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International Labour Standards, Codes of Conduct, and
Multinational Enterprises
ZOLTAN BALAZS KOVACS
A Thesis submitted to the Faculty of Graduate Studies and
Research in partial fulfillment of the requirements of the degree of
LL.M.
Institute of Comparative Law
Faculty of Law
"McGill University, Montreal"
March 2002
© ZOLTAN BALAZS KOVACS 2002
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Acknowledgements
Multinational enterprises play an essential role in our world. During their
operations at home and abroad they encounter different kinds of
situations they have to deal with, and the relationship between
corporations and countries raises many interesting and important
questions.
It is ail about balance. MNEs' activities have many advantages but they
also have disadvantages. In order to fully understand the issues
associated with this topic, one needs to have an insight in a wide range of
economic, legal, commercial and managerial issues. The issues l met with
were challenging, and the research l did, gave me a real sense of
achievement.
During my stay in Montreal, l had many salutary encounters. First of ail,
my special thanks go to Prof. J. Toope without whose support and
contribution l could have never taken up and finished my thesis in the
Institute of Comparative Law at McGill University. And l would also like to
express my warm appreciation to my family without whose support and
understanding l could not have been able to complete this task.
ii
Abstract
Multinational enterprises shape global and national politics by their
enormous economic power. In the introduction, l briefly discuss the
definition of a multinational, as weil as the role of labour standards
relating to child labour.
In Part l, l will focus upon the political and economic relationship between
States and MNEs. l will also discuss the tensions this relationship creates.
In the second part, l focus on the issue of child labour and different kinds
of approaches countries take.
Before dealing with international efforts to create a universal code, l
examine two internai codes.
Part III addresses two main issues. First, the question how human rights
and MNEs relate to each other is dealt with. Then the issue of international
legal responsibility will be elaborated.
Finally, the thesis concludes that public opinion and shame may be the
key to successfully address the issue of child labour.
iii
Résumé
Les entreprises multinationales forment des politiques nationales et
globales par leur énorme pouvoir économique. Dans l'introduction, je
m'efforce d'analyser la définition d'une "multinationale", et le rôle des
"labour standards" quant au travail des enfants.
Dans la première partie, je fixe mon regard sur le lien politique
et économique entre des États et des entreprises multinationales. J'aborde
les tensions que ce lien provoque.
Dans la deuxième partie, j'attire l'attention sur la question du travail des
enfants et les approches différentes prises par pays.
Avant que je me charge des efforts internationaux pour adopter un code
universel, j'examine deux codes internes.
La troisième partie pose deux questions essentielles. La première est la
question de la situation entre les droits de l'homme et les entreprises, et
après, j'élabore la question de la responsabilité internationale.
Dans la dernière partie, je dis que l'opinion du public et la honte peuvent
ètre la clef pour résoudre la question du travail des enfants avec succès.
iv
Table of Contents
Introduction 1
1) What is a Multinational Enterprise? 2
2) The Role of Labour Standards 5
3) Why Codes of Conduct for Multinationals? 9
Part 1: The Political and Economie Relationship between States and
MN Es•••••••••••••••••••••••••••••••••••••••••••••••••• •••••••••••••••••••••••••••••••••••• 15
1) The Role of Multinational Corporations 17
2) Nation States and MNEs 20
3) The MNE's Participation in the Creation of International Law 33
Part II: Corporate Codes of Conduct relating to Labour
Rights 40
1) The Relationship between Host Countries and Multinationals .40
A) Child Labour 42
B) Host Countries' Labour Laws ,49
2) The Home Country's Approach as to Labour Standards 53
A) Domestic Initiatives 53
v
3) External or True and Internai or Voluntary Codes of Conduct.. ......61
4) Examining Two Internai Codes: Reebok Corporation and Levi
Strauss & Co 66
A) Reebok Corporation 67
B) Levi Strauss & Co. Code 70
5) International Efforts to Create a Universal Code of Conduct. 75
A) The ILD's Code 76
B) The UN Code of Conduct for Transnational Corporations 78
C) The DECD Code 81
D) Social Accountability International's SA8000 Code 82
Part III: Human Rights, Labour Rights and Multinationals 84
1) Human Rights and the Multinational Enterprise 84
2) International Legal Responsibility: States and the Multinational
Enterprise 87
Conclusions and Recommendations 100
Bibliography 103
vi
Introduction
Multinational enterprises play a very important and increasing role in our
world. They shape global and national politics by their enormous economic
power and influence. In this thesis, 1 will discuss how this phenomenon,
which is far from being something new, is taking place today in the area of
labour standards. This phenomenon is complicated and has many
ramifications, not ail of which can be discussed here. 1 will focus on the
role of child labour standards and the attitude of MNEs to them.
Trading and economic systems have undergone fundamental changes
throughout the history of mankind, yet child labour has always been
utilised. The hope that this form of labour can one day be eradicated still
remains. The main reason behind child labour is poverty. According to the
International Programme on the Elimination of Child Labour! (IPEC)
"[p]oor households need the money, and children commonly contribute
around twenty to twenty-five per cent of family income on food, it is c1ear
that the income provided by working children is critical to their survival".2
Other reasons for the practice of child labour include tradition 3, necessity
and vulnerability.4 Last but not least, employers are willing to hire
children. The explanation behind it may be that "they are less aware of
1 Under the aegis ofthis program the ILO and states are trying to eliminate child labour within the bordersof member states.2 See ILO, IPEC: Finding Out About Child Labour: The Causes, available athttp://www.ilo.org/public/english/standards/ipec/childllcauses.htm3 Ibid.4 Ibid.
1
their rights, less troublesome, more compliant, more trustworthy and less
likely to absent themselves from work".5
It can be argued that a small group of MNEs may hoId a virtual
"monopoly" over the economy of certain states, and, if unchecked, this
could lead to the grotesque exploitation of children. Labour abuses have
already caused numerous public outcries, and international society is
groping for ways to respond.
1) What is a Multinational Enterprise?
At first glance, one might think that the answer to the question posed in
this section is obvious. According to the simplest view "a small family
owned business is not a multinational enterprise; a major corporation,
with tens of thousands of employees and operations in a dozen of
countries, is a multinational enterprise".6 However, this definition is not
exact enough. What if a family business is owned by nationals from one
country, is located in another country and sells most of its products
abroad? What if a huge corporation is run exclusively by U.K. nationals
from London, its employees are mainly British, yet it has operations in
many countries?
5 See ILO, IPEC: Finding Out About Child Labour: The Demand for Child Labour, available athttp://www.ilo.org/public/english/standards/ipec/child/3deman.htm
2
In order to be able to determine what a multinational is, we must take a
couple of factors into account. The first factor could be ownership. Under
this approach a corporation is multinational only if it is owned by persons
of more than one nationality. This would lead us astray since the
ownership of many "multinationals" is essentially national. The second
factor is the location of the business's operations. A multinational has
plants or offices in many countries. It is possible that it has affiliates in
other countries and, though it may be true that there is no direct
ownership in many cases, such a corporation still effectively controls its
foreign operations. The third factor can be size. Multinationals are huge
enterprises with an economic power that is significant. The fourth factor
can be the location of the headquarters. Many multinationals have their
headquarters in one country and do business in several others. Probably,
these are the most important characteristics to look at when trying to
define a multinational. 7
The United NationsS (UN) and the Organisation for Economie Cooperation
and Development (OECD) have offered specifie definitions. The UN
distinguishes between "transnational corporations" (TNCs) and
"multinational corporations" (MNCs). According to its definition, MNCs are
"enterprises which own or control production or service facilities outside
6 C. Baez & M. Dearing & M. Delatour & C. Dixon, "Multinational Enterprises and Human Rights"(1999/2000) 8 Yearbook ofInt'l Law 183 at 187.7 See generally ibid. at 187-189 and see also P. 1. Spiro, "New Players on the International Stage" (1997) 2Hofstra L. & PoPy Symposium 19 at 28-30.S Under the UN definition MNCs are not necessarily incorporated or private. They may operate as stateowned entities or co-operatives. Available at www.unitednations.org
3
the country in which they are based." They do not necessarily have to be
private enterprises, Le. even if they are state owned they can be regarded
as multinationals. TNCs are corporations that engage in operations in
many countries. This distinction is purely technical since there seems to be
no main difference between the two. Both can and in reality do control
operations in foreign countries through their affiliates or subsidiaries.
According to the OECO definition, multinational enterprises are
usually comprised of companies or other entities whose ownership isprivate, state or mixed, established in different countries, and 50
linked that one or more of them may be able to exercise significantinfluence over the activities of others, and, in particular, to shareknowledge and resources with the others.9
As for the nationality of corporations, the Barce/ona Traction, Light and
Power Co. Case10 gives us some guidance. The International Court of
Justice analyses corporate nationality and concludes that
[T]he growth of foreign investments and the expansion of theinternational activities of corporations, in particular of holdingcompanies, which are often multinational, and considering the wayin which the economic interests of States have proliferated, it mayat first sight appear surprising that the evolution of law has not gonefurther and that no generally accepted rules in the matter havecrystallized on the international plane. ll
Oetermining the nationality of a corporation is often difficult. There are,
however several key factors we may look at. The Court suggested that
9 See supra note 6 at 190.10 Belgium v. Spain [1970] I.e.J. Rep.3 at Paragraph 89.Il Ibid.
4
[i]t has been the practice of some States to give a companyincorporated under their law diplomatie protection solely when it hasits seat (siège social) or management or centre of control in theirterritory, or when a majority or a substantial proportion of theshares has been owned by nationals of the State concerned. 12
It is possible, therefore, that a corporation has dual nationality. Such a
corporation is obviously a MNE. For my purposes, 1 make no distinction
between transnational and multinational corporations and accept the
following definition. An MNE is a parent company that
1. directly engages in foreign production in one or more countriesbesides the country in which the parent is located, or engages insuch production through foreign affiliates over which it exercisessignificant control, and2. implements business strategies in production, marketing, financeand staffing that transcend national boundaries. 13
Charles W.L. Hill offers a similar - essentially functional - approach when
he defines the MNE14 as any business that has productive activities in two
or more countries.
2) The Role of Labour Standards
Before analysing the relationship between capital and labour, i.e. firms
and workforce, the phenomenon called globalisation of production must be
discussed. Globalisation of production means that there is a tendency
12 Ibid.13 Supra note 6 at 191.14 Charles W.L. Hill, International Business, Competing in the Global Marketplace 3rd ed. (Irwin McGrawHill, 2000) at 16.
5
among multinational firms to take advantage of national differences in the
cost of production. Managers of MNEs must take many things into
consideration before a decision to do business in a certain country is
made. There are many multinationals world-wide and as a result there is
often stiff competition among these firms. Each and every one of them
wants to minimise its costs by choosing the appropriate state for its
production. One of the major reasons they decide to produce a product,
not in their home country, but elsewhere, is labour costs. Free trade
regimes encourage firms to become multinational enterprises and to carry
on business in foreign countries. MNEs sometimes take advantage of the
situation that many developing countries lack adequate worker protection
laws. This may provide a significant opportunity to reduce production
costs. Using cheap labour makes a business more efficient. MNEs can
achieve the same level of profit making less investment. According to the
teachings of economics, it is evident that if a firm can produce the same
product in a cheaper way then it does the right thing if it takes advantage
of lower wages. 15 From an efficiency-based theory of economics, there is
nothing wrong with this approach.
A problem arises when this wage is a mere pittance, not to mention when
child labour or forced labour are exploited. For example, there are more
15 For example, General Electric came to Hungary to take advantage of the country's low wage structure.See ibid. at 72.
6
than one million working children in Nepal,16 and around five million in the
Philippines. 17 "[C]hild labourers are often abused, both physically and
mentally, when they are late for work or make mistakes".18 As we will see
in Part II, some plants of multinationals do not pay the minimum wage,
and do not provide a safe and healthy workplace. Globalisation, as one of
the main phenomena of our world, serves as a fertile ground for firms who
want to extend their scope of operations and who wish to do business
abroad. As a consequence, many multinational corporations set up
affiliates in several foreign countries, benefiting from reduced costs but
sometimes exploiting labour - including child labour - in appalling ways.
Since multinationals are economic actors, they always keep basic
investment factors, such as cost of production, market conditions, supply
and demand, local habits and possible future profits firmly in mind. There
is a threshold, though, that has to be respected. There is a difference
between profit-making, and abuse. This is where labour standards come
into play. Their basic function is to protect workers' health and safety and
to prevent business from exploiting workers. This protective function may
result in distinct sets of regulations, including determination of minimum
wages, prevention of child and forced labour, and ensuring that workers
have the right to collective bargaining.
16 Clarence Schubert, "International Labor Organization, Non-Formai Education for Working and StreetChildren: UNICEF Experiences and Observations in Asia, Asian Regional Seminar on Child Labor:Education & Enforcement of Legislation" New Delhi, Feb. 4-8.1991 (ILO, Geneva) Annex III-5 at 84.17 Ibid.18 C.J. Morris, "A Biueprint for Reform of the National Labor Relations Act" (1994) 8 Adm. L.I. Am. U.517at588.
7
The International Labour Organisation (ILO) was created in 1919 for the
purpose of adopting international standards to cope with the problem of
labour conditions involving "injustice, hardship and privation". With the
incorporation of the Declaration of Philadelphia into its Constitution in
1944, the standards were broadened. 19
International labour standards are essentially expressions of international
tripartite agreements on labour, social policy and human rights matters.
These standards are agreed under democratic principles by
representatives of governments, workers and employers of ail social and
economic systems of the world. These standards can be found in
International Labour Conventions and Recommendations. The ILO has
adopted more than 180 conventions and 185 recommendations. 2o
The Declaration on Fundamental Principles and Rights at Work was
adopted in June 1998.21 It imposes obligations upon member-states
relating to collective bargaining, the abolition of child labour, the
elimination of forced labour and discrimination in respect of employment
and occupation. At the same time, the ILO stresses that labour standards
should not be used for protectionist trade purposes.
19 Both the ILO Constitution and the Declaration of Philadelphia (Declaration conceming the aims andpurposes of the International Labor Organization) are available atwww.ilo.org/public/english/aboutli1oconst.htm20 Available at www.ilo.org/publicienglish/standards/norm/index.htm21 Ibid.
8
The major problem with such standards is their enforceability. Even the
United States faces this situation. Sweatshops can be found on American
soil as weil. According to a survey there are more than 2,000 positions like
that in New York City alone. 22 We will see that they are often of limited
effectiveness, which forces us to ask whether there are any other
potentially effective strategies to protect labour, especially child labour, in
an era of globalized production.
3) Why Codes of Conduct for Multinationals?
We have seen a major change in the last twenty-five years. Many formerly
small corporations have evolved into bigger firms and become
multinational enterprises with offices ail over the world. Today, some of
them are 50 strong that they have the power to influence the outcome of
state decisions. There is a danger that such MNEs may be out of control.
Codes of conduct might play a major role in establishing limits on
multinationals' power. l use the word "might", because, despite recent
initiatives, Codes have not played a strongly restraining role in practice.
Let us take NIKE as an example. The firm has been criticised for its labour
practices in certain host countries. In response, NIKE has created its own
code of corporate conduct. 23 The long-range effects of this initiative
remain to be seen, but there is already some disturbing news concerning
22 The number contains both children and adults. In: See infra note 154.
9
the effectiveness of the code. In June of 1997, the corporation hired
Andrew Young, a former U.S. ambassador to the United Nations, to carry
out an "independent" study about working conditions in NIKE's plants in
China, Vietnam and Indonesia.24 Ali plants received good grades. The
independence of the scrutiny was subsequently questioned because the
inspector was paid for his services. When Young was asked about the
salaries offered to employees in the factories he investigated, his response
was, "nobody asked me to look into that".25 As of 1999, NIKE allows
representatives of labour and human rights groups to perform
independent monitoring of its manufacturing operations, with the results
to be made public. This may be a huge step in the fight against child
labour.
Compa distinguishes between "external" and "internai" codes depending
upon the sources that set up these codes.26 Others talk about "true" and
"voluntary" codes. 27 External or true codes are established by public
authorities. Internai or voluntary codes are created by companies
themselves or by trade associations within specifie industries. As we will
see in Part III, even Codes established by public authorities may prove
23 Available at www.nikebiz.com24 "Audit for NIKE Found Working Violations in Vietnamese Plant" Wall Street Journal (10 November1997) BIO.25 J. Izenberg, "Losses and Labor Pains Explain NIKE's Feeling for Exploited Kids" Star Ledger (22 May1998)26 L. Compa & T. Hinchliffe-Darricarrere, "Enforcing International Labour Rights through Corporate CodesofConduct" (1995) 33 Colum. J. Transnat'I L. 663 at 664.27 S. R. Salbu, "True Codes versus Voluntary Codes of Ethics in International Markets: Towards thePreservation ofColloquy in Emerging Global Communities" (1994) 15 U. Pa. J. Int'\. Bus. 327 at 327.
10
weak for neither states nor international bodies are totally independent
from the influence of MNEs.
