International environmental standards for transnational corporations.
By the early 1990s, there were almost 37,000 transnational corporations (TNCs) in the world,(2) and their influence on the global economy is enormous. In 1990, the worldwide outflow of foreign direct investment (FDI), which is a measure of the productive capacity of TNCs, totalled $234 billion.(3) In 1992, the stock of FDI had reached $2 trillion.(4) Parent TNCs have generated some 170,000 foreign affiliates, forty-one percent of which are located in developing countries.(5) Nevertheless, the reins remain firmly held in developed countries, where ninety percent of parent TNCs are headquartered.(6)
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 spiralling 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.(7) By the early 1970s, TNCs had begun to attract considerable interest and concern. Critics of TNCs have argued that their post-war expansion has become increasingly focused on the exploitation of the natural and human resources of developing countries.(8) 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.(9)
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."(10) The notion of corporate nationality may become obsolete in a global economy.(11) The trend towards integrated international production and the resultant reorganization of TNC structures to establish "non-equity" arrangements which allow some control over foreign productive assets contribute to this situation.(12)
Despite the long-held concerns about ethical and other aspects of TNC activity, promotion of FDI has been a recent global political trend. A new international consensus was reached at the seventh United Nations Conference on Trade and Development in 1987 on "structural adjustment," in the form of privatization, deregulation, and liberalization of national economies in return for the easing of the debt burden on developing countries. This has paved the way for a substantial expansion in TNC activities, particularly in the developing world.(13) This expansion has been assisted by recent regional and global free trade agreements, the principal beneficiaries of which may be TNCs.(14)
One result of these initiatives has been a distinct shift away from earlier proposals for the regulation of TNCs. This is indicated most vividly by the United Nations, recent abandonment of its fifteen-year effort to produce a Code of Conduct for Transnational Corporations.(15) Recent policy initiatives at the international level concerning TNCs focus instead on developing guidelines to facilitate FDI,(16) with the principal issues being the development of standards for fair and equitable treatment, national treatment, and most favored nation treatment.(17)
Environmental matters are one exception to this trend. In this area, there appears to be a broad consensus that it is appropriate and desirable to develop standards to guide or direct TNC behavior.(18) A parallel and related recognition has emerged in free trade negotiations, where the proposed global agreement emerging from the Uruguay Round of GATT and regional agreements such as the North American Free Trade Agreement (NAFTA) have been recognized to require specific, additional measures concerning environmental, health, and safety matters.(19) 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 the perception that they operate in a vacuum between ineffective national laws and non-existent or unenforceable international laws has heightened concerns about the current reach and effectiveness of environmental regulation, particularly where TNCs are operating in developing countries. A considerable amount of attention has been devoted in recent years by TNCs and others to the notion of self-regulation of environmental, health, and safety matters.(20) This may in part reflect a belief that TNCs are beyond any form of regulatory control and should develop their own rules to meet public expectations. It may also constitute an effort by TNCs to anticipate further regulation, either by forestalling it or by being prepared in advance to comply with it.
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. It first examines the nature of TNCs and their FDI operations, focusing particularly on their geographical location, the allocation of FDI between developed and developing countries, and the types of activities to which FDI is directed. This information assists when assessing the usefulness of the various avenues for applying environmental standards to TNCs. There then follows an examination of some key issues relating to the performance of TNCs with respect to environmental matters. In particular, Part III discusses the exercise of double standards by TNCs when operating outside their home countries and the influence of environmental regulation on the location of TNC facilities. The existence of these types of practices is frequently used to justify regulation of TNCs. A consideration of the extent to which they are evident in practice is therefore an essential precursor to the discussion of options for applying environmental standards to TNCs.
Against this general background, Part IV of this Article proceeds to examine the various methods of applying environmental standards to TNCs wherever they operate. The options addressed are international agreements, codes, and guidelines; unilateral, regulatory measures imposed by either host or home countries; and voluntary measures by TNCs themselves. I conclude by advancing a tentative argument for the extrateritorial application of certain types of domestic law to TNCs, in particular environmental information disclosure requirements such as the community right-to-know provisions contained in the United States Emergency Planning and Community Right to Know Act.(21)
II. CHARACTERISTICS OF TRANSNATIONAL CORPORATIONS AND FOREIGN DIRECT INVESTMENT
Total FDI outflow expanded steadily during the 1980s, but suffered a decline in 1991 and 1992, largely due to the global recession.(22) Nonetheless, FDI inflows to developing countries during these same two years continued to grow, amounting to $40 billion in 1992.(23) The removal of foreign investment barriers in many developing countries, coupled with structural adjustment measures and a general shift towards free trade at both regional and global levels, makes it likely that FDI outflows will generally resume their previous growth rate over the next few years.
As the agents of this growth, TNCs undertake activities which span a wide range of industries. This section analyzes how FDI is allocated among different activities to establish where environmental regulation of TNCs may be best directed. Because of the intense debate over the proper role of TNCs in developing countries, this section also provides information concerning the geographical distribution of TNC parents and their affiliates. Finally this section analyzes the overall direction of FDI as between developed and developing countries. Such information is highly pertinent in considering whether TNCs can be induced to adopt sound and consistent environmental management practices wherever they operate.
A. The Nature of TNC Activities
The types of activities to 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.(24) Subsequently, the manufacturing sector became the most prominent sector for FDI outflows and accounted for forty-five percent of outward FDI during the 1970s.(25) Although the manufacturing outflows had declined to thirty-nine percent by 1990,(26) the proportion of pollution-intensive industries within total manufacturing FDI has remained high.(27) By comparison, the share of FDI outflow attributable to the primary sector has declined from eighteen percent in 1980 to eleven percent in 1990.(28)
By far 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.(29) The United Nations predicts that FDI during the rest of the 1990s will increasingly focus in the services and technology-intensive manufacturing sectors.(30) While the services sector may at first seem to present less of an environmental threat than the manufacturing or primary sectors, it does include activities such as construction and tourism.
The rate of FDI growth in the services sector might be slower in developing countries during the 1990s since conditions for developing such industries may take considerable time to evolve.(31) Manufacturing continues to constitute the largest sectoral inflow of FDI to developing countries.(32) It is also likely that the primary sector will expand in developing countries during the 1990s as a result of a trend towards privatization and the continued scarcity of domestic capital. Similar trends are expected in central and eastern Europe.(33) For all these reasons, concerns about environmental protection in relation to manufacturing and primary production may increase within developing countries and the central and eastern European regions in the near future.
B. Geographical Distribution
The vast majority of TNCs have parent corporations that are based in developed countries. In fact, the G5 countries (the United States, the United Kingdom, Japan, France, and Germany) 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. Just one percent of parent TNCs are based in central and eastern Europe.(34) This geographical concentration of parent TNCs could be advantageous for regulatory strategy, since it may be possible to develop relatively uniform measures within a small group of nations which would nevertheless apply to a large proportion of parent TNCs.
Parent TNCs are concentrated by wealth as well as by geographic location. Just one percent of TNCs own approximately one-half of all FDI stock.(35) Among the top one hundred TNCs, the ten largest companies control over twenty-five percent of the total assets in the group.(36) Once again, measures which apply to all of the operations of a relatively small number of TNCs could have widespread effects.
Not surprisingly, the proportion of TNC affiliates located in developing countries is much higher, comprising forty-one percent in 1991.(37) The number of affiliates in developing countries appears to have increased dramatically during the 1980s, from about 8,000 in 1983(38) to almost 70,000 in 1991.(39) However, forty-six percent of affiliates operate in developed countries, with the G5 countries again playing a major role by hosting almost one-half of these.(40) Thus, measures directed at corporations operating in the G5 countries would catch nearly one-quarter of all TNC affiliates along with one-half of the parent TNCs. The remaining thirteen percent of TNC affiliates are located in central and eastern Europe,(41) a proportion which seems very likely to increase as economic and market conditions in this region will make FDI more attractive during the remainder of the decade.
C. Direction of FDI Inflows
Concerns about the environmental consequences of TNC activities in the manufacturing and primary sectors in developing countries are reinforced by the current direction of FDI inflows. 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. In 1991, it grew by twenty-one percent, while overall outflows simultaneously and significantly decreased.(42) 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 southeast Asia, Latin America, and the Caribbean. Inflow to the least developed countries has risen only marginally and accounts for just one-half of one percent of the total inflow to developing countries.(43) 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.
