The subjects of International Business Law

Summary:
 International legal personality
 Kinds of subjects of IBL
o States
o International organizations (IGOs)
o Non-governmental organizations (NGOs)
o Multinational companies/corporations (MNCs) or Transnational corporations (TNCs) and
o Individuals

All legal systems recognize specific subjects that must comply with the rules of that system
or face some form of sanction. The subjects possess legal personality, they have duties and rights
including the capacity to appear before a panel of arbiters or a court.
Legal personality is a controversial concept of international law. But it is, of course, not a
concept confined to the international legal system. It represents one of the pillars of municipal
law as well. In order to approach the meaning of the notion, it is therefore convenient to review
the function of personality in municipal private law. A private law analogy might help to develop
an understanding of the role of the concept in international law. Yet, at the same time, it is
important to note the peculiarities of international personality.
A legal system has to determine whom it endows with the rights and duties contained in it
and whose actions it takes account of by attaching legal consequences to them. In international
law, it also has to be determined which entities have rights and duties and act in legally relevant
ways.
The notion of legal personality is traditionally employed to this end, and accordingly called
international legal personality. However, two peculiarities distinguish personality in international
law from that in municipal law.
1. The first peculiarity often stated is that international personality not only denotes the
quality of having rights and duties as well as certain capacities under the law, but that it also
includes the competence to create the law. This association of international personality with law-
creation is an effect of there being no centralized legislator in the international legal system as
opposed to municipal private law where the creation of law lies in the competence of centralized
state power (and consequently is not exercised by the legal persons of private law). International
law, on the contrary, is thought to emanate from the will of states in the first place: the states
composing the international system enact international law themselves through different modes
of explicit and implicit coordination. As states are considered the quintessential international
persons – indeed at times statehood and international personality were regarded as synonymous –
it is not disputed that at least international personality of states includes the capacity to create law
apart from being subject to this very law. What is disputed is whether this is a necessary attribute
of an international person more generally or whether there also can be international persons
lacking the competence to create law.
2. The second peculiarity is that there is no centralized law of persons in the international
legal system. There is neither a pertinent treaty nor are there established rules of customary
international law that comprehensively determine matters of personality. In contrast to the law of
treaties or international responsibility, the law of persons has also never been selected for
codification by the International Law Commission, although this was suggested in 1949.1 The
closest international law gets to an authoritative statement on international personality is the
well-known definition articulated by the ICJ in the Reparation for Injuries opinion: an
international person (…) is (…) capable of possessing international rights and duties, and (…)
has capacity to maintain its rights by bringing international claims.2 In the absence of other
authoritative statements, these lines are often referred to when dealing with international
personality.
Traditionally, the study of international law focused on the state as the dominant actor and
paid passing attention only to international organizations such as the UN. Today there is a
general awareness of the multiple kinds of actors that populate the world and must be taken into
account because their behaviors and resulting consequences are important. The state remains
primary, but
International organizations, Transnational Corporations, non-formal governmental forums, and
inter-agency cooperations shape today’s international economic scene and influence the
1
Survey of International Law in relation to the Work of Codification of the International Law Commission:
Preparatory work within the purview of article 18, paragraph 1, of the Statute of the International Law Commission,
Memorandum submitted by the Secretary-General, UN Doc. A/CN.4/1/Rev.1, at 19–22.
2
Reparation for Injuries Suffered in the Service of the United Nations (Advisory Opinion), 1949 ICJ Reports 174,
179.
formulation of rules and standards. In addition, the development of human rights standards and
the possibility of investors to bring claims against a State before the International Centre for
Settlement of Investment Disputes (ICSID) have strengthened the role and the legal standing of
companies and individuals in international economic relations.

I. STATES
(COUNTRIES)

Despite the increasing variety of actors on the international plane, the world economic order
is essentially still a system of coordination among States. States, in all their diversity, continue to
be the most important subjects in international law and in international economic relations.
States exercise regulatory power over economic activities in several ways. Within their own
jurisdiction, they act through legislation and administrative supervision. On the international
plane, they also influence international economic relations through the creation of new
international rules and through their membership in international organizations and other forums
of intergovernmental cooperation. Finally, States also participate directly in economic
transactions, for example in trade in commodities or with regard to financial operations as central
banks without legal personality of their own.
In principle, each State is free to choose its own economic system. The principle of non-
intervention protects this freedom of States under customary international law. However, a broad
range of international agreements restrict economic choices. By defining “strategic sectors”,
States control industrial and other economic activities considered as particularly sensitive. Their
sovereign rights include the power to administer natural resources such as commodities or
genetic resources. States also control the supply of energy via transport infrastructures.
Another unique feature concerning the economic activities of States resides in the fact that
they are in many cases subject to different rules than their (private) competitors. For instance,
international rules on State immunity prevent States and their subdivisions from being subjected
to foreign jurisdiction in the case of acta de iure imperii.

1. Definition
 The state is a sovereign actor with a central government that rules over a population and
territory and protects and represents that population in international politics.
Despite myriad differences among states in physical size, wealth, and military clout, as
sovereign entities they are legal equals and independent of any vertical authority over their
heads. This definition of the state is essentially the same as offered in the 1933 Montevideo
Convention on the Rights and Duties of States. This treaty is frequently cited for its definition of
statehood even though it originated as a regional treaty set among Latin American countries.
According Article 1 of the 1933 Montevideo Convention on Rights and Duties of States:
The State as a person of international law should possess the following qualifications:
(a) a permanent population,
(b) a defined territory,
(c) government, and
(d) capacity to enter into relations with other States.
The three criteria correspond to established international practice and to the so-called
doctrine of the three elements formulated by the German writer G. Jellinek at the end of the
nineteenth century.

a. Permanent population
The criterion of a permanent population refers to the significant number of permanent
inhabitants; it is connected with that of territory and constitutes the physical basis for the
existence of a state. For this reason alone, Antarctica, for example, cannot be regarded as a state.
The size of the population, as well as the size of territory, may be very small. This raises the
problem of so-called mini-states which have been admitted as equal members to the United
Nations.
Who belongs to the permanent population of a state is determined by the internal law on
nationality, which international law leaves to the discretion of states except for a number of
limited circumstances.
A state exercises territorial jurisdiction over its inhabitants and personal jurisdiction over its
nationals when abroad. The essential aspects, therefore, is the common national legal system
which governs individuals and diverse groups in a state.

b. Defined territory
 The control of territory is the essence of a state. This is the basis of the central notion of
territorial sovereignty, establishing the exclusive competence to take legal and factual measures
within territory and prohibiting foreign governments from exercising authority in the same area
without consent.
Therefore, territorial sovereignty … involves the exclusive right to display the activities of a State. This right
has as a corollary a duty: the obligation to protect within the territory the rights of other States, in particular
their right to integrity and inviolability in peace and war, together with the rights which each State may claim
for its nationals in foreign territory. (Judge Max Huber, the President of the Permanent Court of International
Justice, award of 4 April 1928, in the Island of Palmas case, between Netherlands and the United States)
It is important to note that the concept of territory is defined by geographical areas separated
by borderlines from other areas and united under a common legal system. It includes the air
space above the land and the earth beneath it, in theory, reaching to the centre of the globe. It
also includes up to twelve miles of the territorial sea adjacent to the coast.
What matters is that a state consistently controls a sufficiently identifiable core of territory.
Thus, Israel was soon clearly recognized as a state, in spite of the unsettled status of its borders
in the Arab-Israeli conflict.

c. Effective control by a government

Effective control by a government over territory and population is the third core element
which combines the other two into a state for the purposes of international law. There are two
aspects following from this control by a government, one internal, the other external.
 Internally, the existence of a government implies the capacity to establish and maintain a
legal order in the sense of constitutional autonomy.
 Externally, it means the ability to act autonomously on the international level without
being legally dependent on other states within the international legal order.
The mere existence of a government, however, in itself does not suffice, if it does not have
effective control over territory
(…) a stable political organization had been created, and (…) the public authority had become strong enough to
assert themselves throughout the territories of the State without the assistance of foreign troops. (Report on the
status of Finland, 1920, by International Committee of Jurists)
The notion of effective government is interlinked with the idea of independence, often
termed state sovereignty, in the sense that such government only exists if it is free from direct
orders from and control by other governments. In international law, however, the distinction
between independent and dependent states is based on external appearances and not on the
underlying political realities of the situation; as long as a state appears to perform the functions
which independent states normally perform (sending and receiving ambassadors, signing treaties,
making and replying to international claims and so on), international law treats the state as
independent and does not investigate the possibility that the state may be acting under the
direction of another state. Moreover, it is important to note that, in principle, international law is
indifferent towards the nature of the internal political structure of states, be it based on Western
conceptions of democracy and the rule of law, the supremacy of a Communist Party, Islamic
perceptions of state and society, monarchies or republics, or other forms of authoritarian or non-
authoritarian rule. The rule only demands that a government must have established itself in fact.
The legality or legitimacy of such an establishment is not decisive for the criteria of a state. The
choice of a type of government belongs to the domestic affairs of states and this freedom is an
essential pre-condition for the peaceful coexistence in a heterogeneous international society.

d. Capacity to enter into relations with other states

The last criterion in the Montevideo Convention suggested by the Latin American doctrine
finds support in the literature but is not generally accepted as necessary. Guinea-Bissau, for example,
was recognized in the 1970s by United States and by Germany on the basis of only the first three elements.
The Restatement (Third) of the American Law Institute, however, basically retains this
criterion, although with certain qualifications:
An entity is not a state unless it has competence, within its own constitutional system, to conduct international
relations with other states, as well as the political, technical, and financial capabilities to do so.

