The Elusive Saviours

Chapter 7: The inaccessible transnational corporation

Businesses fall under local and national, not international, laws and regulations. Since their activities are spread internationally, therefore, transnational corporations can exploit the differences in national rules, and they do so routinely in the case of labour legislation (regarding child labour and working hours, for instance) and taxation policy. The entire legal structure and internal financial organisation of these companies is based on fiscal differences, and Advisors on international fiscal law flourish on the specialism they euphemistically call "taxation planning".

The same situation applies to environmental legislation, where it is now possible for multinational enterprises to exploit differences in local legislation, free from the sanctions that could be imposed by international rules and regulations. A number of international organizations have been trying for years to fill this vacuum, and have proposed codes of conduct and internationally binding regulations based on agreements and conventions. Only in a few instances is this legislation specifically aimed at transnational corporations. This chapter looks at the degree to which they bind international companies.

Voluntary codes of conduct

The OECD and ILO codes, operational for several years, are specifically directed at transnational corporations as a separate group of entrepreneurs. They cover a broad range of subjects. In the OECD code, the "the pollutor pays" principle has been operative since 1976, and, in 1992, it was expanded to include a section on the environment and accident prevention and a chapter on the responsibility of investors from OECD and non-OECD countries.
For many years, the United Nations has been negotiating with representatives of the international business community to compose a code of conduct for transnational corporations. These were never completed and were finally transferred to the agenda of the transnational commission of the UNCTAD. In the draft version of the United Nations code of conduct, where the negotiations have reached a stalemate, "environmental information", repair to damage to the environment and test practices for determining environmental safety are among the subjects discussed.

Environmental codes of conduct

There are a number of other international codes of conduct created by international organizations which cover either a large number of subjects (including the environment), or one specific environmental issue.

General:

OECD Guideline for Multinational Enterprises (OECD);
ILO's Tripartite Declaration of Principles Concerning Multinational Enterprises (ILO-ME);

Specific:

International Standards Organization's Technical Environmental Standards (ISO);
UNEP's Environmental Guidelines (UNEP-EG);
ILO's Code of Practice on Accident Prevention (ILO-AP);
Conseil Europeen des Federations de l'Industrie Chimique's Guide to Safe Warehousing for the European Chemical Industry (CEFIC-SSC);
CEFIC's principles and Guidelines for the Safe Transfer of Technology (CEFIC-TOT);
FAO's International Code of Conduct on the Distribution and the Use of Pesticides (FAO);
UNEP's Awareness and Preparedness for Emergencies at the Local Level (UNEP-APELL);

There are also some more recent codes relating to the "environmental conduct" of transnational corporations which have been created by employers organizations:

International Chamber of Commerce's Environmental Guidelines (ICC-EG);
Chemical Manufacturers Association's Responsible CARE Program (CMA);
The Business Charter for Sustainable Development;
The Japanese Keidanren's Global Environmental Charter;

The last group are directed at the business and industry community in general rather than transnational corporations, which they mention only occasionally. The Benchmark Survey noted that in 1991 less than fifty per cent of the corporations in the study applied any of these codes to their practice. Later research indicated that one third of the companies in the Survey signed the 1992 Business Charter for Sustainable Development while seventy per cent of the Japanese companies had signed the Keidanren's Global Environmental Charter the same year.

International environmental principles?

The Japanese corporate organization, Keidanren, urges its members

"to make environmental protection a priority at overseas sites"
"to apply Japanese standards concerning the management of harmfull substances"
"to actively work to implement effective and rational measures to conserve energy and other resources even when such environmental problems have not been fully elucidated by science"

The Business Charter on Sustainable Development of the International Chamber of Commerce (ICC) recommends corporations to apply the same company principles internationally and to watch that suppliers do likewise. The OECD recently developed "Guidelines for the Prevention of Accidents", advising that

"hazardous installations in non-OECD countries should meet a level of safety equivalent to that of similar installations in OECD countries."

The international business community subscribes increasingly, it appears, to voluntary environmental principles. However, these codes of conduct do not require companies to apply the toughest environmental standards (as applied for example in the country of origin) internationally. Even the most far-reaching, that of the Japanese Keidanren only recommends the international application of local standards.
International application of environmental principles is, in all these codes, a very voluntary, individual decision.

Surprisingly little attention to the application of international company environmental management

The Benchmark Survey identified unambiguous results: <25>

"The participating companies were all large transnational corporations. Thus they could be expected to have extended procedures and policies for overseas subsidiaries and affiliates. However, both the statistical analysis and an evaluation of the material submitted by individual corporations indicated surprisingly little consideration for the international aspects of corporate activities. Regulatory discrepancies and the decentralized organization favoured by many TNCs may account for that finding.
Approximately half of the respondents had allocated Environmental Health and Safety responsibilities to their controlled affiliates; only 15 per cent had arrangements with their non-controlled affiliates. Other companies stated that they intended to observe local regulations. Some companies gave explicit accounts of their international responsibilities in their policy statements. Other corporations stated that they were prepared to establish their own standards if local ones were inadequate or absent. The more positive finding was that a handful of corporations had pledged to employ the same standards world-wide, thus meeting the recommendations of UNCED. That group included BF Goodrich, Amoco, AB Volvo, Union Carbide, Boehring, Ingelheim, and Ciba-Geigy."

