Legal Personality of Multinational Corporations in International Law

By Atty. Jason R. Barlis

The continuing global expansion of multinational corporations (MNCs) has spurred a lot of new and vital issues, not only in the fields of economics or international politics, but also, and to a large extent, international law. The economic power enjoyed by these MNCs which even goes to the point of dwarfing the states regulating them has given these corporations a power short of directly manipulating the affairs of the states where they are operating. Added to this, the “race to the bottom” among developing nations has driven them to the point of granting a lot of concessions to these MNCs, if not totally signing away their right to regulate inward investments, only if to attract foreign direct investments.

These notwithstanding, from among the works of international legal scholars, there is seemingly still a consensus that not all of the various entities participating in international relations are accorded legal personality in international law, even if they may have some degree of influence on the international society. As observed by Nowrot, “de facto participation is not equivalent to acting on the international scene in legally relevant ways, and thus does not convey the status of a subject of international law.”

Thus, the traditional view is still that actors in international law must involve states. Non-state actors are generally not accorded legal personality, except perhaps for some actions which might be perceived as violations of human rights. For instance, international law and numerous international agreements now recognize human rights of individuals and sometimes give individuals remedies before international bodies. Individuals may be held liable for offenses against international law such as piracy, war crimes, or genocide, such as that of the Nuremberg trial where managers of certain corporations were implicated in the Nazi atrocities.

Although being non-state actors, MNCs are one of the most important factors in the process of globalization. There is thus no denying that MNCs have achieve a status that has a direct impact on international law. This paper is aimed at determining whether, by reason of the aforesaid developments, legal recognition is now accorded to MNCs under the auspices of international law, specifically in terms of: (a) trade and investments; (b) labor and human rights; and (c) other fields of transnational transactions.

Trade and Investments

Perhaps the most eloquent proof of international recognition of the tremendous effects of the operations of MNCs is the fact that MNCs are being scrutinized by various international bodies. Not only do these international bodies monitor the MNCs’ operations, they also provide, in particular aspects, guidelines as to how operations should be done.

For instance, even the United Nations itself had organized its Centre on Transnational Corporation. It had promulgated a UN Global Compact which attempted to persuade business leaders to adopt and apply the basic principles involving human rights, standards and environmental protection.

Another international body, the Organization for Economic Cooperation and Development (OECD) also enacted its own Guidelines for Multinational Enterprises, which functions like the UN Global Compact. The OECD Guidelines provide for a global code for businesses, with special emphasis on public disclosure of information by multinational enterprises about their structure and activities… the rights of workers to organize and bargain collectively, and with environmental protection.

Patent, however, from the UN Global Compact and the OECD Guidelines is the fact that there are mere guidelines. They are thus considered as merely recommendatory, and it is now voluntary upon the MNC whether to comply with the guidelines or not. No enforcement mechanism had been fixed under such guidelines. This, therefore, poses serious problems as to the legitimacy and obligatory force of the said documents.

From the traditional point of view of determining legal personality of MNCs in international law, the fact that the abovementioned documents could merely be guidelines is not too difficult to accept. Since, as stated above, the traditional view is that only states may generally be the subject of international law, international bodies could not directly regulate MNCs which are non-state actors. International law’s regulation of MNCs can only be done indirectly because direct obligations may only be imposed on states and supra-national organizations, the creation of which have been sanctioned by states.

For practical and political purposes, there is wisdom to this approach of international law. For if direct intervention by international law as to the operation of MNCs through imposition of sanctions for violation of obligations would be done, this might be perceived as a derogation of the sovereignty of the state where the MNC came from (home state) and where it is operating (host state). It might be viewed as a direct intervention as to the authority of either the home or host states to regulate the operation of MNCs. And to a large extent, this possibility is very real, for MNCs are very useful tools in trade negotiations by both the home and host states.

Relationship of MNCs with the Home Country

The existence of MNCs in several jurisdictions had been used by home countries to strategically position their products not only in the market of the host state but also in adjoining jurisdictions. On another aspect, the existence of MNCs operations in host countries also serve to protect the intellectual properties of the home country. Others even go to the extent of using MNCs as a means of establishing economic and political ties. For instance, certain political concessions could be had by the home state in exchange for a promise to increase foreign direct investments in the host state.

Relationship of MNCs with the Host Country

As noted earlier, the “race to the bottom” scenario had dragged less developed host countries to bargain away their right to regulate foreign direct investments if only to attract them. Through grants of tax incentives, lax regulation, and other similar policies, less developed host countries have induced MNCs from developed countries to establish manufacturing subsidiaries within the host country’s borders. Less developed host countries have come to perceive the influx of foreign direct investment as some “magic potion” that would put an end to their economic grief and give then a “happy ending,” so to speak.

But quite to the contrary, some studies have been made tending to prove that far from being a “magic potion,” the operation of MNCs in LDCs leads only to the exhaustion of the host country’s natural resources and development capital, and impedes growth of indigenous entrepreneurship. And these fears are not totally unfounded. In the Philippines alone, who could ever forget the damage caused by Marcopper, a subsidiary of an MNC, not only to the people but also to the environment of Mindoro? This is a great example of how the operation of an MNC may have tremendous effects on the host country and its subjects, which, surely, should be addressed by international law.

Labor and Human Rights

One of the emerging theories of legal scholars in international law is to directly impose sanctions on corporations, especially in terms of violation of labor and human rights. The basic poser is that since human rights are universally guaranteed, and that everyone should observe another’s human rights, even corporations may thus be subject to sanctions for violations thereof.