Despite the FDI gains made by developing countries, and a decline in the overall level of outflows, almost three-quarters of FDI flowed to developed countries in 1991. In fact, the United States, Japan, and the European Community (sometimes referred to as the "Triad") accounted for approximately sixty percent of worldwide inflows in 1991.(44) This is particularly substantial given that Japan has consistently discouraged FDI inflows and has had a substantial net capital outflow of FDI for many years. Japan is also alone among the developed countries in having most of its primary sector FDI stock located in developing countries. The volume of FDI flowing into a relatively small number of developed countries other than Japan again provides a fairly specific target for regulatory initiatives which might be directed at TNCs and their affiliates.
Equally significant are United Nations, projections that total FDI in central and eastern Europe could increase five-fold before the end of this decade.(45) Currently, FDI to this region totals $11.7 billion, with eighty percent in the new independent states and Hungary.(46) These statistics clearly underline the need for effective regulatory systems concerning the environment, health, and safety in this region.
III. Environmental Performance of TNCs
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. TNCs are also active in resource development industries, such as mining, petroleum, and agri-business, which c an seriously affect environmentally sensitive areas. The general standard of environmental performance of TNCs is therefore a matter of significant international concern.(47) Rather than attempting to catalog various examples of TNC environmental "bad practice," this section identifies the major types of environmental concerns over TNC activities.
Several factors may induce or enable TNCs to evade national controls of environmental, health and safety matters, particularly in developing countries. 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.(48) In order to assess whether such factors adversely affect the performance of TNCs beyond their home countries, two broad questions are frequently posed. First, have TNCs applied lesser standards to their operations beyond their home base? Second, have TNCs located their operations in countries where lesser standards apply, in order to avoid home country environmental regulation and to attract a competitive advantage? These questions are also addressed in this section.
A. Environmental Concerns
The two TNC activities most commonly identified as raising environmental concerns are the export of hazardous products and the export of hazardous processes or technologies.(49) International trade in products such as pesticides, pharmaceuticals, toxic chemicals, and hazardous wastes has been an issue for some years especially when it involves sales in developing countries.(50) Both domestic and international measures have been developed to respond to the problems arising from such trade.(51) Domestic measures have included export controls, with particular emphasis upon the concept of prior informed consent.(52) This concept requires a national authority in the importing country to agree before products or technologies which can cause injury to human health or the environment are exported.(53)
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.(54)
Problems have also arisen in the primary sector with respect to pollution and hazardous waste management. For example, petroleum exploitation and development in Ecuador allegedly led to the spillage of 17 million gallons of oil from the Trans-Ecuadoran pipeline between 1982 and 1990, and the dumping of 4.3 million gallons of hazardous wastes from flow wells into waterways.(55) Primary industry activities also impact biodiversity and can carry serious consequences for indigenous peoples.(56) Such concerns are particularly pronounced where tropical rain forests have been cleared. In some instances, this has led to pressure on governments and businesses in developed countries to try to halt rain forest development activities in developing countries.(57)
Recent attempts to grapple with the problems of petroleum production in the Ecuadoran Amazon demonstrate the complexities faced by environmentalists in the industrialized world. Pressure from environmental groups, particularly in the United States, allegedly forced the DuPont subsidiary, Conoco, to withdraw from a proposed petroleum production project in that country although it had sought to develop a responsible environmental management plan. Its withdrawal paved the way for other TNCs that were less concerned with environmental and indigenous peoples' concerns to move in without adopting the same safeguards proposed by Conoco and subject to less public scrutiny.(58) This suggests that TNCs face varying degrees of visibility, particularly in their home country, that nay affect its level of public accountability with respect to environmental performance.
New areas of concern about the environmental impacts of TNC behavior are also emerging in the l990s. One of the most significant is the acquisition of intellectual property rights to products derived from plants or animals found in developing countries. A recent example from India concerns, ironically, efforts by an American TNC, W.R. Grace & Co., to develop a biopesticide (to be used in place of chemical pesticides) from the seeds of the neem tree. Indian farmers and environmentalists vociferously oppose allowing Grace to patent the product, partly because of fears that the supply of neem seeds will be reduced in India so that locals will have to purchase the TNC product.(59) The broader charge is that TNCs are raiding and appropriating India's biodiversity. For evidence, critics point to the proposed collaboration by twenty-three foreign TNCs with Indian companies in projects to develop India's genetic resources.(60)
Concerns have also been expressed about the role of pharmaceutical companies in developing countries such as Brazil, where the eighth largest world market in terms of gross receipts is dominated by foreign TNCs.(61) Brazil is under enormous pressure to pass a patent law to protect products manufactured in the country using its biological resources and life forms, even to the extent of facing commercial trade sanctions in the United States should it not do so.(62) At a broader level, the influence of U.S. pharmaceutical companies on the United States, position on the Biodiversity Convention is well-documented and continues to be felt even after the change in Administration.(63) Thus, the economic exploitation of biodiversity by TNCs in developing countries through the growth of new industries such as biotechnology, and the expansion of established industries such as pharmaceuticals and pesticides, presents a whole range of new issues which need to be addressed by policy makers.
B. TNC Double Standards
While TNCs are frequently accused of practicing double standards, "[s]ystematic evidence regarding any differences in the `cleanliness' of manufacturing technologies employed by multinational corporations in their different countries of operation, and differences between multinational affiliates and local firms, is almost nonexistent."(64) Investigations concerning double standards have focused almost exclusively on the export of processes, particularly those connected with pollution-intensive industries. Little evidence of an equivalent nature exists regarding resource extraction industries.
Some of the earliest research provided extensive evidence in the mid-1980s of TNC double standards with respect to both pollution and worker health and safety.(65) This prompted speculation that industries were fleeing regulation in industrialized countries in order to take advantage of less stringent conditions in the developing world.(66) The existence of double standards was most evident in particularly dirty industries such as asbestos. copper, pesticides, vinyl chloride, and lead smelting. Available evidence on TNC environmental policies and practices, which was gathered primarily in the 1970s, indicates a "dominant pattern of local accommodation" and a tendency to "custom tailoring or adaptation to local policy climates."(67)
The lack of more modern evidence on TNC double standards has been addressed to some extent by two United Nations studies, conducted through the Economic and Social Commission for Asia and the Pacific (ESCAP) and the United Nations Centre for Transnational Corporations (UNCTC). These studies specifically looked at environmental management practices in selected Asian and Pacific countries.(68) The first study found that TNCs adopted lower environmental standards in their operations in the selected developing countries than they did in developed countries. These findings were reinforced in the second study of eight countries in the Asian-Pacific region, which found that in developing countries TNCs frequently based operational standards on locally available environmental technologies(69) and that these standards were generally inferior to those adopted in developed countries.(70) For example, the study found that only twenty-five percent of TNCs surveyed in the pesticide industry in Thailand adopted "global" environmental standards.(71) More than fifty percent admitted that only local standards were adopted in relation to environmental management.(72) Nevertheless, the evidence of double standards provided in those reports appears almost anecdotal rather than the product of a systematic, comprehensive investigation and must be treated with some caution.
An even more recent study of American TNC practices undertaken by Tufts University, which included investigations in several developing countries, found considerable inconsistency in TNC practices. The non-U.S. operations were sometimes less protective environmentally, but in some cases "were more innovative than the comparable U.S. facility."(73) Some of the factors which the study found led to less protection in facilities outside the United States included lack of enforcement by national or local government; inadequate infrastructure such as waste disposal facilities; presence of a large, temporary work force; difficulty in government agencies obtaining monitoring equipment; and competing priorities such as local health problems, malnutrition, and infant mortality.(74)
However, the Tufts study also highlights significant environmental problems associated with TNC operations in developed countries, including their home countries. This is particularly important given the level of FDI that is still directed by TNCs to developed countries.(75) An indication of such problems is that the number of serious industrial accidents continued to rise in developed countries during the 1980s. While TNCs were involved in less than half of these accidents, the large majority that involved TNCs occurred in their home countries.(76) Although this reflects the existing distribution of industrial output, including FDI, it also serves as a reminder that double standards do not necessarily involve good and bad practices in developed and developing countries, respectively. At times, it may be a case of bad and worse practices.(77)
On the other hand, studies that evidence TNC double standards also indicate that TNCs generally have a better record in relation to environmental, health, and safety concerns than local or state-owned enterprises in developing countries.(78) In part, this is attributed to the superior financial, managerial, and technological resources which TNCs can muster.(79) Since TNCs are larger than local firms, they can more readily absorb the costs of environmental controls and employ more qualified managers and better skilled workers. They are also more likely to be aware of environmental management developments abroad and to have access to and the capacity to transfer modern environmental technology to their operations in developing countries. Furthermore, the larger scale of their operations creates a greater risk of substantial impacts, particularly in the event of a serious accident, and thus may encourage sounder practices than are found in local firms. The Tufts University study found that the greatest influence on TNC environmental, health, and safety decisions in the United States was domestic law and regulation, whereas in Africa it was a concern to avoid high visibility accidents.(80)
While all of these considerations may have induced TNCs to perform above the levels of their local counterparts in developing countries, there still appears to be a gap between local and home country performance which is reflected in a failure to introduce new technologies to affiliated plants in developing countries. The United Nations studies previously referred to found that very limited transfers of environmental technology have occurred in the developing countries which were studied, and they identified a lack of commitment by TNCs to adopting the best available environmental technology in developing countries.(81) Also, it has been alleged that TNCs are engaged in dumping obsolete environmental technologies in developing countries.(82) Thus, it appears that the potential for TNCs to improve, not only their own performance, but also that of local firms with which they deal in developing countries(83) is not sufficiently utilized. In part, this may be due to ongoing concerns about protecting intellectual property rights with respect to new technologies.(84) That TNCs may perform better than their local or state-owned counterparts is hardly exculpatory in relation to the double standards that nevertheless exist, given the very considerable capacity of TNCs to perform at even higher levels which equate with those adopted in their home countries.