The fact that active management concerning the environment, safety and health is restricted to the national level indicates the influence of national rules and regulations.

Conventions, guidelines and treaties

In recent years, one large environmental conference has followed the other, most with a specific goal. They resulted in resolutions, final declarations and protocols which can be interpreted as policy recommendations for the international community. The goal was sometimes more extensive, for example to establish a guideline or convention that a certain target group should observe, or in the hope that part or all of it would be taken up in national legislation. In these policy recommendations, transnational corporations as a specific type of company are markedly unmentioned.
United Nations environmental and health organizations such as the WHO and UNEP follow these guidelines, but, in general, they are applied on a voluntary basis and are weakened if they are not ratified world-wide. Nevertheless protocols and conventions can form the foundation of far-reaching international regulatory activities, which can directly influence transnationally operating corporations. To date, these are more the exception than the rule, the forced reduction of production of CFCs and the ban on trade in hazardous wastes being the best known examples, both of which were established following the path of the convention, but not without problems.

The Montreal Protocol

The Vienna Convention for the protection of the ozone layer (operational since September 1988) and the Montreal Protocol relating to substances which damage the ozone layer (operational since January 1989) created a policy resolution to gradually ban CFCs by 1996. Reacting to this, the world's largest producer of CFCs, Dupont, announced it would stop its production by 1994. This did not entirely solve the CFC problem, since not all the CFC product varieties fell under the original protocol, including HCFCs, a CFC group with an extra hydrogen atom which is less destructive than other CFCs but does destroy ozone.

Dupont and other producers have now switched to this HCFC to replace CFCs (for example in automobile air conditioning systems).
In 1991, the Protocol's Scientific Assessment Panel concluded that CFC alternatives, especially HCFCs, were more harmful than expected. As a result, the Montreal Protocol was amended and this amendment ratified early in 1994 and became operational on June 14 1994. It was agreed that HCFCs and the halons will be phased out, but more slowly: by 2030.

The Basel Convention

The world currently produces around 400 billion tonnes of hazardous waste (including diluted waste water) per year, of which eighty five per cent comes from the United States and five to seven per cent from the European Union. The first agreement banning the international trade in hazardous (meaning toxic, radioactive or other health threatening wastes) was established in the Lomé Convention, which banned all transport of radioactive and hazardous wastes from the European Community to ACP (Africa, Caribbean, Pacific) countries. This was only applicable to Lomé Convention countries and left out 78 of those in the Third World.
The Basel Convention established a more detailed agreement, but with weaker content, rejecting a UNEP draft, and leaving only clauses on the "control" and "management" of the international trade, but no ban. This effectively legalized the trade in hazardous wastes under specific conditions, such as that known as Prior Informed Consent i.e. the receiving country must be informed beforehand and agree to the shipment. It is not difficult for a large, money-weilding company to acquire a signature indicating such consent. The Basel Convention also allows plenty of room for subjective interpretation and a resourceful trader will find it is full of holes. It has been so stripped of teeth that it can be easily bypassed, which occurs on a large scale.

Yet only 64 countries ratified this convention. In the meantime, an attempt has been made to reach a new agreement within the OECD banning the export of wastes from OECD countries. On March 25, 1994 the OECD countries agreed in Vienna to a total ban on exporting toxic wastes to non-OECD countries. The 64 signatories of the Basel Convention also signed this agreement, which, while not water tight - it has such escape routes as the category "recyclables" - is expected to cut off the new markets for toxic wastes which arose in Eastern Europe and Asia in recent years.

The most far-reaching efforts to create comprehensive multilateral agreements took place at international conferences, such as UNCED in 1992. But the treaties reached at such meetings have to be ratified by a certain number of the states whose governments participated before they become operational. Ratification means that the treaty is binding in that country, and it will abide by the rules of arbitrage and sanctions. The international effectiveness of a multilateral treaty is highly dependent on the number of ratifications. The more there are, the more it can be said that the treaty truly represents international legislation for our international legislation is fact based on consensus between states, and if there is no consensus the legislation does not exist.

What is wrong with international environmental law?

To answer this question, we quote from: "Advice on the environment: a world-wide problem. Towards a politic of sustainable development." National Advisory Board for Development Cooperation, No. 101, June 1993, Page 40 ff.

"Based on these treaties, state practice and internal jurisprudence we can conclude that a number of principles in international law have been developed this century which form the foundation of modern international environmental law. The following principles fall underthis category:

the principle of sovereignty, that every state has the right to practice its own socio-economic and environmental policies.
the principle of good neighbourliness, leading to the obligation to consider the interests of the neighbouring country and not to intervene unjustly and cause damage to its natural environment and economic activities and, in connection with this, the duty to provide immediate information and consultation, and
the principle of international liability for unlawful deeds. In certain circumstances this can be applied to across the border environmental damage.

