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Transnational enterprises and international regulation: A survey of various approaches in international organizations

Published online by Cambridge University Press:  22 May 2009

Paul A. Tharp Jr
Paul A. Tharp Jr
Affiliation:
Paul A. Tharp, Jr. is an Associate Professor of Political Science at the University of Oklahoma. This paper was originally presented to the Annual Meeting of the International Studies Association in Washington, D.C., February 19–22, 1975.
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Extract

Increasing attention is being paid to the development of international codes of behavior and rules of law to regulate the behavior of transnational enterprise. Notable steps in this direction have been taken by the United Nations, the Organization for Economic Cooperation and Development, the European Community, the Andean Common Market and various other organizations. The approaches represented by these efforts can be categorized by the use of four models: the Free Market model; the European Community model; the Multinational Consortium approach; and the Development Community approach. These approaches to the problem of regulation differ in the degree to which they impose prior regulation on multinational firms and in whether they permit the firms to operate as integrated systems or impose arms-length standards on parent-subsidiary relations. Each approach has merits, depending on context and the values of the governments involved.

Type
Articles
Information
International Organization , Volume 30 , Issue 1 , Winter 1976 , pp. 47 - 73
Copyright
Copyright © The IO Foundation 1976

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References

1 The United Nations and most scholars in the Third World countries prefer the term transnational corporation or enterprise. Their point of view is that the term “multinational” should be reserved for companies which are truly owned and managed by persons or other legal entities from several countries. Most big international companies do not fit this definition at this time.

2 The Organization of American States has prepared an annotated bibliography of over 600 entries on the literature in this field up to early 1974. The Organization of American States, Executive Secretariat for Economic and Social Affairs, Annotated Bibliography on Transnational Enterprises with Emphasis on Latin America, (Washington, D.C.: August 1974)Google Scholar. One of the latest scholarly books on the subject is Barnet, Richard J. and Müller, Ronald, Global Reach. The Power of the Multinational Corporations (New York: Simon and Schuster, 1975).Google Scholar

3 Although most of these companies are privately owned at this time, the reader must remember that it is not unusual for governments to be stockholders in these firms (e.g., the British government and British Petroleum Company) or for quasi-government corporations to be joint venture partners.

4 In addition to the United Nations, OECD, European Community, and the Andean Common Market reports which will be cited later in this article, see The Organization of American States, Considerations on Government Policy Towards Transnational Enterprises in Latin America: A Preliminary Survey (SG/Ser.G.42/2), October 31, 1974.Google Scholar

5 Keohane, Robert O. and Van Doom Ooms, , “The Multinational Firm and International Regulation,” International Organization, Vol. 29, No. 1 (Winter 1975): 169–209.CrossRefGoogle Scholar

6 See the Commission of the European Communities, Amended Proposal for a Council Regulation on the Statute for European Companies, COM (75) 150 Final in three parts, Luxembourg, 30 April 1975. Title V of the proposal contains the proposals on workers' participation in corporate decision making. This Statute was first proposed in 1970.

7 These examples of prior restraint are drawn from current practices of national governments. However, as will be seen in this article, some of these techniques are being utilized or contemplated in various international organizations.

8 I am aware, of course, that governments usually are dominant actors vis-à-vis private interests. Thus, governments have the power to alter an arm's-length relationship which a private party will not have. Thus, it could be argued that there is never a true arm's-length relationship between government and business.

9 The Canadian government has long been the leader in the movement to regulate MNE's by both national and international means. See Government of Canada (The Gray Report), Foreign Direct Investment in Canada (CP32–15/1971), 1972, for an exhaustive examination of the problem with suggested policy alternatives.

10 The Convention on the Organization for Economic Cooperation and Development, Articles 5 and 6, provide for a general rule of unanimity except that this rule may be modified by unanimous decision and states may abstain from voting on a matter. If a state abstains, this permits other members to make an agreement between themselves which will not be binding on the abstaining member. This was the device used to establish the new International Energy Agency.