It is also frequently argued that TNCs, better performance than local counterparts in developing countries is attributable to the TNCs greater visibility, which in turn leads to more intense scrutiny from the public and shareholders in their home country and from regulators and local communities in the host country.(85) Once again, it appears that such observations are more relevant to potential influences than actual effects. The trend towards public consultation and disclosure by TNCs is uneven and centered on plant operations in TNCs, home countries rather than their operations abroad.(86) The United Nations survey in 1990 made the following observations with respect to the sharing and disclosure of information by TNCs:
Inadequate information has made it easy for TNCs and governments to allow
the location of complex and potentially hazardous industrial facilities in areas
where the local population are unaware of the hazards. Without adequate information,
no one is able to come up with concrete proof to show that such facilities
are indeed hazardous. Information has sometimes been deliberately
withheld from communities or even governments to avoid any adverse resistance
from the host developing countries. In other cases, TNCs have resisted
worst case scenarios when preparing EIAs [environmental impact assessments]
for their projects because they are expensive to implement. In effect,
they have made their activities appear safe and non-detrimental to the
Despite urgings to the contrary, TNCs appear reluctant to provide better technical information to regulators, especially in developing countries,(88) unless there is a legal obligation to do so. A study by the environmental group, Friends of the Earth, concluded that American TNCs involved in chemical manufacturing in Europe were unwilling to release data on toxic emissions unless they were legally required to do so.(89) Although some TNCs cooperated with the study and indicated support for greater openness, they were clearly in the minority.(90)
It would seem therefore that the level of visibility of TNCs in their operations outside their home countries may be affected by their failure to provide full information concerning these operations. While the better performance of TNCs in developing countries than local or state-owned operators may be explained in part by the greater scrutiny which is directed at TNCs, such performance may be principally related to taking measures to avoid a Bhopal-type accident. It may be possible to encourage even higher levels of environmental performance by TNCs if environmental disclosure requirements applied more rigorously to their operations outside their home countries.
Finally, although TNCs may have practiced double standards in the past, attitudes and practices may be changing significantly. It is asserted with increasing frequency that TNCs are moving voluntarily towards a more uniform approach to environmental, health, and safety practices throughout their operations.(91) The Tufts University study noted that some of the largest TNCs, including Monsanto and DuPont, have become ardent advocates of the concept of pollution prevention and are practicing a new form of environmental stewardship on a self-regulated basis.(92) I highly doubt that the self-regulated approach will suffice to address the past history of double standards. This question and related ones concerning how more uniform environmental health and safety standards might be applied to TNCs are addressed in Part IV.
C. The Location of TNC Operations To Secure Competitive Advantage
One other major issue related to TNC environmental performance is whether TNC locational decisions reflect a desire to evade strict environmental regulation in industrialized countries. While most FDI is still directed to developed countries, FDI levels are increasing in developing countries far more rapidly than in developed countries.(93) Also, some evidence shows that growth in pollution-intensive industries in developing countries is out-stripping growth in total industrial production in those countries.(94) FDI has been directed foremost within the manufacturing sector to the chemicals industry--the most pollution-intensive of all manufacturing industries.(95) This has particular implications for developing countries. For example, the ESCAP survey for the United Nations found that the chemicals industry had the highest TNC participation in India, Indonesia, the Philippines and Thailand.(96) A recent study for the World Bank of over forty-three industries in 109 countries found a disproportionately large increase in the presence of dirty industries in developing countries (almost three times as great as the increase in industrialized countries) and concluded that "polluting industry activities are being dispersed internationally and the dispersion is greatest in the direction of developing countries."(97)
These findings lend credence to the view first expressed in the 1970s that TNCs may shift manufacturing activities to developing countries with lower environmental, health, and safety standards, or, in other words, may seek out "pollution havens."(98) If this is correct, developing countries might ease or fail to increase domestic environmental controls to prevent polluting industries from migrating; or, alternatively, developed countries might impose import controls on products produced under looser environmental standards elsewhere in order to eliminate an unfair competitive advantage.(99) The latter course has been vigorously opposed by free trade proponents, causing their opponents to argue that relocation of industries and consequential job losses in industrialized countries may well be accelerated by free trade agreements.(100)
However, numerous studies conclude that there is no evidence to prove that differences in environmental regulation between countries have influenced the location of investment by TNCs, other than in a few, specific industries.(101) Some evidence of relocation in developing countries, coupled with plant closures in home countries, has been presented for highly toxic product manufacturing (e.g., asbestos, pesticides, benzidine dyes) and heavy metal processing (e.g., copper, zinc, lead).(102) But the general inference from these studies is that other factors have been far more influential than environmental costs in influencing the location decisions of TNCs. These factors include labor intensity, the reflection of natural resource endowments in trade flows, and the possibility that many dirty industries are basic and associated with the early stages of industrialization.(103) In a similar vein, the migration of certain U.S. industries to Mexico (the so-called "maquiladoras," whose production is entirely for the purposes of export and which have led to enormous pollution problems in the U.S.-Mexico border area(104)) has been attributed to factors unrelated to workplace health and safety and pollution control costs. These include "labor wage rates, proximity to the U.S. market and incentives for domestic processing of materials."(105)
It is virtually impossible to argue that environmental costs play no role in the locational decisions of TNCs. The Tufts University study underscores that environmental costs are an increasingly significant factor.(106) Forty percent of American TNC respondents agreed that U.S companies locate in foreign countries because environmental health and safety regulatory systems in those countries are weak.(107) Nevertheless thirty-five percent of respondents disagreed and the balance were either "neutral" or had "no opinion."(108) Perhaps the key is to ask TNCs what they think their competitors would do, rather than what they would do themselves!
Although the debate about locational and competitive issues has some relevance to home country environmental regulation, it does not affect the need for greater accountability by TNCs for their operations in developing countries.
Whether there is a wholesale exodus of hazardous industries fleeing regulation
and liability is beside the point. Whether the industrial planners tell interviewers
that environmental regulation is a main determinant in new site selection
is also beside the point. The point is that there is international trade in industrial
hazards, increasingly so, and this has predictably grave public health
The problem is to figure out how to increase TNC accountability in light of the evidence of their increasing involvement in environmentally damaging industries in developing countries and their past practice of applying double standards to their operations. Much of the discussion concerning increased accountability focuses on the issue of how to develop internationally uniform standards with respect to environmental, health, and safety matters for TNCs. The next section explores more fully how such standards might be developed and what types of standards might provide the greatest benefit when applied to TNCs.
IV. DEVELOPING ENVIRONMENTAL STANDARDS FOR TNCs
Frequently, arguments for greater international uniformity of standards for TNCs fail to specify or differentiate between the different kinds of standards that might be applied. A wide range of regulatory measures might readily be described as "environmental standards." One distinction is between product and process standards.(110) Process standards can be further divided into ambient standards, emission or discharge standards, safety and risk standards, and what might be described loosely as "performance standards." An example of performance standards is guidelines for acceptable practices in environmental auditing, environmental accounting, and environmental management programs. Differentiating these various types of environmental standards may be crucial in considering whether and how standards could operate in particular circumstances. In the the following discussion, the term "environmental standards" refers to process standards, in particular those which set emission or discharge limits for polluting activities.
Discussions of this topic often also fail to clearly identify the relevant source and regulatory status of environmental standards. In particular they fail to distinguish between standards that are legally enforceable and those that are essentially advisory or voluntary in nature. There are three distinct sources of standards: international law, domestic law, and the voluntary or internal policies of TNCs themselves.
