"Legal control of multinational corporations: problems and prospects".

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  LAW 410


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“Legal control of multinational corporations: problems and prospects”

The greatest evil is not now done in those sordid “dens of crime” that Dickens loved to paint. It is not done even in concentration camps and labour camps. In those we see its final result. But it is conceived and ordered (moved, seconded, carried and minuted) in clean, carpeted, warmed and well-lighted offices, by quiet men with white collars and cut fingernails, and smooth-shaven cheeks who do not need to raise their voices. (C.S. Lewis, The Screwtape Letters)

As the name “Multinational” suggests, today’s corporate giants are no longer shackled by the constraints of international borders. Previously the bulk of world production occurred within national boundaries, but in recent decades trade and production has become increasingly globalised, and corporate activity has diversified and multiplied. The market is now global, as is capacity for production. Legal and political framework is traditionally based on the nation state, however economic activity is no longer such, and it is this mobility of capital that threatens to undermine the power of national governments to deal with traditional economic and social issues. Critics charge that the ability of multinationals to manage production on a global scale and leap national borders in search of lower costs and higher profits now threatens democracy itself. These monoliths are less attached than ever to their country of origin, they operate without territorial loyalty or connection, and as their loyalty fades so does any ultimate responsibility for their actions. 

There has been a growing voice from various quarters calling for a delimitation of the responsibilities of multinational corporations (MNCs) to reflect their increasing influence in society. It is argued that corporations, though formed primarily to maximise profit, should be under more strenuous legal – as well as a moral – obligation to respect and promote national laws and social standards. Given this argument is not always accepted or enacted ‘in spirit’, nor reflected internally by all corporations, there appears a real need to bolster regulation of those corporate activities that have the potential to impinge upon national interests and human rights. Such a need is most apparent in the case of MNCs simply because their organisational structure, modus operandi and sheer influence make them practically immune to conventional methods of regulation.

Individually, the corporation is a formidable institution. For example General Electric – the world’s largest MNC – is a network of some eighty corporations, of which sixty operate outside the U.S (GE’s home economy), with total assets in excess of 229 billion dollars, net sales exceeding131 billion dollars and an employment base of 315 thousand people. Other corporations, such as Ford and Vodafone, have over half their assets outside their home economy, and do more than half their selling abroad. These are major international players, often operating with impunity. In 2002, of the world’s 100 largest economies, 51 were MNCs, and the sales of the top 200 MNCs were equivalent to more than one quarter of world economic activity. Walmart had the nineteenth largest economy in the world, with a higher GDP than Sweden, Austria, Norway and Poland. In the year 2000 global FDI grew by 18 per cent, to reach a staggering $1.3 trillion, driven by more than 60,000 MNCs with over 800,000 affiliates abroad.

MNCs are highly effective and swift machines, particularly in comparison to the governments, beset with malfunctioning bureaucracy and conflicting goals, and the legal rules, limited in scope and slow to evolve, with which it must deal. Economic power is challenging political power – and winning. Nevertheless, according to Human Rights commentator Sir Geoffery Chandler, it is not too late for a balance to be struck: “The myth that companies are more powerful than governments is still a myth, and is something we should ensure remains a myth. Company influence is indeed growing, but we cannot afford to live in a world in which companies have greater power than the political power of governments”.


The problems with instituting effective legal control of multinational corporations are complex. Arguably there exist at least three major regulative dilemmas: who should regulate; what specific activities or areas should be regulated; and how should the regulations be enforced.

Firstly, who should regulate the activities of MNCs? Should it be nation states, international organisations or non-government organisations? Should it be the corporations themselves through internal codes of conduct? Or should it be all, or maybe a combination, of the above?

Nation states and the international community are struggling to establish an effective regulatory regime of legal responsibility. There are a multitude of existing domestic and transnational codes and principles in the area of trans-border corporate regulation, but the four major ones are the OECD’s Guidelines for Multinational Enterprises, the International Labour Organisation’s Tripartite Declaration of Principles concerning Multinational Enterprises, the United Nations Global Compact and the Draft Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights..

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Until 1993, the UN had a Centre on Transnational Corporations (UNCTC), an inter-governmental body charged with developing a code of conduct for MNCs. In 1998 a draft code of conduct was produced which, while voluntary, would have prohibited some MNC activities. The draft code was gradually watered down and a final version never approved, mainly due to pressure from business and the US government. In 1993, UNCTC was closed down and UN Conference on Trade and Development (UNCTAD) became the focal point for UN work on MNCs.

Another UN initiative, the UN Global Compact (UNGC) was launched ...

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