If it is the MNE itself that creates its own code, the danger of window
dressing is even more obvious. What if the firm does not follow its own
rules7 Then, there is no Iikely accountability at ail. However, we should
take into account the fact that international bodies and governments,
together with consumers, may be able to put enough pressure on MNEs to
subject themselves to specifie rules. Many MNEs have set up their own
codes of conduct throughout the years "as a result of pressures from
consumers, investors, the media, and non-governmental organizations".28
Yet, not every firm can be influenced by such means. Public pressure and
shame can be a good strategy against corporations when their image is
very important. If consumers boycott the company's products it will lose
market share and, therefore, profits. But not ail MNEs are even known as
"brands" to the consuming public. In Part II, l will discuss those two major
types of corporations against which a code is not effective at ail. These
are: MNEs that provide other firms with raw materials, and firms in host
countries that do not have any public image.
l agree with Steven Salbu who says that "as businesses become
increasingly international in scope the ethical challenges of commerce
28 R. L. Liubicic, "Corporate Codes of Conduct and Product Labeling Schemes: The Limits and Possibilitiesof Promoting International Labour Rights through Private Initiatives" (1998) 30 Law and Pol 'y Int'I Bus.111 at 114.
11
grow more complex".29 As corporations cross national frontiers around the
globe, more people are affected by their decisions and actions.
Multinationals naturally tend to favour what they view as sound business
principles and practices over "political" engagement with human rights.
Therefore, protections are needed to prevent the exploitation of working
people, and especially of children. A major ethical dilemma is whether or
not to invest in a country, which is notorious for a bad human rights
record. There may be two different approaches to this problem. Human
Rights Watch30 argues that the lenient trade policies of Western states
towards China have done very little to stop human rights abuses. 31 In fact,
it is suggested that if Western nations refused to do business with such
countries, repressive regimes wou Id collapse. Others "argue that Western
investment, by raising the level of economic development of a totalitarian
country, can help change it from within".32 They say that political
freedoms and economic development are "good friends". China in the post
Tiannannen Square era is an example of this theory put into action. After
the Chinese government had crushed protests for democracy the Bush
administration's approach was that U.S. firms should continue to do
business there because economic development would be followed by
political freedoms. 33 Ultimately, it is up to MNEs whether they invest in
29 Supra note 27 at 327.30 Organisation that promotes human rights' protection ail over the world.31 S.L. Myers, "Report Says Business Interests Overshadow Rights" New York Times (5 December 1996)A8.32 Supra note 14 at 69.33 Ibid.
12
such countries or not. They must evaluate the pros and cons of such an
investment on a case-by-case basis.
One possible answer to the risks posed by globalized production can be
codes of conduct the purpose of which is to prevent corporations from
taking advantage of people who work for them. It is not just the creation
of such codes that is essential, but their enforcement. There must be an
effective system that allows us to monitor and control the activities of
corporations. If there are only "standards" in codes, but no enforcement
mechanism, the efforts to set up these provisions seem to be
meaningless.
In a short introductory part l offered a definition of the multinational
enterprise, and then briefly discussed why labour standards are so
important and necessary. In the first part l will focus on the political and
economic relations between states and MNEs, including the latter's
participation in the creation of international law. Since some corporations
are huge and influential they have the power to determine the outcome of
many legal initiatives, be they international or national. What are the
consequences? Is it advantageous to the public, and to workers in
particular, if business determines the rules that apply to it?
Later, in Part II, l will examine different kinds of initiatives, both national
and international, in terms of labour standards relating to multinational
enterprises. l will also examine the advantages and disadvantages of this
13
process, as weil as the approaches that host and home countries take as
defensive measures against the undesirable effects of foreign direct
investment. The international field of regulation, through public
international law, may be of importance, but we must also take into
consideration private initiatives, which sometimes are or can be more
effective than international law in affecting the day-to-day operations of
foreign businesses.
The issue of responsibility must also be addressed. Who is responsible for
the wrongs committed by multinationals? Logically, home countries, host
countries and the multinational itself may be held Iiable for such acts,
depending upon particular factual circumstances. But how does this work
in reality? What are the necessary facts that have to be proven in order to
be able to say that a given state or firm is responsible for wrongs
committed?
Finally, 1 will draw out conclusions by focusing on the problem of enforcing
labour standards. 1 will indicate that labour unions may play an important
part in the enforceability of those standards. In the end, 1 will offer
recommendations on how to address the problems set out in the thesis.
14
Part 1: The Political and Economie Relationship between States and
MNEs
Since the Peace of Westphalia in 1648, states have been the main actors
on the international plane. Non-state entities were exduded from taking
part in international negotiations. Until recent years states have been the
only actors that enjoyed international legal personality. This phenomenon
reflected power realities. The most powerful "players" created those norms
that applied to them and they shaped the course of development of
international law.
This is not entirely the case today. Although states retain power and
influence, and even predominance, throughout the years other powerful
actors have emerged in international society and they now daim a role in
creating rules that will apply to them. Many international and regional
organisations, non-governmental organisations (NGOs) and corporations
have come into existence; they represent a major force in our world.34
Some multinational corporations have more assets than some states,
revealing their real power. 35
34 For example Ford Motor Company has assets in the value of238.5 billion dollars, General ElectricCompany's assets are worth 228.0 billion dollars, those of General Motors are worth 217.1 billion dollars.These data are from the year 1996. In: Supra note 14 at 18.35 To prove this, consider the GDP of sorne countries expressed in US dollars. Ghana $7.6 billion; Vietnam$31.3 billion; Honduras $5.3 billion; China $1,080 billion. Available at http://www.worldbank.com
15
Legitimacy of the rules plays a major role when it comes to creating a
well-operating system. The effectiveness of the law, especially of
"international law depends largely upon the legitimacy of its rules". 36
Some provisions are capable of making their addressees follow them while
others are not. 37 Turning to the legitimacy of international rules one may
say it is different from that of national laws. 38 Even if states obey rules, it
is not because they fear an enforcing power since there is no such global
power. 39 The more players accept the rules the higher the rules'
legitimacy. Legitimacy mainly depends upon how states view particular
rules. States "may violate a rule because the perception of national
advantage to be gained by rule disobedience in a particular instance is so
powerful as to overwhelm the most powerful compliance pUIl". 4D This
observation leads to the conclusion that if those actors who should be
allowed to take part in the decision-making process are excluded, legal
norms may not be persuasive anymore.41 If rules are not persuasive, and
if there is no wide acceptance of norms by the society to which rules are
directed, legitimacy is impaired.42
36 J. 1. Charney, "Transnational Corporations and Developing International Law" (1983) Duke L. J. 748 at787.37 T.M. Franck, The Power ofLegitimacy among Nations (Oxford: Oxford University Press, 1990) at 42.38 Franck says that while nationallaws are either laws or not this is not true as regards international rules. Inhis opinion, failure to obey international rules may encourage others to do the same and at the end of the daythe norrn will be completely forgotten. Legitimacy, according to him, is a "matter of degree". Ibid. at 44.39 Ibid. at 48.40 Ibid. at 43.41 J. Brunnée & S.J. Toope, "International Law and Constuctivism: Elements of an Interactional Theory ofInternational Law" (2000) 39 Columbia Journal of Transnational Law 19 at 74.42 Ibid. at 51.
16
Brunnée and Toope conclude that "[I]egal norms are particularly
persuasive when they are created through processes of mutual
construction by a wide variety of participants in a legal system".43
In this part l will discuss the status of multinationals today on the
international plane, and possible alternatives as to their future
participation in the law-ma king process. This depends, of course, on how
we construct their relationship with nation states.
1) The Role of Multinational Corporations
"Many countries in the world are dependent on MNEs as providers of
resources, capabilities and markets, as creators of jobs and wealth, as
suppliers of foreign currency, as stimulators of entrepreneurship and
worker motivation and as raisers of demand expectancies".44 In order to
fully understand the role MNEs play in contemporary international society,
we have to examine the activity they are engaged in, especially so-called
foreign direct investment. (FDI)
The last 25 years have seen enormous changes in the world economy.
"Barriers to the free flow of goods, services, and capital,,45 that existed
earlier have tumbled. In the beginning of the 1990s the process of
globalisation was accelerated by the fa Il of communism and the
43 Ibid. at 74.44 J. H. Dunning, Multinational Enterprises and the Global Economy (Addison-Wesley Publishers Ltd,1993) at 284.
17
widespread acceptance of democratic values. The formerly Soviet-
influenced markets have been opened to Western corporations. They
attract considerable FDI. The vast majority of the world, or at least world
governments, accepts Iiberal values. More and more states are attempting
to build market economies. This is where multinationals come into the
picture. An MNE's main feature is to do business abroad. In order to do so,
it usually must engage in FDI,46 and by doing so it can increase its profits
considerably. Revenues can be so huge that they sometimes exceed the
annuai GDP of certain countries.47 This economic power can be translated
into bargaining power during negotiations with potential host countries,
since some countries desperately need FDI to survive.
Host countries want capital to flow into their countries while MNEs are
looking for the ideal site where they can do business. This is why host
countries are competing with each other. This is very good for MNEs since
they can take advantage of such a competition. This trend is also
advantageous from the consumer's point of view, for competition can
drive down priees.
45 Supra note 14 at 20.46 The amount ofFDI is astonishing. The average annual outflow ofFDI was about $25 billion in 1975. In1998 it was $430 billion. The average yearly inflow ofFDI into developing countries was $27.4 billionbetween 1985 and 1990. In 1997 it was $149 billion. In: Ibid. at 183-185.47 E.g. General Motors revenues in 1997 were $100 billion. Available at http://www.gm.comIfwe comparethis amount with sorne of the national GDPs the result is stunning. For example, Hungary's GDP was $48.4billion in 1999, while Poland's GDP was $154.1 billion also in 1999, and that of the Czech Republic was$56.4 billion in 1998. Available at http://www.worldbank.com
18
This is what happened in South Korea in the 1990s. The government
launched a program of liberalisation in order to give some incentives for
MNEs. In 1996, many restrictions were Iifted relating to the retail industry.
One of the first companies that entered the country was Makro, a Dutch
retailer. It operates discount stores ail over the world.48 Following its entry
into South Korea, others, such as Priee Costco, Carrefour and Wal-Mart,
decided to enter as wel1. 49 As a result, priees went down and the primary
beneficiaries were consumers. 50
MNEs' negotiating power lies in their capacity to bring hundreds of millions
of dollars into the chosen country, producing thousands of jobs, however
insecure and low paying. Therefore, many developing countries may tend
to forego some of their legislative authority in order to have the capital
that is so needed, not to mention the new jobs MNEs create and the
technology they import. The ideal scenario is that both MNEs and host
states will have what they want without any negative effects, but this ideal
is never achieved.
A frequent method of attracting MNEs is the creation of tax havens. 51 A
tax haven is a country with a very low or no income tax. A tax holiday is
48 It also has discount stores in Taiwan, Malaysia and Thailand. Available at http://www.costco.com49 Yoo Cheong-mo, "Foreign Direct Investments in First Half Total $4.46 Billion" Korean Herald (24 July1997)50 Y.J. Sohn, "Survival Game: Defeat or Be Defeated" Business Korea (February 1996) 23.51 This practice is engaged in by developing and developed states alike. One of the reasons Toyota set up itsplant in France was because the French government gave it tax breaks. In: R. Graham & H. Simonian,"Toyota Picks France for New Plant" Financial Times (10 December 1997) 6. See also A. Jack, "French Gointo Overdrive to Win Investors" Financial Times (10 December 1997) 6.
19
another mechanism that exempts FDI from tax for a specified period of
time. The so-called deferral principle is also of major importance to MNEs.
This mechanism means that "parent companies are not taxed on foreign
source income until they actually receive a dividend".52 However, this rule
does not apply to US-based firms since they are taxed on their overseas
income when it is earned, irrespective of when the parent company
receives it. 53
2) Nation States and MNEs
We need to take an in-depth look at the relationship between States and
MNEs so that we can understand the tensions and problems that arise out
of their inevitable interconnections. Host governments are supposed to be
the defenders of their countries' ideologies, values and interests. Ideally,
governments represent the national society. According to one of the
foundational principles of public international law, every state is sovereign
and equal. 54 MNE activity, however, can and in reality does restrict the
sovereignty and the equality of states.
Sovereignty is the ability to choose between or among alternatives
relatively freely. If a government voluntarily gives up part of "its power to
52 Supra note 14 at 622.53 Ibid. at 623.54 Article 2 of the Charter of the United Nations provides that "[t]he Organization is based on the principleof the sovereign equality of ail its Members".
20
gain other benefits, then its sovereignty remains intact".55 Once a state's
right to freely choose the option it prefers vanishes because of an external
power, the sovereignty of the state is not complete anymore. However,
one has to add that when it comes to creating a community, states, taking
part in the creation, voluntarily give up a slice of their sovereignty. The
Permanent Court of International Justice held that
the independence...must be understood to mean the continuedexistence ...within her present frontiers as a separate State with soleright of decision in ail matters economic, political, financial or otherwith the result that independence is violated, as soon as there is anyviolation there, either in the economic, political or any other field ... 56
Judge Anzilotti added that as long as international or contractual norms
"do not place the State under the legal authority of another State, the
former remains an independent State however extensive or burdensome
those obligations may be".57 It flows from the court's standpoint that if
there is a partial transfer of power, it may mean that the exercise of
certain powers is no longer dependent upon national will, but it does not
necessarily mean that the state is no longer sovereign or independent.
Now we have to take a brief look at how MNEs may affect state
sovereignty. When an MNE does business abroad it redistributes the
economic capacity of the countries. On the one hand, as l mentioned
55 Supra note 44 at 529.56 See Austro-German Customs Union Case (Adv. Op.) 1931, P.C.LJ. Ser. A/B, No.41 In: See infra note 110at 16.57 Ibid.
21
above, it brings technology and capital into the host country and creates
new jobs. On the other hand, it ceases to do business in its home country,
often lays off its workers and takes away its capital and technology
partially or entirely. This phenomenon affects both countries. From the
home country's perspective, the layoff of workers can cause public outcry,
even though the decision to continue to operate in another country is
motivated solely by business reasons. Tt has been proven that foreign
operations often bring greater profits than if the capital was invested at
home. 58
From the host country's perspective, there has been a shift in what their
attitude should be towards FDI:
[T]he communist states of China and Vietnam as weil as somestates of Asia and Latin America which were previously hostile toforeign investment have given up their hostility to foreigninvestment. With the decline of communism and the demonstrationeffect provided by industrialising countries that an open economy ismore conducive to economic progress, ideological hostility to foreigninvestment has been dented. This congruence of events has resultedin a global c1imate favourable to foreign investment.59
What is bad for some people in home countries is good for some people in
host countries. Many people will have jobs as a result of FDI coming into
their countries, not to mention access to new technologies.
58 J.R. Oneal & F.H. Oneal, "Hegemony, Imperialism and the Profitability of Foreign Investment" (1988) 42Int. Org. 347.59 M. Sornarajah, The International Law on Foreign Investment (Cambridge, University Press, 1994) at 6869.
22
Going abroad means that commercial relationships between home and
host countries will become intertwined, and in a variety of complex ways
the countries may become dependent on each other. One may say that
the in- and outflow of FDI leads to the reduction of national economic
autonomy in ail states. Dependence on other countries will likely increase.
Between one third and a quarter of ail U.S. manufacturing employment is
in direct competition with low-wage countries. 50 This represents about
18% of the labour market in the United States.51 This phenomenon
creates uncertainty among the employees in the home country because
they may be worrying about losing their jobs.
Increased trade has eliminated jobs in many industries, e.g. textiles,
apparel, footwear and assembly. Other branches of the national economy
are not endangered.52 The other side of the coin is that the products that
were made in the host country will be exported by the MNE into the home
country. The same goods will typically cost less than if they had been
produced in the home country.53 The purchasing power within the home
state will increase as a corollary.54
Conflicts relating to how to deal with foreign investors, of course, may
arise between home and host states. There was no international protection
60 See generally P. Stalker, Workers without Frontiers (Lynne Rienner Publishers, 2000)61 Ibid.62 J. Sachs, "Globalization and Employment" (2000) Available athttp://www.ilo.org/public/englishlbureau/inst/papers/publicslsachs/ch.2htm63 IBM invested about $90 million in an assembly facility in Mexico to produce 100.000 computers a year.75% of the PCs were exported back to the US. In: Supra note 14 at 209.64 Ibid.
23
for foreign investors in the first half of the last century.65 The PCIJ held
that "in principle property rights and contractual rights of individuals
depend in every state on the municipal law and fall therefore more
particularly within the jurisdiction of municipal tribunals".66 Since the
international law of foreign investment protection is still unclear, capital
exporting states have to resbrt to bilateral treaties to ensure protection for
their MNEs.67
The difference between wages of richer and those of poorer economies has
created tempting opportunities for workers considering migration.68 Higher
wages in certain countries may make them magnets for workers from
poorer regions. According to one study in the US, migrants usually know
where jobs are and they generally succeed in finding one. 69 Another study
showed that a 10% decrease in real wages in Mexico is associated with an
8% increase in migration.7a
If an MNE brings technology to a country, and it can be withdrawn at any
time, then the economic autonomy of the host country is "impaired".