In modern international law a number of important principles are being created. Besides the principles of good neighbourliness and international liability for illegal deeds, important in across the border environmental damage, these are in the main principles which flow from the duty of states to cooperate internationally and the involvement in, albeit the right of, people and nations to a healthy living environment.
Despite the positive developments, we have to conclude that the existing international body of legal instruments is inadequate. This is due to a number of factors which partly have to do with the as yet inept development of international environmental law and partly with fundamental characteristics of existing international law. The following problems can be seen:

In international law the states are the most important actors. As a result not systematic legislature but disaster law and partial approaches are developed.
All states, and particularly developing countries, meet with difficulties in translating international laws to creating national legislation and developing the controlling apparatus.
Other actors, such as corporations (whether or not transnational) and individuals have almost no formal judicial status at the international level. It is difficult to charge them and to proceed against them on the international level for environmental crimes. Even at the national level experience indicates that it is often difficult for states, and in particular for developing countries, to successfully fight legal battles against international corporations.
It will not always be easy to coin development in the area of environmental law in a treaty text, either because the development of law is still in the growing stage or because important elements in it (specific duties and sanctions) are still being strongly fought against. The experience in other areas teaches us that in such cases the form of non-binding texts should be chosen. In most cases the text will to an extent become binding and will be felt in the development of other instruments."

Expanding body of environmental instruments

International environmental laws and regulations are patently limited. This is one of the reasons why international environmental policy has generally remained ad-hoc and reactive for a long time. The principles of Stockholm (1972) were an important breakthrough. But the first major, cohesive policy lines for the future were agreed to at UNCED, in its Agenda 21. Even here the transnational corporation disappeared from sight as separate category of business within the total business community, to which separate international treaties and conventions can be directed. No binding measures were formulated for this type of company. This was a success of the business lobby operating throughout the UNCED period (see chapter 2).
Since UNCED, a great diversity of "instruments" have been developed which national governments apply in the context of national rules and regulations.

The diversity of the body of environmental instruments <26>

There are a number of ways international treaties and conventions can be translated into national environmental policy. The UNCTC describes the following categories:

Prohibition orders and legal instructions.
Demands relating to environmental effect analysis and planning for land use.
Demands relating to reporting, availability of information, monitoring and observation programmes.
Quality standards.
Demands concerning tests and availability.
Introduction of "the pollutor pays" principle.
Introduction of the "prevention and precaution" principle.
Price and tax measures.
Subsidies and government investments.
Legislation pertaining to liability and compensation.
Executive and mandatory measures and dispute procedures.
Extra-territorial legislation.

These instruments have been developed for the application and use of those individual nation states that have ratified treaties and conventions. True international instruments, such as the saleability of internationally agreed national emission rights are still at the stage of opinionated discussion. National governments often apply different instruments in introducing or enforcing international treaties and conventions. This increases the existing diversity in the development of environmental policy in the various countries of the world.
Generally, transnational corporations find this diversity in rules and regulations difficult. The lobby for the harmonization of international environmental regulations was more important to international business and industry than the creation of environmental codes of conduct or treaties and conventions: 62 per cent of the transnationals researched in the Benchmark Survey want the United Nations to reform discrepancies in environmental rules and regulations. More than half are in favour of initiatives for the international development of a communal set of national environmental policies. The main aim of this harmonization is not so much simplification but the "levelling of the playfield" for all players on two levels:

equalization of the conditions for international competition (between transnationals, that is to say, export industries)
equalization of national conditions for competition (between national companies and importing companies).

This is the territory of international trade relations. At the present time, the most far-reaching development in international law is concentrated on this very territory: the GATT international trade agreement. The international business community has centred all available attention and influence on this event, as GATT does not only seem capable of simplifying and harmonizing legislation, but also weakening and nullifying strict national environmental rules and regulations. We will look at this more closely in the next chapter.

Summary

Despite the non-mandatory nature of specific codes of conduct pertaining to the way transnational corporations work, they have long fought the development of strict codes of conduct. In recent years, however, the international business community increasingly endorses voluntary environmental principles. But the existing codes of conduct are quite general, not demanding, for example, that companies apply the toughest environmental standards internationally. There is not monitoring and enforcement of these standards and no sanctions for companies who flout them.
Conventions, treaties and protocols are less voluntary and can form the foundation for far-reaching international regulations which directly influence the activities of the corporation operating in many countries. To date, however, these are exceptions, most notably the ban on CFCs and on trade in hazardous wastes. Both were devised - not without difficulties - through conventions.
Transnational corporations lobby against mandatory international legislation, and in particular against those agreements that identify them as a separate category. They also oppose the international diversity in rules and regulations. The international business community sees the lobby for harmonization in international environmental legislation as more important than the creation of environmental codes of conduct or international treaties and conventions.

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