises can
make to economic and social progress and for the reduction and resolution of the difficulties
to which the operations of multinational enterprises may give rise.” REVIEW OF THE 1976
DECLARATION AND DECISIONS, supra note 13, para. 7.
15. See, e.g., Rahmatullah Khan, The Right of a State to Choose Its Social and
Economic System, in INTERNATIONAL LAW AND DEVELOPMENT 31 (Paul De Waart et al. eds.,
1988); Subrata Roy Chowdhury, Permanent Sovereignty over National Resources:
Substratum of the Seoul Declaration, in INTERNATIONAL LAW AND DEVELOPMENT, supra, at
59.
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States (“CERDS”) of 1974.16 Article 2(a) of the CERDS asserts the
primacy of national jurisdiction and denies the existence of any
obligation to grant preferential treatment to foreign investment.17
This Charter expressed the formal right of states to assert total
regulatory power over economic activity within their borders,
including acquiring or limiting ownership rights.18
Not surprisingly, international investors and their home states
became wary of the intentions of host states. Bilateral investment
treaties (“BITs”) emerged as a means of providing basic guarantees.19
However, on the whole, they did not restrict the direct regulatory
powers of host states. Most BITs permit the host state to regulate
entry, to impose ownership limitations or conditions, and to specify
performance requirements.20 Indeed, one analyst has described them
as embodying “nationalism behind the liberal façade.”21 Hence,
developing countries, including many in East Asia, have been willing
to negotiate such agreements, even though these countries continued
to consider controls over inward investment important to ensure that it
contributed to economic development.22
However, during the 1980s, pressure grew for countries
wishing to attract investment to adopt a completely “open-door”
policy, and to abandon access controls, ownership restrictions, and
performance requirements.23 This stance was embodied in the U.S.
model BIT,24 which required pre-entry national treatment, although
16. Charter of Economic Rights and Duties of States, G.A. Res. 3281, U.N. GAOR,
29th Sess., Supp. No. 31, at 50, U.N. Doc. A/9631 (1975) [hereinafter CERDS].
17. Id. art. 2(a).
18. Id.
19. See Jeswald Salacuse, BIT by BIT: the Growth of Bilateral Investment Treaties and
their Impact on Foreign Investment in Developing Countries, 24 INT’L LAW. 655, 659–60
(1990).
20. For a general analysis, see R. DOLZER & MARGRETE STEVENS, BILATERAL
INVESTMENT TREATIES (1995). For coverage of more recent growth, see UNITED NATIONS
CONFERENCE ON TRADE AND DEVELOPMENT, BILATERAL INVESTMENT TREATIES IN THE MID1990S (1998) [hereinafter UNCTAD].
21. Kenneth J. Vandevelde, The Political Economy of a Bilateral Investment Treaty, 92
AM. J. INT’L L. 621, 635 (1998). See generally Kenneth J. Vandevelde, Investment
Liberalization and Economic Development: The Role of Bilateral Investment Treaties, 36
COLUM. J. TRANSNAT’L L. 501 (1998).
22. See UNCTAD, supra note 20, at 6.
23. See Andrew T. Guzman, Why LDCs Sign Treaties that Hurt Them: Explaining the
Popularity of Bilateral Investment Treaties, 38 VA. J. INT’L. L. 639, 641–42, 655–56 (1998).
24. United States Prototype Treaty concerning the Reciprocal Encouragement and
Protection of Investments, in U.N. CENTRE ON TRANSNATIONAL CORP., BILATERAL
INVESTMENT TREATIES 123 (1988).
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this was subject to specific exclusions in the actual treaties.25
Capital-importing countries continued to resist these pressures and
rejected suggestions that a multilateral investment treaty be included
in the Uruguay Round of trade negotiations, which resulted in the
establishment of the World Trade Organization (“WTO”).26
However, the negotiation of BITs gathered momentum in the 1990s,
and some of these countries conceded pre-entry national treatment.27
25. Thus, for example, the BIT signed by the U.S. with Egypt provided that:
Notwithstanding the preceding provisions of this Article, each Party reserves
the right to maintain limited exceptions to the standard of national treatment
otherwise required concerning investments or associated activities if such
exceptions fall within one of the sectors listed in the Annex to this Treaty. Both
Parties hereby agree to maintain the number of such exceptions to a minimum.
In addition, each Party shall notify the other Party of any specific measures
which constitute exceptions to the standard of national treatment provided
herein. In no event, however, shall the treatment to be accorded pursuant to any
exception be less favorable than that accorded in like situations to investments
and associated activities of nationals or companies of any third country.
Moreover, no exception, within the sectors contained in the Annex, introduced
after the date of entry into force of this Treaty shall apply to investments of
nationals or companies of the other Party existing in that sector at the time the
exception becomes effective.
Treaty Concerning the Reciprocal Encouragement and Protection of Investments, Sept. 29
1982, Egypt-U.S., art. II(3), 21 I.L.M. 927, 932 [hereinafter Egypt-U.S. BIT]. An Annex to
the Egypt-U.S. BIT specifies that:
Consistent with Article II paragraph 3, each Party reserves the right to maintain
limited exceptions in the sectors it has indicated below:
The United States of America
Air transportation, ocean and coastal shipping; banking; insurance; government
grants; government insurance and loan programs; energy and power production;
use of land and natural resources; custom house brokers; ownership of real
estate; radio and television broadcasting; telephone and telegraph services;
submarine cable services; satellite communications.