65 The PCU held that municipallaw applied to state contracts with foreign investors. See Serbian LoansCase (1929) PCU Reports Series A, No.20.66 See Panevezys-Saldutiskis Case (1939) PCU Reports AtB No.76.67 Supra note 59 at 143.68 In order to imagine disparities in wages here come hourly labour costs in the manufacturing industry.(Expressed in $US from the year 1995) US 17.20; Canada 16.03; Belgium 26.81; Czech Republic 1.30;Germany 31.88; Hungary 1.70; Poland 2.09; UK 13.77; China 0.25; India 0.25; Indonesia 0.30; Japan 23.66;Taiwan 5.82; Singapore 7.28; Thailand 0.46; Malaysia 1.59. In: See generally supra note 60.69 Ibid.70 There is an interesting correlation between income and the ability to migrate. The very poorest wish toleave their country but they simply cannot because they lack necessary funds. With a little increase inincome they will be able to save sorne money and go to another country to work. With a little more increase,however, the willingness to migrate diminishes. In: Ibid.
24
Another possible scenario is when the multinational that enters a foreign
country drives out national competitive firms. This is certainly not in the
interest of the host country. Benoit summarised the role of MNEs very
aptly when he said about U.S. multinationals that they were "[w]idely
criticized at home for "exporting jobs" and undermining the U.S. balance
of payments, they are criticized just as severely abroad for exploiting
underpaid foreign labor, using monopoly power and preferential access to
cheap or costless capital to crush or buy out local competitors".71 This
remark was made almost thirty years ago but it is still true. Economists
say that we have to take into account what might have happened had the
MNE not come in. 72 It may be that more harm would have been done if
the host government had decided not to let the corporation in.
Under the principles of classic economics "[w]here capital is scarce, the
returns on new investments should be high, which ought to promote
saving and attract inflows of capital from abroad".73 Higher profit rates
encourage more capital investment and decline of investment in the home
countries.
71 Emile Benoit, "The Attack on the Multinationals" (1972) Nov. Columbia Journal ofWorid Business at15.72 MNEs do not always act in the best interest ofhost countries. For instance, the control MNEs have overresource allocation may "bother" the host state, but whether there is a reduction ofnational economicautonomy or not depends on what would or might have happened if the firms had not invested in thecountry. At the end of the day, an "impaired" economic autonomy with lots ofworking capital is still betterthan a sound one with no foreign investment. In: Supra note 44 at 531.73 J. Sachs, The Economist (22 June 2000)
25
The approach of states to MNEs differs, and typically varies according to
their ideological and political point of view on the usefulness of FDI. For
example, in the beginning of the 1990s China decided to forego some of
the characteristics of the still centrally-planned economic system. The
government put greater emphasis on the market and as a result FDI came
into the country. The annual average of FDI was $2.7 billion between 1985
and 1990. However, in 1997 it was $45.2 billion. 74 Due to the Asian crisis,
FDI decreased considerably in China. 75
Some states prefer long-run gains and are willing to sacrifice short-term
benefits for those gains. Whether a country accepts that it depends on
others may also be a sectoral question. There are some strategie sectors
in which countries, understandably, do not want to be dependent on
foreign capital. 76 At the same time, there are other sectors where even
complete dependence is accepted.
Many countries seem to have accepted so-called pragmatic nationalism.77
Japan is one of the best examples of this stance. Under Japan's view, FDI
has the potential to hamper the development of national industry.
74 It is also true that the next year FD! went back to $35 billion partially because the government pushedthrough new tax legislation and several tax breaks were taken away. As a result many MNEs pulled out ofthe country. Having seen the result in 1998 the government decided to give new tax incentives to foreigncompanies that want to invest in special regions. In: M. Miller, "Search for Fresh Capital Widens" SouthChina Morning Post (9 April, 1998) 1. Available at http://www.asiasociety.com75 S. Mufson, "China Says Asian Crisis Will Have an Impact" Washington Post (8 March, 1998) A27.76 E.g. Defence-related sectors, critical resource-based industries, broadcasting.77 According to this approach, FDI should only be allowed ifbenefits from the investment outbalance itscosts. In: Supra note 14 at 211.
26
However, in some cases the government had to make exceptions in order
to bring new technology into the country.78
One of the major benefits of FDI for host countries is the increased
revenue they have through taxes that foreign firms have to pay.79
Therefore, for host countries it is essential that remunerative investments
take place within their borders. This phenomenon has not only advantages
but drawbacks as weil. These disadvantages (pollution of the environment,
child and forced labour, corruption, impaired national sovereignty) have
been in the focus of attention for many years. Actions of multinationals
have an impact upon the national economy, employment, national security
and identity, balance of payments and economic and social development
of host countries. At the same time, it has been emphasised that the most
efficient organisation for generating economic growth in developing
countries is the MNE itself. 8o
As for conflicts between Nation States and multinationals, the main issue
is the MNE's behaviour in host countries. Shaker put it this way about
American firms:
78 This is how IBM entered Japan. The government made sure that the FDI would stimulate the economy.See M. Itoh & K. Kiyono, "Foreign Trade and Direct Investment" in R. Komiya, M.Okuno & K. Suzumura,eds., Industrial Policy ofJapan, (Tokyo: Academic Press, 1988)79 This is not necessarily true if it cornes to analysing the so-called tax havens or holidays. The majorbenefits for those countries are the creation ofjobs and the inflow of modern technology. See supra note 14at 623.80 One of the examples may be South Korea. Its GNP was on1y $260 dollars per capita. Thanks in part toFDI it increased up to $9.700 per head by 1995. In: Supra note 14 at 118.
27
However zealously the advocates of the multinational corporationmay promote its virtues, there is basically no such thing as a trulyinternational corporation. The subsidiary owes its allegiance tocorporate headquarters in the United States from whom it takes itsorders and by which it is guided accordingly. While the corporationitself wields powerful political influence, it is at the same time aninstrument of U.S. foreign policy. Nation-states will not long tolerateforeign control and domination of their industries and othereconomic institutions. Developing nations are seeking their ownpatterns of development for their society and are reassessing theirpositions vis-a-vis the international corporation. 81
This thought may seem intuitive, but l am not convinced that it is. There
are huge firms that are not necessarily tools in the home country's hands
but may be largely independent from their home governments.
Governments, nonetheless, have a strong power to encourage or
discourage FDI. Home country governments usually have insurance
programs that coyer certain risks of foreign investment.82 These programs
are vital, especially when the foreign country where the capital goes is
politically unstable. 83 Moreover, many countries have eliminated double
taxation of profits made in host countries. On the other hand, home
governments want to restrict the outflow of FDI. Regulations include the
limitation of the amount of capital firms are allowed to take out and the
prohibition of investing in certain countries. 84
81 F. Shaker, "The Multinational Corporation: The New Imperialism" (1970) Nov. Columbia Journal ofWorld Business at 84.82 Such risks include war losses, expropriation and the inability to repatriate profits.83 See C. Johnston, "Political Risk Insurance" in D.M. Raddock, ed., Assessing Corporate Political Risk(Totowa, NJ: Rowan & Littlefield, 1986)84 This was the case between U.S. MNEs and Cuba or Iran. Certain US laws prohibited investments in thesecountries. In: Supra note 14 at 222.
28
The 100 largest U.S. MNEs are the principal actors in the US economy.85
Therefore, some of them are in the position to determine their own policy
in a given country where they want to do business. The counterargument,
which is also worth considering, is that business and politics have always
been intertwined with each other, therefore, business can never be totally
independent from politics. Whether or not MNEs are tools in their
governments' hands, the relationship between them and governments
"has often been uneasy".86 If we take a look at the practice of the United
States we may say that
insofar as their activities have come to depend on overseas profits,US politico-economic priorities have been shaped by the needs ofthese enterprises. In the first instance, by cutting state expenditureson welfare and lowering corporate taxes, the state subsidizesoverseas corporate activities. Secondly, state economic policy hasfacilitated firing of full-time employees...These labour policiesfacilitate the accumulation of capital that can be exported abroad toearn even higher rates of profit.87
Corporations, be they national or multinational, have often been viewed as
powerful entities and "not always responsive to popular concepts of the
'best interests' of the general public".88 The interests of labour and those
of consumers are at issue here.
85 J. Petras & T. Cavaluzzi, "Multinational Corporations and the Globalization ofCapitalism" In: Labour,Capital and Society (April 1994) at 91-96.86 S. J. Rubin, "Recent Development: Transnational Corporations and International Codes of Conduct: AStudy of the Relationship between International Legal Cooperation and Economie Development" (1995)Am. U. J. Int'l L. & Pol'y 1275 at 1278.87 Supra note 85.88 Ibid.
29
Host governments also have tools in their hands to encourage or
discourage FDI. Incentives include low-interest loans, tax breaks,
subsidies. Countries looking for FDI compete with each other. This
happened between France and the United Kingdom when Toyota was
looking for a new site to produce cars in Europe. 89 It happens between
states within the U.S. as wel1. 90 When it comes to how to discourage the
inflow of FDI into the host country, governments can set up performance
requirements and ownership restraints. The host state may prescribe that
top management must be made up by locals to a specified percentage, or
may impose requirements related to local content in the product. Such
requirements are more common in developing countries.91
Another public interest concern is that certain countries benefit from
globalisation while others do not, or at least not in the same way. This
uneven distribution of resources has strong economic and political
repercussions. It may lead to the conflict when developing countries do
not necessarily look at MNEs as stimuli for their national economy but as
new colonialists who want to conquer them, this time through economic
actions.
89 Supra note 51.90 In this case Kentucky offered Toyota a package that was worth $112 million to lure it into the state. Thestate assumed the obligation of spending more on infrastructure and the package also included tax breaksand the possibility oftaking out low-interest loans. See M. Tolchin & S. Tolchin, Buying into America: HowForeign Money is Changing the Face ofOur Nation (New York: Times Books, 1988)91 See J. Behrman & R.E Grosse, International Business and Government: Issues and Institutions(Columbia: University of South Carolina Press, 1990)
30
l think the following quotation aptly summarises the views as to the
relationship between Nation States and multinationals:
Many have regarded the TNC as a threat to national sovereignty, anattitude reflected, for example, in several Canadian reports, as weilas in the opinions of representatives of the developing countries.Others have perceived the TNC as an instrument of division thatperpetuates an inequitable allocation of benefits that impoverishesthe less developed countries. Thus the TNC may be regarded aswidening disparities not only between nations, but also betweeneconomic classes within a nation while simultaneously destroyingindigenous cultural patterns.92
Skeptics say that sovereign states have Iimited power and freedom in our
world. This, of course, depends upon the state we are talking about. The
interdependence of states and the powerful role MNEs play in international
trade are definitely a decisive factor of the international arena.
Understandably, host and home countries evaluate and look at the
behaviour of MNEs and the role of codes of conduct in a considerably
different way. Many developed countries saw codes as efforts of the
developing world to seize power over MNEs.93 There seems to be a change
in their attitude because the developed world has become the recipient of
foreign capital.94
92 Supra note 86 at 128l.93 See W. Sprote, "Negotiations on a United Nations Code ofConduct on Transnational Corporations"(1990) 33 German Yearbook ofInternational Law 331.94 See F.P. Waite & M.R. Goldberg, "National Security Review of Foreign Investment in the United States"(1991) 6 Florida Journal ofInternational Law 191.
31
The preference of the developed states is for a "balanced code"which would emphasise not only the duties owed by transnationalcorporations to the host state but also the standards of treatmentthat the multinational corporation is entitled to in the host state.95
The main difference in the attitude of home and host states is that home
countries want FDI to be governed by customary international law while
host states prefer national laws to international law.96
The behaviour of MNEs gives rise to a very important question that will be
discussed later in Part III, namely the issue of responsibility. Throughout
history, human rights protections have traditionally focussed upon the
relationship between states and individuals. With the rise of multinationals
and other actors in international society the picture has changed
somewhat. Business and interstate relations, the national workforce, the
environment and the general public are ail deeply affected by the
operation of huge corporations. Some of these corporations violate human
rights. The relationship between human rights and MNEs is not c1early
defined. It is unclear whether MNEs could be bound to respect human
rights laid down in certain international documents.97 The issue of
potential responsibility, as we will see, is not related to multinationals
only. Since MNEs operate in host countries, we also have to discuss the
responsibility of such countries. Finally, home countries also have to be
95 Supra 59 at 193.96 Ibid. at 194.97 1will discuss the issue ofMNE responsibility, the relationship between human rights and labour standardsand the relationship between human rights and MNEs in Part III in detail.
32
scrutinised, for MNEs have been incorporated under their laws and
jurisdiction.
3) The MNE's Participation in the Creation of International Law
In terms of the changing nature of international law, "one of the most
significant developments in public international law is the apparent
creation of law applicable to transnational corporations".98 This law
creation has been ongoing for more than 25 years but the role MNEs play
in the procedure is still not c1ear or weil specified. Various international
organisations have already created many codes of conduct for MNEs but
none of them have been successful 50 far. Most of these codes are being
developed with little or no MNE participation.
One of the reasons for the creation of Codes of Conduct is that developing
countries want to have a say in regulating the behaviour of MNEs. They
look at international codes as possible future regulators through which
they can increase their bargaining power with potential investors. This is
their only chance to make sure that MNEs will not take advantage of their
people and resources. They look at codes as means to protect host
countries from being exploited by corporations or other nations.
The other main reason underlying attempts to craft Codes is that even
powerful countries are not able to regulate the field unilaterally. Western
98 Supra note 36 at 748.
33
states have found it necessary to band together and to work with each
other in order to have an international document that can be enforced
against MNEs who even play one developed state off against another in a
competition for FDI. 99
Last but not least, MNEs also have an interest in these efforts. By creating
a unilateral code they can rid themselves of many difficulties caused by
various, potentially incompatible, national legal regimes. 100
If states were in agreement as to the international law of foreigninvestment, it would have been possible to bring about a multilateralagreement on foreign investment stating the substantive principleswhich apply in the area. The fact that none exist is due to theexistence of conflicting approaches to the problem of foreigninvestment protection and the existence of contending systemsrelating to the treatment of foreign investment.10l
The lack of such an international code may also be attributed to the fact
that MNEs have not yet been fully recognised as actors who have
international legal persona lity . How would it be possible to give
international legal personality to corporations? What would the
requirements be that corporations would have to meet? The general rule
as regards diplomatie protection of multinationals investing in foreign
countries was referred to in the Sarce/ona Traction Case. 102 According to
the IeJ, "a corporation has the nationality of the state in which it is
99 Ibid. at 749.100 Ibid.101 Supra note 59 at 187.102 Supra note 10.
34
incorporated",103 and therefore only that state is in a position to give
diplomatie protection to the corporation. 104
The problem of corporate nationality has been discussed in many arbitral
awards as well. lOS The International Centre for the Settlement of
Investment Disputes (ICSID)10G dealt with the issue107 but could not reach
a new result in terms of corporate nationality. Customary international law
also does not show willingness to accept another test for corporate
nationality than that of incorporation. lOS The underlying reason is probably
that corporations are creations of states and as a result the existence of
such corporations depends on the domestic will. lOg
Since each and every corporation is different, the question of corporate
nationality is difficult to answer. However, if public international law does
not recognise their legal personalityllO we can hardly talk about MNEs'
participation or, what is of main importance, their responsibility. In terms
of their participation, 1 mean the creation of an international code since
103 Supra note 59 at 246.104 Ibid.105 See for instance the so-called ICSID tribunals. See I.F.I Shihata, Legal Treatment ofForeign Disputes(Dordrecht/Boston/London,Martinus NijhoffPublishers, 1993) at 96-98.106 The Convention on the Settlement ofInvestment Disputes Between States and Nationals ofOther Statesset up this organisation. The Convention entered into force 14 October 1966. See generally ibid. TheConvention is available at www.worldbank.org/icsidlbasicdoc/9.htm107 See for example Holiday Inns v. Morocco (1980) 51 BYIL 123.108 Supra note 59 at 247.109 Ibid.110 According to traditionallegal theory the only subjects of international law are states and ail other entities,such as organisations and individuals, act through their governments. There is evidence, though, thatmultinationals have had sorne kind oflegal personality for sorne time. They participate in dispute settlementforums and play a very influential role on important matters. The bottom-line is that states and MNEs do nothave the same standing on the international field. In: H.M. Kindred, K. Mickelson, R. Provost, L.C. Reif,
35
they do participate, because of their enormous economic power, in
negotiations with governments.
In Case A-lB of the Iran-United States Claims Tribunal 111 the arbitrators
had to deal with, among others, diplomatie protection issues. The issues
also involved corporate nationality. Many dual nationals daimed protection
against a state of which they were nationals, namely Iran. Many
corporations that could be regarded as dual nationality firms were
nationalised as a result of the internai upheaval in Iran. 112 The Court held
that it had jurisdiction over daims against Iran by dual Iran-United States
nationals, provided that the dominant and effective nationality of the
claimant was that of the United States during the relevant period
determined by the Court. When it comes to determining the dominant and
effective nationality the Court considers many factors, such as family ties,
centre of interests, habituai residence, participation of public Iife and other
evidence of attachment.
A change is needed in the law-making process on the international plane.
