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Transnational corporations in developing world

Introduction

Transnational corporations have spread their operations around the entire world and are frequently violating the most basic human rights. This paper will discuss the negative impact of transnational corporations (hereinafter: TNCs) on the natural environment in host countries. It will focus on corporations operating in developing countries. Environmental degradation is closely interlinked to health, but due to restrictions, the paper will only focus on the environmental aspect.

As a result of the global impact of TNCs' operations and the negative effect on the environment they may cause, environmental protection is a very relevant topic. It is very concerning that there are only a few international legal documents which lay down TNCs' responsibilities regarding this matter. Due to the voluntary nature of those, TNCs can very often operate in their own way, without any regard to the environment and what is more, in many cases the host states are reluctant to take any measures to prevent pollution done by TNCs.

The working hypothesis of this paper is as follows: TNCs and host countries have certain responsibilities regarding environmental protection. However, they are reluctant to take measures to prevent environmental pollution, the former because they are driven by profit and the latter because of a lack of will or means. Developing countries where TNCs operate frequently lack sufficient funds for environmental management or are unwilling to put pressure on TNCs because they do not want to lose TNCs' investment.

The paper will be divided into three sections. In the first one, the recognition of the right to a healthy environment will be examined. This section will include some global and regional documents which recognize that right and it will briefly present how the right to environment is recognized at the national level of states. The second part will contain an overview of TNCs' impact on the environment and research their legal and moral obligations with regard to environmental protection. In the third part, responsibility of states to protect people's right to the environment from being violated by TNCs will be examined. Throughout the paper, cases of environmental pollution by TNCs will be presented. Good practices will be mentioned as well.

The paper will among others, look into the following documents: UDHR, ICESCR, Declaration of the United Nations Conference on the Human Environment, Rio Declaration on Environment and Development, OECD Guidelines for Multinational Enterprises, UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights. Furthermore, constitutions of some countries regarding the environment will be mentioned. As examples of certain claims, cases will be presented and statistical data used to support some statements.

The Right to a Healthy Environment

Consequences of environmental degradation have increasingly started to attract international attention in the second part of the 20th century. Many attempts to develop regulations for environmental protection were made, but at first, environmental protection was not directly linked to human rights. The Universal Declaration of Human Rights for example recognizes the right "to a standard of living adequate for the health and well-being of himself and of his family"[1] which emphasizes more the social care. The Declaration of the United Nations Conference on the Human Environment, adopted in 1972 in Stockholm (hereinafter: Stockholm Declaration) made a significant step towards environmental protection by stating: "Man has the fundamental right to freedom, equality and adequate conditions of life, in an environment of a quality that permits a life of dignity and well-being, and he bears a solemn responsibility to protect and improve the environment for present and future generations."[2] From this formulation it can be understood that environmental protection is a precondition to the enjoyment of human rights. In other words, human rights are seen as a goal and environmental protection as means to achieve it.

The Stockholm Declaration influenced the development of a number of documents and organizations concerned with the environmental protection. Important to mention is the Rio Declaration on Environment and Development which proclaims the right of human beings to "a healthy and productive life in harmony with nature"[3] and states further that the environmental requirement of future generations is a basic human right: "The right to development must be fulfilled so as to equitably meet developmental and environmental needs of present and future generations."[4]

There exist a number of international and regional documents, principles and norms relating to the concept of the environment[5]. However, no global human rights treaty which includes the "right to environment" has been adopted so far. There are several regional documents which explicitly recognize the human right to a healthy environment, for instance African Charter of Human and People's Rights[6] and American Convention on Human Rights in the Area of Economic, Social and Cultural Rights[7]. It is worth mentioning that the European Convention on Human Rights does not include the right to a healthy environment but this might change – in October 2009 the Parliamentary Assembly issued a recommendation that this right be included in an additional protocol to the convention.