2. Rights and Duties of States

Besides a formal definition of statehood, states also have duties and rights that guide their
treatment of one another:
A. Duties:
i. State Doctrine: a court in one state will not sit in judgment on the act of another state carried
out on its own territory.
ii. Pacta sunt servanda: states are obligated to obey treaties and international law in general.
iii. States must not intervene in the affairs of other states or attack them militarily.
iv. States must not allow their territory to be used to harm other states by counterfeiters,
revolutionaries, terrorists, or even commercial operations that may cause pollution to reach the
territory of another country.
v. States have an obligation to compensate other states and their citizens in cases of material
harms that include, for example, shipwrecks, the fall of space vehicle debris, and the
nationalization of private property belonging citizens of another country.
vi. States have a duty to protect foreign nationals and their property and to treat them as well as
their own citizens with a few exceptions, mainly, regarding matters of voting and holding
political office.
B. Rights:
a. States have a right to self-preservation including self-defense.
b. States enjoy a right to legal equality and sovereign independence including control over their
domestic affairs.
c. States have a right to recognize one another and to participate in diplomatic intercourse
including joining international organizations.
d. States can exercise the right to sue other states in the International Court of Justice and other
courts if they have ratified the treaty creating these courts.
e. States possess the right of immunity for acts of state, for their diplomats, and for vehicles of
war including ships and planes.
f. States expect other states to reciprocate acts of good faith and comity.
These duties and rights provide a social lubricant for the mutual interactions of states that
makes for a more convivial international society than otherwise would be the case. The exercise
of these rights has no other limitation than the exercise of the rights of other States according to
international law. States, for example, are to act in good faith in their dealings with other states,
and, very importantly, they must respect the principle of pacta sunt servanda. This hallowed
legal principle requires that states respect and obey all treaty obligations.
Among a world of diverse states, irresponsible behavior can and does happend sometimes
shaking the system of duties and rights, but there have been important efforts to strengthen the
system of rights and duties with written understandings. The 1970 Declaration on Principles of
International Law Concerning Friendly Relations and Co- operation Among States in
Accordance with the Charter of the United Nations calls on states to refrain from the use of
force, intervention, or other harmful acts toward other states and to act in good faith according to
the UN Charter. This declaration is often cited in UN General Assembly resolutions, court
decisions, and diplomatic communiqués. Also, the UN International Law Commission labored
for decades on revisions before adopting the Draft Articles on the Responsibility of States for
Internationally Wrongful Acts (2001).
The international law on state responsibility involves the circumstances under which a state
is held responsible for a breach of an international obligation. Historically, this concept focused
on the way a state dealt with aliens, or foreigners, on its territory. Fair and civilized treatment
was expected at a minimum. Certainly an alien was not to encounter a lesser treatment than a
citizen of the state in question. Under the UN International Law Commission’s handling of the
Draft Articles on the Responsibility of States, the concept now seems more open-ended. These
articles could cover state obligations about very controversial subjects such as peace, human
rights, and the environment. The society of states has long embraced the principle that one state’s
territory and activities should not be allowed to harm another state. Under the concept of state
responsibility, an offending state is expected take compensating steps ranging from an apology
to reparation payments for damages depending on the nature and extent of damage.

3. Additionally, states can expect to benefit from rights based on state immunity, which
means that a state’s government cannot be taken to court in another country without that state’s
permission. Also, acts of a state on its own territory meaning that the decisions made by a
government within its national context, that affects another state’s citizens in a negative way,
will be given full respect as a sovereign act. The one thing that these concepts have in common
is that they have the effect of avoiding conflicts in foreign relations.

(a) Sovereign Immunity

Sovereignty is defined as the supreme and absolute power that governs an independent state
or nation. Of course, in reality, sovereignty can have a range of meanings. For example, in the
United States, sovereignty can be shared between the federal government, the states, and even
Native American tribes. In Europe, some national sovereignty had to be sacrificed by countries
that joined the European Union. For our purposes, we should recognize that all independent
countries are equal with one another and that each has the exclusive right over its citizens, its
territory, all property within that territory, and its internal affairs.
It follows that the doctrine of sovereign immunity states that the courts of one country
cannot hear cases brought against the government of another country and that courts cannot
involve themselves in the internal affairs of a foreign country. In English law this is derived from
the feudal notion that the “king can do no wrong.” This principle was firmly established in the
United States in Schooner Exchange v. McFaddon, (1812). In that case, an American merchant
ship was seized by Emperor Napoleon and pressed into service with the French navy. When the
ship docked at Philadelphia, its original owners filed suit to have it returned. The U.S. Supreme
Court ruled that under sovereign immunity a warship of a foreign nation was not subject to
seizure by U.S. courts.
Until the mid-twentieth century, the immunity of another state was seen in nearly absolute
terms. After the Second World War, national governments were increasingly involved in a
variety of businesses, such as banking, insurance, and transportation, leading more and more
countries to adopt a policy of restrictive immunity. Today, sovereign immunity is recognized by
most nations of the world and defined by statute in many.
Sovereign immunity is the exemption of one state’s public acts and property from the court
cases of another state. It is an act of comity. In a friendly way, one state keeps the business of
another out of its courts.
Sovereign immunity protects foreign governments from suit when they are acting as a
political entity (acta de jure imperii); if state acts were of the traditional kind, acta imperii,
involving such matters as security or diplomacy the absolute sovereign immunity was respected.
When foreign governments or their agencies enter in the commercial field (acta de jure
gestionis), engaging in business for profit, as would a private company, or engaging in
essentially private functions, they can be sued in the courts of a foreign country. If state activity,
however, concerned commercial acts, acta gestionis, then the doctrine of restrictive immunity
applied and a state’s commercial business could wind-up in another state’s courts.
These exceptions generally are waiver (by statute or by agreement in a contract): commercial
activity; certain violations of international law such as torture, terrorism, and unlawful
expropriation of private property without payment of compensation; etc. For example, when
agencies of government buy and sell goods or services, they become liable for damages for
breach of contract. An example would be a contract between a private company in the United
States and a government-owned company in China for the supply of raw materials. If the
Chinese government is acting as a private company in mining, marketing, and selling raw
materials, it is liable to suit in the United States (assuming other jurisdictional requirements are
met) for delivering materials that do not conform to the contract specifications.
Internationally, there is no uniformity among countries as to when and how to apply
sovereign immunity. The Council of Europe attempted to harmonize practice of its membership
with the 1972 European Convention on State Immunity and set a low bar by requiring only three
ratifications for the treaty to go into effect. Eight of 47 states have so far ratified. The UN also
made an effort at harmonization with its 2004 Convention on Jurisdictional Immunities of States
and Their Properties that basically allows cases against states to go forward in court when
commercial transactions are involved.
Restrictive immunity represents the United States’ policy, according to the Foreign
Sovereign Immunities Act of 1976.

(b). The Act of state doctrine

Like state immunity, deference is given to the sovereignty of another state, but here emphasis
is on acts of a government on its own territory. This means that the decisions made by a
government within its national context, that affects another state’s citizens in a negative way,
will be given full respect as a sovereign act.
The Act of State doctrine is a principle of domestic law (not international law) that prohibits
the courts of one country from inquiring into the validity of the legislative or executive acts of
another country. It was first announced in the United States in the case of Underhill v.
Hernandez, (1897) where it was held that
“(…) [T]he courts of one country will not sit in judgment on the acts of the government of another done within
its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be
availed of by sovereign powers as between themselves.”

The doctrine is based on the idea that courts should not intervene in matters of foreign
affairs. These matters are best left to the executive branch, which has the benefit of a diplomatic
corps, foreign embassies, and the ability to talk directly to foreign governments. There is also the
practical reason that it may very well be impossible for domestic courts to enforce their decisions
against foreign governments. The Act of State doctrine is recognized by courts in the United
States, the United Kingdom, Germany, France, Italy, Japan, and many other countries.
4. Economic differences
While all states share the same legal characteristics of statehood, the reality of the state
appears in myriad variety. It is important to be aware of the kinds of differences that exist among
states because these differences often shape the policy choices of the states including their
position in a legal dispute. Economic differences among states are huge, and the disparity
between rich and poor states is also a source of one the world’s great simmering conflicts.
Most commonly, the criteria for evaluating the degree of economic development are gross
domestic product (GDP), gross national product (GNP), the per capita income, level of
industrialization, amount of widespread infrastructure and general standard of living, etc. More
recently another measure, the Human Development Index (HDI) combines an economic
measure, national income, with other measures, indices for life expectancy and education. The
HDI takes into account how income is turned into education and health opportunities and
therefore into higher levels of human development. Which criteria are to be used and which
countries can be classified as being developed are subjects of debate. There is no established
convention for the designation of developed and developing countries or areas in the United
Nations system. However many international institutions have created lists with different
categories of countries: World Bank, IMF, OECD (known as developed countries club), WTO,
UNCTAD, MIGA etc.

