Abstract Transnational Corporations have become the order of the day when it comes to investment driven growth for the developing world. Countries encourage these corporations to lead the charge when it comes to development of technology, boosting National Income, increasing living standards and increasing export capabilities. The host nations are both incapable and unwilling to enforce stricter environmental regulations in the fear of losing out on investments, and the developed countries are hesitant towards regulating such entities because of their strong political lobbies. The international instruments resulting from such quandary are also mere eye-wash and essentially rendered ineffective because of the lack of domestic legislation. Because of these failures, the TNCs operate in a sphere of legal vacuum with nothing to restrain them from damaging the local environment and bio-diversity. This paper highlights the deficiencies in the operation of such international instruments, the lack of political will in nations in enforcing better means of regulation and thereby attempts at providing some basic indicators that should be the driving force behind the functioning of TNCs. No one can deny the economic benefit resultant from the inflow of foreign investment or the efforts of Corporate Social Responsibility but these do not compensate for the extent of environmental damage caused by TNCs. The regulation and safety of the living environment is a commitment for entire humanity and the entrepreneurial units are by no means exempt from such obligation.
Introduction "Transnational Corporation", (TNC) also called "Multinational Corporation or Multinational Enterprise", is defined by the UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises as: "An economic entity operating in more than one country or a cluster of economic entities operating in two or more countries - whatever their legal form, whether in their home country or country of activity, and whether taken individually or collectively." In the past quarter of a century, an era of rapid economic globalization, there has been a remarkable growth in both the number of transnational corporations (TNCs) and the quantity of foreign direct investment (FDI). TNCs have grown in number from 7,000 TNC parent firms in 1970 to over 65,000 in 2002. Together, these global firms make up one-tenth of world GDP and one-third of world exports. The growth in the number, size, and influence of TNCs has been a matter of international concern, particularly to developing countries, for over twenty years. The expansion of TNCs after the Second World War resulted from a number of factors, including spiraling labor costs in developed countries, the increasing importance of economies of scale, improved transportation and communication systems, and rising worldwide consumer demand for new products. Ethical issues arising from TNC activities include bribery and corruption, employment and personnel issues, marketing practices, impacts on the economy and development patterns of host countries, environmental and cultural impacts, and political relations with both host and home country governments. It is also frequently argued that TNCs have grown beyond the control of national governments and operate in a legal and moral vacuum "where individualism has free reign". Despite the long-held concerns about ethical and other aspects of TNC activity, promotion of FDI has been a global political trend. Policy initiatives at the international level concerning TNCs focus on developing guidelines to facilitate FDI, with the principal issues being the development of standards for fair and equitable treatment, national treatment, and most favored nation treatment. Environmental matters are one exception to this trend. Since the Trail Smelter case came in picture, there appears to be a broad consensus regarding the need and desirability to develop standards to guide and direct TNC behavior. However, considerable uncertainty exists about how to apply environmental standards to TNCs in this new era of free trade, liberalization of national economies, and promotion of FDI. TNCs are key players in terms of development activity, and they operate in the free space between ineffective national laws and non-existent or unenforceable international laws. This Article discusses methods to ensure that TNCs meet environmental protection goals in the emerging international climate of structural adjustment, free trade, and enhanced conditions for FDI. In particular, it focuses on the idea that some consistent or uniform standards should be developed to guide TNC activities wherever they occur.