On the national level, the right to a healthy environment is today codified in numerous constitutions[8] and national laws. The formulations of the right vary but in general they include the principle that the human right to a healthy/clean/secure/safe environment provides each individual a right to an environment that enables him/her well-being and development.[9]

Environmental degradation is closely linked to some other human rights. Pollution of resources such as water, air or soil is violating the right to health and can have an impact on the right to life. Forced evictions caused by consequences of corporations' projects for example are connected to the violation of the right to the property, just to name a few. As stated above, this paper will only focus on the environmental aspect.

Transnational Corporations

The impact of TNCs on the environment

In the past century, transnational corporations have expanded their activities throughout the entire world. They operate in many sectors such as extractive industries, footwear and textile production, manufacturing, electronics, construction etc. Most TNCs are registered in developed countries[10] but usually move their operations to developing countries. They are attracted by less stringent environmental regulations and bigger tolerance to the pollution they cause, which is closely connected to tolerance to other human rights violations arising from the environmental degradation.[11]

Corporations are capable of contributing to better local living conditions by increasing the standard of living and some surely do. They stimulate development by for example providing jobs, training or modern technical equipment. There are cases where corporations operating in a host country which has lower environmental standards compared to those in their home country, operate under stricter standards.

This, however, is not a universal practice. TNCs often move their operations to developing countries precisely because they can get away with the bad conduct prohibited elsewhere. In developing countries corporations frequently use potentially dangerous technologies and outdated machinery which are highly pollutant. In 1985 for instance the Westinghouse Electric Corporation from U.S. sold a nuclear reactor to Philippines which did not meet U.S. safety standards.[12] What is more, examples can be found of TNCs which do not meet neither the standards of the home nor the host country. Such was the outdated equipment in the pesticide plant in Bhopal which was the reason for the worst industrial accident in history.

Mining and oil industries are contributing to large-scale environmental pollution. Those, along with other industries cause soil degradation, deforestation, pollution of the atmosphere, contaminate water supplies and have a heavy impact on biodiversity as well. Such degradation is long-term and heavily impacts health. Among other diseases it causes respiratory and lung problems, skin rashes, allergies, tumors and can even result in death. Environmental damage is often irreversible or it takes long time for the nature to renew. As it has been recognized in the Rio Declaration, it has an impact on future generations as well.

Legal obligations of TNCs

The international system for protection of human rights is a state-based system. That means that states are primary duty-holders of human rights obligations but they are not exclusive duty-holders. A question arises if TNCs have any obligations[13] to comply with these laws. The International Covenant of Economic, Social and Cultural Rights[14] for example refers to "any State, group or person"[15] as having duties so from this statement it can be deducted that TNCs have duties as well and should therefore refrain from violating human rights through their activities. The problem arises with the accountability. Under current international law namely, states are the ones which are required to impose standards that TNCs must adhere to and states are the ones which will be held liable for human rights violations by corporations.[16]

In the 1970s several codes of conduct concerning the duties of TNCs have been developed, such as OECD-Declaration on International Investments and Multinational Enterprises (1976), which includes Guidelines for Multinational Enterprises. In regard to environmental protection, the guidelines state that enterprises should take due account of the need to protect the environment and avoid creating environmentally related health problems. They should furthermore provide timely information regarding the potential impacts on the environment and health, take measures to minimize the risk of accidents and damage to health and environment and cooperate in mitigating adverse effects of their operations.[17] The guidelines can be used as recommendation to TNCs but they are not legally binding. Today there are 42 countries which have signed the document.[18]

A more recent voluntary standard developed for promotion of human rights by corporations is the United Nations Global Compact, an initiative "for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption."[19]

The abovementioned initiatives are both voluntary and it is true that they are a step into the right direction but due to the fact that they are voluntary and not legally binding they have proven not to be effective, which can be seen in cases mentioned throughout the paper.