The Arab Republic of Egypt
Air and sea transportation; maritime agencies; land transportation other than
that of tourism; mail, telecommunication, telegraph services and other public
services which are state monopolies; banking and insurance; commercial
activity such as distribution, wholesaling, retailing, import and export activities;
commercial agency and broker activities; ownership of real estate; use of land;
natural resources; national loans; radio, television, and the issuance of
newspapers and magazines.
Id. at 946–47.
26. 2 Trade-Related Investment Measures, in THE GATT URUGUAY ROUND: A
NEGOTIATING HISTORY 2070 (T. P. Stewart ed., 1993).
27. As of December 2000, the U.S. had negotiated forty-one BITs, although only thirtyone had been ratified. Russia had not yet ratified the BIT signed in 1992, and among the
rapid-growth economies in East Asia and Latin America, only Argentina had ratified a BIT
with the U.S. See U.S. DEP’T OF STATE, OFF. OF INV. AFF., LIST OF U.S. BILATERAL
INVESTMENT TREATIES THROUGH DECEMBER 2000 (2001), at http://www.state.gov/e/eb/rls/
fs/1139.htm (last visited Aug. 3, 2003). An updated list of ratified BITs is available at
http://www.tcc.mac.doc.gov/cgi-bin/doit.cgi?219:64:223581734:0:TOVR!!Bilateral%20
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In the meantime, the attempt to develop a multilateral
agreement on investment (“MAI”) shifted from Geneva to Paris,
where the negotiations were hosted by the OECD, only to be
abandoned in failure after three years in 1998.28 It was apparently a
surprise to some that even developed countries, which account for the
bulk of international investment, and are generally both exporters and
importers of capital, failed to agree on a strong investment
liberalization and protection standard.29 However, a major reason for
the difficulties encountered between the negotiating governments,
exacerbated by criticisms from an internationally-organized campaign
and articulated by their increasingly concerned domestic
constituencies, was the realization of the potentially far-reaching
deregulatory impact of this type of treaty.30 This resulted in growing
lists of national exclusions, as well as more general carve-outs in the
agreement itself, negating its intended purpose of establishing a high
level of market access and investment protection.31 At the same time,
the eruption of the financial crisis in Asia in 1997, which spread to
Russia the following year, drew attention to the dangers of rapid
liberalization of investment flows.32
The slogan “No Rights without Responsibilities,” adopted by
campaigners against the MAI,33 encapsulated the criticisms leveled
by many observers of the emerging regulatory framework for
international investment. They pointed out that the pressures towards
economic globalization were resulting in legally binding restrictions
on state regulatory powers. These requirements entailed not only the
removal of border controls on the admission of investments, but also
the granting of legal rights to foreign investors who challenge
domestic laws by alleging de facto discrimination or the infringement
of a property right. The increase in these legal challenges, brought
under both BITs and Chapter 11 of the North American Free Trade
Agreement (“NAFTA”),34 demonstrated the willingness of some
Investment%20Treaties!-!QuickLink!-!BILATERAL (last visited Aug. 3, 2003).
28. DAVID HENDERSON, THE MAI AFFAIR: A STORY AND ITS LESSONS 1–2 (1999). For
the arguments of some of the MAI’s critics, see Nick Mabey, Defending the Legacy of Rio:
The Civil Society Campaign against the MAI, in REGULATING INTERNATIONAL BUSINESS,
supra note 12, at 60.
29. See Sol Picciotto, A Critical Assessment of the MAI, in REGULATING
INTERNATIONAL BUSINESS, supra note 12, at 99.
30. Id.
31. See Picciotto, Linkages, supra note 1, at 763–64.
32. JOSEPH STIGLITZ, GLOBALIZATION AND ITS DISCONTENTS 89, 236–37 (2002).
33. Mabey, supra note 28, at 65.
34. North American Free Trade Agreement, Dec. 17, 1992, Can.-Mex.-U.S., 32 I.L.M.
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investors to devote large resources to block or overturn state actions
by resorting to international law.35
Yet international law had developed few, if any, instruments
governing the responsibilities of international business. The OECD
did not adopt a treaty to combat the bribery of foreign public officials
until 1997, although a draft had been developed through the U.N. in
1979.36 The bulk of the instruments developed since the 1970s to
establish standards of responsibility for international business not
only remained non-binding in form, but were generally supported by
weak mechanisms for monitoring compliance.37 This lacuna was the
background to the emergence of corporate codes in the late 1990s.
III.
CORPORATE CODES: EFFECTIVE TOOL OR PR HYPE?
The sudden adoption of corporate codes in the mid-1990s took
many by surprise and raised new questions for both critics and
defenders of big business. The mantra of liberalization suggested that
if business were left free to pursue profit, economic growth and social
development would follow.
Yet, companies were voluntarily
committing themselves to a wider range of social and environmental
goals. It was quickly apparent, however, that this commitment did
not originate from simple altruism on the part of their directors, but
rather from an awakened awareness of the importance of the firm’s
image to its customers, workforce, and investors.38 Reputational
289 [hereinafter NAFTA].
35. Official documentation relating to all disputes under the NAFTA is maintained by
the
NAFTA
Secretariat
and
is
available
at
http://www.nafta-secalena.org/defaultsite/home/index_e.aspx (last visited Sept. 30, 2003). A comprehensive
compilation of documentation relating to NAFTA claims is maintained by Todd Weiler at
http://www.naftaclaims.com (last visited Sept. 30, 2003). Critics have pointed out that only
forty cases were initiated with the International Center for the Settlement of Investment
Disputes (“ICSID”) between its founding in 1966 and 1997. However, forty-nine cases were
initiated between 1997 and 2001. The first case under a BIT was brought in 1987, and the
bulk of cases under investment treaties were brought after 1997. See PUB. CITIZEN’S GLOBAL
TRADE WATCH, NAFTA CHAPTER 11 INVESTOR-TO-STATE CASES: BANKRUPTING DEMOCRACY
6 (2001), available at http://www.citizen.org/documents/ACF186.PDF (last visited Aug. 29,
2003). This trend is continuing; several cases have been brought against Argentina as a result
of its abandonment of the dollar peg for the peso. Details of the cases are available at
http://www.worldbank.org/icsid/cases/cases.htm (last visited Aug. 29, 2003).