Operation Of TNCs The types of activities towards which FDI is directed have changed considerably over the past forty years. In the 1950s, the initial growth in FDI occurred in the primary sector, with investment primarily in renewable resources such as agriculture, fisheries and forests and in non-renewables such as minerals, oil, and gas. Subsequently, the manufacturing sector became the most prominent sector for FDI outflows and accounted for forty-five percent of outward FDI during the 1970s. The most rapid growth in FDI activity in recent years took place in the services sector, in which world outflow of FDI expanded from thirty-one percent in 1970 to fifty percent in 1990. The United Nations predicts that FDI in coming years will increasingly focus in the services and technology-intensive manufacturing sectors. The vast majority of TNCs have parent corporations that are based in developed countries. The G5 countries account for one-half of the total number of parent TNCs and more than two-thirds of the global stock of FDI. Only eight percent of parent TNCs are based in developing countries, and these account for only five percent of the global stock of FDI. Not surprisingly, the proportion of TNC affiliates located in developing countries is much higher, comprising forty-one percent in 1991. The flow of FDI to developing countries comprised only one-quarter of total FDI inflows in 1991, but it has increased steadily over the past ten years. A large proportion of this inflow goes to a small number of developing countries. In 1992, $26 billion out of the $40 billion directed to the developing world went to just ten countries, primarily in east, south, and south-east Asia, Latin America, and the Caribbean. These figures again suggest that by focusing regulatory efforts on a relatively small number of developing countries, coverage of a substantial proportion of the activity undertaken by TNCs and their affiliates in the developing world would be achieved. For all these reasons, concerns about environmental protection in relation to manufacturing and primary production are increasing within developing countries and the central and eastern European regions in the near future.
Environmental Impact of TNC Activities Environmental performance is defined in terms of emissions of hazardous substances into air, land and water. Environmental performance is directly affected by regulatory, financial and organizational variables. The United States' EPA reports three categories of emissions: direct emissions into the air, land or water; transfers to publicly-owned treatment works (i.e., sewage); and transfers off-site for storage, recycling, or other purposes. TNCs operate in a wide range of pollution-intensive and hazardous industries that have products or processes that may harm the environment or negatively impact human health, such as mining, petroleum, and agro-business. The general standard of environmental performance of TNCs is therefore a matter of significant international concern. TNCs possess flexibility, mobility, and leverage which local companies do not enjoy; tend to maintain corporate secrecy about the hazards associated with particular products and processes; and obtain the benefit of legal uncertainties concerning the liability of parent TNCs for their affiliates' activities. The two TNC activities most commonly identified as raising environmental concerns are the export of hazardous products (such as pesticides, pharmaceuticals, toxic chemicals, and hazardous wastes) and the export of hazardous processes or technologies. TNCs export hazardous processes by establishing highly-polluting industries outside home countries, thus creating potential problems with pollution control, disposal of hazardous wastes, workers' health and safety, and the risk of major accidents. The accidents at Seveso, Italy; Bhopal, India; and Basel, Switzerland demonstrate the serious consequences that arise when TNCs inadequately manage chemical manufacturing plants. Primary industry activities also impact biodiversity and can carry serious consequences for indigenous peoples. Such concerns are particularly pronounced where tropical rain forests have been cleared. New areas of concern about the environmental impacts of TNC behavior are also emerging since the 1990s. One of the most significant is the acquisition of intellectual property rights to products derived from plants or animals found in developing countries. The broader charge is that TNCs are raiding and appropriating the biodiversity of developing nations. Environmental destruction leaves local populations with two basic options: (a) to leave the degraded environment for a more habitable place and become environmental refugees, or environmentally displaced people; or (b) to remain in the degraded environment and risk increased morbidity and mortality through exposure to pollution and depleted, degraded, or contaminated food and water sources. Neither of the above options is ideal as both leave communities and individuals in worse conditions than before the environmental destruction occurred. Furthermore, international law is currently organized in such a manner as to exclude such victims from international aid. Poorer nations turn to TNCs to encourage international investment in hopes of improving the local economy. In turn, TNCs are attracted to the opportunity to lower production costs through lenient environmental standards and cheap labor. Despite their enormous influence and their significant role in the degradation and destruction of the environment which subsequently harms human populations, TNCs are not yet signatories to binding international instruments. Virtually unrestrained by international instruments and domestic laws, TNCs are safe from liability for environmental destruction and resultant human rights violations. Globalization has thus "created powerful non-state actors that may violate environmental law in ways that were not contemplated during the development of the modern environmental jurisprudence".