Issues relating to MNEs cannot be successfully resolved without their
contribution and participation. Jonathan I. Charney put it this way:
T.L. McDorman, A.L.C. deMestral & S.A. Williams, International Law, Chiefly as Interpreted and Appliedin Canada 6th ed. (Toronto: Edmond Montgomery Publications Limited, 2000) at Il.111 Iran-United States Case No. Ail 8, (1984) 5 Iran-U.S.C.T.R. 251. The Tribunal was set up after theoverthrow of the Shah and the exodus ofU.S. corporations from Iran. The main question was thecompensation for nationalisation. The case was complicated by the fact that there were many dual citizenswho were American-Iranian nationals at the same time. In: Supra note 59 at 384-397.
36
Precluding such TNC participation in the law-making process notonly impairs the opportunity to effectively implement the rules, italso lessens the chances of maintaining their long-term viability. Intheory, then, participation by TNCs and other power groups wouldmake this rule-making process more realistic and its ultimateproduct more acceptable to ail parties. In turn, the likelihood thatthe codes could be successfully implemented would also increase. 113
However, we need to be careful how much power is given to MNEs. We
have to avoid the situation where MNEs have too much power and come to
dominate over states and non-governmental organisations.
The argument can be made that MNEs have always played and will
continue to play an essential role in the international legal system. I have
to agree in terms of MNEs' role but at the same time it is worth noting
that we need to find a more formai place for MNEs within the international
legal order. We should ascertain what their standing is and hold them
accountable for the wrongs they commit. 5tate and private parties do not
have the same standing on the international plane. 114 It is obvious given
that public international law governs the relationship between states. The
precarious status of MNEs in the international milieu, however, gives rise
to concerns expressed by developing countries and by the United Nations
when it examined the problem. The result of this scrutiny was the draft
112 See for instance Ameriean International Group Ine. v. Iran Case.(1983) 4 Iran US CTR 96 In: Ibid.113 Ibid. note 36 at 755.114 SJ. Toope, Mixed International Arbitration (Cambridge: Grotius, 1990) at 386.
37
code of the UN for multinational corporations. 115 Again the major problem
in creating a code is the conflict of interests of home and host countries. 116
Since MNEs are the most powerful actors in today's economy, non-
recognition of their power would not be realistic. Public international law
has to be adapted to reality. Schwarzenberger and Rubin argue that MNEs
do not threaten the power or role of the state. According to
Schwarzenberger117 the international situation has not changed because of
the rise of MNEs. He says that real power lies in political and military
potential and that economic leverage is only at the third place. 118
Rubin 119 says that MNEs are rather tools of powerful states than
independent actors. Yet it seems to me that there are some indicators that
show there has been a shift in power during the last three decades.120
Some MNEs are 50 huge that their structure is similar to that of astate.
They have offices ail over the world and they have preponderant influence
over certain economic sectors.
An argument against the participation of MNEs in the international law-
making process may be that they could weaken the whole international
system. If states' power was weakened and there was no enforceable
115 See 1. Seidl-Hohenveldern, "Multinational Enterprises and the International Law of the Future" (1975) 29Yearbook ofWorld Affairs 301.116 Supra note 59 at 191-193.117 G. Schwarzenberger, Power, PoUlies, a Study ofWorld Society,3d ed. (1964) at 129.118 1am not convinced that he would say the same things today. The world has changed a lot since 1964 andwe see the increasing power ofMNEs.119 S. J. Rubin, "Developments in the Law and Institutions oflnternational Economie Relations, theMultinational Enterprise at Bay" (1974) 68 Am. J. Int'1475 at 477-78.
38
international code, it would be difficult to make multinationals follow
certain rules. In this case governments, workers, the environment and the
public at large may suffer. The second argument suggests that if MNEs
were given international legal personality and were totally free from state
supervision it could result in a shift of power that is not desirable. Finally,
if there are too many actors involved in the decision-ma king process it
could lead to chaos because of the many interests that would have to be
reconciled.
Nonetheless, largue that excluding direct MNE participation in the
development of the rules has certain dangers: the rules will create
conflicts between states and multinationals; their rules may be ineffective;
and the respect for the international legal order could decrease. A greater
role should be given to MNEs, for the effectiveness of law depends mostly
upon the legitimacy of its norms, and legitimacy depends in part upon
involvement in norm creation .121
120 Supra note 86 at 1281. See also supra note 110 at 11.
39
Part II: Corporate Codes of Conduct relating to Labour Rights
1) The Relationship between Host Countries and Multinationals
Foreign direct investment has both advantages and drawbacks for host
countries. In this part 1 will examine these effects with regard to labour
issues. The overall impact of the corporation on the host economy
depends upon the quantity and quality of its capital, know-how,
management and marketing skills and technology. An essential beneficial
employment effect is that FDI brings jobs into the country, which
otherwise would not be created. When an MNE enters a country it directly
creates jobs in its factory but there is also an additional or indirect benefit,
i.e. new jobs are being created in supply industries. The indirect economic
benefit can be as great as the direct one. 122 The magnitude of the
employment impact is highly country- and industry-specific. 123
There are many factors that must be taken into account when it comes to
analysing the effects of direct foreign investment. They include: the
differences between national and foreign corporations in terms of their
size, capital, technology, labour policy etc.; the competitiveness of local
121 Supra note 37 at 48.122 Critics say that one has to be careful when one talks about creating "new jobs". They say one also has totake into account the jobs lost as a result of the entry ofthe MNE. In: Supra note 14 at 214-215.123 An estimated 2,000 jobs will be created in Toyota's plant in France and an additiona12,000 jobs amongsuppliers. In: Supra note 51.
40
firms; the host country's particular assets that serve as a motivation for
MNEs to enter the country, i.e. the regulatory framework in the host
country and the development level of its economy. Beside this, one has to
stress that decisions that favour costs exclusively over ail other factors are
not necessarily in the best interest of multinationals. When setting up
guidelines or principles, ail factors must be taken into account. Framers of
such precepts must deal with concerns of the public and those of
employees, employers and shareholders.
As far as the host country's labour market is concerned, gains mostly
mean training of employees, introduction of new working conditions and
higher wages. As for the latter, one has to emphasise that one of the main
reasons MNEs choose a given country is its low-wage structure, therefore
the expectations of Western wages is without foundation .124
As to working conditions, sometimes MNEs maintain unsatisfactory
working conditions. The lack of local legislation in terms of labour
standards often makes this behaviour possible. In summary, one can say
that "net employment creation or improvement in the conditions and the
quality of the labour force are likely to result from the operations of MNEs,
124 Higher wages do not mean that wages in the host country will be Western wages. One of the reasons theMNE entered the state was its low-wage system. However, it is true that these wages are likely to be higherthan local wages. See J. Perlez, "GE Finds Tough Going in Hungary" New York Times (25 July 1994) Cl,e3.
41
but they do not necessarily and automatically accrue to the host economy
in ail cases".125
A) Child Labour
The exploitation of child labour ail over the world has been a problem for
many years and it has disastrous effects upon children. Using children as
workers dates back to the beginning of human history. The need to solve
this problem, however, has only recently been recognised. Throughout the
world "[a]n estimated 250 million children between the ages of five and
fourteen work".126 Out of this number an estimated 237.5 million work in
developing countries. 127
There is a need for universal and enforceable standards in order to
preclude large corporations and others from taking advantage of children.
The protection of the rights of children is a twentieth century idea.128 In
the 19205, "Save the Children", an influential non-governmental
organisation, came into being in order to address children's rights
effectively.129 The United Nation Convention on the Rights of the Child13D
"had the largest number of signatories on the day it was opened for
125 P. Bailey, A. Parisotto, G. Renshaw, Multinationals and Employment: The Global Economy ofthe 1990s(Geneva: International Labour Office, 1993) at 66.126 C. M. Kern, "Child Labor: The International Law and Corporate Impact" (2000) 27 Syracuse 1. Int'I L.& Corn. 177 at 177.127 Ibid.128 T. Hammarberg, "The V.N. Convention on the Rights ofthe Child and How to Make It Work" (1990) 12Human Rights Quarterly 97 at 98.129 Ibid.
42
signature" and "went into force more quickly than any other human rights
treaty".131 Among the countries that ratified the document can be found,
for example, Guatemala, a country that has a bad human rights record. 132
The United States, however, has not yet ratified the treaty.133
First, I will define the meaning of child labour. Then I will examine MNEs'
practices and finally discuss the international background regulating child
labour. I posit that defining child labour is a surprisingly difficult task. It
may seem shocking, but some developing countries depend upon child
labour. If there were a ban on child labour in these countries, their
economies would be even weaker. This is the case in India, Nepal,
Pakistan and Guatemala, just to name a few. 134 The economic fact is that
they simply cannot afford the immediate prohibition of child labour.
Stronger economies, however, could pass laws prohibiting this kind of
labour by setting up an age-based system.
This picture suggests that one cannot persuade some countries that child
labour in itself is wrong because their economic survival turns upon this
kind of labour. It seems therefore that a world-wide ban on child labour is
not a possible solution at this time since such a measure would push these
130 U.N. Doc. A/Res44/25 (20 November 1989)131 c.P. Cohen, "The United Nations Convention on the Rights of the Child: A Feminist Landmark" (1997)3 Wm. & Mary J. Women & Law 29 at 29.132 T.R. Lave, "Breaking the Cycle of Despair: Street Children in Guatemala City" (1995) 27 Colum. Hum.Rts. L. Rev. 57 at 81.133 M. Moran, "Ending Exploitative Child Labor Practices" (1993) 5 Pace Int'l L. Rev. 287 at 303. See alsowww.unicef.org/crc/faq.htm#009134 See generally supra note 126. See also ibid.
43
economies to the brink of collapse. But it is also c1ear that the current
system under which millions of children work for a mere pittance under
awful conditions is simply not morally acceptable.
In order to be able to offer solutions to this thorny problem we have to
examine its roots. One of the reasons for the exploitation child labour is
that the world's population has been growing during the last decades. It
seems evident that international norms have not been effective since child
labour has also been increasing during the last decades. Child labour has
negative effects not only on children but on the society as weil. Since
children have to work, they do not have time to get an education and they
will not have a career later due to the lack of education. Harvey and
Riggins argue that child labour "recycles poverty and hopelessness by
turning today's generation of child laborers into tomorrow's sick,
unemployed, uneducated and unproductive adults".135 Child labour,
however, is not a problem of developing nations only. There have also
been cases reported in the United States. The main 'justification' is the
search for cheap labour, when cost plays a major role in investment.136
One has to stress that there is a difference amongst various forms of child
labour. The majority of the children around the world have been employed
at one time or another. Child labour under certain circumstances can be
135 P. 1. Harvey & L. Riggins, "Trading Away the Future: Chi1d Labor in India's Export Industries" 18(1994)136 See Supra note 14 at 180-206 and 376-400.
44
beneficial. This work, if properly supervised and controlled, can prepare
them for a successful and productive life. 137
The issue is where the threshold is between acceptable and unacceptable
child labour. There is no international treaty that would help us in
answering this question. The problem is international so there should be
an international way to address it. Critics say that this cannot be done
since international law is "unenforceable",138 but many people believe
there will be a way to build effective norms. The fact is that national
initiatives have been ineffective so far and this phenomenon is also in
favour of an international solution. The problem has always been
enforcement. If we take a look at the initiatives of the United Nations, the
OECD or the International Labour Organisation one may conclude that
these efforts are without effect. There are many domestic laws in the
world regulating labour issues but they do not play a practical role, for the
economic interests of states often prevail over concerns relating to labour
rights. If host states want to prosper or give stimuli to their economies
they do not really have a choice but to let multinationals do their business.
Host states sometimes allow MNEs to evade national norms in order to
make more profit. Woodward says it is similar to the situation of the "fox
guarding the chicken cOOp".139
137 See generally infra note 138. See also supra note 126.1381. Bol, "Using International Law to Fight Child Labor: A Case Study of Guatemala and the InterAmerican System" (1998) 13 Am. U. Int'I L. Rev. 1135 at 1185.139 K. H. Woodward, "Neo-Colonialism, Labor Rights, and the "Growth Triangle" ofIndonesia, Malaysia,and Singapore: Who Will Protect the "Hinterland" and Indonesia's Workers?" (1996) 15 Dick. J. Int'I L.171 at 192.
45
50 far none of the nations concerned have shown an interest in enforcing
national labour standards. Guatemala and Indonesia, for example, are two
of those countries that are willing to overlook child labour abuses in order
to make the country more enticing to MNEs. 14D
One may say that some provisions of international treaties are in conflict
with national laws. 141 5ince "it is the constitutional framework of astate
that determines the degree to which international law is applied in any
given circumstance",142 national application of international treaties varies
from one country to another. Nevertheless, this kind of stance is against
the uniform interpretation of international law.
In terms of child labour, Article 32 of the UN Convention of the Rights of
the Child applies. 143 This provision declares: "states parties recognize the
right of the child to be protected from economic exploitation and from
performing any work that is Iikely to be hazardous or to interfere with the
child's education, or to be harmful to the child's health or physical, mental,
spiritual, moral or social development".144
The article was intended to preclude economic actors from exploiting
children. However, the international norm does not seem to be effective
140 See generally supra note 138.141 Supra note 133 at 304.142 Supra note 110.143 See supra note 131 and 134.144 In: United Nation Convention on the Rights a/the Chi/do
46
given that the problem still exists. The main reason is enforceability. The
onus of enforcement is on individual member states that have not been
willing to give effect to this norm. 1 will briefly discuss the role of states in
Part III.
The role of MNEs relating to child labour issues is of central importance. It
would be advantageous if MNEs themselves assumed commitments they
would follow. Throughout the years, many MNEs have set up their own
codes they say they comply with, but these internai codes do not offer an
effective solution to the problem of child labour. Again, as stated above,
there are two main factors that "compete" with each other. Cheap
production, i.e. the highest possible profit, and the interests of the
children. It is very Iikely that without the active engagement of MNEs,
child labour will never disappear.
There is one important factor that has the potential of being influential
towards MNEs: public opinion. Once it turns out that certain c10thes or
shoes were produced by children working under awful conditions, the
public is shocked and it is usually followed by a refusai to purchase. This is
what happened to NIKE, for instance. 145 The sportswear company
committed human rights violations abroad. Suffice it to mention what
happened in Vietnam, Indonesia and China. In 1996, NIKE's sweatshop in
Vietnam was documented for violating various labour laws, including child
145 P. Tharp, "Kathie Lee Doesn't Want to Be a Fashion Victim" New York Post (20 November 1998) 43.
47
labour, corporal punishment, unsafe working conditions and forced labour.
Basically, the same things occurred in China and Indonesia. 146 NIKE's
operations in the above-mentioned countries caused a huge public outcry
towards the corporations' gross violations. NIKE had to do something since
the sale of its products decreased. This may be considered as a
punishment on behalf of the public for the human rights violations.
However, NIKE was successful in regaining its reputation. The company
adopted its own code of conduct in 1992, which is applicable and binding
to ail factories and partners around the world. The standards of the code
concentrate on the prohibition of child and forced labour, and on fair
wages. The corporation has been accused of publicising its code provisions
in order to make consumers buy its products again, while not ta king
necessary measures to implement the code. Due to the code and its
publication, the corporation has been successful in regaining its reputation
and position in international markets.
It is ironie to pinpoint one single MNE and ban its product for a certain
period of time since there are many of them that have something to do
with child labour. "The fact is that too many American companies are
willing participants in the utilization of child labor in the United States as
weil as in developing countries".147 NIKE also "suffered" because of
negative public opinion. A poor image seems to be an incentive to take
initiatives to "undo" violations. The corporation has been the target of
146 See at http://www.corpwatch.org/trac/nike
48
many attacks in the press because of its labour practices. 148 NIKE now
allows human rights groups to conduct monitoring in its facilities and the
result is made public. 149 NIKE daims there are daily inspections by NIKE
production managers, as weil as independent monitoring on a periodic
basis. Furthermore, the corporation penalises partners who do not comply
with the code. Those subcontractors who violate the code may face fines
and, as an ultimate solution, the severance of the relationship. Monetary
penalties go to an escrow account and are subsequently used to correct
violations. One can question the benevolence of large corporations, but
from a practical point of view it is the result that matters, not motives.
NIKE suffered a financial loss because of its poor human rights report.
Ever since the public exposure of its practices, the company has been
working on regaining its reputation. It is very Iikely that the incentive is
economic but again it is the result, i.e. the protection of the children, that
is of importance.
B) Host Countries' Labour Laws
As far as the behaviour of MNEs' is concerned, an interesting propensity is
their stance when it comes to trade and labour linkages. They tend to
struggle against any approach that connects global trade rules to
147 Supra note 126 at 192.148 R. Dale, "For Business, No More "Mr. Bad Guy" Thinking Ahead" Int'l Herald Trib. (2 May 1997)149 Supra note 126 at 194.
49
international labour standards. Human rights activists tend to suggest that
developing countries absolutely lack labour standards that would protect
their workers, and that trade linkages are crucial. Yet, developing
countries often have more labour law provisions and acts than developed
countries; most of them simply do not enforce these laws for economic
reasons.150 The labour-trade linkage is therefore best understood as
relating to enforcement, rather than standard-setting.
