Analysis Research



Transnational corporations (TNCs) continue to reinforce their hold on the natural resources of the planet, dictating their agendas to the weakest countries and exploiting their peoples. Directly or indirectly, they bear an enormous responsibility for the deterioration of the environment and for the systematic increase of human rights violations. Able to be both everywhere and nowhere, they escape from practically all democratic and judicial control.


CETIM Bulletin 43



Definition and characteristics of TNCs

Transnational corporations are legal persons in private law with multiple territorial implantations but with a single center for strategic decision making. They can operate through a parent corporation with subsidiaries; can set up groups within a single
economic sector, conglomerates, or alliances having  diverse activities; can consolidate through mergers or acquisitions or can create financial holding companies. They can segment their activities across various territories, acting through de facto or de jure
subsidiaries and/or suppliers, subcontractors or licensees. Transnational corporations are active in production, services, finance,  applied research, culture, leisure, and also in the military area. They operate in these areas simultaneously, successively or alternately


Applicable Jurisdictions

TNC’s can establish domicile in one or several countries: in the country of the actual headquarters of the parent company, in the country where its principal activities are located and/or in the country where the company is chartered. To evade their responsibility for violations of human rights and labor and environmental protection legislation, as well as to evade taxes, they recur to highly complex structures (see inset page 3). Transnational corporations are, in theory, subject to the law of a country, to the jurisdiction of its courts, but this elementary function of sovereignty is often abandoned by the governments themselves when
dealing with TNCs. In fact, there is currently an international instance for settling disputes between governments and TNCs, which is extremely favorable to the latter: The International Center for Settlement of Investment Disputes (ICSID). Created by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, it has its headquarters within the World Bamk, and the president of the World Bank is also chair of the ICSID board of directors. Little known by public opinion, the ICSID “arbitrates” between TNCs and governments. In fact, this means that the governments can no longer bring their disputes with TNCs before their own courts. As its name indicates, the Convention of the ICSID is an international treaty, ratified to date by 148 countries

In instances of free-trade bilateral agreements, it is even worse, for only non-observance by governments can be reported – by transnationals! – while the governments may not file complaints against TNCs.
In principle, for the ICSID’s arbitration tribunals, created ad hoc, there is no other law but the bilateral treaty claimed to be violated and the ICSID’s regulations. No other judgements, by arbitration tribunals or others, are taken into account, not national laws
and constitutions, not the Universal Declaration of Human Rights nor the international covenants on human rights. The 1965 Washington Convention that created the ICSID and its regulations does not mention human rights at all. Neither do bilateral trade
treaties (except for some few cases and in a very limited and ambiguous way). Therefore, if the rules of ICSID and bilateral trade treaties have been accepted, there is no way to invoke human rights before an arbitration tribunal constituted on the basis of such
instruments. The ICSID’s arbitration tribunals have repeatedly refused any appeal to human rights made by sued states but have accepted investors’ arguments in favor of the “human right to property”.
Clearly, the tribunals constituted under the auspices of the ICSID lack independence, as two of their three arbitrators represent in fact the company’s interests: the one named by the company and the president of the tribunal who, in case of non-agreement between parties – almost always the case – is appointed by the chairman of the ICSID’s board of directors, who is no other than the president of the World Bank.

Another allied weighty legal mechanism is the Disputes Settlement Board of the World Trade Organization (WTO). Although this instance is composed of WTO member states and its mandate officially consists of ruling on trade disputes between the parties (member states), its decisions are based on WTO agreements that favor above all TNCs and in no way take into account human rights.


Complex Structures

To avoid their responsibilities, TNCs recur to complex structures in order to choose those countries whose legislation is favorable to their criminal activities as well as to evade taxes.
Here are three examples.

1. The oil tanker Prestige, which in November 2002 floundered off the coasts of Portugal, Spain and France, while carrying 77,000
tons of oil, was registered in the Bahamas, managed from Greece (Coulouthros) and was carrying the oil of a Swiss company run
primarily by Englishmen and whose current owners are Russian (Crown Resources of the Alfa Group)

2. The charter company of the boat Probo Koala, which discharged toxic waste into open landfills in Abidjan on 20 August 2006, was Swiss (Trifigura), its corporate management was in the Netherlands, the cargo belonged to a British affiliate, the freighter itself belonged to a Greek company, and it was under Panamanian registry.

3. The corporate headquarters of Glencore is in Zug (Switzerland). It owns a financial affiliate headquartered in Bermuda and
an “investment vehicle” headquartered in the Virgin Islands. Through this affiliate, Glencore is the majority shareholder in the Mopani copper mine in Zambia. Owing to Zambian legislation that is particularly favorable to investors and fraudulent accounting, the Glencore affiliate The Mopani Copper Mine has paid no taxes on its profits to the Zambian government for
years, in spite of the high price of copper on the world’s markets. (It went from US$2,000 per ton at the end of 2003 to over
US$10,000 per ton in February 2011.)