1. The Developed Countries

The developed or industrialized countries, or “more economically developed” countries
(MEDC) are sovereign states that have advanced technological infrastructure, and post-industrial
economies. In 2013, the ten largest advanced economies by nominal GDP were the United
States, Canada, Japan, South Korea, Germany, United Kindom, France, Italy, Spain, Australia.

Rather, most countries could be classified as having economies that are either developing,
newly industrialized, or least developed. For the purposes of our discussion, we will create a
fourth category that includes Russia, the other independent republics of the former Soviet Union,
and Eastern Europe, which we will refer to as “countries in transition.” These are common terms
to describe the socio-economic status of a country.
There is no clear, single definition of these categories by every international organization or
writer, because there are so many indicators of socio-economic development, and because every
country is in a different stage of evolution. For example, we commonly consider China, India,
Malaysia, Mexico, and Brazil to be among the developing countries. However, they are now
often classified as newly industrialized countries. China is sometimes referred to as being a part
of “emerging Asia.” Therefore, for the purposes of our discussion, we will not attempt an
economist’s precise definition. What we can say with certainty, however, is that these categories
differ in culture, geography, language, and religion and in their economic, political, and legal
systems as well.
Two-thirds of the world’s population is located in the least-developed countries—in Africa,
Latin America, the Caribbean, parts of Asia and the Pacific Rim, and the Middle East.

2. The Developing Countries

The “typical” developing country is impossible to describe. Most have a large agrarian
population, densely populated cities, and a plentiful supply of unskilled labor. Many support
high-tech industries. Although some are rich in natural resources, many others have depleted
their natural resources. The protection of the environment has often taken a back seat to
industrialization and economic “progress,” and so pollution chokes their air and water. Education
levels are far below that of the developed countries. Poor communication and transportation
systems make business difficult. Inadequate distribution systems make it costly to get goods to
market. Floods and natural disasters, exacerbated by inappropriate agricultural and industrial
policies, have disrupted entire populations. A wide disparity in social and economic classes
exists in many developing countries, with great inequality in income and education between the
rich and poor. Political systems differ widely in developing countries. Some developing
countries have stable, democratic governments; others do not. For instance, Costa Rica has the
oldest continuing democracy in Central America, dating back to 1948. Other Central and South
American countries have not been stable at all and have experienced varying degrees of freedom,
from parliamentary rule to military dictatorship. Tragically, both political and economic stability
are threatened by the threat of armed guerrilla groups, terrorists, and other revolutionaries.
Examples could include Colombia in Latin America, Sri Lanka in South Asia, and Indonesia in
the Pacific Rim region.
The economies of the developing countries have trailed those of the industrialized countries
for many complex reasons, including basic geography, political instability and civil wars, ethnic
and religious rivalries, the lack of an educated middle class, government corruption, and for
some, the remaining consequences of cold war clashes between the United States and the former
Soviet Union. Perhaps the most important factor has been government policies unfavorable to
trade and investment. Historically, these governments often imposed high import duties and
import licensing requirements to protect local industries from the competition of more efficient
foreign firms. This protection allowed local companies to sell inferior products at higher costs
than they could have if they had not been insulated from foreign competition. Many developing
countries put strict controls over the inflow of capital and technology. These policies were based
on the notion that government could best direct how capital and technology should be used,
instead of leaving it up to free-market forces. In many cases, socialist policies led to government
ownership of businesses and industry. These policies forced many multinational corporations and
other investors to stay away.
During the last 20 years, the more progressive developing countries, particularly in Latin
America, began to give up their isolationist policies and to loosen controls over trade and
investment. Today, with some exceptions, they are attracting large sources of new capital for
investment, new technologies, new manufacturing techniques and business know-how, improved
training for their labor force, and organizational and managerial expertise. For example,
developing countries are reducing tariffs on most imported products. They are gradually ending
burdensome import licensing schemes and making it easier for local companies and investors to
obtain foreign currency. They are reducing many kinds of taxes on business. Some countries are
lowering taxes on royalties paid to foreign companies under licensing agreements for modern
technology and technical assistance. China, Argentina, and other countries are lifting controls
over prices and wages, allowing market mechanisms to work.
Gradually, developing countries are passing new, more progressive laws to protect
intellectual property, the environment, consumers, workers, and investors and to increase
investment opportunities. Even accounting standards are changing so that investors can receive
more information about a company and can better understand its financial health. Developing
countries have also instituted new, more prudent fiscal policies. Latin American countries have
reduced government borrowing and spending. Several countries, notably Brazil and Argentina,
have enacted new regulations to stabilize their exchange rates. These efforts are bringing
inflation under control and returning consumer and investor confidence.
After the completion of the process of decolonisation, however, the newly independent states
in Africa, Asia and the Caribbean, together with other developing countries, joined forces to
create a powerful political bloc at the United Nations. The objective of this bloc (later loosely
identified as the Group of 77) was to enlist international law and institutions in support of their
members’ quest for social and economic development.
During this period, developing countries focused their attention on two major objectives:
i. first, strengthening their capacity to control the exploitation of their natural resources and
consequently to assert their right to regulate multinational companies operating in the sector;
ii. and second, ensuring access to modern technology in order to support and further develop
their efforts to implement the policy of import substitution.
1. Disputes over the right of developing countries to control their natural resources, and
in particular whether they could nationalize the assets of companies operating in this sector, were
prevalent during most of the twentieth century. At the international legal level there was no
consensus on how to resolve these disputes. Although developed countries conceded that
developing countries had a right to nationalize, they insisted, nonetheless, that international law
required them to pay prompt, adequate and effective compensation. They also claimed that
regulatory measures implemented by developing countries constituted indirect expropriation and,
as such, also required prompt, adequate and effective compensation. The views between
developed and developing countries on this issue remained far apart throughout this period.
Indeed, in 1964, the US Supreme Court, in the celebrated Sabbatino case, candidly
acknowledged that this was an area in which the law was unsettled since capital exporting and
capital importing countries held widely conflicting views. As a consequence, disputes over the
regulation of natural resources were largely handled diplomatically, culminating often in
different forms of external intervention, which sometimes led to the overthrow of governments
that insisted on their right to nationalize foreign-owned property (Iran 1952, Guatemala 1954,
Chile 1973).
 2. Transfer of technology was another issue that concerned developing countries. The
devastating political and economic impact of colonialism on countries that had recently become
independent was felt sharply in the area of technology. Colonial powers were not, in general,
concerned with education and as a result, upon independence, there was a dramatic lack of
suitably qualified people either to run the economy or to organize modern manufacturing firms.
Indeed, during the period of colonialism before the Second World War, only 12 out of more than
100 developing countries had achieved enough know-how to be classified as experienced
manufacturers. The urgent need to have access to technology was also sharply felt by Latin
American countries, even though they had achieved independence in the first half of the
nineteenth century. Although some of the latter countries had made significant progress in the
implementation of state-led import substitution policies, they soon found that their capacity to
further develop their manufacturing base was impeded by their lack of technology. During the
1960s and 1970s developing countries tried, unsuccessfully, to lobby for the adoption of new
rules of international business law that reflected their interests and development priorities. In this
context, the United Nations General Assembly, where developing countries held the majority of
seats, provided them with a unique platform to discuss and promote their views. This process
resulted in the adoption of several General Assembly resolutions, including the Resolution on
Permanent Sovereignty over Natural Resources, the Declaration of the Establishment of a New
Economic Order, the Charter of Economic Rights and Duties of States and the Declaration on
International Investment and Multinational Enterprises. These Resolutions and Declarations were
not formally binding, and not one made its way into the labyrinth of customary international law.
Nonetheless, these Declarations and Resolutions provided the basis for the development of more
structured charters on the regulation of multinationals (Draft Code of Conduct on Transnational
Corporations, prepared by the UN Economic and Social Council) and on the regulation of
transfer of technology (prepared by UN Conference on Trade and Development, UNCTAD).
These two Codes underwent interminable discussions within the UN, but were never formally
approved.
The provisions on natural resources, foreign investment and technology transfer contained in
the Charter of Economic Rights and Duties of States capture the essence of the aspirations of
developing countries during this period. Article 2 (1) reaffirms the principle that states can freely
exercise full sovereignty over their natural resources and economic activities. Article 2 (2) sets
out in detail the rights that derive from a state’s sovereignty over natural resources and economic
activity. These rights include:
- the right to regulate foreign investment in accordance with its own laws;
- the right to regulate the activities of multinational companies operating within its jurisdiction;
and
- the right to nationalize foreign-owned property, subject to appropriate compensation
determined by its own laws and reviewed by its own courts.
Article 2 also provides that no state shall be required to grant preferential treatment to foreign
investment and that multinationals should refrain from intervening in the internal affairs of host
states.
In the area of technology, the Charter (Art.13) proclaims the right of every state to benefit
from advances in technology for the purpose of furthering its economic and social development.
It calls upon states to facilitate the transfer of technology for the benefit of developing countries
and, in particular, it calls upon developed states to support the scientific and technological
infrastructure of developing countries.
Transfer of technology is defined in the UNCTAD Draft (1.2) as
“the transfer of systematic knowledge for the manufacture of a product, for the application of a process or for
the rendering of a service and does not extend to the transactions involving the mere sale or mere lease of
goods”.
The UNCTAD Draft also purported to prohibit restrictive business practices often associated
with the transfer of technology, such as exclusive dealing, restrictions on research and tying
arrangements.
From a developing country perspective, the current international economic legal system is
flawed for the following five reasons.
- First, most developing countries have little or no influence in the decision-making processes of
international economic organisations, especially in the IMF and the World Bank. Moreover, even
in organisations such as the WTO, in which all countries formally have the same power to
influence decisions, most developing countries effectively have no input in the decision-making
process as developed countries employ a series of informal devices and subterfuges to exclude
them.
- Second, today, international economic institutions, such as the World Bank and the IMF, have
assumed an inordinate amount of control over key economic policy and governance decisions of
developing countries through the imposition of various forms of conditionalities and the exercise
of surveillance powers.
- Third, even in cases where developing countries are formally equal counterparts in the
formulation of IBL rules (as is the case of bilateral investment treaties between developed and
developing countries), the reciprocal obligations established by these treaties are, in fact, vastly
unequal. Indeed, while both parties agree to protect the investment of the other party’s nationals
in their territory, in reality, investment flows in only one direction – from developed to
developing country. These treaty obligations, though formally symmetrical, therefore ensure that
the standards of one of the parties are respected by the other. The process of negotiation of these
treaties further confirms their asymmetrical nature. Indeed, these treaties are based on Model
Treaties drafted by lawyers in the Foreign Offices of developed countries and leave developing
countries very little room for negotiation.
- Fourth, the recent expansion of IBL- based international adjudication has been loaded in favour
of private- sector actors, as key decisions in international investment and trade disputes are
mainly handled by arbitrators and panellists whose expertise is mainly in private and commercial
law (as is the case of ICSID) or in specialised areas of international trade (as is the case of WTO
Panels). These experts often lack the necessary knowledge, experience or inclination fully to
assess the wider national and international public policy implications of the issues arising from
cases submitted to them.
- Fifth, in the absence of explicit IBL rules, many areas of international economic relations are
governed by standards that are designed either by small groupings of powerful states, such as the
G-7, the G-8, and more recently the G-20, or by inter- governmental organizations in which
developing countries have little or no influence.
There is little doubt that under the current international economic legal system developing
countries are, in general, “rule takers”, rather than active agents in framing legal rules. There are,
of course, many areas in which developing countries have made good use of and achieved
benefits from the new IBL rules. Indeed, some countries have successfully defended their rights
through the WTO dispute settlement mechanism (such as the case of Brazil and cotton
subsidies); others have benefited from the use of provisions of the GATS to exploit their
comparative; and developing countries successfully campaigned to persuade the WTO to adopt a
Declaration on the TRIPS Agreement and Public Health that restates that countries have the
right, under the TRIPS Agreement, to grant compulsory licences to protect public health
(UNCTAD- ICTSD).
Yet, for developing countries as a whole, the current framework of IBL rules is not an
unqualified success. The economic performance of developing countries during the upsurge of
globalization in 1980 has been disappointing, especially when compared with the levels of
growth achieved during the preceding thirty years. Indeed, while developing countries’ income
grew at an average rate of 5% between 1950 and 1980, average growth rates dropped to barely
3% between 1980 and 2000. These average figures conceal, of course, significant variations.
These figures show, contrary to the views of some observers (IMF), that unrestrained
globalization has not been an unqualified success for developing countries. It is also unclear
whether globalization has brought about an overall reduction in inequality, either in terms of the
relationship between developed and developing countries or in terms of poverty reduction within
countries.

