Analyse the issues and objectives on the code of conduct of transnational corporations.

Analyse the issues and objectives on the code of conduct of transnational corporations.



Issues Involved in the Negotiations

The main concern of the developed countries in the code negotiations was the establishment of a regime of minimum standards for the treatment of transnational corporations. Increased reliance on foreign investment flows was promoted consistently by the developed countries as a means to achieving efficient allocation of resources worldwide and contributing to economic growth. Some developed countries made promotion of foreign investment through the transnational corporations as a major component of there foreign economic policies. In view of the emphasis in the promotion of the transnational corporations, these countries argued for a favourable climate for foreign investments as a means of advancing and promoting economic development, and hence the need for a balanced code which established standards of fair and equitable treatment for transnational corporations, in addition to standards for their conduct.

Given these diverse perceptions about the purpose the code was expected to serve, the multilateral negotiations that took place had the important task of providing a stable, predictable and transparent framework that could facilitate the flow of resources across industrial growth. The code that was to evolve was also meant to minimize any negative effects associated with the activities of transnational corporations. In having this twin-focus on the operations of the activities of transnational corporations and their treatment by governments, the concerns of both home and host countries, as well as the transnational corporations were to be met.

That a code of conduct having twin-objectives, as referred to above, was felt imperative because of the inadequacies of the earlier efforts which were made to deal with the various issues relating to transnational corporations. The OECD countries, in particular, had promoted bilateral investment protection treaties, which were important policy instruments of developed countries. A large number of developing countries had also entered into such treaties primarily to secure foreign investment. The most significant limitation of these treaties was that while the standards of treatment of transnational corporations by their host governments were specified, no mention was made of the corresponding set of standards to govern the behaviour of the transnational corporations. Thus, the bilateral investment treaties, while remaining a part of the international regime governing transnational corporations, fell short of providing a balanced and comprehensive international framework essential for fostering the predictability and stability required for mutually satisfactory relations between transnational corporations and the governments. The multilaterally evolved code was expected to fill this lacuna and to contribute to a reduction of the friction and conflict between the transnational corporations and their host governments.

Objectives of negotiations

The code of conduct was a major endeavour of the world community towards evolving a broad set of rules and regulations governing the operations of transnational corporations. This came as a part of the effort that took place in the 1970s to improve the functioning of the international economic system and building on the initiative of the international business community to prescribe norms for foreign direct investment, as expressed, for instance in the “guidelines for international investment” adopted by the international chamber of commerce. The code was to provide instrumentalities for regulating the whole range of relations between the governments and the transnational corporations and covering a set of issues that were all encompassing.

The negotiations centering around the code took place under the auspices of the commission on transnational corporations, the organisation which took shape within the United Nations system in the mid-1970s. It envisaged a global mechanism that was to be opened to participation by all states.

A draft code, formulated by the intergovernmental working group, a subsidiary body of the commission established in 1975 and covering 48 states, was considered in the negotiations. The first session of this intergovernmental working group it was emphasised by the developed countries that the code ought to be balanced by the establishment of standards for the treatment of transnational corporations in their host countries (implying there by the developing countries), in addition to the transnational corporations most of which had their home based in the developed countries as referred to earlier. The suggestion was accepted by the economic and social council of the United Nations, which stated in its Mexico declaration of July 1980 [Resolution 1980/60,para 6(f)] that the code should, among other objectives, “include provisions relating to the treatment of transnational corporations, jurisdiction and other related matters”.

In substance, the resolution, affirmed that the code should fulfill the following objectives:
a) Be effective, comprehensive, generally accepted and universally adopted,
b) Associate effectively the activities of transnational corporations with efforts to establish the new international economic order and their capabilities with the developmental objectives of developing countries,
c) Reflect the principle of respect by transnational corporations for the national sovereignty, laws and regulations of the countries in which they operate, as well as the established policies of those countries and the right of states to regulate and accordingly to monitor the activities of transnational corporations,
d) Encourage the contribution that transnational corporations can make towards the achievement of developmental goals and established objectives of the countries.

The intergovernmental working group submitted its report to the commission in its eighth session in 1982. This report, though arrived through a consensus, had several unresolved issues, which were central to the code. The unresolved issues related mostly to the treatment of the transnational corporations. The next phase of the negotiations was consequently entrusted to a special session of the commission on transnational corporations, which began its deliberations in 1983 and it was made open to the participation of all states.