Attempts at Environmental Regulation of TNCs Both the international community and individual states have attempted to regulate the activities of TNCs. International efforts to establish an environmental code of practice for TNCs have proven illusory at best. Moreover, most instruments which have come under the consideration of the international community have taken the form of non-binding, "soft-law" guidelines. The United Nations Code of Conduct for Transnational Corporations: The Code of Conduct for Transnational Corporations emerged from the 1974 movement to establish a New International Economic Order. In 1993, after authoring several code drafts, the United Nations abandoned efforts to establish a TNC code when it became evident that compromise was nearly impossible. The most recent provision of the U.N. Code of Conduct (Code of Conduct) relating to environmental protection comes from the 1988 draft and reads as follows: "Transnational corporations shall carry out their activities in accordance with national laws, regulations, established administrative practices and policies relating to the preservation of the environment of the countries in which they operate and with due regard to relevant international standards. Transnational corporations should, in performing their activities, take steps to protect the environment and where damaged to rehabilitate it and should make efforts to develop and apply adequate technologies for this purpose". The Code of Conduct fails to specify what steps should be taken, or what will be done if they are not taken. Additionally, the Code of Conduct fails to define "damaged" and "rehabilitate". Any effective international regulatory regime must provide specific mandatory guidelines and standards for the environmental practices of TNCs. The U.N. Code of Conduct fails in this regard, leaving the creation of "relevant international standards" to future international law developments. The OECD Guidelines for Multinational Enterprises: In 1976, the member countries of the Organization for Economic Co-operation and Development (OECD), as an annex to a declaration on international investment, established the Guidelines for Multinational Enterprises. This soft-law instrument lacks the scope, enforceability, and substantive provisions needed to create an effective international regime of environmental regulation. The impotency of the said Guidelines can be ascertained from their applicability to TNCs only within their territories. Such broad proclamations provide little guidance to TNCs and fail to establish an effective environmental regulatory regime. Article XX of GATT: The issue of environment protection was not a major issue when the General Agreement on Tariffs and Trade was drawn up in 1947. Not a word was mentioned in GATT itself about environment. The principle purpose of GATT is to oblige members to use the same rules to regulate trade and to ensure in particular that there was no discrimination in trade. Under Article XX, GATT provides for trade restrictions and discrimination in order to protect human, animal, plant health and safety. It is worth noting that the word 'environment' is nowhere expressly mentioned in Article XX. Nevertheless, these exemptions give the members ample latitude to control trade to protect the environment, although some authors argue that these are intended to cover measures designed either to protect public health diseases or to protect animal or plant life for commercial reasons. The "measures" to protect human, animal, plant life or health have to be the 'least trade restrictive' ones 'among the measures available to such countries'. The term "necessary" means such a measure that entails minimum degree of inconsistency with other GATT provisions. These provisions, although appear to providing adequate teeth and power to the host nation in imposing its environmental concerns, yet they are seldom an effective means due to other WTO obligations and trade interests. Agenda 21 of the United Nations Conference on Environment in Development: In June 1992, representatives from most of the world's nations and several hundred nongovernmental organizations (NGOs) gathered in Rio de Janeiro for the United Nations Conference on Environment in Development (UNCED or the Earth Summit). One product of their labors was a voluminous soft-law document entitled Agenda 21. This document, formally adopted by most participating nations, establishes a comprehensive plan for global development. Numerous clauses address the practices of TNCs and their role in achieving sustainable development. Throughout the document, TNCs are encouraged "to introduce policies demonstrating the commitment...to adopt standards of operation equivalent to or not less stringent than those existing in the country of origin", and "to adopt and report on the implementation of codes of conduct promoting the best environmental practice". While Agenda 21 suffers from the same problems as the instruments discussed above, its recognition of the regulatory method of applying home country standards is significant. Despite its important developments, Agenda 21 ultimately fails to establish an effective environmental regulatory regime. Its most prevalent defect is its non-binding, aspirational nature. Unless such standards can be enforced, either internationally or domestically, they are unlikely to have much effect. Agenda 21 also suffers from a definitional problem. It is not clear from the terms of Agenda 21 whether "country of origin" refers to a TNC's country of incorporation, the country or countries wherein a majority of its shareholders reside, or both. International Environmental Regulations: The foregoing problems have led some scholars to call for a comprehensive international regulatory scheme, which, they argue, would level the competitive playing field. First, the terms and conditions of multinational corporate activity must promote the cause of global economic and social justice. Second, there must be global standards of process safety for transnational hazardous and nonhazardous business activity. Third, the activity must satisfy the highest standards of environmental protection. Fourth, the activity must observe the highest standards of human rights. Fifth, dilution of technology to a lesser level while operating in developing countries should be banned, even if the importing nation so desires. Sixth, restrictions against foreign capital investment in developing economies should be set, regulated, and reviewed by an impartial committee consisting of the representatives from both developed and developing countries, but excluding the parties in question so that the solutions agreed upon are free from the psychological biases of interested parties. Last, an international dispute resolution mechanism should be established where preference is accorded to arbitration before appealing the decision to a court of binding jurisdiction. Although, such international regulation serves theoretical commonsense, the barriers impeding its successful implementation are plenty and profound. First, developed countries, whose nationals control a large majority of the world's TNCs, are unlikely to advance support for such a code because it would run contrary to their short-term economic interests. Further, such regulations might lead to transfers in environmental technology from developed to developing countries, an occurrence seen as undesirable by many developed nations. Second, developing nations are unlikely to support such a vigorous regulatory scheme. Many developing nations see environmental quality as a "luxury" which they are willing to forgo in favor of further development and increased wealth.