The theory is perhaps a good solution to the problems faced by the International Labor Organization’s (ILO) voluntary guidelines for corporations as regards employment, training, working conditions, and industrial relations. Since the ILO declaration relies on individual governments for ratification and implementation through domestic legislation, nothing much was achieved by the declaration.

In a move perceived to be going towards the direction of the theory cited above, the Sub-commission on the Promotion of Human Rights of the United Nations Commission on Human Rights approved the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights. Although the Norms appear to be obligatory in character as evidenced by their mandatory wordings, they still lack the binding force of international law, even if they were approved by the CHR. In fact, even the authors thereof admit that some of the provisions thereof have gone beyond the scope of existing international law.

What is notable, however, is the recognition accorded by the UN CHR to MNCs. In the Preamble of the Norms, states thus:

“… Recognizing that even though States have the primary responsibility to promote, secure the fulfillment of, respect, ensure respect of and protect human rights, transnational corporations and other business enterprises, as organs of society, are also responsible for promoting and securing the human rights set forth in the Universal Declaration of Human Rights,”

“Realizing that transnational corporations and other business enterprises, their officers and persons working for them are also obligated to respect generally recognized responsibilities and norms contained in United Nations treaties and other international instruments…”

Clearly, although non-state actors, MNCs have been recognized as potent participants in the field of international law. The twist, however, introduced by the Norms is that while they appear to have badges of being obligatory, the responsibility of States to regulate MNCs was also recognized, in addition to the obligations directly imposed on MNCs. This can be clearly seen from the General Obligations stated in the Norms, viz.:

“States have the primary responsibility to promote, secure the fulfillment of, respect, ensure respect of and protect human rights recognized in international as well as national law, including ensuring that transnational corporations and other business enterprises respect human rights. Within their respective spheres of activity and influence, transnational corporations and other business enterprises have the obligation to promote, secure the fulfillment of, respect, ensure respect of and protect human rights recognized in international as well national law, including the rights and interests of indigenous peoples and other vulnerable groups.”

There a two-fold duties embodied in the above-cited general obligations—the duty of the State to ensure respect for human rights, even by MNCs, and the direct duty imposed on the MNCs themselves to ensure respect for human rights.

It may be argued—in directly imposing duties/obligations on MNCs by the UN itself, is this not a clear manifestation of the recognition of the legal personality of MNCs in international law? Well, perhaps it may be so… but then again, if MNCs were truly subjects of international law, could there be possible sanctions upon them for non-compliance with the Norms? Surely, the Norms themselves do not impose any form of sanction.

Other Transnational Transactions

The continuous development by the different international bodies of model laws for private transactions (e.g. model law for e-commerce, sales, commercial documents, etc.) could probably be treated by some as evidence of the emerging recognition of MNCs in the field of international law.

But what could perhaps be vital proof of the tremendous effect of MNCs in international law are the tie-ups being undertaken by these MNCs with international organizations. For instance, MNCs (in the form of multinational banks) may even have a direct hand during sovereign debt negotiations and renegotiations through their conglomeration with the London Club of creditor banks, which, in turn, could get international concessions with a distressed state via the auspices of the IMF or World Bank. In this respect, the economic power of MNCs may be felt producing a direct impact on international law.

Summary and Conclusion

To ignore the tremendous impact of MNCs in international law would be to close one’s eyes to reality. In an economic as well as political sense, these non-state actors are among the most influential participants in the current international system, being endowed with considerable potential to positively contribute to, but also to frustrate the promotion and protection of global public goods. Thus, in light of the central aims pursued by the international legal order and because of the need for close conformity of international law to the changing realities in the international system, a presumption—until today not rebutted by states and international organizations—arises in favor of MNCs being made subject to international legal obligations to contribute to, inter alia, the promotion and protection of human rights, core labor and social standards as well as the environment.

If international laws were envisioned to cope with the reality and not just designed to be a plain academic exercise, these effects of MNCs in international law should be given due recognition.

Of course, giving them due recognition may not necessarily mean elevating their status similar to that of a state. The point is that considering the vast effects of operations of MNCs in our international legal order, we have to accept the fact that they can be actual subjects of international agreements. We have already proven that this is possible by taking a step forward in recognizing the legal personality of individuals in human rights cases. Recognizing the legal personality of MNCs would perhaps be another leap forward in the development of international law.

While it may a good possibility to directly impose sanctions on MNCs, it still remains a fact that the basic problem is enforcement. If the sanction is not course through states, there must be a very good enforcement mechanism to back it up, which could be very difficult to achieve. And if the Norms will not be followed, they might simply be ignored.

One possible alternative may be to make the Norms obligatory through sanctions via international bodies but still maintain state-backed enforcement procedures. For instance, MNCs in the form of financial institutions may be the subject of certain standards to be monitored by the IMF. International enforcement must not be too exclusive as to preclude regulation by either the home or the host state. If this would be done, MNCs may finally find their place in international law.

But, of course, this could be done only if we are open to changing the concept of subject in international law to include non-state actors.

References:

Nowrot, Karsten. New Approaches to the International Legal personality of Multinational Corporations Towards a Rebuttable Presumtion of Normative Responsibilities.

http://www.esil-sedi.org/english/pdf/Nowrot.PDF

Restatement of the Law Third. Restatement of the Law. Persons in International Law, pp. 70-71.

Simaika, Abdallah. The Value of Information: Alternative to Liability in Influencing Corporate Behavior Overseas, 38 Colum. J.L. & Soc. Probs. 321 at 328-239.

Vasquez, Carlos. Direct vs. Indirect Obligations of Corporations under International Law, 43 Colum. J. Trnasnat’l L. 927.

Woodroffe, Jessica. Proposals for the Regulation of Foreign Investment, Putting People before Profits, p. 123.