11 For an overview of the policy objectives of the European Community Commission on the commercial integration of the Community and the problems raised by multinationals see Commission of the European Communities, Industrial Policy in the Community, Brussels, 1970; and Commission of the European Communities, “Multinational Undertakings and the Community,” Bulletin of the European Communities, Suppl. 15/73, Brussels, 1973.Google Scholar

12 Beginning with the activities of 1970, the Commission has begun to issue separate Reports on Competition Policy as annexes to the annual General Report on the Activities of the Communities. The First Report on Competition Policy, issued in 1971 for the year 1970, contains valuable historical data covering the evolution of competition law in the Communities since 1962.

13 For the latest report on State aids to regions and industries see Commission of the European Communities, Fourth Report on Competition Policy, Brussels, 1975Google Scholar, Part Two. There are two types of depressed regions. One is the chronic type such as Southern Italy; the other type includes regions dominated by old industries such as coal in the Ruhr Valley of Germany. These old industry regions need diversification of economic activity as well as rejuvenation of the old industry.

14 “Proposal for a Regulation (EEC) of the Council on the Control of Concentrations between Undertakings,” Official Journal of the European Communities, Vol. 16, No. C92 (31 10 1973): 1–7.Google Scholar

15 Behrman, Jack, The Role of International Companies in Latin American Integration (Lexington, Mass.: D. C. Heath and Co., 1972)Google Scholar; and Behrman, Jack N., Multinational Production Consortia: Lessons from NATO Experience (US Department of State Publication 8593, 08 1971).Google Scholar

16 In addition to Behrman's works on the NATO consortia, see other examples of international consortia in Galloway, Jonathan F., “Worldwide Corporations and International Integration: The Case of INTELSAT,” International Organization, Vol. 24, No. 3 (Summer 1970): 503–19CrossRefGoogle Scholar; and Cattan, Henry, The Evolution of Oil Concessions in Middle East and North Africa (Dobbs Ferry, New York: Oceana Publications, 1967).Google Scholar

17 See Behrman's proposal for an auto industry scheme in Latin America in The Role of International Companies in Latin American Integration, Chapter 6 and Appendices A and B.

18 Behrman, , Multinational Production Consortia. Presents five different consortia for study.Google Scholar

19 For general discussions of ANCOM see Avery, William P. and Cochrane, James D., “Sub-regional Integration in Latin America: The Andean Common Market,” Journal of Common Market Studies, Vol. 11 (12 1972): 85CrossRefGoogle Scholar; and “The Andean Group,” Bank of London and South America Review, Vol. 8 (05 1974): 251.Google Scholar

20 Oliver, Covey, “The Andean Foreign Investment Code: A New Phase in the Quest for Normative Order as to Direct Foreign Investment,” American Journal of International Law, Vol. 66 (10 1972): 763CrossRefGoogle Scholar. This is the most complete legal analysis of the Andean foreign investment code. For an excellent summary of the future plans of ANCOM, see Fulmer, Robert G., “The Andean Common Market: Implications for U.S. Business,” Overseas Business Reports, United States Department of Commerce OBR 73–49 (10 1973), pp. 1–11.Google Scholar

21 International Chamber of Commerce, Guidelines for International Investment (Paris: ICC Publ. 272, 1972).Google Scholar

22 International Chamber of Commerce, Guidelines for International Investment (Paris: ICC Publ. 272, 1972)., p. 9.Google Scholar

23 This point is based on an internal memorandum which I was permitted to read. I should note that many documents which form the basis for certain statements in this paper are not for publication at this time. Also, several interviews were given on a “not for attribution” basis. Therefore, I wish to preserve the confidence of my sources and will refrain from direct quotation or attribution of sources in these instances.