Need for Uniform Environmental Standards for TNCs Current international environmental law and international human rights law developed without regard for each other and are not sufficient in this global economy. Moreover, international environmental law generally focuses on trans-border environmental harm and does not regulate domestic environmental issues. Citizens must rely on national law for redress and protection, which is often not an effective avenue. Additionally, international human rights law is neither linked to a healthy environment nor to international environmental law and TNCs are not held accountable for human rights violations that stem from their direct environmental destruction. A wide range of regulatory measures might readily be described as "environmental standards". There are essentially two ways to force TNCs to apply uniform standards. The first involves international negotiation or harmonization of standards so as to produce a "level playing field" for TNCs, while also enhancing existing levels of environmental protection worldwide. The second method is to directly regulate TNCs to ensure that they apply uniform standards wherever they happen to operate. These rules determine the source of the particular standards that apply to a TNC in a given situation. Direct Regulations: Direct regulations encompass a variety of command and control regulations, including enabling, environmental quality and resource conservation regulations. Enabling regulations set out the general objectives and the interactions among the legislative and executive branches of government, while providing for the general funding of the environmental programs outlined in the legislation. These regulations determine the methods for controlling pollution and set numerical limitations on permissible levels of pollution. Market Incentives: Both industry and government pursue the incorporation of market incentives into environmental legislation. This approach potentially could save industry billion of dollars a year. Numerous commentators proposed many different general market-based solutions to pollution problems. These plans include pollution charges such as fees, taxes, subsidies and deposit-refund systems. Self Regulation: Recent surveys have suggested that TNCs are seriously addressing their past deficiencies by undertaking extensive environmental management programs that extend across all their operations. In the case of industry organizations, these measures tend to concentrate on the broader standards of conduct that may be expected of corporations, including TNCs, rather than focusing on ambient or discharge standards of a relatively precise or quantifiable nature. Examples include the International Chamber of Commerce's Environmental Guidelines for World Business and Business Charter for Sustainable Development, the U.S. and Canadian Chemical Manufacturers' Associations' Responsible Care Program, the European Council of Chemical Manufacturers' Federations' Principles and Guidelines for the Safe Transfer of Technology. Individual TNCs are also considering the idea of internal standardization of environmental practices, perhaps because they perceive that environmental, health, and safety regulations will become increasingly harmonized in the future anyway. The overriding difficulty with all of these possible internal standards, as with industry codes and guidelines, is their voluntary and non-binding character. Even more so than soft law instruments executed by nations, which at least reflect a consensus among some nations that may be reflected in domestic measures from time to time, industry and internal standards offer no mechanisms for ensuring compliance apart from those which exist in any event, such as adverse publicity. International Agreements: These agreements include conventions on trans-boundary pollution (e.g., 1979 Conventions on Long-Range Trans-boundary Air Pollution), conventions on resources shared between two or more states (e.g., UNEP's Regional Seas Convention), and conventions on the use of resources of the global commons (e.g., Law of the Sea, Montreal Protocol on Ozone Depletion). In addition, local national regulations can affect industry policies. For example, the European Community has not yet successfully defined the relationships among European Community, national, regional and local environmental laws. Considerable support has been expressed in recent years for the development of international environmental standards. However, if TNCs were to face uniform ambient standards, local variables such as the level of industrial activity, its spatial dispersion, and topographical and climate conditions would preclude harmonization of environmental control costs and competitive positions. Environmentalists worry that uniform standards lead inevitably to a lowest common denominator outcome which could threaten environmental gains in some countries, particularly if new free trade rules deem higher standards to be illegal barriers to trade. A refinement of the concept of uniform international standards is the concept of minimum international environmental standards. Under this approach, countries would remain free to adopt more stringent