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Corporate Code of conducts for Transnational Corporations (TNCs)


Existing laws, regulations, and codes of conduct do not provide a uniform definition of TNCs, which complicates identification of the entities involved in transnational business transactions. Regardless of various definitions, TNCs are corporations with production and marketing operations in more than one state. They have generally three common characteristics. First, it is composed of commercial entities operating in at least two countries. Second, these entities operate under a decision-making system which allows the formulation of common strategies or policies through one or more headquarters. Finally, the entities significantly influence each others' activities through various linkages, such as shared ownership, resources, and technology. Therefore, private enterprises or state-owned or mixed enterprises should be considered TNCs.

Codes of conduct as policy statements that define ethical standards for companies, originated in the early 1970s when TNCs were being widely criticized for their behavior in developing countries. Since that time, codes of conduct have been voluntarily developed by TNCs and MNCs, often with the help of NGOs, to inform customers about the principles they follow in the production of their goods and services. Even though several hundred codes of practice exist and there is no standard for their content, they typically feature criteria including the establishment of a minimum living wage and equal remuneration, the prohibition of forced or bonded labor, freedom of association and collective bargaining, discrimination and child labor, working hours and overtime, health and safety, and contracts of employment. At present, codes of conduct for international business operations are increasing in size and numbers as an increasing number of investors, companies, and governments are confronted with demands to respect human rights in general, labor rights, and the environment.

Role of codes of conduct in stipulating MNCs — Mandatory vs. voluntary

It is not easily said what code of conduct form is the better one. As is often the case, determining whether the code should be mandatory or voluntary in nature depends upon various factors. These factors range from the content of the Code to the attitude of the affected countries and governments to the urgency of implementation and expected or anticipated acceptance of a code. Concerning uniformity and compliance, it generally seems that mandatory codes of conduct are the more promising form of establishing the necessary norms and provisions to ensure sustainable, fair and responsible behavior of TNCs.

A mandatory code which includes all standards in a state is compulsory. The strongest rationale in favor of such a position is that only a mandatory code can effectively mitigate the power of TNCs. A compilation of relevant provisions into a uniform law and subsequent enactment by contracting states ensures effective interpretation and application. Opponents of mandatory codes argue that uniformity is too rigid and stifling for states in disparate situations. They maintain that inadequate information regarding TNCs warrants avoidance of detailed and compulsory regulation. Moreover, incorporation in domestic law sometimes requires a lengthy legislative process and may be accomplished only with great difficulty.

A voluntary code refers to the discretionary application of all regulations to contracting states and TNCs. Advocates for voluntary codes advise that it is relatively easy for states to reach agreement on such a code. Also, because voluntary codes are not legally binding, specific provisions are more attainable and subsequent modification is easier than binding international agreement.” Furthermore, voluntary codes lead to moral obligations that, at a minimum, provide a set of guidelines for TNC behavior and a source of policy for governments. On the other hand, critics of voluntary codes contemplate that governments and TNCs would not respect a discretionary body of norms.

Concerns of developing countries

Host governments frequently stress that MNCs fail to operate in harmony with local economic, social, and political objectives. Because each unit of a TNC network is nominally subject to the laws of the country or region in which it is established, no single authority can exercise control over the network as such and its global operations. Thus, the global context in which TNCs operate necessarily limits national and regional efforts at controlling or even monitoring their activities.

The following matters about which host countries are specifically concerned: (1) the undermining of national sovereignty through the extraterritorial application of home country laws; (2) TNC interference in internal political affairs through bribery and illegal contributions; (3) the conflicts between national goals, economic and otherwise, and the profit-making and growth goals of TNCs; (4) TNC manipulation of natural resources via control over production; (5) decision-making by TNC management in or from a few industrialized countries controlling the allocation of resources of TNC subsidiaries, affiliates, and branches operating in host countries; and (6) the extent, cost, or appropriateness of technology transfers.