3. The Newly Industrialized Countries

The newly industrialized countries are those countries that are making rapid progress toward
becoming an industrialized or technology-based economy. They are located in all regions of the
world, including Latin America, the Middle East, and Southern and Southeast Asia.
Much of their success in recent years is due to a highly motivated workforce and a stable
climate for foreign investment. Some of these countries have largely transitioned from
agricultural economies to industrial ones, with burgeoning urban populations. Their
manufacturing is export oriented, producing a broad mix of high-quality products, from
computers to steel. They are a magnet for foreign investment and have a reserve of foreign
exchange. Their success has led to a dramatic rise in per capita gross domestic product and to
improvements in jobs, wages, education, health care, living accommodations, and overall quality
of life.
Other countries outside of Asia that may be described as transitioning to newly industrialized
status are Mexico, Turkey, Israel, and South Africa. China is clearly in a state of rapid transition.
The most well known newly industrialized countries are the four “Asian Tigers”: Hong Kong,
Singapore, Taiwan, and South Korea. Hong Kong is one of the largest banking centers in the
world. In 1997, Hong Kong reverted to Chinese control after having been a British colony for
100 years. China considers Hong Kong to be a “special administrative region,” and Hong Kong
will remain semiautonomous from the government in Beijing until the middle of this century.
Hong Kong is a gateway for moving goods, money, and people into and out of China and is
important to China’s economic future. Many writers consider the four Asian Tigers to now be
developed countries.

4. The Least-Developed Countries

The prospects for business in the least-developed countries are not as good as in those
regions previously described. The least-developed countries include most countries of sub-
Saharan Africa, such as Rwanda, Ethiopia, and Somalia, as well as Haiti in the Caribbean and the
countries of Central Asia. They lack many of the basic resources needed for development and
require vast amounts of foreign aid from the wealthier nations. Many of these countries have
inadequate roads and bridges, inadequate public utilities and telephone systems, poor educational
and health-care facilities, a lack of plentiful drinking water, unstable governments, little or no
technological base, illiteracy, high infant mortality, AIDS and other diseases, rampant crime,
excessive armaments, ethnic and tribal warfare, and weak or nonexistent financial institutions.
Their economies are often based on agriculture, mining, some assembly operations, or (to a
lesser extent) manufacturing. Their reserves of foreign exchange are limited. Most of these
countries lack the type of market-based economy that characterizes the developed world.
Business opportunities for trade in consumer goods and for the products and services of most
Western companies are limited. Least-developed countries are in need of investments and
products that will help them in dealing with these basic problems.

5. Countries in transition
When the Soviet Union collapsed in 1991, it changed the political and economic landscape of
Europe and much of Asia. The Soviet republics gained independence. Russia, now officially
called the Russian Federation, emerged as the largest of these.
Eastern Europe, which borders the Soviet Union, was also freed from Soviet and communist
domination. In 1989 the Berlin Wall fell, and soon communist East Germany (the former
German Democratic Republic) was reunited with democratic West Germany (the Federal
Republic of Germany), and Czechoslovakia split into the Czech Republic and the Slovak
Republics. Democratically elected governments were installed across Eastern Europe. Many of
the Eastern European countries have since joined the European Union; the U.S.–supported North
Atlantic Treaty Organization, NATO (over Russia’s objection); and the World Trade
Organization. Since 1991, Eastern European countries have installed democratically elected
governments and freed their economies from years of communist control by liberalizing controls
over trade and investment. They rapidly privatized many industries, turning formerly state-
owned properties over to private ownership and management. New investors from the United
States, Germany, Japan, and other countries are entering joint ventures with Russian and Eastern
European firms. Capital, technology, know-how, and entrepreneurial spirit are pouring in. Local
citizens are also investing in their own companies. Inefficient plants from the communist era are
modernizing or closing. Russia and Eastern Europe represent enormous potential markets for
modern consumer goods, housing, and industrial equipment.
Laws affecting business and commercial transactions are often contradictory and
unreasonably burdensome. Government agencies often invent rules when they feel the need to do
so. Taxes are often imposed arbitrarily and are so high that they discourage investment. The
banking system is sometimes unworkable. The local currencies have been unstable, and inflation
is high. This instability is making trade and investment difficult and many western business
ventures are not profitable and are losing money.

II. INTERNATIONAL ORGANIZATIONS

Next to States, international (intergovernmental) organizations (IGOs) are the most relevant
actors in today’s international law.3 International organizations play a vital regulatory role both
by creating legally binding rules for their Member States and by formulating non-binding
standards and recommendations. They also provide forums for intergovernmental cooperation,
consultation, and support. By now, direct involvement of international organizations in the
market of commodities (e.g. by purchasing and selling commodities in order to stabilize prices)
has given way to softer mechanisms of influencing trade.