36. Draft International Agreement on Illicit Payments, U.N. ESCOR Comm. on an
International Agreement on Illicit Payments, 2d Sess., Agenda Item 6, at 5, U.N. Doc.
E/AC.67/L.3/Add. 1 (1979).
37. See RICHTER, supra note 12, at ch. 10.
38. Haufler’s study of corporate codes concludes that their adoption was driven by
activist pressure and the risk of government regulation. She also argues that corporate
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damage could quickly affect bottom-line profits, while investment in
social responsibility could reap long-term benefits.
Some companies learned this lesson in an abrupt and dramatic
manner. A notable case in point is Royal Dutch Shell (“Shell”),
which in 1995 suffered a double blow. The company’s decision to
end the life of its Brent Spar oil platform by sinking it in the North
Sea was exposed to the media spotlight after a dramatic stunt by
Greenpeace, although denunciation of Shell’s environmental
irresponsibility by activists was later felt to have been exaggerated.39
On the other side of the world, a campaign by the Ogoni people in the
Niger delta, which culminated in the Nigerian government’s
execution of nine national leaders, including the writer Ken SaroWiwa, drew the world’s attention to Shell’s apparent indifference to
the environmental damage and social deprivation that its highly
profitable activities did nothing to alleviate, and instead seemed to
exacerbate.40 By April 1998, the firm produced the pioneering Shell
Report 1998, subtitled Profits and Principles—Does There Have to be
a Choice?, which stated that the corporation was “about values. It
describes how we, the people, companies and businesses that make up
the Shell Group, are striving to live up to our responsibilities—
financial, social and environmental.”41 These were the three
dimensions of the so-called “triple bottom line” of sustainable
development, against which Shell proclaimed that all companies
would soon be expected to account for their activities. Shell went
even further in recasting its annual report for 2000 entirely in terms of
social responsibility by addressing issues of health, safety, and the
environment.42
Shell’s experience showed that it was not enough for a firm,
especially a large TNC, to manage its operations simply in
compliance with the law and leave it to governments to deal with
social issues and the public interest. The decision to sink the Brent
Spar complied with all the regulations agreed among the states
bordering the North Sea. The failure of oil wealth to benefit ordinary
responses were shaped by concerns for reputation, economic competition, and learning
processes. HAUFLER, supra note 2, at ch. 5.
39. Robin Grove-White, Brent Spar Rewrote the Rules, NEW STATESMAN, June 20,
1997, at 17. See generally GRANT JORDAN, SHELL, GREENPEACE AND BRENT SPAR (2001).
40. Bronwen Manby, The Role and Responsibility of Oil Multinationals in Nigeria, 53
J. INT’L AFF. 281, 287 (1999).
41. THE SHELL REPORT 1998: PROFITS AND PRINCIPLES—DOES THERE HAVE TO BE A
CHOICE? (1999).
42. Bob Williams, Comment, Is Shell Report 2000’s Sustainable Development Focus
an Anomaly or Sign of the Future? 98 OIL & GAS J. 74, 74 (2000).
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people, especially in the oil-producing regions of Nigeria, could be
attributed to the distribution formula which allocated the bulk of
revenues to the central government, where it was dissipated in
corruption.43 Neither of these facts protected the company from
consumer boycotts and the loss of employee morale resulting from the
damage to its reputation. As one commentator stated, “close
observers of Shell have said the company’s reaction to those crises
was not that they were temporary unpleasantries to be weathered but
truly corporate culture-altering events that shook the staid old giant to
its core.”44
Shell’s experience was replicated by other companies that are
sensitive to consumer concerns and reliant on brand-names. For
example, in the apparel industry and retailing, high-profile campaigns
on U.S. college campuses targeted firms, such as Nike and the Gap,
for their use of supply-chain sub-contractors, employing under-age
workers in sweatshop conditions.45 Incidents such as the 1993 fire at
the Kader toy factory in Thailand, which supplied major toy
companies, and videos showing children in Sialkot, a city in Pakistan,
stitching footballs with a FIFA label prior to the 1998 World Cup,
were used by international trade union organizations to highlight
breaches of international labor standards.46 Firms found that trusted
brand-names, which were often their most significant asset, could
quickly be endangered by campaigns that revealed the “labor behind
the label.”47
Within a short time span, many companies and industrial
associations adopted voluntary codes. An OECD study collected 246
codes, about half of which were issued by individual firms, some
forty percent by associations, and the remainder primarily by
stakeholder coalitions and non-governmental organizations
(“NGOs”).48 These codes generally dealt with matters of concern to
consumers, such as labor and environmental standards, compliance
43. J. G. FRYNAS, OIL IN NIGERIA: CONFLICT AND LITIGATION BETWEEN OIL COMPANIES
VILLAGE COMMUNITIES 53 (2000). See generally D. H. Wheeler et al., Paradoxes and
Dilemmas for Stakeholder Responsive Firms in the Extractive Sector: Lessons from the Case
of Shell and the Ogoni, 39 J. BUS. ETHICS 297 (2002).