In 2003 a significant document was adopted: the UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights (hereinafter: the Norms). The Norms are the first international legal instrument to recognize the obligations of TNCs regarding the protection of human rights. With regard to the environmental protection, it is clearly stated that TNCs "shall carry out their activities in accordance with national laws, regulations, administrative practices and policies relating to the preservation of the environment of the countries in which they operate."[20] The commentary of that clause states that corporations "shall respect the right to a clean and healthy environment in the light of the relationship between the environment and human rights."[21] The Norms impose obligations on TNCs to assess the impact of their activities and deliver reports to competent bodies.[22] TNCs are furthermore to adopt internal rules of operation which are in compliance with the Norms[23] and respect and protect human rights within their spheres of their activity. Nevertheless, as it is stated in the text, the primary responsibility still lies within the states.[24] As can be seen from the way the Norms are formed, they are not purely voluntary. They namely foresee a monitoring and reporting mechanism to determine if TNCs comply with the obligations they have under the Norms. What is more, according to the text TNCs shall provide adequate reparation to communities which have been affected by TNC's failures to comply with the Norms.[25] In April 2004 though, the Commission on Human Rights affirmed that Norms have no legal standing and that Sub-Commission should not perform any monitoring.[26] That means that Norms are only a consultative document. The same as the abovementioned regulations, the Norms are of voluntary nature and therefore its provisions cannot be enforced upon TNCs. It can be concluded that just as any other voluntary document, they will only be observed by a few corporations – and these tend to be the ones which are already operating in a positive manner.

The international community has so far been unable to reach an agreement on a legally binding document recognizing the right to environment which is strictly directed at TNCs. That, however, does not mean that there are no environmental standards TNCs must adhere to while conducting their practices. TNCs must respect national laws of host countries regarding those standards.

Moral obligations of TNCs

There is an increasingly strong view that TNCs have ethical or moral duties to respect fundamental human rights in the countries in which they do business. The NGO sector expects TNCs to engage more in their environmental responsibility and that they act to ensure that their impact is positive, not negative.[27]

If companies are observed from the perspective that they are created to make profit and that profit maximization is the only force that drives them, then it is contradictory for them to have any additional expenses which are not strictly necessary. Milton Friedman in his article on social responsibility of businesses argues that "the responsibility is to conduct business in accordance with their desires, which generally will be to make as much money possible."[28] He points out that a company engages in certain activities which are good for the community just for its own purposes and profit.[29] Can it be deduced that ethical conduct is only in the economic interest of a corporation? From that perspective it would mean that TNCs invest money into something that is not strictly necessary for business, but they do it only because they believe they will have some economic benefits from the investment. And if ethical conduct would not be beneficial, would TNCs still consider it?

Not all corporations can be blamed for polluting the environment. Many are operating in positive manners but as already mentioned above, due to the restrictions, this paper is only focusing on those which have a negative impact on the environment. From the latter group, there is a number of TNCs which have improved their policies. The question that arises in this respect is if they do that because they realized that due to new practices they would have a greater economic benefit. Is the change genuine or are the efforts being made just for the sake of gaining competitive advantage?

In times of globalization, companies cannot escape the scrutiny of media for their misconduct even if it is taking place at the other side of the world. There are many campaigns calling for consumers' attention to irresponsible operations of TNCs which give them bad publicity that may consequently reduce the sales.[30] Organizations like Corporate Watch, Global Exchange or CorpWatch are constantly exposing TNCs for the environmental damage they cause. TNCs do not want consumers to think of their brand as a "bad brand" because of their negative practices and may change their conduct for that reason. The importance of public scrutiny is growing. What is more, this might be the main tool for forcing TNCs to become more responsible towards the environment since they may want to avoid negative publicity which can affect their sales.

On the other hand, what they might do is to advertise their good practices when in fact they continue to work in environmentally destructive practices. Unilever for example portrays itself as a business which "exercises the same concern for the environment wherever it operates" and whose policy is to ensure safety of "its operations for the environment".[31] Greenpeace on the other hand has accused Unilever of double standards because the company had allowed its Indian subsidiary to dump several tones of highly toxic mercury waste in a surrounding protected nature reserve.[32] Another case worth mentioning is Royal-Dutch Shell which now portrays itself as a good corporate citizen by announcing it operates in "environmentally and socially responsible ways".[33] According to Corporate Watch however, the corporation "continues, behind the greenwash, with many of its old ways."[34]

States

As already mentioned above, states are primary duty-bearers of human rights and have obligations to respect, protect and fulfill the human rights of their citizens in accordance with their national laws and with international documents they are parties to. States are the ones who establish treaties, they are the ones who sign them and must play the central regulatory role over activities within their territory.[35] With regard to the subject of this paper that means that states should have an overview of TNCs operations on their territory and make sure that corporations respect national environmental regulations.