Limits of Voluntary Guidelines

TNCs are fond of voluntary guidelines, in other words, documents that in the end have no effect on their abusive practices. These voluntary codes of conduct continue even now in opposition to binding legal norms. Yet, these voluntary guidelines:

• cannot replace authoritative standards established by national governments and intergovernmental organizations;
• as private initiatives, fall outside the normative
activity of governments and international organizations;
• are woefully inadequate;
• have erratic implementation, for they depend entirely upon the good will of the corporation(s) in
• involve no independent compliance monitoring
• almost always contain requirements that are below already existing international standards.

In short, voluntary guidelines offer no concrete solution for preventing, and, when necessary, sanctioning human rights violations committed by TNCs. Efforts at the international level to establish a framework for TNC activities
The idea of a legal framework for TNCs at the international level has been discussed since the 1970s.

The following questions are often heard:
• should there be a voluntary or a binding code of
conduct for TNCs?
• should national business enterprises also be included?
• how should responsibilities be divided between host countries and countries of origin in the control of TNC activities?

In 1974, the United Nations Economic and Social Council (ECOSOC) set up within itself the Commission on Transnational Corporations and the Center on Transnational Corporations produced a compromise on “the majority of provisions” of its code of conduct (which was to be – in theory, at least – binding), the code ended up in the bottom of a drawer. Moreover, in 1993 and 1994, these two bodies were dismantled.At the same time, the Organization of Economic Cooperation and Development (OECD) and the International Labor Organization (ILO) also looked into this question.

In 1976, the OECD adopted the Guidelines for Multinational Enterprises as non-binding recommendations. They were amended in 2000 to include human rights and the fight against corruption. It is significant that, in a text that is, in any event, voluntary, the drafters took care to mention that “companies should respect” – and not must respect – human rights.

As for the Administrative Council of the International Labor Organization (ILO), in 1977, it adopted Tripartite Principles concerning Multinational Enterprises and Social Policy. This declaration is not binding either. It limits itself to recommending to governments, to employers’ and workers’ organizations and to TNCs voluntary observance of principles dealing with employment, training, working and living conditions as well as professional relations. Although the delaration was amended several time (in 1995, 2000 and 2006), it is a not binding for TNCs.

In 2000, the United Nations Secretary General Kofi Annan, launched the Global Compact, a partnership between the United Nations and the TNCs, supposedly in service to development. The “partnership” between the United Nations and the business
world aspired to encourage TNCs, on a voluntary basis, to commit themselves to observing ten principles based on respect for human rights and work and environmental standards as well as to fighting corruption.

The CETIM, along with other organizations, denounced this fool’s bargain from the outset. As we have said many times over – and as it has turned out in practice – this partnership has offered to the TNCs that have signed on to it – often accused of violating human rights – the means to refurbish their image before public opinion and to acquire new markets.

Our analysis was confirmed several years later by two UN instances. In its study of the Global Compact in 2005, the United Nations Research Institute for Social Development (UNRISD) emphasized that this partnership gives TNCs “the means of pursuing their particular political interests within the United Nations”. It called upon the United Nations to “reinforce the procedures designed to control the respect of ILO and of international human rights standards, to support complaint procedures…”

In another report published in 2010, the United Nations Joint Inspection Unit (JIU) worried about “risks associated with the use of the United Nations brand by companies that may benefit from their association with the Organization without having to prove
their conformity with United Nations core values and principles.” This body, moreover, pointed out that the Global Compact was “functioning within a ‘special regime’, but lacking a proper regulatory governmental and institutional framework”.

Faced with the alarming increase in serious and systematic human rights violations committed by TNCs and with a goal of imposing binding norms on these companies, the CETIM and American Association of Jurists (AAJ) have led a campaign within the United Nations human rights bodies. Further, our two organizations contributed to the 1998 setting up of working group on TNCs within the former United Nations Sub-Commission for the Promotion and the Protection of Human Rights.


John Ruggie’s Guiding Principles

In 2005, the United Nations Commission on Human Rights (the predecessor of the Human Rights Council) decided to name a Special Representative of the Secretary-General on Human Rights and Transnational Corporations and Other Business Enterprises. John Ruggie, the “father” of the Global Compact, was appointed to this post. His mandate was very limited compared to other special procedures of the same nature. As mandate holder, he did not complain; on the contrary, he even opposed the
possibility of receiving communications (complaints) from NGOs regarding human rights violations committed by TNCs.

In 2008, in his second report, John Ruggie acknowledged that the means and measures set up by the governments to subject TNCs to human rights norms and principles remained insufficient, imperfect and limited. He established his frame of reference using three fundamental principles of international human rights law in force: 1. the obligations of governments to protect when a third party, including TNCs, threaten human rights; 2. the responsibility of corporations to respect human rights; 3. the necessity of an effective access to redress or measures of reparation.

However, he did not draw the logical conclusions: in other words the necessity of establishing a binding legal mechanism at the international level as a framework for the activities of TNCs. Moreover, throughout his entire mandate, his position in substance was opposed to a legally binding mechanism – in other words to an effective outside control – of the activities of TNCs. He has consistently favored voluntary initiatives such as the Global Compact and the OCDE Guidelines.

At the end of his mandate, in June 2011, he presented to the Human Rights Council his principles entitled Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework.