24 ICC Guidelines, p. 8.Google Scholar

25 International Chamber of Commerce, Realities: Multinational Enterprises Respond on Basic Issues (Paris: International Chamber of Commerce, Publ. 277, 1974), pp. 62–9.Google Scholar

26 “How Will Multinational Firms React to the Andean Pact's Decision 24?” Inter-American Economic Affairs, Vol. 25 (Autumn 1971): 55.Google Scholar

27 ICC Guidelines, p. 10.Google Scholar

28 ICC Guidelines, p. 16.Google Scholar

29 ICC Guidelines, p. 16Google Scholar. This refers to the issue of transfer pricing. The ICC has renewed its views on this matter in Multinational Enterprises and Their Role in Economic Development (Paris: International Chamber of Commerce, Publ. 191/83, 07 1974), pp. 35–7.Google Scholar

30 Some indications of the directions in which the OECD might move in the future vis-à-vis international regulation may be seen in Committee of Experts on Restrictive Business Practices, Mergers and Competition Policy, (Paris: OECD, 1974)Google Scholar; and Committee of Experts on Restrictive Business Practices, Export Cartels, (Paris: OECD, 1974).Google Scholar

31 The above two points are based on an interview with MrAbramowski, Helmut, Assistant Secretary-General of the OECD, Paris, 11 4, 1974Google Scholar. Mr. Abramowski did not specify his own view on the matter, but simply outlined the problem for me.

32 Based on a draft report given to me for background information.

33 Council of the OECD, Recommendation of the Council Concerning Action Against Restrictive Business Practices Relating to the Use of Patents and Licenses, (Paris: 25 01 1974), Document C(73) 238 (Final).Google Scholar

34 Council of the OECD, Recommendation of the Council Concerning Cooperation Between Member Countries on Restrictive Business Practices Affecting International Trade, (Paris, 10 10 1967), Document C(67) 53 (Final).Google Scholar

35 Council of the OECD, Recommendation of the Council Concerning a Consultation and Conciliation Procedure on Restrictive Business Practices Affecting International Trade, (Paris, 3 10 1973), Document C(73) 99 (Final).Google Scholar

36 Guide to ICC Arbitration (Paris: International Chamber of Commerce, Publ. Br 72–1, 1972)Google Scholar. Also data was obtained by an interview with MrThompson, Robert, Secretary-General of the Court of Arbitration, Paris, 10 10, 1974.Google Scholar

37 The overall functions of the information system were explained to me in an interview with MrHopkins, J. Wallace, Deputy Executive Director of the IEA in Paris, 06 9, 1975Google Scholar. The value judgments in regard to the operations of the IEA are my own.

38 The pertinent regulations (as of 31 December 1971) have been compiled under the title, Competition Law in the European Economic Community and in the European Coal and Steel Community. (Brussels, Publ. 8395, 1972Google Scholar). These rules are updated in each annual Report on Competition Policy.

39 Directorate-General for Press and Information, “Information Document on Rules of Competition in the European Community,” (Brussels, 25 01 1972), File 743/X/72-E.Google Scholar

40 First Report on Competition Policy, pp. 78–9.Google Scholar

41 Second Report on Competition Policy, pp. 54–6.Google Scholar

42 Third Report on Competition Policy, pp. 60–1.Google Scholar

43 See note 14, supra. Also see Henning, Thomas W. and Kelly, Robert Jr, “EEC Antitrust: An Exercise in Prior Restraint,” Law and Policy in International Business, Vol. 7 (Winter 1975): 143.Google Scholar

44 In addition to the amended proposed Statute for the European Company see the “Draft Convention on the International Merger of Societies Anonymes and Report on the Draft,” Bulletin of the European Communities, Supplement 13/73, (Brussels, 06 1973).Google Scholar

45 In addition to Title V of the amended proposed Statute for the European Company see the “Proposal for a Directive of the Council on Harmonization of the Legislation of Member States on the Retention of the Rights and Advantages of Employees in the Case of Mergers, Takeovers and Amalgamations,” COM (74) 351 Final/2, (Brussels, 21 06 1974).Google Scholar