3
See ICJ Reparation for Injuries Suffered in the Service of the United Nations (Advisory Opinion) [1949] ICJ Rep
174; ICJ Legality of the Threat or Use of Nuclear Weapons (Advisory Opinion) [1996] ICJ Rep 226;
 1. Definition
The term “international organization” is usually used to describe an organization set up by
agreement between two or more states, so-called “Inter-Governmental Organization” (IGO).
It is different from the term “Non-Governmental Organization” (NGO) an organization set up
by individuals or groups of individuals (such as Amnesty International or Greenpeace).
Some non-governmental organizations are entrusted with certain functions by states (e.g.
International Committee of the Red Cross plays an important role in supervising the application
of the Geneva of the Geneva Convention to the laws of war).
The founding agreements usually provide for objective international legal personality of
international organizations both under international and municipal law, as does Article 104 of the
UN Charter, that
“the organization shall enjoy in the territory of each of its members such legal capacity as may be necessary for
the exercise of its functions and the fulfillment of its purposes.”
All that this means is that the international organizations have the capacity to enter into
relations with states and other organizations and conclude treaties with them; they can own
property, enter into contracts, according the status it has been given under municipal law, and so
on.
Article 43 of the UN Charter: The United Nations can make certain types of treaties with member states (a
power which could not exist if the UN had no international personality).
In principle, the status of international organizations as a legal entity separated from their
Member States protects the Member State from liability for the organization’s obligations. There
are, however, exceptional situations in which the “piercing of the corporate veil” (meaning the
extension of the liability of an international organization to its members, thus its members are
liable for the financial commitments of the organization) seems appropriate, thus extending
obligations of the international organization to its members. However, it is important to draw a
distinction between liability under international law and the liability towards private creditors.
The criteria for a piercing of the corporate veil can only create liability of Member States with a
view to their international obligations.
When states create an international organization, they set it up for specific purposes and give
it limited powers, which are determined by the exact set of duties and rights assigned to each
organization. Thus, powers may vary from organization to organization – for example, the
United Nations can take military action (in certain circumstances) but the World Health
Organization (WHO) cannot.
The powers of international organizations need not necessarily be conferred expressly in the
organization’s constituent treaty; an organization also has such implied powers as are necessary
for the most efficient performance of its functions.
Other aspects related to the legal personality of international organizations are that they can
also enjoy privileges and immunities (IGOs can send and receive ambassadors), may engage
international responsibility and liability (IGOs make treaties with states and with other IGOs),
pose problems of succession (when an international organization is replaced by a new one), and
that their relations to states require legal definition in many other aspects.
A typical treaty between IGOs and states concerns host agreements that lay out the privileges
and immunities of the IGOs while they conduct international business on the soil of a sovereign
state. IGOs have to have headquarters on one state’s territory, and they require protection for
their properties and personnel.
There are now some 500 international organizations of very different types. This
proliferation reflects the need for increasing cooperation between states to solve problems of a
transnational nature.
They can be classified under various criteria:
1. according to whether their membership is global or regional:
- at the global level there are: the United Nation, the World Trade Organization, International
Monetary Fund etc.;
- at the regional level operate: the Organization of American States (OAS), the Organization of
Central American States (ODECA), the African Union (AU), the Commonwealth of States, the
League of Arab States (AL), the European Union (EU) etc.
2. according to their functions and tasks:
- unifunctional IGOs: the Association of South East Asian Nations (ASEAN) – all designed to
increase the economic prosperity of their member-states;
- multifunctional IGOs: UN and some of the major regional organization, such as the EU, the
OAS, the AU, - created to raising living standards, promoting human rights, maintaining peace,
among other worthwhile objectives.
3. according to their type:
- Most IGOs are of the traditional type, meaning that they are in essence based on inter-
governmental cooperation of states which retain control of the decision-making and finance of
the organization.
- A new type of independent IGO created on a higher level of integration of member states, so-
called supranational organization, is characterized by the cumulative presence of the following
elements:
- the organs of the organization are composed of persons who are not government
representatives;
- the organs can take decisions by majority vote;
- they have the authority to adopt binding acts;
- some of which have direct legal effect on individuals and companies;
- the constituent treaty of the organization and the measures adopted by its organs form a new
legal order; and
- compliance of members states with their obligation and the validity of acts adopted by the
organs of the organization are subject to judicial review by an independent court of justice
The only existing international organization which currently meets all of these criteria in a
sufficient degree is the EU. The member states pool their respective sovereignties creating a
quasi-authority above the state level to make more effective policy decisions for the common
good.

The Role of UN

There are a number of international organizations that directly affect the framework of
international law of international trade, investment, intellectual property, and labor standards.
The most important of these is the United Nations Organization (as of 2007, there are 192
member nations) and its “specialized agencies”. Most of us are familiar with the work done by
the major organs of the UN, including the General Assembly, the Security Council, the
Economic and Social Council, and the International Court of Justice.
We are also aware of the UN role in peacekeeping and humanitarian assistance to innocent
victims of civil wars and to millions of refugees. Every day we see the work its agencies do in
fighting hunger and poverty in developing countries; in fighting AIDS, malaria, and other
diseases; and in fighting for the world’s children.
What we seldom see are the UN efforts in bringing nations together to develop international
public and private law.
During the last 60 years, the UN has coordinated over five hundred multilateral treaties and
international conventions that not only affect world peace and security, but also affect issues like
climate change and the protection of the environment; the prevention and control of crime, drug
trafficking, and terrorism; rules for Antarctica and the sea beds of the world’s oceans; and more.
The UN has also been responsible for the development of many areas of international private
law that directly affect commerce and business, such as legal rules for the international sale of
goods.
The UN has also helped to provide standards of conduct for multinational corporations
operating in developing countries and around the world.
The Economic and Social Council of the United Nations (ECOSOC) has entered into
agreements with so-called “specialized agencies”, thus bringing them into relationship with the
United Nations (Articles 57 and 63 UN Charter). Among the “specialized agencies” (currently
15)4 rank a number of international organizations whose activities, directly or indirectly, relate to
international economic relations:
i. The UN Commission on International Trade Law (Vienna), or UNCITRAL 5 set up in 1966,
has the task of elaborating an improved legal framework for the facilitation of international trade
and investment, is responsible for coordinating the development several legal codes, embodied in
international conventions, which are of great importance to international business. These include
codes related to the sale of goods, arbitration of disputes, the movement of money and goods
across national borders, and rules for using electronic communications in international business.
UNCITRAL also is responsible for developing conventions and codes related to the carriage of
goods by sea, the arbitration of disputes, and electronic funds transfer by banks. 6

4
See <http://www.un.org/en/sections/about-un/funds-programmes-specialized-agencies-and-others/index.html>
5
See <http://www.uncitral.org>
6
In the past decades, UNCITRAL has presented several model laws, eg the Model Law on International
Commercial Arbitration (1985/2006), the Model Law on International Credit Transfer (1992), the Model Law on
Cross Border Insolvencies (1997), the Model Law on Electronic Commerce (1996/98), the Model Law on Electronic
Signatures (2001), and the Model Law on International Commercial Conciliation (2002).
 7
ii. The UN Conference on Trade and Development (Geneva), or UNCTAD, promotes the
integration of poorer countries into the world economy with due regard for their development,
and it is responsible for providing research, policy analysis, coordination, and technical
assistance for aiding developing and least-developed countries in their socioeconomic
development. Their annual trade and investment reports are widely used for information on the
business and economic climate in these areas of the world.
iii. The World Intellectual Property Association (Geneva), or WIPO, is a specialized agency of
the UN with 184 member nations and almost one thousand employees. Its role is to help foster
and protect intellectual property rights in patents, industrial designs, trademarks, and copyrights.
WIPO administers a total of twenty-four treaties, including one on the copyright protection of
literary and artistic works and one that works to expedite the process of filing patent applications
in more than one country. (There is no single worldwide or international patent on industrial
property.) The Madrid System facilitates the international registration and protection of
trademark rights by providing for the registration of a trademark in all signatory countries by
filing in one. A similar system exists for registering industrial designs (referring to the “look and
feel” of products ranging from automobiles to watches—think Apple iPOD). There is also a
registration for appellations, geographical names used in reference to products originating there
(such as “Salam de Sibiu” or “Scotch whiskey”). WIPO administers a dispute resolution service
open to private individuals and corporations (including a service for arbitrating domain name
disputes). Many WIPO services to the public are fee-based and paid for by the people and
companies who use them.
iv. The International Labour Organization (or ILO)8, located in Geneva, was founded in 1919
and became a part of the UN system in 1946. It has 181 member nations. The objectives of the
ILO are to bring together government, industry, and labor groups, with a focus on developing
countries, to help promote the rights of workers, create decent and beneficial employment
opportunities, eliminate child labor, and help foster ideas and the means for the economic and
social protection of the poor, the elderly, the unemployable, women, and children. The governing
body of the ILO is made up of individual representatives of government, industry, and labor.
Perhaps the most important function of the ILO has been the creation of international labor
standards, embodied in 188 conventions and almost two hundred “recommendations” for
7
See <http://www.unctad.org>
8
See <http:// www.ilo.org>
minimum standards of basic workers’ rights. These include the right of workers to freely
associate, the right to organize and bargain with employers collectively, abolition of forced labor,
and child labor, creation of a safe working environment, protection of migrant workers and
workers at sea, elimination of discrimination at work, equality of opportunity and treatment for
men and women workers, and other standards addressing workplace health and safety. ILO
conventions are legally binding on a member nation only when ratified by its government. Not
all countries have ratified all conventions. For example, the United States has ratified fourteen
ILO conventions. ILO “recommendations” are not binding and are not up for ratification. Many
of the standards are quite detailed (e.g., standards on night work, minimum wage, protection of
mine workers, maternity protection, protection from exposure to hazardous substances, and so
on) and are already a part of the laws of virtually all highly industrialized countries. Of course,
even those conventions that are not adopted, and those recommendations that do not get
implemented, do represent a set of ideals—a moral code—for treating workers, especially by
multinational corporations employing labor in developing countries.