One further distinction is important. 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. This approach applies what I will be call "choice of standards" rules. These rules determine the source of the particular standards that apply to a TNC in a given situation. Numerous options have been envisaged in this regard, the most frequent rule being to apply the standard of the TNCs "home country." In each of the regulatory contexts discussed below, it is important whether the relevant focus is the development of standards proper or the operation of a "choice of standards" rule.
A. International Law as a Source of Environmental Standards
Considerable support has been expressed in recent years for the development of international environmental standards. For example, Agenda 21, the global action plan for environmental management adopted at the United Nations Conference of Environment and Development in Rio de Janeiro in 1992, states as one of its specific objectives: "[t]o promote, through the gradual development of universally and multilaterally negotiated agreements or instruments, international standards for the protection of the environment that take into account the different situations and capabilities of countries."(111) However, there is a growing body of opinion, which Agenda 21 recognizes, that international environmental standards should not be of a uniform nature.
1. International Environmental Standards--Uniform or Minimum?
Some substantial criticisms have been leveled at the concept of uniform international standards, irrespective of whether the standards arise by way of international agreement or through a process of harmonization of national standards. Such uniformity, critics say, could work against sustainable development by forcing inappropriate priorities on developing countries. For example, developing countries do not need "high levels of environmental protection against cancer . . . at the expense of basic human need[s] such as protection from high infant mortality and rampant malnutrition."(112) Criticisms based on economic analysis suggest that uniform standards would not equalize the international competitive position of TNCs and would not be economically efficient.(113) 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. Similarly, the costs and benefits of emission and disc charge standards would vary from one country to another. Differences in national environmental standards can be justified by arguing that the differences reflect geographic, ecological, and demographic variations among countries and hence differing capacities to assimilate pollution.(114)
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.(115) These concerns have prompted environmentalists to promote new approaches to environmental protection that focus on pollution prevention or waste minimization, rather than the end-of-pipe solutions which environmental standards usually entail.
One response to the arguments against uniform international standards is to challenge the reliance placed on the concept of comparative assimilative capacity.(116) While economists may consider it more efficient for some countries rather than others to host dirty industries and apply less stringent standards, they fail to account for long-term environmental damage. "No country should have the right to degrade the environment irreversibly for future generations in the name of national competitiveness."(117)
A refinement of the concept of uniform international standards is the concept of minimum international environmental standards.(118) 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. This refinement would help prevent the negative effects of downward harmonization, at least to the extent that individual nations would remain free to apply more stringent standards within their own countries without risking the allegation that they are in breach of free-trade rules. Minimum standards, rather than being identical, could operate on a principle of mutual recognition based upon the equivalence of requirements in national laws.(119)
The North American Free Trade Agreement adopts yet another approach by requiring the parties, to the greatest extent possible, to make compatible their respective standards-related measures.(120) Both of these alternatives constitute examples of the harmonization approach, as distinct from direct international regulation, but nevertheless provide interesting alternatives to the uniformity of standards option.
Even critics of uniform international standards agree that such standards are appropriate in two areas: first, with respect to product standards and testing procedures; and second, where there are international externalities in the form of transboundary pollution (including global concerns such as ozone depletion and the greenhouse effect) or damage to or loss of biodiversity which is of worldwide value.(121) Recent developments in international environmental law reflect recognition by the international community of the need for international regulation in these particular areas.(122)
2. Prospects for the Setting of International Environmental Standards
The Tufts University study revealed strong support among TNCs for international standardization of environmental, health, and safety regulations. However, it suggests that standards would have to be perceived as reasonable and enforcement would need to be even among countries in order to provide substantial benefits to TNCs in the form of a "level playing field."(123) Similar findings were reached in a major United Nations survey. "In the only statistical sampling done to date on TNCs and environmental performance, two-thirds of TNCs thought that the UN should work toward standardizing national environmental rules and regulations. A majority also felt that the UN should be active in setting international policy guidelines."(124)
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. Commentators assert that "[a]t the same time as TNCs recognize that better environmental practices will only happen through legislation, most firms take strong public exception to international environmental regulations."(125) Thus, TNCs appear to want a level playing field but are resistant to the use of formal international agreements to achieve this goal. This attitude is attributed to a reluctance to take the lead in proposing international environmental regulations.(126) But a reluctance to lead is not the same as a "strong public exception." The seemingly contradictory positions of TNCs probably reflect a deep-seated resistance to regulation, even where TNCs recognize that beneficial outcomes are likely. TNCs would prefer to see national laws brought more closely into line, perhaps through "soft law" mechanisms which provide guidance to states but do not entail firm obligations,(127) rather than have standards prescribed by international agreement. The extensive promotion of "self-regulation" by corporations and individual TNCs,(128) Coupled with some stem resistance even to certain "soft law" measures such as the draft U.N. Code of Conduct for Transnational Corporations,(129) highlights the fragility of any support alleged to exist among TNCs for the development of international environmental standards.
Thus despite the emerging interest in the concept of minimum international environmental standards, and the precedents for international regulation where transboundary 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.(130)
Nevertheless the minimum standards approach has considerable potential and is worthy of further discussion. In particular, some closer attention could be directed to the types of standards which might be best suited to this approach. If prescribed through international agreements which are signed by and bind national governments, it would seem more appropriate for ambient standards, rather than discharge or emissions standards, to be adopted. The few existing examples of international environmental agreements in which standards of a quantifiable nature have been prescribed generally avoid discharge or emissions standards.(131) Instead their effect on TNCs is indirect, and is felt through national legislation designed to implement targets for the reduction or elimination of emissions prescribed for the parties by the relevant agreement. Whichever approach to standards-setting is adopted at the international level, TNCs appear likely to remain beyond the reach of a comprehensive, international regulatory scheme for some time to come.
However, more limited developments in international standards-setting may be envisaged over a shorter time scale. In particular, regional environmental structures and standards may play a significant role in the development of international environmental standards. Some regional organizations, such as the South Pacific Regional Environmental Programme (SPREP), have emerged already for the purpose of developing common approaches to environmental management.(132) Others may arise as part of new trading blocs which might emerge in the new international climate of free trade. The European Union provides an outstanding example of this.(133) The NAFTA Environmental Side Agreement may also provide an important precedent with respect to other, similar regional arrangements which have a free trade basis.(134) However, the capacity of trade related environmental measures to make a positive contribution to environmental protection remains an extremely contentious question.(135) The European Union experience suggests that as economic integration progresses within a region, relevant environmental measures also will evolve in terms of their detail and sophistication. But NAFTA may prove a failure in this regard,(136) and clearly much will depend on the nature of the environmental arrangements which are developed in these kinds of regional trade agreements.
3. Standardization Through the Use of Soft Law Instruments
Some supporters of international regulation also attach considerable importance to the role of soft law instruments, particularly since these may be addressed directly to TNCs, unlike formal international agreements.(137) Rather than place emphasis on legal form, it is argued that the more important consideration is the political commitment of those states who endorse particular instruments. Although soft law instruments impose no firm obligations on signatories, they may provide a basis for incorporation into domestic law and eventually achieve the status of international customary law binding on all countries through resulting changes in state practice and expressed intent. In particular, they provide an avenue for the development of standards in a way which could lead, through their adoption by states, to greater harmonization of domestic standards.
A fundamental difficulty with soft law instruments is that they often constitute a compromise where widespread international consensus has not yet been reached on particular measures. They may not enjoy the support of a large majority of nations and their language may be particularly open-ended or diluted to accommodate differences of opinion.
Nevertheless, soft law instruments now exist in considerable numbers with respect to environmental matters.(138) They constitute therefore a significant avenue for the development of international standards in relation to environment, health, and safety matters.
Another international law approach to obtaining uniform application of environmental standards to TNCs is to incorporate a "choice of standards" rule in international agreements. This would involve specifying the types or sources of environmental standards to be applied specifically to TNCs by signatory states. Such a possibility seems extremely slim, even in the context of a soft law approach, in light of past efforts to produce international guidelines or codes of conduct for TNCs and the current fervor for the promotion of FDI rather than TNC regulation. The draft United Nations Code of Conduct of Transnational Corporations, which was the subject of negotiation for over fifteen years, was formally abandoned in 1992 largely as a result of ongoing resistance by industrialized countries and industry organizations to elements of the Code which were perceived to have a regulatory effect.(139) This underlines the limited capacity even of soft law instruments to achieve accountability and responsibility on the part of TNCs, and the depth of the reservations which exist within the international business community concerning any form of international regulation. In any event, the only means of giving effect to a "choice of standards" rule embodied in an international agreement would be by way of domestic legislation, which therefore raises the same issues and considerations that need to be addressed in considering the option of unilateral, domestic action.(140)
While the preceding discussion has focused on the subject of international environmental standards, since these have been at the center of the debate concerning regulation of TNC activity, other mechanisms exist which can contribute to environmental management objectives and which may warrant attention at the international level. One example is environmental impact assessment, which now enjoys broad international support in terms of its value as an environmental management tool.(141) Another emerging tool is compulsory environmental information disclosure. The United Nations Centre for Transnational Corporations, prior to its disbandment in 1993, called for uniform principles on information disclosure for TNCs to be developed for consideration in an international agreement.(142) A particular difficulty will be to establish consensus on the nature and purpose of environmental information disclosure requirements, particularly given that there are some significant differences between the United States and European Union approaches to this topic.(143)
B. Domestic Regulation of TNCs To Achieve Uniformity of Standards
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 While the development of such "choice of standards" rules will not guarantee international harmonization, it could have a significant effect on the operations of TNCs in at least some countries. This approach can take two forms.