46 An excellent overview (though pro-labor in its bias) of the concept of worker participation may be found in Walker, Kenneth F., “Worker's Participation in Management: Problems, Practice and Prospect,” International Institute for Labour Studies Bulletin, No. 12 (Summer 1974): 3–35.Google Scholar

47 At the time of this writing, the Arab OPEC members were recycling their petrodollars into the economies of the developed capitalist states mainly through the purchase of short-term commercial paper and certificates of deposit. The Shah of Iran has shown some interest in equity investments such as Krupp Steel and Pan American Airways. A summary of OPEC investment habits through 1974 can be found in “Oil: Looking Back and Looking Ahead,” World Financial Markets (Morgan Guaranty Trust Company), January 21, 1975, pp. 1–13.

48 In fact, this type of framework may be emerging. The United Nations Conference on Trade and Development is working on a multi-sector program for world commodities which would involve producer and consumer governments in various commodities in a common institutional framework for setting floor and ceiling prices. It is possible that private interests may be included in the system as well. See United Nations Conference on Trade and Development, An Integrated Programme for Commodities (TD/B/C.1/166 with five supplements), 9 December 1974.

49 See Behrman, Multinational Production Consortia, pp. 22–30. Also, Professor Behrman has updatéd his ideas on the multinational consortium with some additional suggestions as to new legal forms of transnational business operations which would be suitable for these complex arrangements. Behrman, Jack N., Conflicting Constraints on the Multinational Enterprise: Potential for Resolution (New York: Council of the Americas, 1974).Google Scholar

50 The Andean Foreign Investment Code (commonly called Decision 24) can be found in 11 International Legal Materials 126 et seq. The reference in this note is to Articles 27 and 28.

51 Ibid., Article 1.

52 Andean Code on Multinational Enterprises and the Regulations with Regard to Subregional Capital (commonly called Decision 46), 11 International Legal Materials 257, Articles 10 and 11.

53 Andean Foreign Investment Code, Chapter II.Google Scholar

54 Andean Foreign Investment Code, Chapter II., Article 40.Google Scholar

55 Andean Foreign Investment Code, Chapter II., Articles 41–3.Google Scholar

56 Andean Foreign Investment Code, Chapter II., Article 16.Google Scholar

57 Andean Foreign Investment Code, Chapter II., Article 6(c). This author has not seen any detailed regulations yet in regard to enforcement of this provision.Google Scholar

58 Andean Foreign Investment Code, Chapter II., Article 20.Google Scholar

59 Andean Foreign Investment Code, Chapter II., Article 21.Google Scholar

60 See Fulmer, note 20, supra, for detailed list of the assignments under the metalworking sector.

61 Interview with Raphael Elias, Honorary Consul of Bolivia, Oklahoma City, Oklahoma, 01 14, 1975.Google Scholar

62 See United Nations, Department of Economic and Social Affairs, Multinational Corporations in World Development (St/ECA/190), 1973; United Nations, Economic and Social Council, The Impact of Multinational Corporations on the Development Process and on International Relations: Report of the Group of Eminent Persons (E/5500/Add. 1), May 24, 1974; United Nations, Department of Economic and Social Affairs, Summary of the Hearings Before the Group of Eminent Persons to Study the Impact of Multinational Corporations on Development and on International Relations (ST/ESA/15), 1974.

63 United Nations Conference on Trade and Development, Restrictive Business Practices in Relation to the Trade and Development of Developing Countries (TD/B/C.2/119/Rev.1), 1974.

64 Secretariat, United Nations Conference on Trade and Development, Restrictive Business Practices: Informational Requirements for the Control of Restrictive Business Practices Originating with Firms of Developed Countries (TD/B/C.2/156) 22 April 1975.

65 United Nations Conference on Trade and Development, Report of the Intergovernmental Group of Experts on a Code of Conduct on Transfer of Technology (TD/B/C.6/1) 26 May 1975.

66 “Oil Nations Aid Poor Ones; Five Billion Committed in '74,” New York Times, 01 18, 1975, pp. 1 and 45 (for the Venezuelan example).Google Scholar