Chapter 13 in the Best Interest of the Child: International Regulation of Transnational Corporations *
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HARNESSING GLOBALISATION FOR CHILDREN: A report to UNICEF Chapter 13 In the best interest of the child: International regulation of transnational corporations * Judith Richter with Elizabeth Satow** Summary: This chapter uses two case studies to demonstrate the urgent need for international regulation of transnational corporations. Its examination of the processes of regulation of marketing for breastmilk substitutes and for regulating tobacco provides an overview of the historical process of regulations. Both industries have used aggressive advertising to promote their products and have withheld information that would have helped consumers make informed choices about these products. What is particularly noteworthy about these sectors is that their advertising has an impact on human health. They have used similar tactics to prevent and obstruct global regulation, including the gathering of information on opponents, threats of violence, the use of consultants to undermine the work of the World Health Organization and trade threats made via governments. The current international system is skewed towards free trade – not human well-being. For this reason there is a need for strong and enforceable external regulation for industries whose products can harm public health. Self-regulation, and co-regulation, are not enough. JEL: D18, F23, I18, K32 * This study presents the views of its authors and not the official UNICEF position in this field. ------------------------------------------------------------------------------------------------------------ This is chapter 13 of the overall study “Harnessing Globalisation for Children” edited by Giovanni Andrea Cornia ** Elizabeth Satow adapted much of this chapter from Judith Richter, Holding Corporations: Accountable Corporate Conduct, International Codes, and Citizen Action (in press). Zed Books. The section on tobacco was researched and written by Elizabeth Satow. CHAPTER 13: IN THE BEST INTEREST OF THE CHILD: INTERNATIONAL REGULATION OF TRANSNATIONAL CORPORATIONS 1. Introduction Globalisation has allowed individual corporations to extend far beyond national boundaries – and beyond the reach of national regulations. The speed at which companies have grown has been aided by the global move towards neo-liberal economic policies backed by powerful institutions and governments. There has not, however, been a corresponding growth in legally-binding international regulations. Though transnational corporations may have legal restraints within individual countries, there are few checks on their practices internationally. Children are among the victims of unchecked corporate activities. This chapter builds on the general case for regulation at national and international levels. It examines attempts by public institutions to create international regulations to mitigate some of the more harmful corporate activities in a global context of increasing corporate power. It demonstrates that market failures, such as imperfect information, can move unwanted – and even dangerous – costs onto society. While there are many examples of attempts to regulate public “bads”, this chapter focuses on the International Code of Marketing of Breastmilk Substitutes and the proposed World Health Organization Framework Convention on Tobacco Control. These two cases illustrate the strengths and weaknesses of existing tools for regulation of transnational corporations. They also exemplify the need for national regulation backed by international mechanisms to protect the health and well-being of children in accordance with international health concerns. 2. Regulation of transnational corporations: historical overview Ensuring that corporations benefit society – or at least do no harm – has long been a key societal issue. In most democratic countries, government regulations have evolved over the years to protect the population. While these may vary from country to country, there are – in most industrial countries at least – minimum, legally-binding standards. In contrast, many developing countries have neither the capacity nor the commitment to implement such legislation. As more corporations have expanded their operations beyond national borders, however, the ability of an individual state to hold corporations accountable and safeguard public interests through national regulation has diminished. Recognizing this, developing countries and civil action groups have demanded a strong international regulatory regime to hold transnational corporations (TNCs) accountable to citizens wherever they operate. But the changes in international economic and political spheres in recent decades have prevented the emergence of an effective web of binding laws at international level. 2 HARNESSING GLOBALISATION FOR CHILDREN: A report to UNICEF In the 1970s there were intense debates within various UN fora on the need to regulate corporations, but the 1980s saw strong opposition to industry regulation. The election of influential conservative political leaders, particularly in the USA and UK, introduced an era of international economic policy-making based on a neoliberal framework. Their policies ostensibly called for deregulation of markets but led to “re- regulation” in the interest of transnational corporations and financial industries (Hildyard 1998:1; 3-6). In the early 1990s the focus shifted to industry associations – which had repeatedly opposed external international regulation and had advocated self-regulation. Many governments, particularly in poorer countries, gave up demands for international regulation. Many of them were – and still are – deeply in debt and needed the investment of transnational corporations. Others had developed their own industrial sectors and did not want these subjected to international regulation. The picture was further complicated in 1995 by the establishment of the World Trade Organization (WTO), whose purpose is to implement international rules on trade such as the General Agreements on Tariffs and Trade (GATT). Both GATT and WTO have been criticized for the influence of transnational corporations in their decision-making processes – an important issue as the WTO has the authority to enforce its decisions by means of sanctions, making it an extremely powerful institution (cf. e.g. UNDP 1999, Koivusalo 1999). By the end of the millennium transnationals had gained a great deal of economic and political power while nations lost much of their decision-making power to these same corporations. At the international level, decision-making power has been shifting away from inter-governmental UN agencies towards the less accountable Bretton Woods Institutions and the WTO. Meanwhile, civil society organizations have become increasingly active in the international policy-making arena.1 There has been a resurgence of calls from within the UN for universal standards to govern corporate conduct. The current debate, however, has focused less on how to ensure democratic control over corporations that transcend national boundaries – many of them with annual turnovers in excess of national budgets – and more on how best to attract corporate investment and sponsorship. More often than not, binding public regulation is overlooked in return for promises of corporate responsibility and good governance – concepts that appeal to good intentions but tend to overlook skewed power relationships. 3. Democratic global governance The shift of the early 1990s from ‘confrontation’ to ‘dialogue’ and ‘partnership’ has continued into the new millennium. Moves towards self-regulation or non-binding co- regulation have been supported by two beliefs. First, that the growing number of industry codes demonstrate greater corporate responsibility and that, therefore, society no longer needs to insist on externally-defined binding international regulation. 1 cf. e.g. (UNRISD 1995; UNDP 1999) 3 CHAPTER 13: IN THE BEST INTEREST OF THE CHILD: INTERNATIONAL REGULATION OF TRANSNATIONAL CORPORATIONS Second, that transnational corporations have so much power that it is impossible to regulate their activities by externally-defined rules. Voluntary agreements are seen as more ‘pragmatic’ than antagonising them with binding international regulation.2 But do ‘dialogue’ and ‘partnership’ represent adequate political processes in making TNCs accountable? While there are areas where corporations see the benefits of effective international regulation and may, therefore, cooperate in regulation, recent research suggests that the ‘win-win’ situations sold as opportunities for corporations to ‘turn ethics into profit’ are less common in environmental protection, for example, than usually implied in discussions on ‘voluntary initiatives’. (cf. e.g. Utting 2000:21- 22). There will always be areas where there is a need for binding, industry- independent regulation in the public interest and where confrontation cannot be avoided. One example is the long process of creating international regulation of the marketing of breastmilk substitutes. START BOX 1 Why regulate? The myth of the self-regulating market De-regulation is a key word in current economic policy discourse. Many policy- makers today follow the neo-liberal economic school of thought, arguing that unfettered markets deliver goods and services most efficiently and are therefore best left alone. It also argues that the ‘invisible hand’ of pricing mechanisms takes best care of societal welfare. The market certainly does many things well. But until some 20 years ago, economists and policy-makers were