In institutional terms, the international economic order rests on three pillars:

• the International Monetary Fund (IMF);
• the World Bank (International Bank for Reconstruction and Development—IBRD) with all its
siblings; and
• the World Trade Organization (WTO).
The IMF and the IBRD are fruits of the 1944 Bretton Woods Conference.9
- The IMF plays a key role in international monetary relations. Today, the IMF’s main task is to
monitor fluctuations in exchange rates and to provide assistance to Member States with serious
financial problems (balance of payments deficit).
- The main purpose of the IBRD is to assist in the reconstruction and economic development of
its Member States. The IBRD’s mission was to finance specific development projects of
developing States. However, in the last decades the Bank became engaged more and more in
programme- based lending.
- Closely associated with the IBRD, the International Development Association (IDA),
established in 1960, aims at reducing poverty by providing interest- free loans and grants.

9
Both organizations were founded in 1944 at the Bretton Woods Conference
- Another agency of the World Bank Group, the International Finance Corporation (IFC) assists
private investment in borrower countries.
- The International Centre for Settlement of Investment Disputes (ICSID) and the Multilateral
Investment Guarantee Agency (MIGA) also belong to the World Bank Group.

Commodity Organisations
A number of commodity organisations comprising producer as well as consumer countries
like the International Natural Rubber Organization (INRO) or the International Tin Council were
established with the objective to ensure stable price levels, for example through market
operations or the regulation of production. As this model of directly influencing supply and
prices fell short of expectations, most international commodity organizations have been reduced
to forums for international communication and consultation. Only few organizations like the
Organization of the Petroleum Exporting Countries (OPEC) coordinate the marketing of
products or even operate as a cartel.

Regional International Economic Organizations

Apart from the universal international organizations, there is a variety of regional
international economic organizations.

The Organization for Economic Co-operation and Development (OECD)10 was

established as a forum of cooperation for Western industrialized countries and now includes
important emerging countries (such as Mexico, Chile, and Turkey). The OECD currently
consists of 35 Member States: Australia, Austria, Belgium, Canada, Chile, the Czech Republic,
Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy,
Japan, Korea, Latvia, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland,
Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the
United States. In light of the Ukrainian crisis the OECD postponed the process of Russia’s

10
See <http:// www.oecd.org>
accession to the organization.11 By coordinating the economic and monetary policies of its
members, the OECD has gained significant importance. Additionally, the OECD supports the
economic development of developing countries through its Development Assistance Committee
(DAC), which currently comprises 28 OECD Member States as well as the European Union. 12
The World Bank, the IMF, and the United Nations Development Programme (UNDP) participate
as observers.

Regional development banks make important contributions to the promotion of development

as well as to the assistance in economic and political transformation processes.
Nowadays, there are three major regional development banks:
-the Inter-American Development Bank,
-the Asian Development Bank, and
-the European Bank for Reconstruction and Development.
Some South American countries established the Banco del Sur in 2007 as a counterweight to
the Washington-based Inter-American Development Bank.
Within the European Union, the European Investment Bank 13 assists development in the
weaker economies of the Union. The European Investment Bank also provides assistance to
projects in developing countries, for example in the African, Caribbean and Pacific (ACP)
regions.
The new Asian Infrastructure Investment Bank (AIIB) was launched by China as an
interstate development bank.
The BRIC States established a Development Bank and a Monetary Fund, parallel to the
World Bank and the IMF.
The creation of these new institutions means a significant power shift in monetary politics
away from the dominating influence of North America and Western Europe.

III. NON-GOVERNMENTAL ORGANIZATIONS (NGOs)

11
See for the statement made by the OECD <http://www.oecd.org/russia/ statement-by-theoecd-regarding- the-
status- of- the- accession- process- with-russia-and-co-operation-with-ukraine.htm>
12
See for all the 29 DAC members <http:// www.oecd.org/dac/dacmembers.htm>
13
See Articles 308ff of the TFEU.
 1. Definition
Non-Governmental International Organizations (NGOs) are established by private actors (a
group of individuals or corporate entities) under national law to pursue a particular agenda.
Thus, NGOs are not established by a government of by an agreement between states and their
members are private citizens or bodies corporate.
Early NGOs had the mission to promote and protect basic human rights or humanitarian
standards in wartime.14 Today, NGOs are engaged in a broad variety of different areas, ranging
from politics, the legal and judicial field, the social and economic domain, human rights and
humanitarian relief, education, to the environment and sports.
NGOs are a significant feature of modern international life. Though NGOs (with the
exception of the International Committee of the Red Cross) do not have international legal
personality, a considerable number of them are highly visible and often influential actors on the
international scene.15
NGOs working in the field of international economic law include established economic
NGOs such as the International Chamber of Commerce (ICC), the International Air Transport
Association (IATA), the International Federation of Consulting Engineers (FIDIC), and
international trade unions and employers’ associations. Beyond these “genuine” economic
organizations, NGOs working in the context of environmental protection, human rights, the
international federations of trade unions and employers, and the fight against corruption (e.g.
Greenpeace, Amnesty International, and Transparency International) address more and more
economic issues.
The role of NGOs in the international legal system is primarily an informal one. They have
some effect on international law-making in certain areas by adding additional expertise and
making procedures more transparent, and a stronger effect with regard to supervision and fact-
finding as to the implementation of international norms, most visibly in the area of human rights.
The constructive role of NGOs, especially in the field of human rights, in providing information,
analysis and public support, and active engagement in humanitarian relief operations and

14
Examples of such NGOs are the associations established in the 17th and 18th centuries to promote the abolitions
of slave trade and slavery itself, and the Red Cross Movement in the 19th century.
15
The importance of NGOs in today’s international community is reflected among others in the Committee on
NGOs established within the Economic and Social Council (ECOSOC) of the United Nations.
alleviating poverty in developing countries, for instance, is now generally acknowledged.
National and international courts or dispute settlement bodies, in varying degrees, give
consideration to the opinion of NGOs, especially in human rights and environmental issues.
In particular with regard to environmental standards, NGOs have become internationally
recognized actors. Thus, the Aarhus Convention on Access to Information in Environmental
Matters16 was elaborated upon the instigation of NGOs. NGOs also cooperate with private
enterprises, trade unions, and other institutions in the “Global Reporting Initiative” which
promotes voluntary reporting on the sustainability of business activities.
Many NGOs have proven their ability to exert a considerable international pressure and to
influence both State and non-State actors. This role often makes NGOs compete with State
organs and parliamentary control, and raises issues of accountability and legitimacy. In the
course of the energetic campaign of Greenpeace against the oil company Shell and its plan to
dispose of the oil storage facility Brent Spar at the North Sea in 1995, 17 many (including the
German Government) responded to Greenpeace’s fierce criticism and its call to boycott Shell. In
the end, Shell, giving in to Greenpeace’s pressure, disposed of the platform on shore. As was
revealed afterwards, the form of the disposal finally chosen caused greater environmental
damage than Shell’s initial plan. Greenpeace (to its own credit) confessed that its worldwide
campaign rested on a deficient risk assessment. On repeated occasions, Greenpeace and other
(European and African) NGOs have campaigned against US American food aid involving
genetically modified products to famine-ridden African countries. Like their object, these actions
have stirred great controversy. Another, more recent environmental activity of high visibility is
the “Detox campaign” launched by Greenpeace which calls for toxic-free fashion and clean
water.
NGOs also participate as observers in intergovernmental conferences as well as
environmental proceedings and human rights litigation, often in context with economic activities.

From a formal legal point of view, on the global level there are no international legal
standards governing the establishment and status of NGOs. The relevant law is that of the state
where an NGO is based and this may cause problems in the case of international activities

16
UNECE Convention on Access to Information, Public Participation in Decision-making and Access to Justice in
Environmental Matters of 25 June 1998.
17
See <http:// www.greenpeace.org/ international/en/about/history/the-brent- spar/ >
because national laws are different. Inter-governmental organizations may agree to grant NGOs a
certain consultative or observer status. In accordance with Article 71 of UN Charter, the UN
Economic and Social Council (ECOSOC) has adopted a number of resolutions concerning
arrangements for consulting with NGOs.
On the regional level, within the framework of the Council of Europe a common status for
NGOs has been recently laid down in the European Convention on the Recognition of the Legal
Personality of International Non-Governmental Organizations, signed in 1986 and in force since
1991. The Convention recognizes, among the states which have ratified it, the legal personality
and attached rights and duties as acquired by an NGO by its establishment in any one of the
states parties.
IV. MULTINATIONAL COMPANIES/CORPORATIONS
(TRANSNATIONAL CORPORATIONS)

(a) The role of private enterprises in international economic law

Multinational corporations (MNCs) are a special case of the NGOs actor, one that has risen
to a height of power and influence beyond that of other NGOs in the general. MNCs are
economic actors in pursuit of profit, with significant foreign direct investment assets, and they
operate at the heart of the economic globalization process.
Multinational corporations are private companies (or business enterprises) with ownership,
management, production, and sales activities located in several or more countries - both
developed and developing countries. They constitute private business organizations comprised of
a parent company located in the home country and foreign affiliates (legal entities) located in
host countries, and are distinguished by size and multinational spread.
They have the nationality of the State in which they are incorporated or in which they have
their registered office (seat of management).
US or British company laws follow the doctrine of incorporation.18 Other systems (like in
Germany, Austria, or Romania)19 principally refer to the seat of management.