1. Domestic Regulation Through Application of Home Country Standards by the Host Country
First, host countries could pass laws requiring TNCs to apply specified standards to their operations. One option frequently advanced is that TNCs should be required to apply home country standards by the relevant host country. This particular approach was recommended, for example, in the ESCAP survey for the United Nations:
Governments should look into the possibility of revising policies and regulations
so that TNCs are bound to adopt the environmental standards of their
home countries, while at the same time allowing local firms to be regulated on
the basis of local standards . . . local standards should be gradually upgraded
on the basis of a schedule to give local finns time to adjust their operations
according to the new standards required and for them to have time to plan out
such changes.(144) 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.(145) 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. More recently, in the light of free trade advocacy, it has also been argued that such an approach is discriminatory and contrary to the principle of national treatment insofar as it holds TNCs to stricter standards than local or state-owned industries.(146) Whether such measures could be justified as bona fide environmental regulation rather than a protectionist measure under revised free trade rules is quite doubtful.(147)
Host countries might be able to develop a different "choice of standards" rule which overcomes at least some of these objections. For example, a rule could require TNCs to meet "state of the art" standards with respect to environmental, health and safety matters. (148) But again, this may give rise to problems with respect to inappropriate technology transfer and may seriously discourage FDI in the absence of clear protection for intellectual property rights. Such a standard also could be extremely difficult to administer in practice, even though the concept of "best available technology" is well developed in domestic environmental law.
2. Domestic Regulation Through Extraterritorial Enforcement of Home Country Regulations
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. Despite reservations about the legality of this practice under international law, there is some American precedent for this approach in the Foreign Corrupt Practices Act of 1977.(149) 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,(150) to a more modest proposal that "[h]ome governments could make regulations for their companies that they insist are followed in other countries of operation, for example on standards of testing and labeling of pharmaceutical drugs and on accounting and reporting practices."(151)
Once more, there are criticisms to consider. 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."(152) There are also some obvious and substantial practical difficulties with the administration and enforcement of domestic standards in a foreign jurisdiction.
An interesting refinement of the home country extraterritoriality approach has been advanced which starts from the position that, for the same reasons that uniform international standards should not be developed, "there should be no attempt by governments to extend home-country environmental norms and standards to the foreign operations of their multinational corporations."(153) Instead, domestic government insurance and finance mechanisms such as the Overseas Private Investment Corporation (OPIC) and the Export Import Bank (Exim Bank) in the United States should develop and apply environmental criteria for FDI which is directed abroad by United States TNCs.(154) As parties to FDI transactions abroad, these federal government bodies have a direct involvement in the relevant projects, unlike other government agencies that might be asked to administer domestic environmental measures abroad. In the case of OPIC, which since 1974 has been required to undertake an environmental assessment of projects it insures, no effort is made to convey the results of the assessment to the host country.(155) Conveying the results could enhance the regulatory efforts of environmental agencies in those countries to where FDI is being directed, and thus lead to a greater likelihood of relatively consistent standards being made applicable to United States TNCs.
3. Regulation Through Import/Export Restrictions
Export and import controls are another domestic means of regulating TNC behavior. Such controls have been embodied in some international agreements dealing with, for example endangered species, ozone-depleting substances, and hazardous wastes.(156) In addition, unilateral domestic controls on exports have also been employed by the United States, for example, particularly to deal with hazardous products such as pesticides or other toxic chemicals.(157) 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.(158) However, the free-trade movement presents serious difficulties for the proponents of such strategies, as is reflected in Agenda 21 itself:
Trade policy measures for environmental purposes should not constitute a
means of arbitrary or unjustifiable discrimination or a disguised restriction on
international trade. Unilateral actions to deal with environmental challenges
outside the jurisdiction of the importing country should be avoided.(159) This is a large and separate topic which cannot be addressed here.
C. TNC 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.(160) As part of this effort, industry organizations and individual TNCs have contemplated developing voluntary uniform standards. 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, and the Japanese Business Council (Keidomren) Global Environmental Charter.
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.(161) Because applying home country standards encounters all of the objections referred to previously, TNCS have explored other options. One suggestion is for TNCS to work towards "functional equivalence" in their worldwide operations. This is also referred to as "equivalent risk" or a "uniform level of risk."(162) However, insofar as this is essentially a requirement for consistency of approach within a TNC, it seems likely to lead in practice to the application of the home country standards anyway. As yet, TNCS have not adopted this approach in many operations.(163) A further option, which appears to have even less acceptance at present, is for TNCS to volunteer to meet or exceed the highest standards in place in any country in which they operate.(164) Another variation on this idea, also discussed earlier, is to have TNCS meet the current "state of the art" standards with respect to environmental, health, and safety matters. Again, no widespread support for such an approach is discernible among TNCS at present.(165)
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. Even with the growing evidence of improved attitudes and performance by TNCS with respect to environmental matters, it is an enormous act of faith to trust almost entirely in self-regulation in order to avoid the application of double-standards by TNCs.
Uncertainty and debate cloud the whole idea of a standards-based approach to TNC regulation. 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 remains the possibility of domestic regulation, by either the host or home country, which involves the application of a choice of standards rule by the host country or extraterritorial measures by the home country. The arguments against host country measures which are designed to apply foreign standards to TNCs are convincing. Similarly, trade-related measures now face grave uncertainties where these are imposed unilaterally. This leaves only the option of extraterritorial application of domestic requirements by the home country as a possible means of securing better environmental performance from TNCs.
The proposal for the application of domestic environmental standards in an extraterritorial context raises serious concerns of a political, legal, and practical nature. But there may be some more limited contexts in which this approach could operate in a manner that does not blatantly intrude upon foreign sovereignty, meets relevant international and domestic legal standards for judging the validity of extraterritorial legislation, and avoids the practical difficulties with respect to supervision and enforcement.
