Regulating corporate behaviour internationally

Business ventures should not be allowed to make profits at the cost of devastating lives of marginalised communities

Developing countries under pressure from international donors, and desperate to earn some revenue from foreign direct investment, continue falling over themselves to invite multinational corporations (MNCs) into their country. MNCs thus have the discretion of choosing states which will put up the least regulatory interference, and offer the greatest prospects of generating corporate profits. The results of this ‘race to the bottom’ situation are evident for all to see, ranging from massive ecological damage, to the phenomenon of sweat shops, or the dismal safety standards which came to light in Bangladeshi garment factory disasters last year, which were making clothes for major international brands.

Businesses can, of course, make a positive contribution to society through job creation and by increasing productivity and building skills. But employees have to be protected from discrimination and hazardous work conditions, and business ventures should not be allowed to make profits at the cost of devastating the lives of marginalised communities or by the destruction of their local ecosystems.

Given the way in which our global political economy is set up, however, pressure to regulate corporate behaviour cannot come from resource-starved developing countries themselves, and thus needs to be imposed from above. International binding law on corporations, to ensure the protection of human rights, seems to be the only effective way to tackle prevailing corporate abuses. The tussle over formulating such a binding international treaty has, however, revealed deep divisions between developing and developed countries on the one hand, and between civil society groups and business interests on the other.

In 2011, the UN devised guiding principles on business and human rights. Based on these guidelines, the OECD countries, from which the largest share of international direct investment takes place, and which are home to many of the largest multinational enterprises, also put forth guidelines for MNCs. The OECD guidelines aimed to enhance the positive contribution of multinational enterprises to economic, social and environmental progress, and to minimise and resolve difficulties which may arise from their operations. Such guidelines are being widely cited but they remain poorly implemented, as both the UN as well as the OECD proposals remain entirely voluntary, and can thus easily be ignored by governments and by powerful corporate interests. It is vital that such principles be made mandatory, if they are to have any effect.

The only way to ensure that corporations are obligated to prevent corporate abuse and negligence is to develop a treaty which sets out specific government obligations to regulate parent and controlling companies of multinational groups active in more than one country. In the case of Shell’s devastating Bodo oil spills in the Niger Delta, which destroyed thousands of livelihoods, an international treaty could have obligated both Nigeria and the Netherlands (Shell’s home state) to have ensured much stronger environmental due diligence from Shell to avert such a disaster. The tragedy of Rana Plaza could similarly have been prevented, as could have the Bhopal gas leak years earlier.

Advocacy groups in the West, like Amnesty International and Oxfam, have been documenting corporate abuses and demanding that trade be made more fair, so as to produce better results for developing countries and their workers. Such groups have also recently launched a campaign to create a legally binding instrument to regulate exploitative activities of transnational corporations. It is imperative that pressure groups within developing countries also join this movement, to pressure their individual governments, as well as the multilateral governance structure, consisting of entities like the World Bank, the WTO and the UN system, to help create an obligatory framework to protect workers and the environment from exploitation by MNCs.

Published in The Express Tribune, April 1^st, 2016.

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