44. Williams, supra note 42, at 76.
45. See NAOMI KLEIN, NO LOGO: TAKING AIM AT THE BRAND BULLIES 327 (2000).
46. Dwight W. Justice, The International Trade Union Movement and the New Codes of
Conduct, in CORPORATE RESPONSIBILITY, supra note 2, at 90.
47. See KLEIN, supra note 45, at 369–77.
48. Organisation for Economic Co-operation and Development, Working Party of the
Trade Committee, Codes of Corporate Conduct: An Expanded Review of their Contents,
paras. 10–11, OECD Doc. TD/TC/WP(99)56/FINAL (2000) [hereinafter Expanded Review].
AND
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with the law, and issues of potential risk to the firm, such as bribery
and corruption.49 There were, however, considerable variations both
of subject matter and of style, especially in the degree of specificity
found in the codes’ standards.50
This revival of interest in establishing global standards of
corporate responsibility once again attracted the interest of
intergovernmental organizations (“IGOs”). Thus, U.N. SecretaryGeneral, Kofi Annan, in a speech to the World Economic Forum in
Davos on January 31, 1999, challenged world business leaders to
“embrace and enact,” in their individual corporate practices and by
supporting appropriate public policies, nine universally agreed-upon
values and principles derived from U.N. instruments, which were
embodied in a U.N. Global Compact.51 However, this initiative was
criticized by activists as no more than an attempt to lend the
legitimacy of the U.N. to corporate public relations hype. 52 The ILO
has also become involved, especially with regard to labor standards,
and has established a business and social initiatives database.53
The private and voluntary nature of these initiatives raised two
central issues: the rather haphazard and selective content of the codes
and the lack of effective implementation mechanisms or procedures
for monitoring compliance. Thus, an analysis by the ILO of laborrelated content in approximately 215 codes, focusing on enterprisedrafted codes, showed that the majority used self-defined standards.54
Reference to national law was relatively frequent, especially in
relation to wage levels. No more than one-third of the codes referred
to international labor standards even in general terms, and only fifteen
percent (almost exclusively those developed with trade union or NGO
49. Id. paras. 14–39.
50. Id. para. 22.
51. Secretary-General Kofi Annan, Address to the World Economic Forum in Davos,
Switzerland (Jan. 31, 1999). For an account of the development of the U.N. Global Compact
by its Executive Head, see G. Kell, The Global Compact: Origins, Operations, Progress,
Challenges, 11 J. CORP. CITIZENSHIP 35 (2003).
52. See, e.g., TRANSNAT’L RES. & ACTION CTR., TANGLED UP IN BLUE: CORPORATE
PARTNERSHIPS
AT
THE
UNITED
NATIONS
(2000)
available
at
http://www.corpwatch.org/upload/document/tangled.pdf (last visited Sept. 30, 2003).
53. The database is available at www.ilo.org/basi (last visited Aug. 3, 2003).
54. International Labour Office, Working Party on the Social Dimensions of the
Liberalization of International Trade, Overview of Global Developments and Office Activities
Concerning Codes of Conduct, Social Labeling and Other Private Sector Initiatives
Addressing Labor Issues, para. 50, ILO Doc. GB.273/WP/SDL/1(Rev.1) (1998) [hereinafter
Overview of Global Developments]; see also International Labour Office, Working Party on
the Social Dimensions of the Liberalization of International Trade, Further Examination of
Questions Concerning Private Initiatives, Including Codes of Conduct, ILO Doc.
GB.274/WP/SDL/1 (1999) [hereinafter Further Examination].
2003]
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involvement) referred to freedom of association or collective
bargaining.55 A similar OECD study found that only thirteen percent
of the codes referred to labor issues or mentioned ILO standards, and
only thirty percent mentioned freedom of association.56
As regards implementation, the bulk of corporate codes rely
on internal follow-up and monitoring.57 Even where there is a
provision for external involvement, as in third-party or industryassociation codes, critics have raised serious doubts as to whether
such third parties are genuinely independent.58 Lack of effective
implementation was the main reason for refusal of trade unions and
some NGOs to join the U.S. Fair Labor Association.59 Of course,
private management consultants have been quick to offer their
services for compliance auditing, but doubt has been cast on both
their independence and competence.60 On the other hand, NGOs
have been wary of being drawn into this role, for fear of becoming coopted and merely lending their legitimacy to corporate public
relations.61
Although the ILO’s survey document raised the
possibility of the ILO adopting a proactive role towards both
specification of the content of codes and the verification procedures,62
the organization has instead adopted the minimalist alternative of
providing advice and information.63
The self-selected nature of the content and the lack of
independent external implementation or monitoring mechanisms
inevitably generate skepticism about the value and effectiveness of
corporate codes. Although serious study of the effects of codes is still
in its infancy, there is evidence that firms adopting a code do not
perform any better against benchmarks relevant to that code’s
55.
56.
57.
58.
Further Examination, supra note 54, paras. 52–56.
Expanded Review, supra note 48, paras. 18–19.
Id. para. 85.
Dara O’Rourke, Monitoring the Monitors: A Critique of Corporate, Third-Party
Labor Monitoring, in CORPORATE RESPONSIBILITY, supra note 2, at 196.
59. See Rhys Jenkins, The Political Economy of Codes of Conduct, in CORPORATE
RESPONSIBILITY, supra note 2, at 24.
60. LABOUR RIGHTS IN CHINA, NO ILLUSIONS: AGAINST THE GLOBAL COSMETIC SA8000
4–7 (1999); O’Rourke, supra note 58, at 196.
