Global Corporations in Global Governance

Christopher May

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781134744404
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This book offers a concise and accessibleoverview and analysis of the place of large multinationaland regional corporations in the political economy of global governance.May argues that not only do corporations have an impact on the institutions of global governance, butthey must be understood as amultifaceted institution of global governance in their own right, controlling and shaping significant aspects of the global political economy.

Topicsinclude:

• What are global corporations?
• Corporations and global governance
• The legal personality of the corporation
• Corporations and power
• Corporations and tax
• The future role of corporations in a post crisis global system

Highlighting the central role of corporations in the generation and reproduction of norms in global governance, this work shows that corporations' practices and relations are themselves both subjects, and sources of, global governance. It offers an enhanced understanding of the complex of issues that pattern the corporate global governance in the contemporary political economy and will be of interest to students in areas including IPE, global governance and international organizations.

1 Global corporations and global governance

• Governing the global corporate sector
• Shaping the agenda of global governance
• Global corporations as institutions of global governance themselves
• Conclusion

Having introduced the global corporation, this chapter maps the general terrain where the more focused issues raised in subsequent chapters are located and as such introduces a number of key themes of the book. The idea of global governance itself is of relatively recent vintage; the term seeks to capture the move from an international system, ruled by the direct and relatively unmediated activities of powerful states, to one where politics is understood globally, with many more actors than just states actively seeking to affect political change. To speak of the “global” is to move away from understanding political power mainly as territorially defined, and towards a recognition that power in global politics is not merely an attribute of states, with “governance” a shorthand for international influence and authority located outside state institutions. This also reflects the gradual development of powerful legally grounded international organizations, starting in the nineteenth century with a focus on the regulation of international communications and (some) economic affairs.¹ The range and number of these institutions of international law accelerated during the years of the League of Nations and more so after the establishment of the United Nations, until the complexity and number of institutions prompted the identification of a specific set of practices and range of attributes that we now most often refer to as global governance.

Given the roots of contemporary global governance in the nineteenth century’s period of rapid economic globalization, it should be no surprise that businesses have always been interested in the form and content of the rules and regulations that emerged from the state-led negotiations establishing various regimes intended to oversee particular (often economic) issue areas. Certainly, governments have consulted (sometimes formally, sometimes informally) with business leaders and representatives when developing and then interacting with international institutions especially where, as is often the case, the institutions are likely to have some impact on international (and now, global) economic relations. However, there are, of course, disagreements about how we should understand the character of the interaction between global governance institutions, states’ governments and corporations: some commentators see corporations’ role as potentially constructive, as in the recent moves against bribery and corruption,² whereas others see corporations presenting problems for the democratic accountability of these institutions.³

Whatever one’s assessment of the character of these interactions, it is difficult to argue that a study of contemporary global governance need take no account of the corporate sector (and few nowadays would take that position). Indeed for organizations like the International Labor Organization, founded in 1919, the business sector has always been involved in developing regulatory measures and practices. As globalization accelerated after the end of the Cold War, the scope of multinational corporations’ activities and the focus of many international institutions became increasingly aligned, offering further incentives for both to engage the other in discussion and negotiation.⁴ Therefore, while the global business sector may now be more organized than it was before the Second World War, this is not to suggest that international businesses were absent from the realm of international rule making before their role in the development of global governance became a matter for critical comment. Thus, as I will begin to show below, global governance now clearly encompasses at least four distinct interactive sets of actors: states; the institutions of global governance themselves; non-governmental organizations focused on global activity (whose role is covered by other books in this series and only a minor element of the analysis here); and multinational or global corporations.

Although it is some time since John Stopford and Susan Strange set out an account which sought to situate corporations individually or collectively within the international diplomatic realm, their analysis makes a useful point about the global corporate sector.⁵ They presented corporations as fully rounded non-state actors that have legitimate interests, interacting with states, the institutions of global governance and other actors or groups active in the global realm on a number of levels and around a range of issues. States’ governments have increasingly put economic growth at the center of their policy agendas seeking to claim their expertise and success in growth as a key reason for their continued democratic legitimacy; unsurprisingly this has prompted an expansion of states’ involvement and engagement with the private corporate sector. However, Stopford and Strange’s argument that this therefore implied an expanded partnership between states and corporations has to some extent been eroded in the quarter century since their study was originally published.

Certainly, states have entered (political) alliances with multinational and smaller, local corporations to deliver market share and capital accumulation to the corporation with a clear overall intent to contribute towards domestic economic growth. These alliances have ranged from the weak links of positive legislative support (laws that favor business development in one way or another) to more developed partnerships (ranging from outsourcing of government activity to direct financial support). However, the continuing development of more open global markets (partly the result of state actions and policies themselves) has also continued to move elements of the governance of this activity away from single national jurisdictions to international organizations with varying levels of oversight and authority, prompting further fragmentation; additionally the Internet has increased the potential for individuals and groups to mobilize political campaigns against corporate actions at the global rather than national level.⁶ In response, global corporations have adopted a more globalized form of diplomatic function in their relations with states, global governance institutions, and (global) civil society, contributing to (and shaping) global governance itself, while also responding and accommodating new global rules and guidance as regards their operations across the world. It is to these two diplomatic functions we now turn as they are the context for much of the discussion in subsequent chapters.