One mechanism warranting further consideration is an environmental information disclosure requirement, particularly the unique United States community right-to-know process. Its requirements for annual reporting of releases of toxic pollution might be capable of extending to the activities of United States TNCs abroad. A focus on how this approach could be made to work may produce some concrete results in the short term, while the larger debate concerning environmental standards continues. (*) Distinguished National Resources Law Visitor, Northwestern School of Law of Lewis and Clark College, 1994; Associate Professor, Faculty of Law and Director, Australian Centre for Environmental Law, the University of Adelaide, South Australia. I wish to acknowledge the support of the Northwestern School of Law during my visit in 1994. I also acknowledge the support of the Fulbright Commission, the Environmental Law Institute and Georgetown Law Center in Washington, D.C., and the United Nations Centre for Transnational Corporations in New York in connection with my research for this Article during 1993 under a Fulbright Senior Award. (1) Thomas Donaldson, The Ethics of International Business 31 (1992). (2) See U.N. Conference on Trade and Dev., Prgramme on Transnational Corporations, World Investment Report 1993: Transnational Corporations and Integrated International Production at 19, 21, U.N. Doc. ST/CTC/15b, U.N. Sales No. E.93.II.A.14 (1993) [hereinafter WIR 1993]. One author defines "transnational corporation" as "a national company in two or more countries operating in association, with one controlling the other in whole or in part." Donaldson, supra note 1, at 30. (3) WIR 1993, supra note 2, at tbl. I.4. It should be noted, however, that FDI outflows declined in 1991 for the first time since 1982, totaling only $183 billion. See infra text accompanying notes 22-23. (4) WIR 1993, supra note 2, at 1. (5) Id. at 19-22. (6) Id. at 21. (7) Donaldson, supra note 1, at 30. (8) See, e.g., John Dobson, TNCs and the Corruption of GATT: Free ,rrade Versus Fair Trade, 12 J. Bus. Ethics 573, 574 (1973); Deborah C. Poff, Reconciling the Irreconcilable: The Global Economy and the Environment, 13 J. Bus. Ehics 439, 442 (1994). For a discus slon of TNC performance with respect to environmental, health and safety matters, see infra text accompanying notes 48-62. (9) Donaldson, supra note 1, at 30. (10) Herman E. Daley & John B. Cobb, Jr., For the Common Good: Redirecting the Economy Toward Community, the Environment and a Sustainable Future 215 (1989); see also Donaldson, supra note 1, at 7 (concluding that TNCs are not responsible for honoring rights in precisely the same manner as nation-states or individuals); Wayne Ellwood, MultinationaCs and the Subversion of Sovereignty, New Internationalist, Aug. 1993, at 4. (11) Poff, supra note 8, at 439 (quoting Pobert Peich on the idea of Uthe coming irrelevance of corporate nationality"). (12) WIP 1993, supra note 2, at 1, 134-42. (13) DONALDSON, supra note 1, at 3; see also Sita C. Amba-Rao, Multinational Corporate Social Responsibility, Ethics, Intentions and Third World Governments: An Agenda for the 1990s, 12 J. Bus. Ethics 553 (1993). (14) Harris Gleckman & Riva Krut, Business Regulation and Competition Policy: The Case for International Action 2 (1994) (on file with author). (15) WIR 1993, supra note 2, at 33-34. (16) See id. at 25. Examples include the adoption by the World Bank of Guidelines on the Treatment of Foreign Direct Investment, id ., and discussion within the Organisation for Economic and Community Development (OECD) of a "Wider Investment Instrument" that would incorporate investment liberalization codes, id. at 34. (17) Id. at 35. (18) Id. The World Investment Report notes that, in setting standards and principles for TNCs, "the emphasis is on developing preventive measures, mostly by way of requirements on information-disclosure and auditing. Attempts to lay down standards for the full range of TNC activities have been less successful." Id. (19) See Steve Charnovitz, The World Trade Organization and Environmental Supervision, 17 Int'l Env,t Rep. (BNA) 89 (Jan. 26, 1994) (discussing the Uruguay Round of GATI); No]th American Agreement on Environmental Cooperation, Sept. 9-14, 1993, U.S.-Can.-Mex., Hein's No. KAV 3722, 32 I.L.M. 1480 (1993). (20) See generaUy infra text accompanying notes 154-59. (21) 42 U.S.C. 11,044 (1988) (enacted in 1986). (22) See WIR 1993, supra note 2, at 16 tbl. I.4. Total FDI outflows decreased from $234 billion in 1990 to $183 billion in 1991, with an anticipated figure of $150 billion in 1992. Id. (23) Id. This compares with an FDI inflow to developing countries of $25 billion in 1987. Id. (24) Id. at 61, 65-66. (25) See id. at 62 tbl. III.1. (26) Id. Despite the decline in proportion of FDI outdows, the manufacturing sector still accounts for sixty percent of parent TNCs, whilst the primary sector accounts for only three percent. See id. at 21. These figures also demonstrate the capital intensive nature of investment in the primary sector. (27) See U.N. Dep't of Eco. & Social Dev. World Investment Report 1992: Transnational Corporations as Engines of Growth 231, U.N. Doc. ST/CTC/130 (1992) [hereinafter WIR 1992] (suggesting that the share of pollution-intensive industries in total manufacturing FDI remains at twenty to fifty percent in developing countries and thirty to sixty percent in developed countries); see also text accompanying notes 93-96. (28) Id. (29) WIR 1993, supra note 2, at 62. This sector accounts for 37% of parent TNCs and sixty percent of affiliates. Id. at 21. (30) Id. at 76, 83. (31) Id. at 84-85. The report also notes that there will be a need for developing countries in particular to attract value-added FDI. Id. at 84. (32) Id. at 62 (noting that manufacturing constitutes forty-nine percent of total inflow in 1990). (33) Id. at 69. (34) Id. at 21. The same five countries also account for more than three-fourths of the total stock of foreign assets held by the OECD countries. See Deanne Julius, Global Companies and Public Policy, The Growing Challenge of Foreign Direct Investment 20 (1990). (35) WIR 1993, supra note 2, at 2. (36) Id. at 23. (37) See id. at 22 (38) Paul Streeten, Foreword to Sanjaya Lall, The New Multinationals: The Spread of Third World Enterprises viii (1983). (39) See WIR 1993, supra note 2, at 22. (40) Id. (41) Id. (42) Id. at 16. (43) Id. at 43. (44) Id. at 42. This figure is down from about 70% in the 1980s. Id. (45) Investment in Eastern Europe Could Reach $50 Billion in 90s, Transnationals, Dec. 1992, at 1. (46) Id. (47) U.N. Centre on Transnat'l Corporations, Transnational Corporation in World Development: Trends and Prospects, at 228, U.N. Doc. ST/CTC/89 (19887) [hereinafter UNCTC 1988]; see also WIR 1992, supra note 27, at 226 (noting more recent concerns about the role of TNCs as the Uprimary producers and intermediate consumers of chlorofluorocarbons, which are the principal cause of stratospheric ozone depletion and account for at least 15 percent of greenhouse gas emissions"). (48) Thomas N. Gladwin, Environment, Development and Multinational Enterprises, in Multinational Corporations, Environment, and the Third World: Business Matters 10-12 (Charles s. Pearson ed, 1987); see also WIR 1992, supra note 27, at 226-27. (49) See Transferring Hazardous Technologies and Substances: The International Legal Challenge (Gunther Handl & Pobert E. Lutz eds., 1989) (surveying the legal ramifications behind the export of hazardous technologies). (50) See, e.g., Transnational Corporations and Environmental Control Issues: The Export of Hazard (Joan H. Ives ed., 1985). (51) See A.B. Waldo, A Review of U.S. and International Restrictions on Exports of Hazardous Substances, in Transnational Corporations and Environmental Control Issues, supra note 49, at 18; S. Jacob Scherr, Hazardous Exports: U.S. and International Policy Developments, in Multinational Corporations, Environment and the Third World: Business Matters, supra note 48, at 129 (reviewing measures designed to slow the export of hazardous waste); Robert E. Lutz, The Export of Danger: A View from the Developed World, 20 N.Y.U. J. Int'l L & POL. 629 (1988) (reviewing measures taken by developed countries to regulate the export of hazardous technologies). (52) See, e.g., Export Administration Amendments of 1985, Pub. L No. 99-64, 99 stat. 120 (codified as amended at 50 U.S.C. 2401-20); see also Lothar Gundling, Prior Notification and Consultation, in Transferring Hazardous Technologies and Substances, supra note 49, at 63,77-81; Gregory Rose, Prior Informed Consent: Hazardous Chemicals, 1 Rev. European Community and Int'l L. 64 (1992). For an industry argument against the concept of prior informed consent, see Michael P. Walls, Chemical Exports and the Age of Consent: The High Cost of International Export Control Proposals, 20 N.Y.U. J. Int'l L. & Pol. 753 (1988). (53) See Rose, supra note 52, at 65. (54) See Ved P. Nanda & Bruce C. Bailey, Nature and Scope of the Problem, in Transferring Hazardous Technologies and Substances, supra note 48, at 3, 3-19 (providing an account of these accidents); David L. McEadden, A Selected Bibliography on Hazardous Activities, Technology and the Law: Bhopal and Beyond, 19 Int'l LAW 1459 (1985) (providing a dated but