The implementation of environmental laws largely depends on each country's efforts to enforce them. Frequently when dealing with TNCs, host countries on one hand lack the capacity or on the other hand, the political will to enforce the laws and consequently fail to respond to threats of TNCs to the environment.

As mentioned above, many TNCs operate in Third World countries and these often do not have sufficient means for environmental management. There might be a lack of funding and lack of mechanisms needed to monitor compliance with laws. Therefore states are frequently unable to pressurize TNCs into adhering to their environmental laws.

Operations of the U.S. corporation Newmont Mining and Peruvian firm Buenaventura in Yanacocha in Peru can be given as an example. Mining activities have resulted in depletion and pollution of water supplies, which led the local community to organize numerous protests. In 2006, with the change of government, an agreement between the TNC, community's representatives and the government was concluded. The three parties agreed that the TNC would build a water purification plant and carry out studies of the local water supply. Upon that, a local NGO insisted that the government must act to stop the environmental pollution and got a response of the Minister of Energy who claimed that government would take steps to ensure that the rights are respected, but he pointed to the lack of funds for setting up an autonomous oversight body.[36] Some truth definitely lies behind the fact that developing countries are restricted in their funds and thus may not be able to perform certain activities. Still it has to be taken into account that the country profits from TNC activities as well so the lack of capacities can in many cases be connected to the lack of will.

The second aspect of non-enforcement of environmental laws is, as mentioned in the preceding paragraphs, that states might be unwilling to put pressure on TNCs. One of the reasons is because of the fear that corporations might transfer their investments to other countries. Less stringent environmental laws or failure of states to enforce the laws might be more attractive to TNCs. States namely have economic benefits from TNCs' investments and some put priority on those over environmental issues and consequently over their citizens' rights.

It is not rare that countries give out concessions to TNCs even though they are aware of the environmental pollution the TNCs cause. What is more, governments frequently even actively help TNCs, sometimes with use of violence against their own citizens. This has been the case in the example that follows. Freeport Indonesia has been operating a gold and copper mine in West Papua since 1970s and polluting irresponsibly almost without any liability. At the time when Freeport started its mining operation this was the cornerstone of the country's economy. In order to lead the country towards economic stability, the government had given the corporation generous concessions. In exchange, the company provided employment, infrastructure and technology. The mining company, operating in the way it chose, with little regard for environmental consequences, and the government have therefore both benefited from the activities. While operating, Freeport has been disposing hazardous waste into the nearby rivers, polluting the water and the surrounding environment which has caused severe health problems of the local population. When opposition to the TNC started gaining power, Freeport relied on the state military for security. It was claimed that Freeport financed Indonesian military to violently repress protests against its environmental crimes.[37] This case is very complex and it is evident that Freeport is involved in the political issues as well. Both parties profit from the situation to the detriment of the environment and local communities. The government with its power is able to repress any opposition and it seems that it has no intention to stop the environmental degradation because the profits it has from Freeport's operations are too significant. The environmental harm caused does not seem to be of much importance and the same holds true for the health of the population.

As can be seen from the cases mentioned throughout the paper, implementation of laws on the sate level in many cases proves to be insufficient. Some governments take the exact opposite role to what they are supposed to be doing – instead of preventing TNCs' environmental pollution and protecting their citizens they take an active role and support TNCs misconducts. Laws are too often not enforced and TNCs can continue exploiting the resources and polluting the environment without any limitations.

Conclusion

In the past few decades the initiative to recognize the right to a healthy environment has become stronger. The progress can be seen from the increasing number of documents recognizing the importance of environmental protection. At the regional level, there are a few treaties recognizing the right to a healthy environment, however no global treaty exists yet which recognizes this right. The international law is in this perspective lagging behind some national laws – many states have namely recognized the right to a healthy environment in their constitutions.