18
See Art.14ff of the UK Companies Act (2006) which refers to incorporation or the registration of a company. The
United States follow the incorporation doctrine since a Supreme Court ruling in 1868: Paul v Virginia [1868] 75 US
168.
19
See Art.10 of the Austrian IPRG (International Private Law Act) of 1978; Art.1 of Romanian Law no.31/1990
regarding the companies.
 However, European Union law catalysed certain flexibility with respect to the seat of
management. The right of establishment (Articles 49ff TFEU) allows companies lawfully
established in one EU country to operate essentially or even entirely in other EU States without
conforming to the rules of incorporation applying in the country of establishment (subject to
possible exceptions, e.g. with respect to the protection of creditors).
Private companies are subject to national jurisdiction, be it in their home State or in the host
State in which they carry out their activities. The home State may grant diplomatic protection to
its corporate nationals against their host State.20

Over the past twenty years, many writers have argued over the best name to use in referring
to these companies. Multinational enterprise has been a popular term because it reflects the fact
that many global firms are not, technically speaking, “corporations”, but may have other legal
status or even be state-owned. The terms transnational corporation and supranational corporation
are often used within the United Nations system, reflecting that their operations and interests
“transcend” national boundaries.
One significant trend in business during the last half of the twentieth century has been the
“globalization” of MNCs. At one time, multinational corporations were simply large domestic
companies with foreign operations. Today, they are global companies. They typically make
decisions and enter strategic alliances with each other without regard to national boundaries.
They are characterized by their ability to derive and transfer capital resources worldwide and to
operate facilities of production and penetrate markets in more than one country, usually on a
global scale.
They move factories, technology, and capital to those countries with the most hospitable
laws, the lowest tax rates, the most qualified workforce, or abundant natural resources. They see
market share and company performance in global and regional terms.
They account for a large share of the most capital-rich business entities worldwide. The
revenues of a number of corporations surpass the GDP of many or even most States. According
to the Forbes Global 2000 list in 2015, Wal-Mart’s revenues amounted to USD 485.7 billion,

20
See on diplomatic protection, ICJ Barcelona Traction, Light and Power Company (Belgium v Spain) [1970] ICJ
Rep 3, 42. Under customary law, diplomatic protection based on the nationality of the shareholders of a company
may only be exercised in exceptional cases. See on a treaty explicitly protecting nationals of one of the contracting
States holding shares in companies of the other contracting States, ICJ Elettronica Sicula SpA (ELSI) (United States
of America v Italy) [1989] ICJ Rep 15.
Sinopec reached USD 427.6 billion, Royal Dutch Shell USD 420.4 billion, and Exxon Mobil
USD 376.2 billion.21 In comparison, South Africa achieved in 2015 a GDP of USD 317.3 22
billion, Peru USD 179.9 billion, and Romania USD 174.9 billion.23

Multinational corporations wishing to enter a foreign market through direct investment can
structure their business arrangements in many different ways. Their options and eventual course
of action may depend on many factors, including industry and market conditions, capitalization
of the firm and financing, and legal considerations. Some of these options include:
- the start-up of a new foreign subsidiary company,
- the formation of a joint venture with an existing foreign company,
- or the acquisition of an existing foreign company by stock purchase.
Keep in mind that multinational corporations are usually not a single legal entity. They are
global enterprises that consist of any number of interrelated corporate entities, connected through
extremely complex chains of stock ownership. Stock ownership gives the investing corporation
tremendous flexibility when investing abroad.
The wholly owned foreign subsidiary is a “foreign” corporation organized under the laws of
a foreign host country, but owned and controlled by the parent corporation in the home country.
Because the parent company controls all of the stock in the subsidiary, it can control
management and financial decision making.
The joint venture is a cooperative business arrangement between two or more companies for
profit. A joint venture may take the form of a partnership or corporation. Typically, one party
will contribute expertise and another will contribute the capital, each bringing its own special
resources to the venture. Joint ventures exist in all regions of the world and in all types of
industries. Where the laws of a host country require local ownership or require that investing
foreign firms have a local partner, the joint venture is an appropriate investment vehicle. Local
participation refers to the requirement that a share of the business be owned by nationals of the
host country. These requirements are gradually being reduced in most countries that, in an effort

21
<http:// www.forbes.com/ global2000/ list/ >
22
Gross domestic product (GDP) can be measured on the basis of purchasing power parity (PPP) (which reflects
living conditions) or just of exchange rates (nominal). To ensure a greater comparability, reference is made to the
nominal GDP.
23
For the World Economic Outlook of the International Monetary Fund launched in October 2015, see
<https://www.imf.org/external/pubs/ft/ weo/2015/02/ weodata/ index.aspx>
to attract more investment, are permitting wholly owned subsidiaries. Many American
companies do not favor the joint venture as an investment vehicle because they do not want to
share technology, expertise, and profits with another company.
Another method of investing abroad is for two companies to merge or for one company to
purchase another ongoing firm. This option has appeal because it requires less know-how than
does a new start-up and can be concluded without disruption of business activity.
The Western, or capitalist view, is that MNCs are helping build a burgeoning world economy
that will advantage all states and peoples. Various reports show that the largest multinationals
account for anywhere from one-quarter to one-third of the world’s production of goods and
services, and perhaps 80% of world industrial output. The impact of these companies is huge.
They have created jobs and wealth, spawned technology, fostered social development in
developing countries, and improved the quality of life of people everywhere.
The other interpretation, one associated with many Third World (developing countries)
leaders, is that MNCs are further enriching the already rich states at the expense of the poor
states, and it points to the corporate subversion of national interests, corruption, control over
governments, pollution of the environment, destruction of natural resources, and other ills
associated with global corporate power; even causing human rights and environmental harms
along the way. Nevertheless, most modern governments of the world today recognize the
benefits of hosting multinational corporations and provide many incentives to attract them.
The impact of multinational corporations in developing countries is a very controversial
subject.
It pits those who view large, powerful corporations as something to be tamed, controlled, and
regulated for the benefit of poor countries against those who realize that the investment,
productivity, wages, and taxes paid by multinational corporations in developing countries are
primary possible with a more laissez-faire, pro-business attitude.
It pits those who view that the primary responsibility of a multinational business is the
maximization of global profit for its shareholders against those who say that multinationals
should do more for the people and environment in the poorer countries and take a more active
role in promoting social justice there.
It pits countries in the Northern Hemisphere, home to many multinationals, against those in
the Southern Hemisphere, where many developing countries are located. After all, many
policymakers in the developing countries of Latin America and Africa still recall the era of their
colonization by European countries, and some still view the presence of multinational
corporations as a remnant of that time when colonial powers did exploit labor and natural
resources. So it is, perhaps, to be expected that there would still be some resentment toward the
presence of rich multinational corporations in some parts of the world.
These arguments came to a head politically during the 1970s, when the social responsibility
of corporations was at the forefront of the United Nations agenda. There was an international
movement toward greater controls over multinationals by developing countries.
However, their demands for regulation gradually calmed in the 1980s when they realized that
burdensome regulations would simply drive multinationals away. Most developing countries
quickly realized that multinationals could bring investment, technology, good jobs, improved
living standards and the balance of payments, etc.

(b) Corporate social responsibility: codes of conduct and other international standards
Today there are still concerns in developing countries about the treatment of workers in
farms and factories, global warming, the destruction of forests and pollution of the air and water,
and other issues. Industry is seen as both a part of the problem and a part of the solution. Many
of these issues are addressed by international conventions and national laws. Most regulation of
MNCs has come from their host countries where they are headquartered and are usually treated
under law as legal person, or “nationals”.
Moreover, several codes of conduct or other soft law instruments have been established.
These instruments are committed to internationally convergent standards of “corporate social
responsibility”. This responsibility has several dimensions. It refers to the corporation’s
employees, local communities affected by the corporation’s operations and broader public
interests. Corporate social responsibility aims at respect for human rights, labour standards, and
sustainable development as well as transparency and it bans undue political interference in the
host State.
In recent years, voluntary codes of conduct have become very popular. One can argue
whether voluntary regulation is sufficient, or whether it just diverts attention from the real
problems. Today, one of the most widely used means of setting standards for corporate conduct
in developing countries is the voluntary code of conduct. Various types of codes of conduct,
which are ethical guidelines, have been proposed or adopted. Some have been prepared by
intergovernmental organizations, by industry trade groups, or by corporations themselves. By
studying codes of conduct, we get a sense of some of the most universally accepted values that
international businesspeople are expected to have.

1. The most important effort to rein in corporate power is probably the UN Center on
Transnational Corporations. During the 1970s and 1980s, the UN attempted to develop a code of
conduct for multinational corporations. That effort failed for political reasons, and in 1993, the
UN agency charged with developing it was ultimately disbanded.
In 1999 then Secretary-General Kofi Annan called for a new initiative, an ethical code for
MNCs known as the Global Compact; an effective, comprehensive UN code of conduct on
MNCs.24 Rather than being a purely governmental effort, this is a partnership of international
companies, public interest groups, and UN agencies who pledge to support a set of voluntary
principles on human rights, labor standards, the environment, and corruption.
The Global Compact rests on ten principles which refer to:
• human rights (businesses should support and respect the protection of internationally
proclaimed human rights and ensure that they are not complicit in human rights abuses);
• labour standards (businesses should uphold the freedom of association and the effective
recognition of the right to collective bargaining; the elimination of all forms of forced and
compulsory labour; the effective abolition of child labour; and the elimination of
discrimination in respect of employment and occupation);
• environmental protection (businesses should support a precautionary approach to
environmental challenges; undertake initiatives to promote greater environmental
responsibility; and encourage the development and diffusion of environmentally friendly
technologies); and
• fight against corruption (businesses should work against corruption in all its forms,
including extortion and bribery).
All the ten core principles are presented in very general terms. For instance, “Businesses
should make sure that they are not complicit [with governments] in human rights abuses.”