useful bibliography on hazardous products and processes and the related legal issues). (55) Raissa S. Lerner & Tina M. Meldrum, Debt, Oil, and Indigenous Peoples: The Effect of United States Development Policies in Ecuador's Amazon Basin, 5 Harv. Hum. RTS. J. 174, 178-79 (1992); see also Judith Kimmerling et al., Amazon Crude (Susan S. Heriksen ed., 1992). (56) See Lerner & Meldrum, supra note 55, at 179 (providing an example in the Ecuadoran context). (57) See WIR 1992, supra note 27, at 228 (surveying TNC involvement in tropical rain forest development and suggesting that there is extensive involvement by EC and Japanese TNCs and by TNCs based in neighboring Asian developing countries); see also Peter Sleeth, Logging to the Ends of the Earth, The Oregonian, Oct. 2, 1994, at Al, A18-19 (suggesting that a short supply of lumber in the Pacific Northwest region of the United States may prompt United States companies to seek timber supplies offshore, for example in Chile, Siberia and New Zealand). (58) Robert F. Kennedy, Jr., Amazon Sabotage, Washington Post, Aug. 24, 1992, at A17; see also Susan E.A. Hall, Conoco's "Green" Oil Strategy (A) (Harv. Bus. Sch. N9-392-133, Aug. 9, 1992). (59) Kanataka Farmers Target Cargill Again, Down to Earth, Aug. 31, 1993, at 16 (referring to the destruction of a processing unit in India owned by the TNC Cargill Seeds); see also Fred Pearce, Pesticide Patent Angers Indian Farmers, New Scientist, Oct. 9, 1993, at 7. (60) Kanataka Farmers Target Cargill Again, supra note 59, at 16. (61) The Brazilian Forum of Non-Governmental Organizations and Social Movement on Biodiversity: An SOS to International Networks, Apr. 8, 1993, available in Internet, File email@example.com (on file with author) (stating that the Brazilian market is occupied primarily by TNCs from just four countries: the United States (35.5%); Germany (18%); Switzerland (15%); and Great Britain (5%). The Brazilian pharmaceutical industry rep resents only 15% of the market). (62) Id. (63) See David E Bell, The 1992 Convention on Biological Diversity: The Continuing Significance of U.S. Objections at the Earth Summit, 26 GEO. Wash. J. Int'l L. & Econ. 479 (1993). (64) Gladwin, supra note 62, at 17. (65) Barry L. Castleman, The Double Standard in Industrial Hazards, in Transnational Corporations and Environmental Control Issues: The Export of Hazard, supra note 50, at 60; Barry L Castleman, Workplace Health Standards and Multinational Corporations in Developing Countries, in Multinational Corporations, Environment, and the Third World: Business Matters, supra note 48, at 149 [hereinafter Workplace Health Standards]. (66) Initial allegations on this issue were advanced in 1978. See C. Levenstein & S.W. Eller, Exporting Hazardous Industries: For Example is not Proof, in Transnational Corporations and Environmental control Issues, supra note 50, at 51. (67) Gladwin, supra note 62, at 19. He also acknowledges that some observers have reached different conclusions, citing a study by Poyston which found that the technical standards of plants operated by multinationals in developing countries are similar and closer to those operating in the industrialized countries. Id. at 17. (68) U.N. Centre for Transnat'l Corp. and Econ. & Soc. Commission for Asia and the Pacific, Transnational Corporations and Environmental Management in Selected Asian and Pacific Developing Countries , ESCAP/UNCTC Publications Series B, No. 13 (1988) [hereinafter ESCAP/UNCTC 1988]; U.N. Centre for Transnat'l Corp. and Econ. & Soc. Commission for Asia and the Pacific, Environmental Aspects of Transnational Corporation Activities in Pollution Intensive Industries in Selected Asian and Pacific Developing Countries, ESCAP/UNCTC Publications Series B, No. 15 (1990) [hereinafter ESCAP/ [NCTC 1990]. (69) ESCAP/UNCTC 1990, supra note 68, at 60-61. (70) Id. at 3940 (71) Id. (72) Id. (73) Ann Rappaport & Margaret E. Flaherty, Corporate Responses to Environmental Challenges: Initiatives by Multinational Management 138 (1992); see also Ann Rappaport & Margaret E. Flaherty, Multinational Corporations and the Environment: Context and Challenges, 14 Int'l Env't Rep. (BNA) 261 (May 8, 199l) (summarizing the findings of this survey). (74) Rappaport & Flaherty, supra note 73, at 262. (75) See supra text accompanying note 44. (76) UNCTC 1988, supra note 47, at 228. (77) Further evidence that the practice of double standards by TNCs extends to developed countries other than their home country has been provided by the United Kingdom environmental group, Public Data Project. See Melissa S. Padgett, Environmental Health and Safety--International Standardization of Right-to-Know Legislation in Response to Refusal of United States Multinationals to Publish Toxic Emissions Data for Their United Kingdom Facilities, 22 GA. J. Int'l & Comp. L. 701, 710-711 (1992) (reporting that the Public Data Group survey revealed that TNC toxic discharges in Europe exceeded those in the United States by more than five-hundred percent). However, caution should be exercised in relying on this report because it is based on a survey administered to 40 individual TNCs, only six of which responded with data on which the survey was based. (78) Gladwin, supra note 62, at 18-19 (citing an International Labour Office (ILO) study conducted in 1982-83); UNCTC, 1988, supra note 47, at 229; see also ESCAP/UNCTC 1990 supra note 68, at v-vi. (79) WIR 1992, supra note 27, at 226-27; see also Gladwin, supra note 62, at 6-7. (80) Rappaport & Flaherty, supra note 73, at 261. (81) ESCAP/UNCTC 1990, supra note 68, at 68; see also C. Foster Knight, Effects of National Environmental Regulation on International Trade and Investment--Selected Issues, 10 UCLA PAC. BASIN L.J. 212, 218 (1991). (82) lan Anderson, Dangerous Technology Dumped on Third World, New Scientist Mar. 7, 1992, at 9. (83) WIR 1992, supra note 27, at 239; see also UNCTC 1988, supra note 47, at 229 ("In cases where transnational corporations are involved with local partners in a joint venture, or have transferred technology through licensing or franchise agreements, the bargaining power of transnational corporations may allow them to shift the burden of dealing with environmental impacts onto the local enterprise."). (84) There is also an argument that straight transfers of technical production methods may be inappropriate in particular countries, for example, where no facilities exist for treatment of the resulting waste by-products. See Rappaport & Flaherty, supra note 73, at 264. For some examples of the transfer of sound environmental technology, see WIR 1992, supra note 27, at 238. (85) See, e.g., WIR 1992, supra note 27, at 227 (stating that "large TNCs have a global image to protect and tend to be quite conscious of public and stockholder opinions, and of the potential for restrictive home country regulation, even for their foreign operations"). (86) UNCTC 1988, supra note 47, at 234. (87) ESCAP/UNCTC 1990, supra note 68, at 58. (88) WIR 1992, supra note 27, at 239. (89) Padgett, supra note 77, at 701. (90) Id. at 713. (91) See infra text accompanying notes 156-60. (92) Rappaport & Flaherty, supra note 73, at 266. (93) See supra text accompanying notes 4344. (94) ESCAP/UNCTC 1990, supra note 68, at 21. (95) Id. at 29. (96) Id. (97) Patrick Low & Alexander Yeats, Do Dirty Industries Migrate?, in International Rade and the Environment 89, 98 (World Bank Discussion Papers, No. 159) (1992). (98) UNCTC 1988, supra note 47, at 230. (99) L.H. Summers, Foreword to International Trade and the Environment, supra note 97, at iii. (100) See e.g., Knight, supra note 81, at 218 (summarizing the possible effects of NAFTA on American industry); Richard B. Stewart, Environmental Competitiveness, 102 Yale L.J. 2039 (1993) (summarizing these arguments, which are often referred to as the "race to the bottom" scenario). (101) See Stewart, supra note 100, at 2071-83 (summarizing the results of empirical studies that correlate differences in national environmental standards and international competitiveness); see also Charles s. Pearson, Down to Business: Multinational Corporations, The Environment and Development 52 (1985); UNCTC 1988, supra note 47, at 236; WIR 1992, supra note 27, at 234. (102) UNCTC 1988, supra note 47, at 230 (citing studies by Leonard (1984) and Duerksen (1983)). (103) Low & Yeats, supra note 97, at 102-03; see also Robert E.B. Lucas et al., Economic Development, Environmental Regulation and the International Migration of Toxic Industrial Pollution: 1960-88, in International Trade and the Environment, supra note 97, at 67, 78 (suggesting that the growth in toxic industries in developing countries occurred primarily as a part of growth in national income, and then only within countries with relatively "closed" economies). (104) See Beatriz Johnston Hernandez, Dirty Growth, New Internationalist, Aug.