-In developing countries, provisions relating to minimum wages, certain
rest breaks and caps on working hours can be found. 151 When it comes to
scrutinising the safety and health conditions in workplaces, developed
countries are often ahead of developing countries. However, it is not
because the latter lacks applicable laws. Without universal child labour
regulations, it is inevitable that some countries will be willing to give up
their labour laws in order to attract FDI into the country.152 There may be
countries that enforce their labour laws while others do not. This follows
trom the economic standpoint since investments MNEs might make
generate competition among possible host countries. Therefore, they have
to forego some of their national laws in order to have a "competitive
advantage" over others. And it is true that to some countries economic
150 The so-called "race to the bottom" means that MNEs go to countries where laws inc1uding labour andenvironmentallaws are lax. This serves as an incentive for many host countries to forego sorne oftheirexisting nationallaws since they need FDI. In:C.L. Erickson & DJ.B. Mitchell, "Labour Standards andTrade Agreements: D.S. Experience" (1998) 19 Comp. Lab. L. & Pol'y 1. 145 at 147.151 For example, in China the maximum working hours is nine hours a day, one hour ofwhich must be paidas overtime. In the Dominican Republic workers have a right to paid holidays off. The Mexican law requiresat least one day offper week, which must be paid. Bulgaria prohibits overtime, except in emergencysituations.
50
advantage is far more important than human rights concerns. Poor
countries also have labour laws relating to children .153 According to the
International Labour Organization "almost every country, through
domestic or international law, prohibits children from performing work that
interferes with their educational, physical, mental, and moral
development".154 Many developing countries set up an age limit under
which employers are not allowed to employ children. 155
The answer to the question why there are 50 many violations in certain
countries lies in the enforcement mechanism. It is commonly argued that
in poor countries there is no, or at best a very weak, enforcement
mechanism. However, not everyone agrees with this allegation: "Poor
countries do a good job enforcing worker protection and anti-sweatshop
laws against players in global commerce. Indeed, a third-world bureaucrat
whose job is to enforce local labor laws has a political incentive to crack
down on the big, foreign-based companies and their suppliers".156 l
suggest that the truth is probably between the two versions. It seems to
me that this approach does not take into account the economic incentives
that go against political incentives. 157
152 Supra note 126 at 184.153 The same goes for forced labour issues, for many poor countries' laws prohibit forced labour. The twomain countries that have often been accused of allowing forced labour in their territory are Myanmar andChina.154 Reported in D. C. Dowling Jr., "Human Rights, Corporate Responsibility, and Economie Sanctions: TheMultinational's Manifesto on Sweatshops, Trade/Labor Linkage, and Codes ofConduct" (2000) 8 Tulsa J.Comp. & Int'l L. 27 at 33.155 For instance, in India, Nepal, Brazil and Egypt a chiId can only be employed ifhe/she is more thanfourteen. In Vietnam the age limit is fifteen. In China it is sixteen. In: Ibid.156 Ibid. at 39.\57 Ibid.
51
Many people in rich countries are taken aback when they hear about the
wages MNEs pay to their employees. And yet, Western attitudes towards
sweatshops are appropriately complex:
ln time, though, we came to accept that the simplest way to helpthe poorest Asians would be to buy more from sweatshops, not less.It may sound silly to say that sweatshops offer a route to prosperity,when wages in the poorest countries are sometimes less than $1 aday. Still, for an impoverished Indonesian or Bangladeshi womanwith a handful of kids who wou Id otherwise drop out of school andrisk dying of mundane disease Iike diarrhea, $1 or $2 a day can be alife-transforming wage. 158
It is argued that low wages are still better than no wages. This, however,
does not make the deeper question of justice disappear. According to the
authors of the above-quoted lines, an increase in wages would spread
across borders and lead to numerous layoffs. It seems to me that this may
be the case only if the wages were raised considerably.
1 noted above that MNEs fight against initiatives that would link trade laws
to labour rights. This stance is important since it influences the
preparation of their codes of conduct if they are willing to accept such
codes at ail. The question is: Why do MNEs hesitate when it would come to
setting up international labour standards? Part of the answer lies in the
attitude of MNE's home countries, an issue to which 1 will now turn.
52
2) The Home Country's159 Approach as to Labour Standards
As far as the home countries are concerned, 1 will discuss the approach of
the United States in detail. Since the U.S. is the most influential nation in
the world, its point of view can affect those of others. U.S.-owned MNEs
may also play an essential role in promoting respect for international
labour standards through their codes of conduct.
Many codes have been proposed for MNEs since 1977. 160 First, 1 will briefly
discuss the so-called Siepak Principles161 and Miller Principles162 then 1 will
turn to legislative initiatives.
A) Domestic Initiatives
Siepak Principles
These tenets were developed by Siepak and applied to the relationship
between the U.S. and the Soviet Union. Their importance is that they
affected later initiatives. Among these principles were that American
158 N. K.ristof & S. WuDunn, "Two Cheers for Sweatshops" (September 2000) New York Times SundayMagazine159 By "home country" 1mean the state in which the corporation was incorporated.160 The so-called Sullivan Principles (1971) had a strong impact upon the political system of South Africa.These tenets were set up to regulate U.S. companies' employment practices in the RSA. According to sorneauthors they played a major role in ending apartheid. The MacBride Principles (1984) is a corporate code ofconduct for U.S. MNEs doing business in Northern Ireland. In: Perez-Lopez, "Promoting InternationalRespect for Worker rights Through Business Codes ofConduct" (1993) 17 Fordham InCl L. J. 1 at 3-5.161 The Siepak Principles were named after the Soviet human rights activist Vladimir Siepak. The principleswere developed for American companies operating in the former Soviet Union. In: Ibid. at 7-9.
53
corporations doing business in the USSR "will not use goods or products
manufactured by forced labour in the Soviet Union; will ensure that
methods of production do not pose an irresponsible physical danger to
Soviet workers, neighboring populations, and property".163 With the
dissolution of the Soviet Union, proponents of the Siepak Principles did not
continue their campaign and the principles fell into oblivion.
Miller Principles
These principles were aimed at U.S. multinationals doing business in China
or Tibet. They posit that corporation shall suspend the use of ail goods,
wares, articles, and merchandise that are mined, produced, or
manufactured, in whole or in part, by convict labor or forced labor if there
is reason to believe that the material or product is produced or
manufactured by forced labor, and refuse to use forced labor in the
industrial cooperation projects; and ensure that methods of production
used in the industrial cooperation project do not pose an unnecessary
physical danger to workers and neighbouring populations and property.~64
These domestic initiatives, however, did not succeed in regulating U.S.
multinationals' behaviour generally since they were voluntary codes.
162 The Principles named after V.S. Representative John Miller were aimed at encouraging liberalisation andpolitical freedom in the People's Republic of China and Tibet. In: Ibid. at 9.163 See The Slepak Report No. l, at 1.164 See H.R. 1571, lü2nd Congo 151 Sess. (1991)
54
Multinationals do have a choice whether or not to adopt a code they wish
to abide by.
In terms of legislative actionsr the above-mentioned principles were
presented to the Congress but both failed to become acts. The Siepak
Principles Act165 contains the thoughts of Congress relating to U.S. firms
operating abroad r ensuring that these entities are not allowed to use
products that have been produced by the use of force~ labour. With the
dissolution of the Soviet Union the bill was abandoned.
As far as the Miller Principles areconcerned, the act166 would have required
a U.S. national to indicate whether he or she agrees to implement the
principles. Those who have not agreed to implement them would have
been found not to be acting in good faith. U.S. nationals would have also
been required to file annual reports to the U.S. Secretary of State in terms
of their adherence to the tenets.
The basic idea of the Miller bill is that abiding by the principles is not
compulsory. However, had the bill been passed it would have been highly
recommended to follow its maxims. There is a danger that if a corporation
announces that it does not regard those principles as binding it may have
a huge impact upon the company's reputation. The bill, however, failed
165 The Slepak Principles Act was introduced by Representative John Miller (B.R. 2366, 101st Cong., Ist
Sess. 1989) and Senator John Heinz (S. 1018, 101st Cong., 1st Sess. 1989)166 B.R. 1571, 102d Cong., 181 Sess. (1991)
55
since there was a huge corporate interest in the United States in
investment opportunities in China.
New efforts to fight child labour problems have evolved. The role of the
United States may be of special relevance for it can effectively influence
others to accept certain measures. As Garg argues:
[T]he United States must pursue a stronger policy to discourage theuse of child labor abroad. Sy linking child labor standards with tradepolicy, the United States could effectively discourage the importationof goods produced by abusive child labor practices. This trade policywould provide strong economic incentives to foreign companies thatcurrently export goods produced by child labor to cease suchpractices. 167
The so-called Maquiladora Standards of Conduct168 is also worth
mentioning. The code came into being because there were many factories
along the U.S.-Mexican border in which workers had to work under awful
conditions. Most of the plants were U.S.-owned plants. The Code is aimed
at US MNEs doing business in Mexico and consists of labour standards US
MNEs should follow. These standards are about health and safety
practices, standard of living of workers and environmental standards. As
far as the issue of fair employment is concerned, the Code states that
"workers will be provided with a fair and just wage, reasonable hours of
167 A. Garg, " A Child Labor Clause: Analysis and Proposai for Action" (1999) 31 N.Y.U.J. Int'I L. & Pol.473 at 473.168 Maquiladoras are plants along the US-Mexican border that specialise in assembling US-madecomponents into products, which wil\ later be sold in the United States. In: Supra note 160 at 10-13.
56
work and decent working conditions".169 It also says that "U.5.
corporations will not employ or utilise child labour and will exercise good
faith in ensuring that employees are of legal working age".170 In 1992, the
shareholders of some U.S. multinationals proposed that they stick to these
standards. This approach could have been a major step in the area of
labour standards. However, ail proposaIs were eventually withdrawn and
only one of the ten corporations decided to sign the Code. 171 The reason
behind the failure of these initiatives is Iikely to be associated with the
cost, and potential legal (or at least political) responsibility the
"ratification" wou Id have triggered.
As far as actual U.S. legislation is concerned, the Treasury-Postal
Appropriations bill l72 was passed in the House of Representatives on
September 29, 19t7. It has a provision that prohibits the U.S. Customs
Service from allowing the importation of goods that have something to do
with forced or indentured child labour}73 As we will see later, the scope of
the ILO Convention on Child Labour issues is wider than that of this Act.
A very important legislative initiative is the Child Labor Deterrence Act. 174
It would have been the most comprehensive device in the fight against
169 Ibid.170 Ibid.171 Ibid.172 143 Congo Rec. H8137, H81S7, sec. 634.173 Ibid.174 The Child Labour Deterrence Act of 1997 (CLDA), S. 332, lOSth Congo The CLDA is a bill that wouldban the importation ofproducts into the United States produced by child labour and introduce anenforcement mechanism.
57
child labour on behalf of the United States had the bill been passed. The
1997 version of the act defines a child as a person who has not attained
the age of 15 or 14 depending upon the national laws of foreign countries.
Under the bill, the Secretary of Labor has the dutY of identifying foreign
industries that do not comply with child labour measures. A petition can
also be submitted to the Secretary as a request to review a given
industry. He either rejects the petition or sustains it. In the latter case,
after at least one public hearing and a notice in the Federal Register, he
designates that industry as one that uses child labour. Later on, under
certain conditions, a revocation is possible. 17S
The Act would sanction the import of products produced with child labour
into the U.S. The bill also provides that once a particular country's
industry is designated as a child labour products exporter, it cannot export
any of its wares into the United States. If the company tries to export
despite the prohibition, it can be fined. A civil penalty up to $25/000 can
be imposed, while criminal penalties would be between $10/000 and
$35/000/ or up to one year in prison. 176
Since the CLDA is only a bill, one has to posit that "[t]here is currently no
federal law that prohibits the entry of foreign imports produced by abusive
child labor in whole or in part".l77 Recent national legislative initiatives
seem to have failed to properly address the issue. They have been
175 Before revocation the Secretary of Labor must publish a notice in the Federal Register and he must alsoask the public to submit its oral and written comments regarding the revocation.176 Supra note 167 at 508.
58
criticised for conditioning trade access on adherence to child labour laws
and, as a result, they did not become laws.
Present U.S. legislation contains only minimal provisions relating to child
labour standards. There is a handful of acts that deal with free trade and
labour standards, incorporating projects such as the Multilateral
Investment Guarantee Agencyl78 (MIGA), the Generalized System of
Preferences179 (GSP), and the Overseas Private Investment Corporation180
(OPIC).
The GSP system has often been criticised for being politicised. Under this
system, certain benefits may be granted by the President of the United
States to developing countries that qualify for them. These benefits are
unilateral and non-reciprocal duty-free benefits. Guatemala was among
the beneficiaries, despite its persistent human rights violations. The United
States Trade Representative investigates whether or not certain countries
should be removed from the list. The overall view of this system is that it
does not give enough protection to workers and it lacks enforcement. And
this is true as concerns MIGA and OPIC, both of which are about giving
insurance against political risks to companies operating in developing
177 Ibid. at 533.178 Ibid. at 499-500.179 The GSP system was established by the Trade Act of 1974, and under the Act the President of the UnitedStates has the right to grant unilateral duty-free treatment to qualifying countries. The benefits can berevoked. In: Ibid.180 Ibid.
59
countries. MIGA and OPIC link U.S. trade policy to compliance with labour
standards.
The so-called social labelling181 is another avenue to try to achieve
compliance with labour standards. One of these labels is "RugMark,,182
which can be found affixed to carpets coming from India indicating that
they were produced without child labour. Garg writes that "[o]ne of the
purported benefits of social labeling is that it uses market mechanisms,
rather than trade restrictions, to reduce demand for goods that are
produced without fair labor standards".183
It seems to me that social labelling has a drawback as weil, i.e. this
approach does not seem to eliminate the problem at its root. Companies
are not forbidden to make "suspicious" products; this "solution" simply
leaves the final decision to consumers. It is also true, however, that social
labelling concentrates on the problem and addresses it. It would be
successful if ail of the producers stopped harmful labour practices, which is
not the case. There is no sanction if there is no label on the product
beyond the possibility of consumer boycott. Ultimately, it is the consumer
who decides whether or not to purchase the goods. A survey conducted in
1995 showed that "seventy-eight percent of the U.S. consumers would
181 This approach does not prohibit child or force labour. This is an indirect way to fight against unfairlabour practices. The system is not entirely reliable and products without labels were not necessarily"sweatshop" products. In: 1. Hilowitz, "Social Laboring to Combat Child Labor: Sorne Considerations"(1997) 136 Int'l Lab. Rev. 15 at 16.182 Certain carpets imported into the D.S. bear "RugMark" which is a voluntary tag. In: Supra note 164 at503.183 Supra note 167 at 504.
60
avoid retailers if they knew they were dealing in sweatshop goodS".184
Public boycott may be an effective tool in combating harmful labour
practices. This may assure that MNEs do abide by international labour
standards. 18S Nevertheless, sometimes it happens that the label can be
found on wares where it should not be. Mislabelling has the potential to
undermine the whole purpose and meaning of the system. However, if the
labelling procedure is properly supervised and controlled, social labelling
could be a viable avenue to address the issue of child labour. Leaving the
decision to the media and consumers would likely contribute to the
decrease and, potentially, the elimination of child labour, in an era of
increasingly globalised markets.
3) External or True and Internai or Voluntary Codes of Conduct
The literature differentiates between "external" or "true", and "internai" or
"voluntary" codes186 referring to internationally- or nationally-adopted
binding and enforceable codes, and corporate-adopted non-binding codes.
A code is external if the corporation did not take part in its adoption, while
it is internai when the company itself established it.
184 Infra note 263 at 918.185 J.L. Johnson, "Public-Private-Public Convergence: How the Private Actor Can Shape PublicInternational Labor Standards" (1998) 24 Brooklyn 1. Int'I L. 291 at 332. See alsohttp://www.laborrights.org/ilrf3.html186 Supra note 27. See also note 126 and 160.
61
There are many voluntary codes set up by firms but these codes may
seem suspicious since the same corporations do not seem to be willing to
accept an internationally binding document. If their codes are so thorough,
carefully thought-out and enforced, then what is the reason behind their
reluctance to accept global standards?
One inevitably imagines that if a code has been set up by the MNE, it is
not Iikely to be effective and enforceable. At the same time, if it has been
created without the participation of the MNE, the norms have a greater
chance to be enforceable. In this part l will focus on this issue and its
implications, including the question why ail attempts to adopt an
enforceable code that regulates MNEs' behaviour seem to have failed so
far. Hart's view is true of ail legislation when he says that the different
kinds of fields of Iife can never be totally regulated simply because no-one
can anticipate each and every eventuality that can happen. 187 Therefore,
sooner or later, each and every act has to be amended in arder to adjust it
to the environment that has changed since the adoption of the norms.
This is an eternal change and this makes the creation of a public code
even more difficult. Within a national parliament or an international
organisation there are many interests that have to be reconciled before
being able ta pass a given act or treaty. This energy- and time-consuming
187 In Hart's view there are inevitably gaps within a legal system. Those who think there are not aremistaken simply because law cannot cover each and every field oflife. See generally H.L.A. Hart, TheConcept ofLaw (New York: Oxford University Press, 1994)
62
process is never-ending, because the legislature has to keep up with the
pace of change.