61. For a discussion of one such debacle, see Neil Kearney, Corporate Codes of
Conduct: The Privatized Application of Labour Standards, in REGULATING INTERNATIONAL
BUSINESS, supra note 12, at 215.
62. Overview of Global Developments, supra note 54, para. 138.
63. See, e.g., International Labour Office, Working Party on the Social Dimension of
Globalization, Information Note on Corporate Social Responsibility and International
Labour Standards, ILO Doc. GB286/WP/SDG/4 (2003).
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standards.64
Public skepticism of corporate codes has been further fuelled
by the startling revelations of unscrupulous behavior by senior
managers following the dramatic collapses of corporate giants such as
Enron and WorldCom and the stock-market crash which followed the
dot-com bubble. Inquiries into Enron, for example, revealed that a
combination of financial engineering and sophisticated tax avoidance
enabled the company to declare net income of $2.3 billion between
1996 and 1999, while sustaining a tax loss of $3 billion.65
Significantly, only one of the codes analyzed in the OECD study
mentioned taxation.66 The loss of public confidence in corporate
management has led mainly to proposals to strengthen corporate
governance mechanisms, especially in the United States.67
IV.
EMBEDDING VOLUNTARY CODES IN LAW
Much of the discussion of corporate codes is based on the
assumption that, by definition, they exist outside or beyond the law.
On the one hand, their advocates stress that the strength of the codes
lies in their voluntary character,68 as opposed to the rigidity and
instrumentalism of externally-imposed and bureaucratically-enforced
law. This characteristic gives them the flexibility to be tailored to the
characteristics and circumstances of the business and to raise
standards by encouragement and self-generated commitment. On the
other hand, corporate critics and skeptics challenge the effectiveness
of self-selected and self-monitored standards, and have suggested that
competitive equality requires generally-applicable rules rather than
self-selected codes.69
On closer examination, the sharp distinction between
64. For a study of the chemical industry’s Responsible Care program, see Andrew King
& Michael Lenox, Industry Self-Regulation Without Sanctions: The Chemical Industry’s
Responsible Care Program, 43 ACAD. MGMT. J. 698 (2000).
65. STAFF OF JOINT COMM. ON TAXATION, REPORT OF INVESTIGATION OF ENRON
CORPORATION AND RELATED ENTITIES REGARDING FEDERAL TAX AND COMPENSATION ISSUES,
AND POLICY RECOMMENDATIONS 6 (2003). For a study of federal corporate income taxes, see
R. S. MCINTYRE & T. D. C. NGUYEN, CORPORATE INCOME TAXES IN THE 1990S (2000).
66. Expanded Review, supra note 48, para. 29.
67. See, e.g., Sarbanes-Oxley Act of 2002, Pub. L. No. 107–204, 116 Stat. 745.
68. “A few corporations [believe] this voluntary ‘corporate social responsibility’
enhances their brand and provides a competitive edge.” FRIENDS OF THE EARTH, TOWARDS
BINDING
CORPORATE
ACCOUNTABILITY
§
1.3
(2002),
available
at
http://www.foe.org/WSSD/positionpaper.html (last visited Aug. 29, 2003).
69. See HAUFLER, supra note 2, at 4–5.
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voluntary codes and binding law is inaccurate, undesirable, and
unnecessary. Codes entail a degree of formalization of normative
expectations and practices. Even if they are not laws, they may have
indirect legal effects. The challenge is to design a framework or
architecture that can combine the strengths of corporate codes and
formal law.
Codes may have legal effects in a number of ways. 70 First,
corporate codes may be enforceable through private law. They may
constitute or form part of contractual agreements, such as when a firm
formulates a code for its business networks. Thus, a brand-name
retailer may establish a code for its sub-contractors and suppliers, or a
major oil company, such as Shell, may establish one for its retail
outlets. Companies have preferred to avoid such effect by specifying
that such codes are not intended to be legally binding. However, it is
also generally made clear that if identified breaches of the code are
not remedied, they would lead to non-renewal of commercial
contracts.71 In addition, obligations to facilitate the monitoring of
compliance may form part of the formal commercial contract.
Associational and third-party codes are also likely to have effect as
contractual arrangements under which participating firms may be
entitled to certification which can be used in their product and brandname marketing, provided the agreed-upon monitoring mechanisms
verify that the companies comply with the provisions of the code.
This flexible relationship between binding legal obligations
and more specific standards, which in practice determines when to
invoke the law, is a familiar concept. It has long been known that
breaches of formal contractual obligations in business agreements are
often dealt with flexibly.72 Hence, the non-legal status of supplychain codes should not in itself be a concern, unless this status is a
signal that the code is not intended to be taken seriously.
Codes may also lead to legal enforcement by private parties
based on state regulatory law. For example, firms proclaiming their
70. For a literature survey focusing on the relationship between codes and national
laws, see R. JÜLICH & H. FALK, THE INTEGRATION OF VOLUNTARY APPROACHES INTO
EXISTING
LEGAL
SYSTEMS:
LITERATURE
SURVEY
(1999),
available
at
www.cerna.ensmp.fr/Progeuropeens/CAVA/Literature/Surveys.html (last visited Feb. 16,
2003). See also HALINA WARD, LEGAL ISSUES IN CORPORATE CITIZENSHIP 5–24 (2003),
available at http://www.iied.org/docs/cred/legalissues_corporate.pdf (last visited Sept. 30,
2003) (focusing on enforcement through litigation).