environmental standards if warranted by their particular circumstances. The more stringent standards could include measures designed to promote pollution prevention. Minimum standards, rather than being identical, could operate on a principle of mutual recognition based upon the equivalence of requirements in national laws. It seems clear that TNCs view the development of international environmental standards as a less desirable process than the standardization or "harmonization" of national environmental standards. Thus despite the emerging interest in the concept of minimum international environmental standards, and the precedents for international regulation where trans-boundary or global commons issues are involved, the reality is that the prescription of detailed process standards for environmental, health, and safety matters through legally binding international agreements does not currently appear to have widespread governmental or industry support. In the absence of an international approach to the development of environmental standards, it remains open to states to pursue their own approaches with respect to the operations of TNCs who fall within their jurisdiction. Thus, instead of allowing TNCs to operate entirely by reference to the law of the host country, it may be possible to develop domestic rules which determine that similar or uniform standards will apply to TNCs irrespective of whether they are operating in a host or home country. However, this approach has been criticized for some of the reasons also advanced against the idea of international uniform standards. In particular, it is suggested that it may lead to inappropriate technology transfer, or to decisions by TNCs to pass over investments in a particular developing country because of the environmental costs involved, even though the proposed activity might be of considerable economic benefit to the country concerned. A practical difficulty with the home country rule is that it would require environmental authorities in the relevant host country to understand and administer differing standards for various TNC facilities, according to their country of origin. This could prove quite impractical. The second option with respect to domestic regulation of TNCs is for the home country to give extraterritorial effect to its environmental regulations in relation to the operations of its own TNCs abroad. Proposals of this kind have been put forward and range from a Foreign Environmental Practices Act, which would extend all relevant domestic standards and regulations to TNC operations abroad, to a more modest proposal that "home governments could make regulations for their companies that they insist are followed in other countries of operation". This approach has been condemned on the grounds that it intrudes excessively into the internal affairs of sovereign states and, particularly in its operation in developing countries, amounts to a new form of "cultural imperialism". There are also some obvious and substantial practical difficulties with the administration and enforcement of domestic standards in a foreign jurisdiction. Export and import controls are another domestic means of regulating TNC behavior. Another option is to impose import restrictions on products that have been produced through inferior environmental protection measures, in order to protect domestic manufacturers and to address global concerns such as tropical deforestation.
Conclusion Both international and domestic measures have failed to adequately regulate the environmental practices of transnational corporations. While there is need to strengthen and develop existing methods of environmental regulation of TNCs, formal recognition in a hard-law treaty of the international human right to a healthy environment can help to prevent and correct environmental disasters and compensate injured individuals. The right of individual petition, amenability of TNCs to proceedings, effective investigatory powers, skilled environmental judges and experts, and the ability of the International Court for the Environment to award damages and injunctive relief are all characteristics essential to the creation of an effective international enforcement mechanism. While a few concrete international measures have been developed, more general or comprehensive measures seem unlikely due to TNC opposition and a lack of strong interest in this approach at present on the part of national governments. International environmental standards seem most likely to emerge at first instance in a regional setting, but where these are provided for in trade related agreements, their adequacy and efficacy will be uncertain. Soft law and self-regulatory mechanisms, while reflecting a greater awareness on the part of governments and TNCs of the need for higher levels of environmental performance, offer no guarantees of compliance. There is an international trend towards recognizing the right to a healthy environment and towards increased corporate accountability. However, this movement will take time, as the global economy is currently structured around economic efficiency, and adjustments must be made to incorporate human, economic, and environmental interests.