The trust business

The revised OECD Guidelines for Multinational Enterprises (MNEs) have a vital role to play in a world where big business and its activities are often viewed with deep-rooted suspicion by civil society organisations.

This distrust is understandable when one considers that the world’s 100 largest transnational corporations between them held $1.8 trillion in foreign assets, sold products worth $2.1 trillion abroad and employed some six million people in their overseas affiliates in 1997, according to figures compiled by UNCTAD. In an integrated world economy, the Guidelines can help establish the acceptable parameters of company behaviour and go some way towards offsetting the increased margin of freedom companies enjoy.

If fully implemented, the Guidelines would help ensure that multinational enterprises bring substantial benefits to the communities and the countries in which they operate. The trouble is while many transnational corporations have played a positive development role, others have a poor human rights record.

When companies invest in countries with repressive regimes, collusion in government violations becomes possible. These violations can range from the use of slave labour to extra-judicial killings, disappearances or forced displacement of indigenous populations. Transnational corporations operating in areas where there is armed conflict can exacerbate or prolong the violence by supplying local armies with transport or weapons, or funding rebel groups directly or indirectly. Perhaps the best-known direct abuses by companies themselves have been violations of labour rights in the manufacturing industry through the use of sweat-shops in the production of clothes, sporting goods and electronics.

Some corporations also engage in restrictive business practices such as price fixing market allocation agreements and tied selling, where the parent company limits who the overseas subsidiary may deal with. The close relationship between parent and subsidiary may distort trade flows. Such measures reduce benefits to the host country.

Foreign direct investment often depends heavily on foreign loans and imported products, and operates on the basis of repatriating much of the profit and dividends to the parent country, which can cause large foreign exchange outflows. Companies may also provide little technology transfer particularly in the case of assembly based operations of global integrated business.

Long-term private capital flows, which in 1997 were estimated by the World Bank to be around $256 billion, have dominated developing countries’ long-term finance. As the power of transnational corporations has grown, public expectations have increased. Despite the broad range of people affected by the operations and influence of transnational corporations, many large companies still insist that they are legally responsible only to their shareholders for their financial results and to national governments for compliance with national law. But companies are coming under increasing public pressure to take a less restrictive view of their obligations.

Over the past decade, the ILO estimates that more than 215 codes of conduct have been drawn up, most of them by multinational companies. What non-government organisations (NGOs), such as Oxfam, which works for poverty eradication worldwide, particularly like about the revised guidelines is that they set out new and explicit standards on many of these issues for MNEs to observe both within and outside the OECD area.

For the first time the Guidelines include a reference to the duty of companies to "respect the human rights of those affected by their activities" in ways which are consistent with the international obligations and commitments of the host government.

This clause strips away any vestige of credibility from the specious claim frequently made by companies who maintain operations in highly oppressive societies that they can only be bound by those countries’ domestic laws and regulations, even if they fail to meet international human rights standards.

There are other important additions to the new text related to freedom of information, environmental sustainability and fundamental labour rights. New clauses make explicit the role of companies in eliminating forced and child labour, and their duty to protect individuals that report misbehaviour in their companies, known as whistleblowers.

As the dangers of neglecting environmentally sound practices become ever more apparent, the Guidelines also stress the desirability of companies adopting the precautionary approach to risk assessment in their operations. Another positive step is that the revised Guidelines give greater attention to consumers’ rights. The new text calls on companies to provide accurate and clear information on products and set up transparent and effective procedures to address consumer complaints. In particular, companies need to ensure that they act in accordance with fair business, marketing and advertising practices and take all reasonable steps to ensure the safety and quality of the goods or services they provide.

What gives the OECD Guidelines their significance is the fact that they represent the standard of behaviour expected of MNEs by all OECD governments and four non-member countries. This means they go beyond the self-selected and (at times) self-serving lists of vague corporate pledges that are the hallmark of many voluntary codes. The OECD Guidelines have also become a benchmark for other areas of international standard-setting. The UN’s Global Compact and the European Parliament’s Resolution on Multinational Corporations include references to the principles embodied in the Guidelines.

It is perhaps ironic that the Guidelines became widely known to NGOs largely as a result of attempts by OECD governments to shore up negotiations around the ill-fated Multilateral Agreement on Investment (MAI). NGOs criticised the MAI as an example of unfair and unacceptable rules being negotiated by and for rich and powerful countries and multinational companies at the expense of the poor. Investors’ interests and concern for economic growth appeared to override all other considerations such as the rights of workers and local communities, consumer protection and the goal of sustainable development.

The decision in November 1998 to revise the Guidelines and to broaden participation in the process to include NGOs was one of the positive outcomes of the failed MAI negotiations.

But do the Guidelines really offer civil society anything substantial or are they merely cosmetic, aimed more at mollifying critics than altering the behaviour of multinational enterprises? Clearly NGOs would prefer a legally binding set of regulations controlling corporate behaviour. But that is as yet a distant prospect. In the meantime the critical test of the Guidelines will be the effectiveness of the monitoring

It is up to governments to promote and monitor the MNE Guidelines. mechanism. This is built around National Contact Points (NCPs) which all states adhering to the Guidelines are bound to establish. While countries have some flexibility in the arrangements they make for their contact points, they are expected to ensure that they meet the core criteria of visibility, accessibility, transparency and accountability.

It is essentially up to participating governments to revitalise the mechanisms established to promote and monitor the implementation of the Guidelines. But NGOs working closely with trade unions, progressive companies and national parliaments have a real opportunity to ensure that the NCPs radically improve the accountability of multinational corporations to the communities they serve or where they operate. We will have failed in our task if the revised Guidelines and the improved NCP mechanisms do not help to empower those whose rights they seek to uphold and whose social and environmental conditions they aim to improve.

References 

• Avery, C., "Business and human rights in a time of change", Amnesty International, February 2000.

©OECD Observer No 225, March 2001 




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