Activities of transnational corporations around the world have become unavoidable. TNCs are mostly registered in developed countries and often operate with harmful business practices in the Third World. There is no global binding treaty directed at TNCs regarding their conduct towards the environment and this proves to be a weakness of current international law. TNCs can therefore often get away with the pollution they cause. Many voluntary regulations exist but these cannot be legally enforced. They can only be seen as guidelines which TNCs are not obliged to follow. Only corporations that want to adhere to them will do so and it can be expected that those will probably be the ones which already operate in ethical ways. Voluntary guidelines will therefore not impact corporations which are responsible for the worst abuses. The importance of media in this regard is growing. Criticism of TNCs' behavior might be the main weapon against their misconduct since they may want to avoid negative publicity which can affect their sales.

It remains the fundamental role of each government to enforce environmental laws. It is up to each state to ensure that TNCs operating under its jurisdiction do not operate in an environmentally harmful manner. In the case of developing countries these often lack sufficient funds for environmental regulation or mechanisms to monitor TNCs performance. At the same time, they are often reluctant to act because of the fear of losing TNCs' investment. Countries frequently place priority on economic benefits over environmental protection and it is not rare that they even help TNCs in their environmental exploitation by violently repressing resistance of their citizens. It can therefore be concluded that national governments of developing countries can in many cases not be relied upon to play their role in environmental protection.

Bibliography

Primary Sources

Secondary Sources

  1. Article 25 of UDHR, 10 Dec. 1948
  2. Principle 1 of Stockholm Declaration (1972)
  3. Principle 1 of Rio Declaration on Environment and Development
  4. Principle 3, Rio Declaration on Environment and Development (1992).
  5. Article 24 of the Convention on the Rights of the Child provides that State parties shall take appropriate measures to combat disease and malnutrition through the provision of adequate nutritious foods and clean drinking water, taking into consideration the dangers and risks of environmental pollution. Convention on the Elimination of All Forms of Discrimination against Women states in Article 24.2.h that States parties should ensure that women enjoy adequate living conditions, particularly in relation to housing, sanitation, electricity and water supply.
  6. Article 24 declares that all peoples shall have the right to a general satisfactory environment favourable to their development.
  7. Article 11 of the Additional protocol (San Salvador protocol) states that everyone shall have the right to live in a healthy environment and to have access to basic public services.
  8. Among others: South African Republic, Ecuador, Argentina, Paraguay
  9. Maggio and Lynch 1997
  10. 140 of 500 world's largest corporations are from U.S., 68 from Japan and 40 from France. Source: Fortune 2009
  11. There are other reasons why TNCs move their operations to developing countries but here only the ones relevant for the topic of the paper are mentioned.
  12. Butterfield 1988
  13. For the purpose of this paper I will only focus on duties and not rights.
  14. ICESCR recognizes in Article 12 that as a part of the right to health steps are to be taken for the improvement of all aspects of environmental and industrial hygiene.
  15. Article 5, ICESCR
  16. Marsella Sende, Analia 2009 http://www.cjel.net/online/15_2-marsella-sende/
  17. OECD Guidelines for Multinational Enterprises, 21
  18. 30 OECD member countries and 12 non-member countries. http://www.oecd.org/about/0,3347,en_2649_34889_1_1_1_1_1,00.html
  19. http://www.unglobalcompact.org/AboutTheGC
  20. UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights, Article 14
  21. UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights, Commentary of Article 14
  22. UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights, Article 14
  23. UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights, Article 15
  24. UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights, A, General obligations
  25. UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with regard to Human Rights, Article 18
  26. E/CN.4/2004/L.73/Rev.1
  27. O'Reilly and Tickell 1999, 279, 286
  28. Friedman 1970
  29. Grow 2005
  30. Due to restrictions of this paper I will not investigate to what extent the bad publicity can impact the sales.
  31. Unilever Environment Policy
  32. Greenpeace Webpage
  33. Shell webpage
  34. Royal-Dutch/Shell Group Overview
  35. International Law Programme Discussion Group
  36. Milagros, Salazar "Leaching out the Water with the Gold" 2006.
  37. Tonkin, The Complex Story of Freeport
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