We have to examine the case of private initiatives as weil. Within the
corporation there are fewer confronting interests. Indeed, one may say
there is only one: making as much profit as possible. To a multinational it
is much easier to keep up with the changing environment and to give a
quick response to new challenges. It seems, therefore, that it takes less
time and effort to adopt private than public codes. This is, however, one
side of the coin, as we have not yet considered the question of
effectiveness. There are many private codes today, but the problem of
child labour still exists.
It may be argued that multinationals along with the market, the media
and consumers are better guardians of human rights than governments or
international organisations. The argument runs that MNEs are powerful
but they do have a weak point through which they can be influenced.
5ince they are profit-oriented, the opinion of the general public is vital to
them. If nobody purchased their products they would vanish in a short
period of time and this is something they want to avoid. The real power,
therefore, lies in the hands of the public at large.
A code of conduct set up by a multinational "shares the desired results of
a public code, but has a greater potential for success than a public code in
63
promoting integrity among international corporate executives".188 Salbu is
in favour of voluntary codes. He argues that "a voluntary code is evocative
of the state of the art,,189 for the above reasons.
At the same time, there are arguments that go against the effectiveness
of voluntary codes. The effectiveness is limited by different factors that
have an impact upon codes. The first factor is that "codes and labeling
schemes enacted by U.S. MNEs will not protect the vast majority of
workers in developing nations simply because much of the output of
developing economies is completely unrelated to U.S. markets".190
Dowling draws attention to the fact that local corporations in developing
countries are among those who violate human rights and there have not
been many measures addressed to them. 191 However, even if this
argument is true, internai codes have the potential to influence other
MNEs' policies. l am of the opinion that the phenomenon of creating
private codes could be beneficial if it is intertwined with public opinion and
the attention of the media.
The second factor that may Iimit the effectiveness of private code is that
two types of MNEs are not within the scope of codes, those that sells raw
188 M. B. Baker, "Private Codes ofCorporate Conduct: Should the Fox Guard the Henhouse?" (1993) 24Miami Inter-Am. L. Rev. 399 at 414.189 Supra note 27 at 359.190 Supra note 28 at 140.191 Supra note 154 at 44.
64
materials and those that do not have a public reputation to lose. 192 The
former type is virtually invisible to the public since it sells components to
corporations that manufacture end-use goods. It seems almost impossible
that such corporations would adopt codes of conduct that they would
comply with. One may say that for these corporations, governments and
international organisations would have to take appropriate measures since
in their case the above-mentioned incentive, that is the need for good
public opinion, is absolutely absent.
The third factor is that even if there is an effective and enforced code that
prohibits employers from hiring children under a certain age, children who
have been laid off because of the code may find other employment, often
at lower wages and under worse conditions. From the child's viewpoint,
the code has quite the opposite effect than was intended by those who
created it.
Is it better for corporations not to have codes if they lead to the above
situation? Not really, for if they do not have codes, the situation would be
static and would not be addressed at ail.
At the same time, MNEs in host countries are often advantageous
workplaces, in comparison to local corporations, at least for children above
16. They typically work under better conditions and for a higher salary.
192 See the case of Bishan, a Chinese shoemaker firm. The company does not have goodwill to lose. It makescheap shoes it can sell to Chinese people who cannot afford other kinds of shoes. The employees have to
65
As a consequence one may conclude that since a voluntary code can be
set up and, if necessary, amended much faster than its public counterpart,
the solution may lie in the creation of voluntary codes. They may then
serve as solid foundations for an effective public initiative. The result of
such an approach may be that multinationals and an international
organisation, which is mainly interested in protecting human rights, would
gather around the negotiating table. They wou Id discuss the key
components of the MNEs' codes and adopt an external initiative that is
based upon private codes, and that serves the best interests of ail
interested parties.
4) Examining Two Internai Codes: Reebok Corporation and Levi Strauss &
Co.
[I]n a global marketplace with almost instant communications, thereare no hiding places for companies. International media will exposeinconsistency and irresponsibility in corporate behavior, and vigilantconsumers will respond. 193
Public relations is the main reason why multinationals (mainly U.S.-
owned) started setting up their own codes. l will analyse two prominent
examples: Reebok and Levi Strauss.
work under awful conditions and for a mere pittance. Not only employees but also the owners of thecompany are exposed to dangerous materials. In: Ibid.
66
A) Reebok Corporation
Reebok has not just created its own code of conduct for international
labour rights called "Reebok Human Rights Production Standards,,,194 but
has also developed an international human rights advocacy program.195
The latter consists of giving Reebok awards for human rights organisations
and activists and sponsoring events that raise money for human rights
purposes.
The Reebok Human Rights Award recognizes young activists whohave made significant contributions to human rights causes throughnonviolent means. The Award aims to generate positive internationalattention for the recipients and to support their efforts. Since 1988,more than 60 recipients from over 35 countries have received theAward. 196
One may think that since corporations have the goal of making as much
profit as possible these kinds of projects sponsored by MNEs are not
"real": 197 firms do not really mean to support human rights but merely to
launder their image. They do it because they are a lot more concerned
about public opinion than about human rights issues. Yet, through the
power of public opinion, the goals associated with human rights may be
achieved, and from a practical point of view human rights are effectively
being dealt with. When corporate officiais say "we also care about issues
193 M. NichoIs, "Third-World Families at Work: Child Labor or Child Care? (1993) Jan.-Feb. Harv. Bus.Rev. 22 at 22.194 See supra note 26 at 679-683.195 Ibid.196 AvaiIabIe at http://www.codagroup.net/rhr/homepage.htmI197 In Compa and Hinchliffe-Darricarrere's words "[t]he company that seeks to pursue profit and do goodworks at the same time is Iikely to do neither weIl". In: Supra note 26.
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like human rights,,198 they may say the truth. Whether it is because of
their conviction or possible future profits does not really matter, if the
effects are positive.
Reebok's Labour Code expresses, amongst other things, "Reebok's
devotion to human rights worldwide is a hallmark of our corporate culture.
As a corporation in an ever-more global economy we will not be indifferent
to the standards of our business partners around the world".199 It also
states that the company believes "that the incorporation of internationally
recognized human rights standards into our business practices improves
worker morale and results in a higher quality working environment, which
in turn helps us produce a higher quality product".200 The Reebok code is
about seven fields of labour rights that include child labour, forced labour,
working hours, fair wages, the prohibition of discrimination, freedom of
association and safe work environment. The code applies to Reebok's
partners only and not to foreign governments. As we will see, this is not
the case with Levi Strauss's policy. How multinationals see foreign
jurisdictions is a vital question. Some of them decided not to enter
countries with bad human rights records, while others do enter them and
still try to address human rights concerns. In order to be able to do so,
Reebok established a three-tier program of enforcement and monitoring.
198 B. Horovitz, "Reebok Walks Marketing Tightrope with Human Rights Concert Tour" Los Angeles Times(26 July 1988) at 6.199 See supra note 26 at 681-682.
68
First of ail, Reebok personnel have the dutY to assess labour conditions in
supplier plants and encourage improvement if needed. Second of ail, there
are so-called audit teams that are sent to plants to do the same things as
Reebok personnel do. And finally, Reebok authorised an independent
accounting firm to interview workers and check company records.
The loopholes and dangers of this approach are obviouS. 201 The even-
handedness of Reebok personnel is questionable. One may say they
obviously say nice things about Reebok since they want to keep their jobs.
The same is true for accounting firms, as the recent ENRON scandai
reveals. MNEs are very important clients to them, therefore they might
tend not to "cut MNEs' to the quick" by publishing things that are not the
best for their image. When it comes to carrying out a survey relating to
MNEs' labour standards, it is unfortunate if firms hire other economically
dependent entities to do this job. In terms of those who have to
"investigate" multinationals there is a significant danger of not being
impartial.
Reebok's website c1aims that
[a]t Reebok, we're passionate about human rights. One of the firstcompanies to walk the talk by pulling out of South Africa duringapartheid, we also lead the movement to implement sociallyresponsible business programs. During an unprecedented 14-monththird-party survey project in our factories, we've been able topinpoint problems, and then apply effective solutions. We went
200 See supra note 26 at 681-682.201 See generally: B.J. McCabe, "Are Corporations Socially Responsible? Is Corporate Social ResponsibilityDesirable?" (1992) 4 Bond. L. Rev. 2.
69
public with the findings of this survey, it was the first in the footwearindustry, thereby setting a model for other companies to follow. Wealso make it our business to honor young activists who make theworld a better place. Why do we make these efforts? Because it'sthe right thing to do. Because our bottom line is nothing if we don'tmake freedom our top priority.202
According to the company, its operations are being carried out with
especial regard to human rights. Given these daims, it is very likely that
the media would have drawn attention to the firm's human rights
violations had there been any. As a result, one may speculate that the
company respects international human/labour rights to a relatively high
degree.
B) Levi Strauss & Co. Code
The Levi Strauss Mission Statement states:
[W]e will conduct our business ethically and demonstrate leadershipin satisfying our responsibilities to our communities and to society.Our work environment will be safe and productive and characterizedby fair treatment, teamwork, open communications, personalaccountability and opportunities for growth and development.
The multinational created its "Business Partner Terms of Engagement and
Guidelines for Country Selection,,203 in 1992. Prior to this, in 1985, there
was a buyout, with the founder's descendants taking the company
202 Available at http://www.reebok.com/US/AtReebok/default.htm203 As opposed to Reebok, Levi Strauss has guidelines relating to possible entry into host countries.
70
private.204 If a company is 100% private, the creation of a code relating to
the MNEs' commitments and responsibility can be achieved faster since
there are no shareholders to persuade and argue with. However, it may
still take years to come up with a code that addresses labour rights issues,
depending on the willingness of the multinational to deal with the problem.
As l argued earlier, brand image is vital to MNEs that have already
established their goodwill. If they do not choose their partners cautiously,
they may have subcontractors who, through their behaviour, impair the
company's reputation. This would translate into consumer refusais to buy
the company's product. In extreme cases, the firm could be driven out of
the market.
Levi Strauss's "code of conduct is a two-part instrument which
distinguishes it from other corporate codes of conduct".205 The first part
includes ethical, health and safety norms and employment practices to the
degree that they are "substantially controllable" by the company's
business partners. Issues that cannot be controlled by a partner, such as
the political and social stability of a country, and human rights concerns
the treatment of which mostly depends on host governments, are treated
in the second part.
204 Supra note 26 at 675.205 Supra note 26 at 677.
71
Under "employment practices" the code deals with child and forced labour,
discrimination, working hours, wages and disciplinary practices. It does
not include the right to bargain collectively and the right to join unions.
The code establishes an internai monitoring and enforcement mechanism.
The firm's approach is very similar to that of Reebok. There are
questionnaires for subcontractors and audits, as weil as surprise visits in
foreign plants. Nonetheless, it is the obligation of the company's personnel
to review whether foreign plants comply with Levi Strauss's standards.
If one of the company's suppliers violates the standards, there can be
three different responses. If the business partner does not comply with
the standards and is unwilling to improve the conditions, the result is the
termination of the relationship.206 This, though, does not mean that there
is going to be no more work in such facilities. Ali it means is that the MNE
concerned no longer lends its name to the supplier's operations. 207
The second scenario is if there is concern over the partner's activities but
the working conditions in the foreign plant can be improved and the
partner is willing to take the appropriate measures to put an end to
human rights violations. In this case the company makes a plan and gives
some time for the plant to make the prescribed arrangements. If the plant
206 This is exactly what happened to the supplier in China and Burma. The MNE ended its business activitiesin China and Burma due to the countries' poor human rights record. In: E. Iritani, "Giant Firms BoycottBurma Factories" Seattle Post-Intelligencer (27 October 1994) B7. See also a.p. Zachary, "U.S. CompaniesBack Out of Burma, Citing Ruman Rights Concems" Wall Street Journal (13 April 1995) A 10.207 After the Saipan "affair" the firm launched a "large-scale investigaiton" into its numerous supplier plantsaIl aroud the globe. As a result, it terminated thirty contracts and wanted to see development in more than ahundred factories. In: J. McCormick & M. Levinson, "The Supply Police" Newsweek (15 February 1993)48-49.
72
meets ail the requirements, the relationship remains intact; they resume
working together. If, however, the foreign supplier does not succeed in
achieving the goals, the contract is over.
The third scenario is when the contractor is able to fulfil ail the criteria laid
down previously but should be able do more. In this case, if the partner
does not want to go beyond its commitments under the contract, the
relationship is not terminated. It is absolutely up to the partner whether
he wants to be a model firm or not.
In 1992, there was a public outcry about working conditions in one of Levi
Strauss's supplier factories. This happened in Saipan, which is a U.S.
protectorate. American laws apply to the region. The owner forced poor
working conditions on his employees. He paid them $ 1.65 an hour when
the minimum wage was $ 2.15 and the factory conditions were
miserable. 208 What happened was that auditors examined the factory and
decided to terminate the contract.
This incident teaches us that even with codes of conduct, it is still
necessary to keep vigilant eyes on multinationals. This need is not
because one should argue simplistically that corporations can never be
trusted, but simply because more eyes see more. What Levi Strauss did in
Bangladesh is also worth noting. The company carried out a survey and
208 See "Human Rights: Ethica1 Shopping" The Economist (3 June 1995) 35.
73
found that there were children under the age of fourteen working in a
supplier's plant. The firm's representatives negotiated with the owner of
the factory and they reached an agreement according to which the
children returned to school but were still paid by the contractor. The
multinational paid their tuition and books necessary to continue their
studies. Once they turned fourteen they were offered a job. 209 This policy
has a huge advantage. l noted above that the layoff of children because of
their age often has the opposite effect to what was intended. In this case,
however, children do not have to look for another job since they get paid
by the corporation even during their school years and will have a job when
they complete basic studies.
In summary, one may conclude that each and every initiative has some
value. If the present trend continues, we have a good chance to create
working codes that MNEs will abide by. We have seen that public pressure
can lead to the establishment of corporate codes of conduct. This was the
case with NIKE, for instance.
Individual corporate codes of conduct may or may not prove to bean effective instrument in the child labour dispute. However, theseprivate entities have no current legal obligation to adopt thesepolicies. These codes may be the product of social pressure or thelobbying efforts of international labor organizations, but the endresult is that some progress is being made to eliminate exploitativechild labor. Continued corporate participation in these voluntaryprograms could prove to be a key component for the millions ofchildren who are forced into deplorable working environments. 210
209 Supra note 193 at 16.210 Supra note 126 at 197.
74
Many agree that child labour will not be completely eliminated in the years
to come. 211 But they also agree that current trends indicate that some
progress is being made.212
5) International Efforts to Create a Universal Code of Conduct
"[C]ontroversy is a hallmark of world organizational efforts, and
disagreement constantly arises over the proper interpretation of
regulatory principles".213 ln this part 1 will briefly examine the different
kinds of international efforts made in order to create an efficient code of
conduct for multinational enterprises. In doing 50, 1 accept the conclusion
that
[u]nfortunately, however, history reveals that the InternationalLabor Organization standards, the United Nations Code of Conductfor Transnational Corporations, and the Organization for EconomieCooperation and Development Guidelines for MultinationalEnterprises have failed, as a result of the non-enforceabilitymechanisms, to adequately prevent MNCs from committing laborrights violations. 214
Yet, for the sake of completeness, a review of multilateral efforts is
required.
211 Supra note 126 at 19l.212 See generally infra note 214.213 T. Donaldson, The Ethics ofInternational Business (New York: Oxford University Press, 1989) at 37.
75
A) The ILO's Codes
The International Labour Organization215 created a Tripartite Declaration
of Principles Concerning Multinational Enterprises and Social Policy. 216 The
Declaration establishes a set of principles relating to "employment,
training, conditions of work and life and industrial relations which
governments, employers' and workers' organizations and multinational
enterprises are recommended to observe on a voluntary basis... ,,217 The
Declaration calls for respect for states' sovereignty and the International
Bill of Rights. 218 It also deals with wages, and working conditions when it
provides that "[w]hen multinational enterprises operate in developing
countries, where comparable employers may not exist, they should
provide the best possible wages, benefits and conditions of work, within
the framework of government policies".219
The main problem with the ILO Code is that it is voluntary and there is no
sanction mechanism behind it to support its rules. The truth is that
214 L. Ayoub, "Nike Just Does It - and Why the United States Shouldn't: The United States' InternationalObligation to Hold MNCs Accountable for Theil' Labor Rights Violations Abroad" (1999) Il DePaul Bus.L.J.395 at416-4l7.215 The International Labour Organization was created in 1919 for the purpose ofadopting internationalstandards to cope with the problem of labour conditions. It adopts international labour standards, which areessentially the expressions of international tripartite agreements on labour, social policy and human rightsmatters. These standards are agreed undel' democratic principles by representatives of Governments,workers and employers of aIl social and economic systems of the worId. These standards can be found inConventions and Recommendations. ILO has adopted more than 180 Conventions and 185Recommendations. See supra note 19 and 20.216 The Declaration was adopted by the Governing Body of the International Labour Office at its 204th
Session in Geneva in November 1977. Available atwww.ilo.org/public/english/standards/norm/sources/mne.htm217 See Declaration point 7.218 See infra note International Bill of Rights.219 See Declaration point 34. It is based on Recommendation (No. 116) concerning Reduction of Hours ofWork.