Governing the global corporate sector

Although it might seem obvious that global governance affects the practice and activities of global corporations, it is as well to be explicit about the general manner in which global governance helps shape and direct their behavior. Although recent developments in international criminal law have expanded the subjects of international law to include (some) individuals, in the main international law (which underpins global governance) has only included states as the subjects of law; thus corporations mostly only have international legal personality as nationals of states. Nevertheless, even though states are international law’s immediate subjects, corporations’ activities are subject to a myriad of regulations established through a wide range global governance institutions and, as such, there is considerable debate about the extent of corporations’ exposure to international legal instruments,⁷ to which we return in the next chapter. These regulations have not necessarily been forced onto corporations, rather as global corporations’ operations have become more complex and global their senior management teams have often sought action in the international arena from their home states to establish a more ordered and standardized environment for economic activity.⁸ Thus the impact of global governance on the corporation can be both facilitative of its economic activity and/or represent a constraint on corporations’ preferred activity.

Many regulations directly related to the global corporate sector find their origins in the earlier bilateral investment, trade promotion, and property rights protection treaties stretching back in some instances to the nineteenth century.⁹ These agreements mostly sought to harmonize legal and regulatory instruments between home and host countries involved in significant bilateral economic relations, and such treaties have continued to be negotiated into the new millennium, with around 2800 bilateral investment treaties (BITs) in force by 2010.¹⁰ These treaties are complemented by various international and regional investment agreements, as well as the regulations of the World Trade Organization (of which more below). However, while related to corporate activity, the key focus of investment agreements is the curtailment of expropriations (often nationalization) of corporate property. Such agreements have aimed to limit the freedom of host states to interfere with foreign owned corporate property while also providing for arbitration when such expropriation does happen.¹¹ Such arbitration seeks to settle the compensation or damages owed to the investor (or investing corporation) by the state when property has been “taken” by the state, including the national treatment of non-domestic corporations—foreign corporations should be treated no worse than domestic firms in a similar situation—with much of the case law in these cases favoring the corporate perception of levels of loss.

However, corporations can also have their actions regulated (directly, or more often indirectly) in areas of activity other than direct investment and trading; one important example is the impact on corporate practices of the various climate change governance regimes of which the Kyoto Protocol is likely the most important but not only the mechanism requiring amendments to practice in light of their impact on the environment (usually mediated through state level laws). Another example is the regulation of the international banking industry through the Basel Committee on Banking Supervision, which is an organ of the Group of 10 developed countries and has its roots in the funding arrangements of the International Monetary Fund, bringing together Belgium, Canada, France, Italy, Japan, the Netherlands, the United Kingdom, the United States, Germany, Sweden, and Switzerland (the latter joining a couple of years after the group was launched in 1964, but not reflected in the group’s name).

In addition to these focused (and binding) agreements, global corporations are subject to a number of multilateral treaties that offer guidelines and expectations rather than enforceable rules. These include the Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises (adopted in 1976 and most recently revised in 2011), and the UN Global Compact (see below and Chapter 3). Alongside these general sets of guidelines there are various standards organizations with industrial sector related, or an issue area focus which also seek to regulate corporate behavior in various ways. Organizations working with guidelines often involve a range of stakeholders seeking to govern or control the behavior of corporations around specific politically sensitive issues, for instance involving the environment or labor and employment practices or corporations’ impact on host country’s economic development. Here, governance can be relatively weak with a lack of formal enforceable constraints only partly balanced by the power of normative engagement, and the sanction of publicity, with questions of verification and “real” corporate commitment to codes offering critical weaknesses that are difficult to resolve.¹² As the above indicates, there is an extensive and mixed ecology of regulatory institutions of global governance that potentially have some impact on global corporations’ day-to-day activities.

To explore this in a little more detail with a couple of examples, let’s start with the World Trade Organization (WTO), not least as it is often central to accounts of global governance. The WTO is an important regulator of a number of aspects of the global political economy of relevance to global corporations, not least of all as much global trade flows through global corporations; by some measures intra-firm and inter-firm trade account for the vast majority (around two-thirds) of all international trade.¹³ The WTO’s primary concern is to open up markets to freer competition, and thus one key focus of its activity which impacts on corporations operating in any members’ jurisdiction is the progressive reduction in barriers to international competition in domestic markets by reducing import tariffs and other impediments. Additionally, there are four specific areas of concern to corporations’ management, and for each we can identify aspects of the WTO regulatory regime that have some impact on decisions about corporate practices and activities.

i Location of production: national treatment as a norm—non-national corporations must be treated no worse than local firms (and of course can be treated better)—via the WTO’s principle of non-discrimination; the General Agreement on Services (GATS) (related particularly to national procurement practices); and provisions of the Trade Related Investment Measures (TRIMs) agreement.

ii Access to markets: the general provisions of the WTO; more specifically, GATS as related to non-product markets for services; the reduction of tariffs; the reduction of barriers to imports (the removal of localized regulations, regarded as discriminatory by the WTO).

iii Structure of industries: the reduction of subsidies; procurement practices again.

iv Management of corporate functions: the protection of intellectual property under the Trade Related Aspects of Intellectual Property Rights (TRIPs) agreement, as regards corporate resources (and their “location”); the regulation and facilitation of technology transfer (TRIPs); GATS relating to visas for personnel moving around international corporate structures.¹⁴

As this indicates, there are a wide range of areas where the WTO has some impact on how corporations manage and develop their international activities (from investment, to internal management of the organization). However, that impact can be widely different across different elements of the WTO’s “single undertaking” (by which state members accede to all aspects of the WTO’s regulatory complex).

For instance, while the TRIPs agreement is relatively strong in its shaping of permissible corporate activity, the Subsidies and Countervailing Measures (SCM) agreement is both weaker in terms of its enforcement and much less focused in policy terms.¹⁵ Thus, although there have been considerable political confrontations about the limitations on emerging market corporations that the TRIPs agreement has instituted (mo...