71. Petrina Fridd & Jessica Sainsbury, The Role of Voluntary Codes of Conduct and
Regulation: A Retailers View, in REGULATING INTERNATIONAL BUSINESS, supra note 12, at
231. See also Expanded Review, supra note 48, para. 20.
72. The seminal study is Stewart Macaulay, Non-Contractual Relations in Business: A
Preliminary Study, 28 AM. SOC. REV. 55 (1963).
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adherence to a code create expectations which may be legally
enforceable by their customers or other stakeholders. Thus, the
California Supreme Court has allowed an action to be brought against
Nike for false advertising and unfair competition.73 The action
challenges the accuracy of the report74 commissioned by Nike on
compliance with its corporate code by suppliers. This report, which
was used in Nike’s corporate publicity, had found no evidence of
illegal or unsafe working conditions at Nike factories in China,
Vietnam, and Indonesia.
At the level of international law, voluntary standards or codes
also can be given a legally binding status. For example, the WTO
agreements on Technical Barriers to Trade (“TBT”) and on Sanitary
and Phytosanitary Measures (“SPS”)75 establish an obligation on
states to use relevant standards developed by appropriate international
organizations “as a basis for” national regulations affecting
internationally-traded goods. This obligation has the effect of
converting standards developed by organizations such as the Codex
Alimentarius Commission, which the organizations themselves do not
regard as binding, into mandatory obligations for WTO members.76
Thus, there is no rigid separation between soft and hard law,
between totally voluntary codes and strictly binding laws. The
interesting and important question therefore is how to construct an
“architecture” of normative arrangements that can combine and
integrate the two categories of law in the most fruitful manner. To
design such an arrangement requires an analysis of the strengths and
shortcomings of each and then an evaluation of the different forms of
73. Kasky v. Nike, 45 P.3d 243 (Cal. 2002). Overturning decisions of lower courts, the
Supreme Court of California held that since Nike’s statements were representations of fact
about the company’s commercial operations, they were commercial speech, and thus not
protected by the First Amendment. Kasky, 45 P.3d at 247. On June 26, 2003, the U.S.
Supreme Court dismissed a writ of certiorari, relying in part on the fact that the California
court had yet to decide on the substance of the case. Nike v. Kasky, 123 S. Ct. 2554, 2555–
57 (2003).
74. THE NIKE CODE OF CONDUCT: A REPORT ON CONDITIONS IN INTERNATIONAL
MANUFACTURING FACILITIES FOR NIKE, INC. (1998). The Report was produced by
GoodWorks International, LLC, a consulting group chaired by Andrew J. Young, based on
Mr. Young’s investigations. Id.
75. Agreement on Technical Barriers to Trade, Apr. 15, 1994, Marrakesh Agreement
Establishing the World Trade Organization, Annex 1A, LEGAL INSTRUMENTS—RESULTS OF
THE URUGUAY ROUND vol. 1 (1994); Agreement on the Application of Sanitary and
Phytosanitary Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade
Organization, Annex 1A, LEGAL INSTRUMENTS—RESULTS OF THE URUGUAY ROUND vol. 1
(1994).
76. See Sol Picciotto, Private Rights vs. Public Standards in the WTO, 10 REV. INT’L
POL. ECON. 377, 383–84 (2003).
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INTERNATIONAL BUSINESS
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combination.
The analysis of corporate codes briefly surveyed above
suggests that they have two main advantages. First, they can be
tailored to meet the specific needs of particular businesses and can be
applied with awareness and sensitivity to their particular
circumstances and local contexts. For example, rigid laws that are
strictly applied may be a harmful way to tackle the problem of child
labor in poor communities and countries. A simple prohibition
against employing children below a certain age may result in their
exclusion from relatively better-paid jobs in the formal sector and
their employment in degrading activities that are physically and
psychologically much more damaging. Thus, the U.K.’s Ethical
Trading Initiative (“ETI”) Base Code requires adherents not only to
end new recruitment of child labor, but also to “develop or participate
in and contribute to policies and programs which provide for the
transition of any child found to be performing child labor to enable
her or him to attend and remain in quality education until no longer a
child.”77 These provisions suggest that laws should establish
minimum acceptable requirements, while codes should be aspirational
and aim at significant enhancement, as well as providing constructive
arrangements for achieving such improvements.
A drawback of such flexibility, however, is that the codes
have patchy and uneven content, resulting from self-selection. Hence,
an important function for the broader governmental and
intergovernmental codes, such as the U.N. Global Compact, is to
provide a template of basic principles of CSR, which they are already
performing to some extent. However, the U.N. Global Compact has
not been expressed as establishing either a basic minimum or as
taking the form of binding requirements.78 Thus, the flexibility and
adaptability of the code format may result in firms picking and
choosing from among the standards and effectively diluting them,
instead of building more specific provisions and targeted programs to
supplement them.
This analysis suggests that formal law can play an important
role in defining minimum standards or templates for the content of
codes. These templates can be amplified or specified in more detail
by firms, by tailoring the standards to their own circumstances. In
77. ETHICAL TRADING INITIATIVE, THE BASE CODE § 4.2, available at
http://www.eti.org.uk/pub/publications/basecode/en/index.shtml (last visited Aug. 9, 2003).
78. U.N.
GLOBAL
COMPACT,
THE
NINE
PRINCIPLES,
available
at
http://www.unglobalcompact.org/Portal/?NavigationTarget=/roles/portal_user/aboutTheGC/n
f/nf/theNinePrinciples (last visited Aug. 9, 2003).
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this way, corporate codes can provide added value, instead of diluting
the applicable standards.