76
"[e]nforcement is more a matter of discreet persuasion by OECD or ILO
officiais, or public embarassment through the media".220
The ILO's latest effort to address the interplay between international
labour rights and trade laws is the Declaration on Fundamental Principles
and Rights at Work. 221 The Declaration's main purpose is to encourage
governments to enforce existing labour laws, which are consistent with
ILO Conventions.222 The Declaration provides that the "ILO is the
constitutionally mandated international organization and the competent
body to set and deal with international labor standards".223 One of the
advantages of the Declaration is that it provides that each and every ILO
member state must comply with the principles of ILO's Fundamental
Conventions even if it did not ratify those conventions. However, the
disadvantage is also obvious when the document declares that
the Declaration establishes no new legal obligations on ILOmembers, but reflects policy obligations which Members incur byvirtue of their membership...the Declaration does not impose on member States the detailedobligations of conventions that they have not freely ratified and does
220 Supra note 26 at 671. "[T]he ILO's Subcommittee on Multinational Enterprises lacks the power toimpose sanctions or order remedial measures for noncompliance with the organization's voluntary code". In:C.R. Coxson, "The 1998 ILO Declaration on Fundamental Principles and Rights at Work: Promoting LaborLaw Reforms Through the ILO as an Alternative to Imposing Coercive Trade Sanctions" (1999) 17 Dick. J.Int'! L. 469 at 482.221 ILO Declaration on Fundamental Principles and Rights at Work, International Labor Conference, 86th
Sess. Available at www.ilo.org/public/english/standards/declldeclaration/text/index.htm222 The so-called Fundamental Conventions are as follows: Convention No. 138 on the Effective AbolitionofChild Labor; Convention No. 29 and 105 on the Elimination on Ali Forms of Forced or CompulsoryLabor; Convention No. 100 and Illon the Elimination of Discrimination in Respect of Employment andOccupation and Convention No. 87 and 98 on Freedom of Association and the Effective Recognition oftheRight of Collective Bargaining. In: Supra note 220 at 470-471.223 The Preamble of the Declaration also renders that "it is urgent, in a situation of growing economicinterdependence, to reaffirrn the immutable nature of fundamental principles and rights ... and to promotetheir universal application.
77
not impose on countries that have not ratified the fundamentalconventions the supervisory mechanisms that apply to ratifiedconventions.
Finally, the document says "there is no Iink with questions of international
trade... ". Judging the Declaration after this brief summary, one may think
that its adoption is just window-dressing. Many people believe, with
Coxson, that for U.S. employers the adoption of the Declaration was
simplya strategie "trade off".224
The ILO is not in a position to enforce international labour standards
against governments and employers if they do not follow the fundamental
principles. The only way to force entities to respect these rules is through
publishing their violations. Coxton asks the question whether this is the
"code to end ail codes?,,225 The answer is, of course, unknown, but the
Declaration may be an important tool in promoting international labour
rights if workers' pressure on governments to adopt and abide by
international labour standards keeps growing.
B) The UN Code of Conduct for Transnational Corporations
In 1972, the ECOSOC226 undertook efforts that eventually led to the
establishment of the UN Commission on Transnational Corporations,227
224 See note 220 at 499.225 See note 220 at 501.226 The UN Economie and Social Council plays a major raIe in coordinating and setting tasks for theactivities of specialized institutions.
78
"Formulation of a code of conduct for MNCs was given the highest priority
among the various tasks undertaken by the TNC Commission".228 The
Commission adopted a resolution at its Sixth Session affirming that the
code should be "effective, comprehensive, generally accepted and
universally adopted".229 Adopting a universally accepted and respected
document is almost impossible because of the many conflicting interests at
play in negotiations. In the old era, before the collapse of the former
Socialist regimes, developing countries were looking at codes as a possible
means to regulate MNEs. Multinationals were regarded as new conquerors
and tools of pushing the policies of their home countries. On the other
hand, developed countries wanted these codes to defend their interests
and to give some kind of protection against unlawful host state practice.
In such an environment, it is especially difficult to negotiate and
universally adopt a code. In fact, it seems to have proved impossible even
under changed circumstances since 1990.
The work on the code started in 1977 and the draft was completed in
1990. The draft provides that "[t]ransnational corporations should respect
the social and cultural objectives, values and traditions of the countries in
227 The Commission was set up in 1974 pursuant to ECOSOC Res. 1913, UN ESCOR, 57th Sess., Supp. No.lA., UN Doc. E/5570/Add. 1 (1974) See generally supra note 213.228 lM. Kline, International Codes and Multinational Business: Setting Guidelinesfor InternationalBusiness Operations (Westport, Connecticut: Quorum Books, 1985) at 59.229 UN Commission on Transnational Corporations, Progress Made Towards the Establishment of the NewInternational Economie Order and Obstacles That Impede It: The Role of Transnational Corporations (DraftResolution II), 66 UN ESCOR, 6th Sess., Supp. No. 10., UN Doc. E/C.I0/1980175 (1980)
79
which they operate...transnational corporations shall respect human rights
and fundamental freedoms in the countries in which they operate".230
Under the Draft it is c1ear that human rights prevail over cultural norms
and traditions. The negotiations about how to further the draft came to an
end in 1992. MNEs and "their" governments did not want to proceed with
the code because they did not see enough assurance that would have
prevented host governments from taking unlawful measures against
multinationals. 231
In 1994, the Commission got a new name: the Commission on
International Investment and Transnational Corporations. 232 The main
emphasis is not on the negative effects MNEs may have upon host
countries but on the premise that MNEs' capital is desperately needed in
certain regions of the world. Interestingly, the UN measures were placed
directly upon MNEs and not governments. The Code imposed an obligation
upon multinationals to respect human rights and the fundamental
freedoms of employees. The U.N. Commission, however, could not find a
way to make this code enforceable, nor was it able to convince states to
adopt the draft.
Donaldson summed up the history of the UN Code as follows:
230 Development on International Economie Co-operation: Transnational Corporations, UN ESCOR, 2dSess., UN Doc. E/1990/94 (1990)231 Supra note 188 at411.
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Yet more ambitious and radical U.N. attempts to regulateinternational business have failed, largely because they have tendedto pit the developed against the developing countries, and topromulgate policies upon which no c1ear coincidence of interests andideology exists...a conflict of ideology and interests has been chieflyresponsible for the failure of the United Nations to approve orfinalize its long-projected "UN Code of Conduct for TransnationalCorporations. ,,233
C) The OECD Code
In 1976, the Organization for Economie Cooperation and Development
(OECD) created its Guidelines for Multinational Corporations.234 The code
contains so-called "boutique-rights,,235 only, and does not address
international labour rights violations by MNEs. "The Guidelines are
explicitly stated to be voluntary and not legally binding".236 The generally
accepted view is that "[v]irtually ail of the guidelines of the OECD and the
ILO rely exclusively upon the discretion of individual governments (which
do possess the power of sanction) for their adoption and
implementation".237 Since this code is not about child labour issues, nor is
it about wages and working conditions, l will not enter into a detailed
discussion of its provisions.
232 GA Res. 49/130, UN GAOR 49th Sess., Supp. No. 49, UN Doc. A/49/130 (1994)233 Supra note 213 at 37.234 The OECD Council of Ministers adopted a Declaration on International Investment and MultinationalEnterprises. It contains in an Appendix the Guidelines. The Guidelines can be divided into six major parts:taxation, financing, competition, disclosure of information, science and technology and employment andindustrial relations. Available at http://www.oecd.org/daf/cmis/cime/mnetext.htm#employment235 Rights that are not of vital importance to the protection ofhuman life are referred to as boutique-rights.They include the right to collective bargaining and the to form trade unions. In: Supra note 214 at 421.
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D) Social Accountability International's SA8000 Code
Social Accountability 8000 is a certification project, which was set up by
the Council on Economie Priorities Accreditation Association in 1997.238
The SA8000 Code contains standards that can gauge the behaviour of
MNEs and of their foreign plants. The standards are associated with child
and forced labour, wages, working conditions, health and safety,
compensation, management and the freedom of association. These
standards were set up by the International Organization for
Standardization. In Blackett's view, "[t]he SA8000 is one of the most
rigorous voluntary codes of conduct yet crafted".239 The "auditing
dimension is touted as a cornerstone of the SA8000... ,,240
The certification and monitoring process is operated by firms accredited by
the CouncH that have the right to scrutinize signatories and their foreign
plants. Human rights organisations and local trade unions supply these
firms with information relevant to the fields of examination. MNEs that
have signed SA8000 have the right to choose a monitoring firm from a list
containing companies that were accredited by the Council. 241 Once the
236 Supra note 228 at 55.237 Supra note 213 at 37-38.238 See generaIly http://www.cepaa.org239 AdeIle Blackett, "Global Governance, Legal Pluralism and the Decentered State: A Labor Law Critiqueof Codes ofCorporate Conduct" (2001) 8 Ind. J. Glob. Leg. Stud. 401 at 415.240 Ibid. at 416.241 The Council has accredited eight companies so far. They have the rights to scrutinise MNEs that want tohave the certificate. Available at http://www.cepaa.org
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survey is "passed," the certificate is not issued to MNEs as a whole but to
factories only.
The Code, however, does not seem to be free from problems. The Code
provides that corporations "shall establish and maintain procedures to
communicate regularly to ail interested parties data and other information
regarding performance against the requirements of this document,
including, but not limited to, the results of management reviews and
monitoring activities".242 At the same time it contains another article,
which states that "the company shall provide reasonable information and
access to interested parties seeking to verify conformance to this
standard".243
The problem is that what is meant by "reasonable" access and information
is not straightforward. The code prohibits child labour244 as weil as forced
labour. The system is new and its practical operation largely untested. The
success of the system largely depends upon the willingness of MNEs to
sign and respect the document. From a practical point of view, one may
say that this initiative in itself cannot change, but may contribute to the
improvement, of the behaviour of MNEs.
242 Article 9.11 of the Code.243 Article 9.12 of the Code.244 The document provides that "[t]he company shaH not engage in or support the use of child labour. .." and"The company shaH establish, document, maintain and effectively communicate to personnel and otherinterested parties policies and procedures for remediation of children found to be working in situationswhich fit the definition of child labour above, and shaH provide adequate support to enable such children toattend and remain in school until no longer a child as defined above". In: Social Accountability 8000.Available at http://www.cepaa.org
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Part III: Human Rights, Labour Rights and Multinationals
1) Human Rights and the Multinational Enterprise
A document that would require MNEs to comply with international human
rights norms does not exist. However, corporations also have a modest
"duty" to respect the so-called International Bill of Human Rights. 245
Provisions of these international covenants state that no person or private
entity may engage in an activity, which treads upon other person's rights
and freedoms. 246 The problem with these internationally adopted
documents is that they are formally binding only upon the states that
ratified them.
It flows from the text that states do have a legal obligation to regulate and
supervise the behaviour of MNEs. Therefore they may be held responsible
for international wrongs commiUed by MNEs. The reason for this could be
that states allow their citizens to form corporations; therefore, they
contribute to the creation of multinationals. Under the next heading l will
245 The International Bill of Human Rights consists of four international treaties; the Universal Declarationof Human Rights (U.N. GAOR, 3rd Sess., Supp. No. 13, U.N. Doc. A/81O, 1948), the International Covenanton Economie, Social and Cultural Rights (G.A. Res.2200, U.N. GAOR, 21 S
! Sess., Supp. No. 16, V.N. Doc.A/6316 1966), the International Covenant on Civil and Political Rights (G.A. Res. 2200, V.N. GAOR 21 S
!
Sess., Supp. No. 16, V.N. Doc. A/6316 1966), and the Optional Protocol to the International Covenant onCivil and Political Rights (GA Res. 2200, U.N. GAOR, 21 S
! Sess., Supp. No. 16, V.N. Doc. A/6316 1966).246 See Article 30 of the 1948 treaty says that "[n]othing in this Declaration may be interpreted as implyingfor any State, group or person any right to engage in any activity or to perform any act aimed at thedestruction of any of the rights and freedoms set forth therein".
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describe the various kinds of approaches to international legal
responsibility.
As for MNEs, many authors say they have a special kind of "ethical
duty,,247 or "moral obligation,,248 to recognise and respect human rights. 249
Under this approach MNEs have the obligation not to contribute to human
rights violations. French argues that corporations are moral persons
because they possess rights and accountability. Since they can form
"intentions", they are morally responsible for their activities. 25o
From a legal point of view, this moral approach has serious shortfalls. On
the one hand, the majority of MNEs rejects this ethical stance, and on the
other, ethical obligations imposed upon multinationals do not necessarily
mean much without an effective legal force to bolster them. It is true that
this ethical standpoint may be indicative of some kind of shift towards the
recognition of human rights by MNEs, but it falls short of legal obligation.
What MNEs have to say about human rights violations may be
summarised:
In their defence, MNEs typically make at least two assertions. Thefirst is a denial that MNEs engage in human rights violations. Theother assertion is that even if their activities include what others
247 See generally B.A. Frey, "The Legal and Ethical Responsibilities of Transnational Corporations in theProtection ofInternational Human Rights" (1997) 6 Minn. J. Global Trade 153.248 W.A. Meyer, Human Rights and International Political Economy in the Third World Nations,Multinational Corporations, Foreign Aid, and Repressions (Praeger, 1998) at 84.249 See note 188 at 409.250 For a philosophical discussion of corporate responsibility see generally P. French, Collective andCorporate Responsibility (New York: Columbia University Press, 1984)
85
consider to be human rights violations, the MNEs' presence in acountry helps the country move towards democracy, therebycontributing to greater respect for human rights in the long run. 251
The main contrary argument may be that it is very unlikely that the
presence of MNEs in host countries will ameliorate human rights
compliance if multinationals themselves violate these rights. For example,
in India it is estimated that 350,000 children between the ages of ten and
fifteen work in the carpet industry under appalling conditions. 252 l do not
see how this, i.e. the total or partial denial of human rights on behalf of
certain MNEs, will lead to a "greater respect for human rigths in the long
run".
There is a need for pressure that would urge MNEs to respect international
human rights and in case they do not, their responsibility should be
engaged. Theoretically, there are two main ways to promote the legal
responsibility of corporations. One could impose obligations directly either
on MNEs or on states. l will discuss both approaches in the next heading.
The pressure mentioned above could be internai or external. The former
refers to the stakeholders253 of the company, the latter to governments,
international organisations, and NGOs. International human rights that
individuals possess serve as protective layers against states. Determining,
251 Supra note 6 at 228.252 Available at http://www.comwatch.org/feature/india/profiles/child/foil.htmlndia is a big exporter ofcarpets. The country's revenues were around $170 million in 1993 only from carpets that had been exportedto the United States. Available at http://www.monitor.net/monitor/sweatshops/ss-solomon.htm1
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however, what rights MNEs should be implicated in is not so easy. The
human rights in the International Bill of Rights are of universal application
but again, they do not apply to multinationals. International law is the law
of states254; they are the signatories of international covenants not MNEs.
Treaties do not say that corporations have to take measures to prevent
others from violating human rights. It is only the state that is responsible.
States have the right and power to impose rules on MNEs and they may
be heId accountable if "their" multinationals commit international wrongs.
As a result, once multinationals comply with the national laws of the
country in which they do business it is very hard to hold them responsible
for international human rights violations.
Now we have to examine what possibilities international law offers us to
deal with international legal responsibility.
2) International Legal Responsibility: States and the Multinational
Enterprise
1 said earlier that states still play a dominant role in the international
milieu, but at the same time non-state actors, such as MNEs also play a
growing role. Now, 1 will briefly examine how the international standing of
MNEs has evolved.
253 The expression "stakeholders" includes not only shareholders but also those who are somehow related tothe company, such as creditors and employees.254 See generally supra note 110 Chapter X on State Responsibility.
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International legal responsibility is attached to international legal
personality. It is legally impossible to hold those actors accountable that
do not have this standing on the international plane. 255 Making MNEs free
from international legal responsibility would be acceptable if they had an
obvious national feature since in this case states could be responsible for
their acts. Under the present system, however, it is very difficult, if not
impossible, for states to control these corporations. Home countries could
set up national laws that impose standards consistent with international
norms upon their multinationals but it would do harm to their own
economy,256
Moreover, states are still the only repositories of international rights and
duties. Multinationals still do not have rights or duties under the present
system of public international law.
The rationale for excluding corporations from decisionmakingprocesses, as weil as from international legal accountability systems,has been that corporations are ultimately creatures of a particularstate, and that the state will represent corporate interests at theinternational level as weil as ensure corporate compliance withinternational law requirements. This rationale lies at the core ofinternational law notions of state responsibility, under which statesare heId accountable for actors within their control. 257
255 See generalIy G.R. ShelI, "Participation of Nongovernmental Parties in the World Trade Organization:The Trade Stakeholders Model and Participation by Nonstate Parties in the World Trade Organization"(1996) 17 U. Pa. J. Int'!. Econ. L. 359.256 Let us suppose that a home country does so. Then its corporations that plan to enter foreign marketswould be in a disadvantageous position as opposed to MNEs whose home country did not pass such laws. Inthe long run, it could be very "unfortunate" for the national economy ofthose countries that wanted to dogood. In: Supra note 7 at 30.257 Ibid. at 34.