- 1993, at 10. (105) Charles S. Pearson, Environmental Standards, Industrial Relocation, and Pollution Havens, in Multinational Corporations, Environment, and the Third World: Business Matters, supra note 48, at 123 (citing H. Jeffrey Leonard, Pollution and Multinational Corporations in Rapidly Industrializing Nations (1984)). (106) Remember also that studies thus far have focused almost exclusively on manufacturing industries and generally have not considered the primary sector. See id. at 121. (107) Rappaport & Flaherty, supra note 73, at 262. (108) Id. at 262-63 (109) Castleman, supra note 65, at 92. (110) Stewart, supra note 100, at 204245. (111) The Earth Summit: The United Nations Conference on Environment and Development 501 (Stanley P. Johnson ed., 1993). (112) Rappaport & Flaherty, supra note 73, at 266. (113) Pearson, supra note 101, at 4347. (114) Stewart, supra note 100, at 2052-53. (115) Gleckman & Krut, supra note 14, at 9-10; see also infra note 131. (116) Edith Brown Weiss, Environmentally Sustainable Competitiveness: A Comment, 102 Yale L.J. 2123, 2126 (1993). (117) Id. at 2127. (118) Id. at 2125; see also WIR 1992, supra note 27, at 241 (proposing reliance upon national environmental protection standards that adhere to minimum international standards but reflect national conditions and objectives). (119) Brown Weiss, supra note 116, at 2134-35. (120) Id. at 2135. (121) Pearson, supra note 105, at 115 16; Stewart, supra note 100, at 2098-2900. (122) See generally U.N. Centre on Transnational Corporations, Emerging Trends in the Development of International Environmental Law at the Regional and Global Level: Implications for Translational Corporations (1992) (prepublication advance unedited copy) [hereinafter UNCTC 1992]. (123) Rappaport & Flaherty, supra note 73, at 263. (124) Harris Gleckman & Riva Krut, "Transnational Corporations" Strategic Responses to Sustainable Development, in Green Globe (forthcoming 1995) (manuscript at 12, on file with author). The study referred to is U.N. Dep't of Econ and Social Dev., Environmental Management in Translational Corporations: Report of the Benchmark Corporate Environmental Survey (1993). See also Gleckman & Krut, supra note 14, at 4-5. (125) Gleckman & Krut, supra note 14, at 12. (126) Id. (127) See infra part IV.A.3. (128) See infra text accompanying notes 156-161. (129) No Consensus on Code of Conduct, Transnationals, Oct. 1992, at 1. Anthony Tabor & Helen Rosenbaum, Guidelines for Global Business: A Discussion Paper 12 (Australian Conservation Foundation 1994); Anthony Tabor, Guidelines For Global Business Campaign: Progress Report 12 (June 7, 1994) (unpublished manuscript, on file with author). (130) The practice is perhaps best developed within the European Union and the United Nations Economic Commission for Europe (UNECE). Id. at 36. (131) The clearest example of an international agreement which identifies emissions standards that parties must apply is the Protocol to the 1979 Convention on Long-Range Transboundary Air Pollution Concerning the Control of Emissions of Volatile Organic Compounds or Their Transboundary Fluxes, Nov. 18, 1991, 31 I.L.M. 568. This Protocol does not, however, specify quantifiable emissions standards but rather standards based on best-available technologies that are economically feasible. It also sets targets and timetables for parties to reduce emissions. Similarly, the Montreal Protocol on Substances that Deplete the Ozone Layer, Sept. 16, 1987, 26 I.L.M., 1550 (entered into force Jan. 1, 1989), and Adjustments and Amendments to the Montreal Protocol on Substances that Deplete the Ozone Layer, June 29, 1990, 30 I.L.M. 537, are directed at phasing out production and consumption of certain chemicals by prescribed dates, and in fact takes a "differentiated" approach by distinguishing between developed and developing countries). (132) See also B. Boer, Environmental Law in the Pacific Region, in Environmental Outlook Laws and Policy 65, 77-78 (R. Fowler & N. Gunningham eds., 1994). (133) See J. Cameron & R. Mackenzie, Environmental Law and Policy Developments in the European Community After Maastricht, in Environmental Outlook: Laws and Policy, supra note 132, at 89 (reviewing the development of environmental law in Europe). (134) North American Agreement on Environmental Cooperation, Sept. 9-14, 1993, U.S.Car.-Mex., Hein's No. KAV 3722, 32 I.L.M. 1480 (1993); see also Jared Blumenfeld, 1994: The Yea r that Regional Environmental Enforcements Gets Tough? An Analysis of NAFTA Environmental Side Agreement and Maastricht Treaty, 16 Int'l Env't Rep. (BNA) 959 (Dec. 15, 1993). (135) See Robert Housman & Durwood Zaelke, Trade, Environment and Sustainable Development: A Primer, 15 Hastings Int'l & Comp. L. Rev. 535 (1992) (discussing the efficacy of trade related environmental measures); James Cameron & Jonathan Robinson, The Use of Trade Provisions in International Environmental Agreements and their Compatibility with the GATT, 2 Y.B. of Int'l Envtl. L. 3 (1991). (136) Allen R. Myerson, Trade Pacts, Environmental Efforts Falter, N.Y. Times, Oct. 17, 1994, at C1, C4 (reporting lack of progress in establishment of institutional arrangements to implement the side agreement). (137) See generally C.M. Chinkin, The Challenge of Soft Law: Development and Change in International Law, 38 Int'l & Comp. L.Q. 850 (1989). In relation to TNCs specifically, see Robert E. Lutz & George D. Aron, Codes of Conduct and Other International Instruments, in Transferring Hazardous Technologies, supra note 49, at 129, 153, 157. (138) See Patricia W. Birnie & Alan E. Boyle, International Law and the Environment 28-30 (1992) (discussing various soft law instruments); UNCTC 1992, supra note 129, at 19-20 (noting the particularly heavy reliance placed on softlaw instruments in the regulation of hazardous products). For an earlier overview, see Pearson, supra note 101, at 66-68 (reviewing soft law instruments in place prior to 1985). (139) See No Consensus on Code of Conduct, 4 Transnationals 1 (Oct. 1992) (reporting on the collapse of the Code of Conduct exercise). Subsequent efforts to promote an alternative approach based on guidelines for ethical business practices for TNCs also have proved fruitless. See Tabor & Rosenbaum, supra note 118, at 12-14; Anthony Tabor, Guidelines for Global Business Campaign: Progress Report, 6 (June 1994) (unpublished paper on file with author) (reporting on the failure of the United Nations Commission on Transnational Corporations (now renamed the Commission on International Investment and TNCs) to support the guidelines initiative at its meeting in (140) See infra part IV.B. (141) See UNCTC 1992, supra note 129, at 3940 (summarizing recent developments). (142) U.N. Commission on Transnational Corporations, Transnational Corporations and Issues Relating to the Environment, Report of the Secretary-General at 20, U.N. Doc. E/ C.10/1990/10, (1990) (referring to a forthcoming report of the Commission on this subject). Interestingly, the report, when subsequently released, recommended legislation at the national level but did not put forward the idea of an international agreement on the subject. See generally U.N. Centre on Transnational Corporations, Transnational Corporations and Industrial Hazards Disclosure, Environment Series No. 1, (1991) [hereinafter UNCTC 1991]. See also Harris Gleckman, Proposed Requirements for Transnational Corporations to Disclose Information on Product and Process Hazards, 6 B.U. Int'l L.J. 89, 92 (1988). (143) See UNCTC 1992, supra note 129, at 21-30 (reviewing various approaches to environmental information disclosure). (144) ESCAP/UNCTC 1990, supra note 68, at 75-76. (145) Rappaport & Flaherty, supra note 73, at 266. (146) WIR 1992, supra note 27, at 236-37. (147) See UNCTC 1992, supra note 129, at 98-106 (reviewing case law on the legitimacy of environmental regulation under free trade rules). (148) Gleckman, supra note 142, at 104. (149) 15 U.S.C. 78dd-781C (1988). (150) Alan Neff, Not in Their Backyards, Either: A Proposal for a Foreign Environmental Practices Act, 17 Ecology L.Q. 477, 519 (1990); see also Castleman, Workplace Health Standards, supra note 65, at 169-171. (151) Gleckman & Krut, supra note 14, at 30. (152) Gladwin, supra note 62, at 237; Pearson, supra note 105, at 127. However, equally strong arguments to the contrary have been advanced which are based on the emergence of "an interdependent global economy, characterized by pervasively transnational commercial activities, in which no nation can ignore what occurs beyond its borders." Gary B. Born, A Reappraisal of the Extraterritorial Reach of U.S. Law, 24 Law & Policy Int'l Bus. 1, 99 (1992). (153) Pearson, supra note 101, at 62. (154) Id. at 62-66; see also WIR 1992, supra note 27, at 237. (155) Pearson, supra note 101, at 65. (156) See Cameron & Robinson, supra note 135, at 7-15. (157) E.g., Export Administration Act of 1985, Pub. L No. 99-64, 99 stat. 120, 121 (codified as amended at 50 U.S.C. [subsections] 2401-20); Lutz, supra note 51, at 755; Gundling, supra note 52, at 78-79, 81. (158) See Brian E. Chase, Tropical Forests and Trade Policy, 17 Hastings Int'l & Comp. L. Rev. 349, 37488 (1994), (discussing the failed efforts by Austria to impose a ban on tropical timber imports). (159) Earth Summit, supra note 111, at 501. (160) See, e.g., Environmental Management in Transnational Corporations, supra note 110, at 151; Susan P. Bass & Paige Shiller, Survey Report on Corporate Environmental Policies (Envtl. L. Inst. 1991); Rappaport & Flaherty, supra note 73. (161) Rappaport & Flaherty, supra note 73, at 263. (162) Gleckman, supra note 142, at 105-106. (163) Rappaport & Flaherty, supra note 73, at 263. (164) Id. (165) Id.
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