Legal frameworks for regulating corporate codes can be
established at national, regional, and global levels. An example of a
national law is the proposal submitted to the Australian Senate in
1998 for legislation to require Australian TNCs to report on their
compliance with a range of defined CSR standards.79 The rejection of
this proposal indicates some difficulties with the approach it adopted.
First, the proposal adopted a prescriptive approach by seeking to
define the CSR standards on which firms would report compliance.
This would tend to result in minimalism, a least-commondenominator definition of standards. For example, although the bill
did include a provision on taxation, it was limited to a duty “to
comply with the tax laws in each country in which [the company]
operates.”80 As suggested above, a better approach is to require firms
to compose their own codes that are subject to minimum
specifications. Thus, in addition to compliance with national tax
laws, firms could be required to establish guidelines to prevent tax
avoidance, which could be tailored to their particular type of business
and their international structure. Similarly, it is better to ask firms to
establish environmental impact assessment and performance
standards for themselves, adapted to their own business, while
requiring them to be based on required minimum specifications.
The second problem with national requirements is the issue of
jurisdiction. Accusations of excessive or extraterritorial claims can be
made against a home state that requires specified standards to be
complied with by foreign affiliates for activities abroad. However,
the law need not be blind to business reality. Obligations that extend
to the worldwide activities of the firm can be placed on the parent
company and its directors, to the extent that these activities are under
the parent company’s de facto control.81 By requiring parent
79. Corporate Code of Conduct Bill, 2000 (Austl.). See also Corporate Responsibility
Bill, 2003 (Eng.).
80. Corporate Code of Conduct Bill cl. 11.
81. This approach has been adopted by some courts in considering private law claims
against a parent company for injuries caused by activities carried out through foreign
subsidiaries. It is much easier to accept that home country courts should have subject-matter
jurisdiction if the claim is based on the direct liability of the parent (due to the knowledge of
the company and its directors and managers of the dangers involved in the activity in
question), rather than on vicarious liability based on the ownership relation. See Lubbe v.
Cape PLC, [1998] C.L.C. 1559, [1999] I.L.PR. 113, 1998 WL 1042398 (Eng. C.A. 1998).
Compare In re Amoco Cadiz, 20 E.R.C. 2041 (N.D. Ill. 1984) (implying that if a firm is
operated as an integrated whole, the parent company could be presumed to have knowledge
of and involvement in the activities which caused the damage).
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companies within their jurisdiction to establish CSR standards for the
worldwide activities of the integrated firm, home countries would be
encouraging such firms to spread best practices internationally.
Nevertheless, it would be easier and more desirable if there
was an international consensus over these requirements so that
national law can be based on international agreement. Here again, a
new approach seems to be needed. Since the initial movement to
develop codes of conduct for TNCs in the 1970s, intergovernmental
organizations have faced a dilemma. These organizations have no
power to create legal obligations that are binding on firms. For this
reason, measures, such as the OECD Guidelines for TNCs, have taken
the form of “recommendations addressed by governments to
multinational enterprises.”82 Furthermore, these codes have been
formulated in fairly abstract and general terms. However, it is notable
that codes with a more specific focus have been more detailed. A
case in point is the WHO Code of Marketing of Breastmilk
Substitutes. This code has been used by some states as the basis for
national legislation.83 When it has been felt necessary to establish
binding legal obligations, the obligations have been directed at states
and tend to be expressed in minimalist terms, even if their focus is
specific. Thus, the OECD’s Convention on Combating Bribery of
Foreign Public Officials in International Business Transactions has a
rather narrow scope, although it is backed up by a process of peerreview implementation.84
An alternative approach has been to adopt a framework
convention. This approach has emerged in recent years, as a means of
establishing a set of objectives and principles that are binding on
states, and a set of implementation mechanisms and processes for the
formulation of more specific norms. Initiated for the purposes of
developing regimes for environmental protection (such as Climate
Change), the concept has been adapted by the WHO for its recently
adopted Framework Convention on Tobacco Control.85
Its
82. Guidelines for Multinational Enterprises, supra note 8, annex 1, para. 1.
83. See INT’L BABYFOOD ACTION NETWORK, STATE OF THE CODE BY COUNTRY (2001),
available at http://www.ibfan.org/english/languageimages/socs/bluesoc.jpg (last visited Aug.
9, 2003).
84. Organisation for Economic Co-operation and Development, Committee on
International Investment and Multinational Enterprises, Working Group on Bribery in
International Business Transactions, Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions, art. 12, OECD Doc. DAFFE/IME/BR997/
20 (1998).
85. World Health Organization, Framework Convention on Tobacco Control, WHO
Doc. A56/INF.DOC./2 (2003).
See DANIEL BODANSKY, THE FRAMEWORK
CONVENTION/PROTOCOL APPROACH (1999) (discussing framework conventions as an
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advantages are that it can establish an organizational and procedural
basis to develop new standards through deliberative processes. These
deliberations involve a broad range of civil society and governmental
participants, thereby providing a stronger basis for mutual trust.
A framework convention can also adopt a more flexible
approach to combinations of hard and soft law codes. For example, it
can establish legal requirements for participating states to lay down
specifications for corporate codes in general terms, while providing
that they should be based on appropriate internationally agreed-upon
standards which may be subsequently developed. As explained
above, the WTO agreements establish a framework convention in this
sense, because they require states to ensure that national regulations
do not create unnecessary obstacles to trade by basing such
regulations on internationally agreed-upon standards where they exist.
V.
INTEGRATING CSR MEASURES WITHIN A GLOBAL RULESBASED FRAMEWORK
The example of the WTO can also be adapted to deal with the
criticism that international investment agreements are one-sided
because they grant significant rights to investors without creating any
responsibilities. This concern has raised the question of how to
achieve a better balance in a multilateral framework for investment.