88
The problem arises when corporations are virtually beyond the control of
states. If we held states responsible for the behaviour of MNEs, it would
not necessarily be a solution to human rights violations since sometimes it
occurs that states do not have effective power to regulate multinationals.
But if these corporations are not responsible to states we cannot talk
about their international accountability. "[A] corporation that exploits
labor, or pollutes the air or water, or is complicit in the human rights
abuses of a repressive government is no international law violator because
it has no international legal personality".258
Now that we have briefly examined the present situation 1 would like to
turn to outlining the possible scenarios in terms of how MNEs may be held
accountable internationally for violations they commit. The first possible
scenario seems the most obvious. According to this approach, the
obligation is upon states to regulate non-state actors that may interfere
with international human rights. This means that MNEs do not have
international obligations but states do. They have the "dutY to prevent and
punish conduct that violates protected human rights norms".259 It flows
from this theory that if states fail to fulfil their obligations they may be
held responsible under the international legal regime. One has to
emphasise, however, that states cannot be held responsible for acts of ail
nationals. This theory would apply to MNEs only.
258 Ibid. at 35.259 Supra note 6 at 219-220.
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This approach has an enormous advantage, that is its consistency and
compatibility with the current international legal theory. 260 The rights
protected by this system are international but the enforcement mechanism
would be national because nationals would enforce liability against MNEs
to avoid state responsibility.
This approach has a disadvantage as weil. Sometimes states are not
willing to take measures against MNEs because of their power. States do
not want to risk losing much-needed investments within their borders. If a
host state held a multinational accountable for international wrongs the
corporation wou Id Iikely pull out from such a country and go elsewhere
where the enforcement mechanism is not 50 strict. 261 At the end of the
day, countries with a good human rights record would be left without
foreign investment and eventually they wou Id suffer economically. As a
consequence one may say that this approach seems to be a theoretical
one. When one tries to put it into practice, it does not really work.
The other possible stance is for international law to impose obligations
directly upon MNEs. Under this approach corporations, would be held liable
for wrongs committed by them. This may seem enticing for it would solve
the problem that MNEs are without responsibility. This view, however, is
260 If one accepts this stance there is no need to analyse whether multinationals have internationallegalpersonality and ifthey do what kind oflegal personality that is. Since states do have that personality they areresponsible for the activities of companies incorporated in their jurisdiction.261 This derives from the so-called "race to the bottom" phenomenon that was discussed earlier. Companiestend to go into countries where there are less obstacles to grapple with. See generally D.F. Orentlicher &
90
not consistent with international legal theory since it assumes that
multinationals have at least limited international legal personality.262 The
question what forum could enforce the laws applicable to MNEs also arises.
Since this second approach will not likely be created in the short run, 1 will
focus instead upon the issue of state responsibility in the current
international regime.
Human rights violations committed by multinationals include unsafe
working conditions, "sweatshop" practices, pittance, unreasonably long
hours in the factory.263 The reason one has to deal with this issue is
because MNEs produce and market products across national borders. As
far as the United States is concerned, it has never admitted that it has a
legal obligation to make MNEs respect international human rights. The
U.S. did not sign the International Covenant on Economie, Social and
Cultural Rights. It can be argued, however, that the American Government
has an obligation under the International Covenant on Civil and Political
Rights (ICCPR), and under customary international law to force MNEs to
respect human rights codified in the ICCPR. Those human rights, the
argument goes, may be regarded as part of customary international
T.A. Gelatt, "Public Law, Private Actors: The Impact ofHuman Rights on Business Investors in China"(1993) 14 J. Int'l Bus. 66 at 103.262 Christina Baez, Michele Dearing, Margaret Delatour and Christine Dixon discuss divides this approachinto two parts. First they deal with so-called state actions ofMNEs. They say that intemationallaw couId"impose duties on MNEs directly when MNEs meet a "state action" requirement ... [I]n situations in whichthe MNE's conduct amounted to state action, the companies would be held liable on the same grounds as astate" ... "The third approach would be to impose duties on MNEs in accordance with intemationallaw". In:Supra note 6 at 220-223.
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law264, so that even if astate did not sign the treaty it has the dutY to
regard those human rights as rights that must be respected.
As for state practice, the ILO constitution, the World Declaration on the
Survival, Protection and Development of Children265 and the International
Programme on the Elimination of Child Labor266 are the most important
documents. The World Declaration says that "[w]e have agreed that we
will act together...commit ourselves tO...work for special protection of the
working child and for the abolition of illegal child labour". Under the
auspices of this project the ILO and signatory states have been trying to
put an end to child labour within the borders of member states. For
example, India, Brazil and Guatemala are among the signatories. Ail these
national and international efforts show that there seems to be enough
evidence of a practice that prohibits child labour, to give rise to a
customary law obligation.
The main counter-argument is that most countries "cannot agree on a
precise minimum age for child labour".267 The argument runs that it is
impossible to enforce universal labour standards on different nations. So,
even if there is "practice" among nations, it is not consistent but varies. In
many developing countries child labour is viewed as an important factor in
263 See generally R.P. Toftoy, "Now Playing: Corporate Codes ofConduct in the Global Theater. Is NIKEJust Doing It?" (1998) 15 Ariz. J. Int'I & Comp. L. 905.264 See generally supra note 167.265 UNICEF World Summit for Children 1990, World Declaration on the Survival, Protection andDevelopment ofChildren, 30 September 1990, art.7.266 The program came into being in 1993 and was set up by the International Labor Organization.
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a child's life to become an adult. In fact, it is through labour that they
become full members of the society. The problem is that the workplace is
sometimes not "appropriate". A workplace where children are being
exploited can be positive neither for children nor for national economies in
the long run.
Domestic legislation, policy statements and national judicial decisions, as
weil as international treaties lean towards the existence of opinio juris.
"When a treaty codifies customary international law, the provisions that
originated as customary law remain binding on ail States, while any new
provisions bind only the States that ratify the treaty".268 While the U.N.
Charter and the Universal Declaration of Human Rights are not legally
binding as far as labour standards are concerned, they may be evidence of
state practice and opinio juris, which creates legally binding customary
law. As a result, one may conclude that provisions of widely adopted
international documents/59 as regards child labour, have become
customary international law.270
Now we must turn to what states have to do to fulfil their obligations
under international law. "[I]t is essentially the responsibility of the state
267 Supra note 167 at 511.268 L. Deak, "Customary International Labour Laws and Their Application in Hungary, Poland and theCzech Republic" (1994) 2 Tulsa 1. Comp. & Int'I L. 1 at 11.269 See the above-mentioned International Bill of Rights.270 Isabelle R. Gunning, however, argues that "iftoo many major world powers reject a practice, whetherthey have a great interest in the norm or not, it is unlikely that practice will become a binding legal norm".In: I.R. Gunning, "Modernizing Customary Law" (1991) Va. J. Int'] L. 211 at 211. At the same time, it is
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parties to uphold international human rights through monitoring,
regulating, and punishing multinational corporations as private actors".271
When it comes to human rights protection, the responsibility is attached to
states where violations occur. However, practice tells us that developing
countries are not typically willing to enforce international human and
labour rights in relation to MNEs. Nor are developed countries, but they
are often in a better position to try to do something. Since there is a "race
to the bottom" among host countries, we are more likely to find success
by approaching the problem from the perspective of the home country.
Ayoub argues that there are three main factors that should prompt the
United States take steps to preclude MNEs from violating human rights. 272
The author says that
[f]irst, the United States has jurisdiction over the violating MNCsbecause many of them are headquartered within the United Statesborder. Second, the United States possesses significant economicstrength negating the Iikelihood that MNCs will take their businesselsewhere. Third, the United States has a moral obligation to quellthe violations that are occurring at the expense of foreign workersfor the benefit of the United States, and especially given the factthat the U.S. is the world's largest importer of garments.273
imaginable that a certain customary rule is ofregional reach only and, as a consequence, a given norm canbecome customary law without the approval of powerful states.271 Supra note 214 at 416.272 Ibid. at 423.273 Ibid.
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For these reasons l will focus upon the United States only in the following
discussion. Nonetheless, other developed states should also take their
human right obligations seriously in relation to the practices of their MNEs.
If the United States had ratified the International Covenant on Economie,
Social and Cultural Rights (ICESCR) it would have a c1ear international
legal obligation to make MNEs follow the rules. If they did not do 50, the
U.S. could hold them accountable. The treaty states that
[s]pecial measures of protection and assistance should be taken onbehalf of ail children and young persons without any discriminationfor reasons of parentage or other conditions. Children and youngpersons should be protected from economic and social exploitation.Their employment in work harmful to their morals or health ordangerous to life or Iikely to hamper their normal developmentshould be punishable by law. States should also set age Iimits belowwhich the paid employment of child labour should be prohibited andpunishable by law. 274
However, the United States did not ratify the ICESCR. It did ratify the
ICCPR. This treaty says that "[e]very child shall have, without any
discrimination as to race, colour, sex, language, religion, national or social
origin, property or birth, the right to such measures of protection as are
required by his status as a minor, on the part of his family, society and
the State".275 The Covenant established a Human Rights Committee276
274 Article 10 ofthe Treaty. Article 6 says that "[t]he States Parties to the present Covenant recognize theright to work, which includes the right of everyone to the opportunity to gain his living by work which hefreely chooses or accepts, and will take appropriate steps to safeguard this right".275 Article 24 of the treaty. See J.M. Diller & D.A. Levy, "Child Labor, Trade and Investment: Toward theHarmonization oflntemational Law" (1997) 91 Am. J. Int'l L. 663 at 675.
95
that has the responsibility for monitoring the provisions of the Treaty. The
Committee held that Article 24 was applicable to child labour. 277
Article 5 of the ICCPR is of vital importance as far as the relationship
between states and MNEs is concerned for it says that "[n]othing in the
present Covenant may be interpreted as implying for any State, group or
person any right to engage in any activity or perform any act aimed at the
destruction of any of the rights and freedoms recognized herein or at their
limitation to a greater extent than is provided for in the present
Covenant". The word "group" may refer to MNEs, therefore under this
article states have the "dutY to assert control over private actors in order
to ensure their conduct does not infringe upon the human rights
recognized in this Convention".278
The Department of Labor's agenda to investigate and put an end to labour
rights violations also shows that the United States has adopted a policy to
protect international labour rights. 279 The Apparel Industry Partnership
Agreement is also worth mentioning.280 Companies that want to abide by
276 Article 28 of the treaty. Under the treaty Article 40 renders among others that "[t]he Committee shaHstudy the reports submitted by the State Parties to the present Covenant. It shaH transmit its reports, and suchgeneral comments as it may consider appropriate, to the State Parties."277 See supra note 275 at 675.278 Supra note 214 at 426.279 Garment Enforcement Report (January 1998) Available athttp://www.dol.gov.ldol/esa/public/nosweat/garmentl0html.280 This agreement was established under the Clinton Administration. The U.S. Govemment and MNEs tookpart in its creation. It "acknowledges the need to implement and monitor a corporate code of conduct (the"Workplace Code of Conduct") which improves the conditions under which goods are made; prohibitsforced labor and child labor; establishes a maximum work week, caps required overtime at twelve hours;imposes a minimum or prevailing wage; honors respect for basic labor rights, safe and healthy workconditions... and takes steps to ensure the code is enforced and honored". In: Supra note 214 at 437.
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the agreement must allow an independent monitoring mechanism, to
operate in their factories. The only problem with the agreement is that its
adoption by corporations is voluntary. Nevertheless, it is indicative of the
policy of the United States, which seems to reinforce the stance that the
U.S. has a legal dutY to ensure that international labour laws are upheld.
It is important that home countries rather then host countries try MNEs
since they are in a far better position to do 50.
If an MNE is successful in moving the lawsuit to the host country,the outcome will more than likely favor the MNC due to its presumedpowerful economic stronghold in that country. The court systems ofthe host countries are less democratic than those of the UnitedStates; however, the economic need, not will, of the people mayprevail in the outcome of each case due to economic necessitybeyond their immediate control. Because the United States is not inan economically precarious situation, as many host countries are, itis necessary to have the suit litigated in a U.S. courtroom 50 as tofree the litigation from the fetters of national economicconsiderations. 281
1 mentioned above that MNEs might tend to move their locations from one
host country into another where enforcement is weaker. One argument
against such a move is that in case of a relocation media would likely
focus on the moving multinational which, of course, could hurt the MNE's
interests if image is important to it.
Economically speaking, if labour rights are properly enforced the priee of
the product is likely to increase since the costs of production will be
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higher. This is something consumers would not like. From a consumer's
point of view seemingly there is a conundrum. They want cheap products
and at the same time they do not want to see unfair labour practices.
These two could be reconciled, however, if companies were willing to cut
back some of their profits. Obviously, this is something companies want to
avoid.282
MNEs should balance between the interest of the company and that of the
consumer. Multinationals should refrain from unfair labour practices, which
would inevitably increase the costs, and at the same time they should
avoid making exorbitant profits, thereby making their products affordable
for more and more people. The increased costs of production might be
offset by the decreased profit, 50 the price might even be lower, and at
the end of the day, corporations would still make profits. This situation,
however, seems only a Utopia since corporations are not willing to give up
part of their profits without a "strong reason". Pressure being put on them
by consumers would likely be such a reason.
In conclusion l would say there are no legal duties as such on MNEs to
respect international human/labour rights. There is, however, a moral
dutY to follow these rights. Moral duties may be just as powerful as legal
cnes if there is a proper response coming from consumers. Moral duties
are usually without effect if their respect is not in the interest of the
281 Ibid. at 439.
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corporation. Consumers may have the ultimate power to make MNEs
comply with labour rights.
The question whether there is a way to move from moral to legal duties is,
as we have seen, complicated. Ali the initiatives that have been
undertaken so far seem to prove that there is a very liUle chance to
achieve this. However, some authors are still in favour of a global
mandatory code of conduct. 283 In the final section of this thesis, l will
outline my own recommendations.
282 Available at http://www.laborrights.org/ilrtintro.html283 See generally P.Z. Thadhani, "Regulating Corporate Human Rights Abuses: Is Unocal the Answer?"(2000) 42 William & Mary Law Review 619.
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Conclusions and Recommendations:
There are more and more multinational enterprises in our world. They set
up their operations in many countries and as a result they profit from, and
at the same time contribute to, host countries' economies. Many authors
warn, however, that the presence of a multinational in countries in which
capital is very much needed may actually be harmful to workers.
"International law, which recognizes the rights and increasingly the
responsibilities of individuals, will eventually need to impose a similar set
of duties on corporations, which have been enjoying great freedoms
around the world".284 Yet it is one thing to impose obligations on entities
and a completely different matter to enforce them. On this latter score,
little progress is being made in the normative framework for MNEs.
The violation of international labour rights, including child and forced
labour, is still a burning problem in the international community. Child
labour will not be eliminated in the near future. There are many steps that
need to be taken and many entities that have to cooperate in order to
ameliorate the current situation. According to optimistic authors "it is
possible to create and enforce universal standards to accomplish this
objective".285 The fact is that many labour standards exist, both national
284 Supra note 6 at 335.285 Kern's main argument why these laws will be efficient is that labour abuses are "unacceptable". Supranote 126 at 198.
100
and international, but when it comes to enforcing them systems stop
working.
It is obvious that corporations do not behave like human rights activists;
their main goal is to make more profit. This is the reason that there is a
need for some kind of leverage over MNEs. Private corporate codes
proliferated in the 1990s. However, the problem that codes address still
remains. If one wants to truly solve the problem, one must know the
reasons behind it. One must also understand and take into consideration
the advantageous effects of multinationals within developing world
economies.
International law is the law of states and it is essentially up to states
whether or not they are willing to enforce international labour laws. If they
are not, then international state responsibility may be engaged. However,
states are not alone in being subject to duties. Corporations and
individuals are not free from responsibility either. We have seen that the
dutY of the MNE is not legal in nature. Many authors talk about a specific
kind of moral duty.
We have also seen the role that the public at large may play in solving and
eliminating the problem of child labour. The public, along with or often led
by the media, is capable of keeping the issue alive as long as the problem
101
exists. Kern is right when he says that "[r]ecent movements by the public
have had a tremendous impact on the way corporations operate".286
1 am of the opinion that regardless whether there are codes for
multinationals or not, public opinion and shame may be the key to
successfully address the problem of child labour. Interest is the only thing
under which MNEs act, the only factor they always follow. Therefore,
engagement of the public at large is the only tool Iikely to possess the
power to eliminate child labour. It will likely take a long time before this
problem is solved but if NGOs, the media and the public play their
respective roles, there is a good chance for success. 1 therefore
recommend that work continue on both internai and external codes. But
we must recognise that under current international norms, neither is likely
to be formally "enforced". The usefulness of the norm-setting exercise is
largely pedagogical in nature. Codes can articulate norms around which
activists and the media can build public campaigns that hold some
promise to address the scourge of child labour.
286 Ibid. at 198.
102
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