This title is deceptive. The principles in question are voluntary. Their author himself acknowledged it moreover during their presentation: “The Guiding Principles’ normative contribution lies not in the creation of new international law obligations”. The application of these principles is left to the good will of the corporations. Following the OCDE Guidelines, John Ruggie’s Guiding Principles maintain that “business enterprises should [and not must] respect human rights” (Principle 11). They also should [and
not must] “comply with all applicable laws and respect internationally recognized human rights, wherever they operate” (Principle 23). Thus, the Guiding Principles are not, and do not aspire to be, binding obligations.

The philosophy inspiring this document is strange. The Guiding Principles are merely indications regarding the way governments must help (and not control or sanction) business enterprises in order to avoid their being implicated in human rights violations. The author also ignores possible deliberate willingness on the part of enterprises to commit human rights violations, even though they are always driven by the search for maximum and immediate profit.

A last example to illustrate John Ruggie’s mindset: he declared last year to the Human Rights Council that his mandate (and, consequently, his Guiding Principles) concerned not only TNCs but also small and medium enterprises and even street vendors – as if street vendors were responsible for serious human rights violations, environmental pollution that is sometimes irreversible and non-respect of labor legislation.

In June 2011, the Human Rights Council, while approving the Ruggie Guiding Principles, set up a new working group on human rights and transnational corporations and other business enterprises and a Forum on Business and Human Rights. The mandate of the working group on human rights and transnational corporations and other business enterprises consists in substance of promoting the Ruggie Guiding Principles and of identifying TNC best practices. It is thus not possible to present cases of human rights violations committed by TNCs to the working group. The first report was presented to the 20thsession of the Human Rights Council in June 2012. It indicated that the working group will be of no help to victims of violations committed by TNCs. The working group itself acknowledged this, claiming that the questions is very complex and that the working group does not have the resources to investigate allegations of human rights violations by corporations.

The Forum on Business and Human Rights is under the direction of the working group. Its mandate is also limited to the promotion of the Ruggie Guiding Principles and to identifying TNC best practices.
Moreover, this Forum will be open to the direct participation of TNCs “and other enterprises”. This opening to direct TNC participation in a formal United Nations body poses many problems. First, TNCs are not democratic and transparent entities. In fact, they not only escape from any and all democratic control but recur to complex structures to escape in particular from tax measures and from their responsibilities when they are implicated (directly or indirectly) in human rights violations.

Second, by definition,TNCs are entities that defend private interests (above all those of a handful of majority shareholders) as opposed to the general interest. They can go bankrupt, be bought out by other entities (or by governments), be transformed
(completely change their orientation) or disappear (e.g. there are almost no more companies engaged in coal mining in Euorpe).
Third, TNCs will be participating in the work of the body set up to propose measures to be taken against them in order to prevent and/or sanction their human rights violations.

Fourth, the exchanges within the Forum will take place on an unequal footing, given that the civil society organizations and even many governments of countries in the South, having negligible financial means, will be confronting TNCs with an annual turnover of tens – even hundreds – of billions of U.S. dollars.
Finally, the working group is required to “reserve a place in its report for reflections on the deliberations of the Forum and for recommendations touching thematic questions to be treated in the future”.


What can be done?

The balance of power is certainly unfavorable, but it is urgent to demand now that TNC activities be be subjected to a legal framework (and not a voluntary one) at the international level if there is to be an end to the impunity that they enjoy and the prevention of future violations. This is not only a matter of respect for human rights but also of defense of democratic principles.
However, this process risks taking considerabletime, and we cannot remain immobile faced with the current alarming situation. There are human rights protection mechanisms, and governments are bound, by virtue of current international law in force,
to protect their citizens against violations committed by third parties, including by TNCs. Within this context, invoking the right of peoples to self-determination is particularly pertinent, for this right concerns not only peoples under domination and the formal
creation of states. It is a matter of the right of peoples to decide their own future, a right every citizen can claim. In this regard, the first common article of the international human rights covenants is instructive: “In no case may a people be deprived of its own
means of subsistence.”
Further, by invoking civil, political, economic, social and cultural rights (right to participate, to make decisions, to demonstrate, of
association, to food, to adequate housing, to health, to education…), there is the possibility of acting on
three levels, as the case may be:

• filing law suits with national courts against certain violations committed by TNCs if the legislation and the conditions allow;
• recurring to regional instances (e.g. the InterAmerican Commission on Human rights and the Inter-American Court of Human Rights Court, the European Court of Human Rights, the European Committee on Social Rights, the African Commission on Human Rights) when one can establish that the government in question has not fulfilled its obligation to protect its citizens from the abuses of a given TNC;
• using the existing United Nations human rights mechanisms in the case of inaction by a given government faced with the actions of TNCs;
• using the ILO mechanisms such as the Trade Union Freedom Committee and the Committee of Experts on the Application of Conventions and Recommendations.

Although the legal processes are costly and require a considerable investment, they are worth the trouble, for favorable decisions constitute jurisprudence and are so many additional safeguards against other human rights violations, as well as being a major part of the fight against impunity.