A framework convention could provide an umbrella for a number of
related agreements that would deal with both investor rights and
responsibilities, thereby combining liberalization and regulation.
First, the technique of related agreements could be used to
clarify the impact of investment protection obligations on national
law. As with the TBT and SPS agreements under the WTO, a
presumption could be created that national measures based on
internationally agreed-upon standards on topics such as
environmental protection or human rights would be valid. Such a
presumption of validity would help to prevent disputes or claims
based on indirect discrimination or de facto expropriation.
Second, international agreements and standards could be
associated within a multilateral investment framework either on a
required or conditional basis. Some international instruments might
be considered to embody such core values and standards that they
should form an essential part of the package. In the same way, the
approach
to
international
law-making),
available
at
http://whqlibdoc.who.int/hq/1999/WHO_NCD_TFI_99.1.pdf (last visited Sept. 30, 2003).
2003]
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agreement on Trade Related Intellectual Property Rights (“TRIPs”)
has made acceptance of basic intellectual property rights a
requirement of participation in the WTO system. Such a provision
might be made, for example, for the ILO Declaration on Fundamental
Principles and Rights at Work of 1998. Other issues that might be
regarded as an essential part of a multilateral investment framework
and for which multilateral agreements already exist include
combating bribery, and cooperation in tax enforcement.86 This model
might also be an appropriate way to deal with the difficult problem of
tax benefits and incentives, by associating a code on unfair tax
competition, along the lines of the codes now being applied within the
European Union and by the OECD.87 Association of such agreements
within a single framework would help to create public confidence that
the benefits extended to investors by globalization would be
complemented by a strengthened framework of international
cooperation to prevent abuse of the freedoms of the global market.
Both agreements and non-binding standards could also be
associated on the basis of reciprocal conditionality, which would
provide flexibility. Under this approach, states could choose to
extend investment protection benefits only to investors from states
participating in specified agreements. Such conditionality could also
be applied to enterprises, through a denial of benefits clause. This
type of clause would permit a state to deny the benefits of investment
protection to enterprises breaching specified or related standards. For
example, a host state could rule out bids for licenses or concessions,
or cancel them, if the enterprise concerned were found to be in breach
of relevant standards. Thus, a firm that breached prior informed
consent procedures or provisions of the WHO Infant Formula Code
could be denied the right to bid for public contracts.
86. Convention on Mutual Administrative Assistance in Tax Matters, Jan. 25, 1988, 27
I.L.M. 1160 [hereinafter Tax Convention]. While the Tax Convention provides a framework
for cooperation which goes beyond the minimal provisions of bilateral tax treaties, it has only
been ratified by nine states (including the United States). It has now been supplemented by
the Agreement on Exchange of Information in Tax Matters. ORGANISATION FOR ECONOMIC
CO-OPERATION AND DEVELOPMENT, GLOBAL FORUM WORKING GROUP ON EFFECTIVE
EXCHANGE OF INFORMATION, AGREEMENT ON EXCHANGE OF INFORMATION IN TAX MATTERS
(2002), available at http://www.oecd.org/dataoecd/15/43/2082215.pdf (last visited Sept. 30,
2003).
87. See ORG. FOR ECON. CO-OPERATION & DEV., HARMFUL TAX COMPETITION: AN
EMERGING GLOBAL ISSUE (1998); ORG. FOR ECON. CO-OPERATION & DEV., CTR. FOR TAX
POLICY AND ADMIN., THE OECD’S PROJECT ON HARMFUL TAX PRACTICES: THE 2001
PROGRESS REPORT (2001); COUNCIL OF THE EUROPEAN CMTY., REPORT OF THE CODE OF
CONDUCT GROUP (BUSINESS TAXATION) TO THE ECOFIN COUNCIL ON 29 NOVEMBER 1999
(1999), available at http://europa.eu.int/comm/taxation_customs/taxation/law/primarolo/
primarolo_en.pdf (last visited Sept. 30, 2003).
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Finally, relevant agreements and standards could be associated
within a multilateral framework for investment on an opt-in basis.
States and enterprises could be encouraged to sign a range of
agreements and codes as appropriate to their activities and
circumstances. This “plurilateral” association would help to provide a
higher visibility for positive regulatory standards, as well as to
authenticate both those standards and their monitoring and
compliance mechanisms.
VI.
CONCLUSION
In the increasingly competitive world economy created by
globalization, it is tempting for individual states and enterprises to
take a short-term view and to prioritize immediate advantages or
returns. This myopia makes it all the more important to strengthen
multilateral arrangements and to find ways to harness private
initiatives, while ensuring that they strengthen public capacity and
operate in harmony with public policies.
The various voluntary social responsibility initiatives outlined
above offer opportunities for economic development, but also raise
some problems. The main advantage is flexibility—the codes can be
adapted to the circumstances of particular firms and industries and of
different host and home countries. Rather than binding firms in a
rigid legal straitjacket, codes can establish standards that are either
minimum requirements or higher aspirational targets, and can
combine inducements with sanctions to encourage compliance. Their
transnational operation can help ensure that economic globalization
contributes to the spread of best practices of social responsibility in
business, without fostering competition that disregards externalized
social and environmental costs.
The danger of primarily voluntary transnational initiatives of
this type are that their uneven impact may reinforce competitive
disadvantages and that they may be viewed either as an imposition of
foreign standards or as a mere fig-leaf. Resolving these problems
calls for responsible and cooperative relationships between states,
enterprises, and the wide range of civil society organizations.