24
For the Global Compact Initiative launched in July 2000 see <http://www.unglobalcompact.org>
 Of course, the Global Compact is not without criticism from those who are generally critical
of all UN activities. However, the core principles are merely a statement of the most basic,
universally recognized principles of environmentalism and corporate social responsibility.

2. After the project of the former UN Sub-Commission on the Promotion and Protection of
Human Rights to establish a framework of “Norms on the Responsibility of Transnational
Corporations and Other Business Enterprises with Regard to Human Rights” had failed, the UN
Secretary-General appointed John Ruggie as his Special Representative on Human Rights and
Transnational Corporations and other Business Enterprises. In his final report, the Special
Representative presented the “UN Guiding Principles on Business and Human Rights” which
were endorsed by the UN Human Rights Council. The “UN Guiding Principles on Business and
Human Rights” enhance the relevance of human rights standards for corporate social
responsibility on a global level.

3. The International Labour Organization (ILO) issued the “Tripartite Declaration of Principles
on Multinational Enterprises and Social Policy” for the first time in 1977.25 The declaration
focuses on the protection of individual and collective interests of workers as enshrined in the
conventions and recommendations of the ILO and offers guidelines for governments, employer
organizations, and trade unions regarding these issues. The fourth edition of the Tripartite
Declaration was published in 2006.26

4. The FAO “Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries
and Forests in the Context of National Food Security”27 react to the large-scale sale of farmland
to foreign investors (“land grabbing”), sometimes coupled with “the subsequent transformation
of the land for biofuel or other non-food purposes”, and to other threats to the supply of the local

25
(1978) 17 ILM 422.
26
idem; for the current fourth edition see: <http://www.ilo.org/empent/Publications/WCMS_094386/lang-
en/index.htm>
27
For the Food and Agriculture Organization of the United Nations, Voluntary Guidelines on the Responsible
Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security (2012) see
<http://www.fao.org/docrep/016/i2801e/i2801e.pdf>
population with adequate and affordable food. The FAO Guidelines, though primarily addressing
governments, also refer to the responsibility of non-State businesses.28

5. UNCTAD’s World Investment Report on transnational corporations

The United Nations Conference on Trade and Development (UNCTAD) is a specialized
agency of the United Nations dealing with the impact of trade and investment on developing
countries. According to the UNCTAD World Investment Report 2007 there are about 78,000
transnational corporations (or TNCs, the term used by UNCTAD) in the world, with some
780,000 foreign affiliates. The World Investment Report gives statistics on the size of the largest
of these. It ranks TNCs by their foreign assets, foreign sales, and foreign employment, by the
number of foreign affiliates, and by UNCTAD’s own Transnationality Index.
The index is calculated as the average of three ratios:
- foreign assets to total assets,
- foreign sales to total sales, and
- foreign employment to total employment.
It was reported for 2005 that of the world’s largest 100 nonfinancial companies (ranked by
foreign assets), only about one-quarter were American. Most of the others were based in Western
Europe, Japan, Scandinavia, Canada, and Australia, and seven were from developing countries.
According to the Transnationality Index, the ten most “globalized” companies in 2005 (in order)
were Thomson (Canada, media/publishing), Liberty Global (U.S., telecommunications), Roche
Group (Switzerland, pharmaceuticals), WPP Group PLC (UK, business services), Phillips (the
Netherlands, electrical/electronic equipment), Nestle (Switzerland, food/beverage); Cadbury
Schweppes (UK, food/beverage), Vodafone (UK, telecommunications), Lafarge (France, non-
metallic mineral products), and Sabmiller (UK, consumer goods/brewers).
The most globalized industries are motor vehicles, electronics, petroleum,
telecommunications, pharmaceuticals, and energy. (It should be noted that changes in these lists
from year to year are affected largely by mergers and acquisitions of existing companies.) The
foreign sales and employment of the 100 largest non-financial TNCs increased faster than their
domestic sales and employment. The largest TNCs from developing countries were from Hong
Kong/China, Malaysia, Mexico, Singapore, and Korea.

28
Para 3.2.
6. Europe, always a leader in international law and institutional development, has provided
MNCs some basis for legal personality. The EU’s Corporate Social Responsibility requirements
appear to be so clear and firm that compliance by corporations is generally expected, as if they
were subjects of law. MNCs have legal personality and they are subjects of the European Court
of Justice’s jurisdiction.

7. The OECD Guidelines for Multinational Enterprises are a set of voluntary recommendations
to multinationals encouraging responsible business conduct covering the entire range of business
ethics and social responsibility issues. They are not legally enforceable, but are well known and
reflect the consensus of many governments. They encourage self-enforcement through
accountability, reporting, and internal controls, such as encouraging “whistle blowing” by
employees who become aware of corporate violations. The guidelines were first issued in 1976
and revised in 2000 and 201129.
Guidelines are recommendations jointly addressed by governments to multinational enterprises.
They provide principles and standards of good practice consistent with applicable laws and internationally
recognised standards. Observance of the Guidelines by enterprises is voluntary and not legally enforceable.
Nevertheless, some matters covered by the Guidelines may also be regulated by national law or international
commitments.
The Guidelines list general policies and standards to be applied by multinational enterprises
while operating in foreign States (Part I). The Guidelines were adopted by the governments of 45
States (the 35 OECD countries plus Argentina, Brazil, Colombia, Costa Rica, Egypt, Lithuania,
Morocco, Peru, Romania, and Tunisia).
Part I of the Guidelines lays down standards for good corporate practice in the areas of:
- disclosure (ch.III),
- human rights (ch.IV),
- employment and industrial relations (ch.V),
Observe standards of employment and industrial relations no less favorable than those observed in the host
country; take adequate steps to ensure occupational health and safety in their operations; to the greatest extent
practicable, employ and train local personnel.
- environmental protection (ch.VI),

29
The 2000 edition of the Guidelines was published in (2000) 40 ILM 237. On 25 May 2011, the current version of
the Guidelines was adopted; see OECD, OECD Guidelines for Multinational Enterprises (OECD Publishing 2011).
 Minimize environmental damage and encourage sustainable development; do not use the lack of full scientific
certainty as a reason for postponing measures to prevent or minimize serious damage to the environment.
- combating bribery, bribe solicitation, and extortion (ch.VII),
Do not offer, or give in to demands, to pay bribes to public officials.
- protection of consumer interests (ch.VIII),
Meet all required standards for consumer health and safety; respect consumer privacy and provide protection for
personal data.
- science and technology (ch.IX),
Encourage the diffusion of technology; where practical, perform science and technology development work in
host countries as well as employing host country personnel for that purpose.
- competition (ch.X), and
- taxation (ch.XI).
The Guidelines (Part. I, ch.II A) call for “due diligence” not only within the enterprise,
but also in its business relationships and accordingly require enterprises to:
10. [c]arry out risk-based due diligence, for example by incorporating it into their enterprise risk management
systems, to identify, prevent and mitigate actual and potential adverse impacts as described in paragraphs 11
and 12, and account for how these impacts are addressed. The nature and extent of due diligence depend on the
circumstances of a particular situation.
11. [a]void causing or contributing to adverse impacts on matters covered by the Guidelines, through their own
activities, and address such impacts when they occur.
12. [s]eek to prevent or mitigate an adverse impact where they have not contributed to that impact, when the
impact is nevertheless directly linked to their operations, products or services by a business relationship. This is
not intended to shift responsibility from the entity causing an adverse impact to the enterprise with which it has
a business relationship.
Additionally, the Guidelines (Part. I ch.II B) encourage enterprises to
1. [s]upport, as appropriate to their circumstances, cooperative efforts in the appropriate fora to promote Internet
Freedom through respect of freedom of expression, assembly and association online.
2. [e]ngage in or support, where appropriate, private or multi- Stakeholder initiatives and social dialogue on
responsible supply chain management while ensuring that these initiatives take due account of their social and
economic effects on developing countries and of existing internationally recognized standards.
The OECD Guidelines provide for supervisory mechanisms in Part II based on a decision of
the OECD Council (which is binding upon OECD members); other adhering countries have
followed the implementation procedures on the grounds of a unilateral commitment.
 Under the Guidelines,30 National Contact Points (NCP) established by governments monitor
compliance with the OECD Guidelines for Multinational Enterprises in “a manner that is
impartial, predictable, equitable and compatible with the standards and principles of the
Guidelines”.31 Some countries have opted for a mono-or inter-ministerial structure of their NCP,
whilst other NCPs have a more open design with representatives of the government, trade
unions, and enterprises.
Any person or organization as well as governments of non-adhering countries and other
NCPs may seize an NCP with issues of compliance with the guidelines and thus trigger the
“specific instance procedure”.32 This procedure includes an initial assessment by the NCP and
— if the issue merits further examination—a mediation process between the parties. Concluding
the investigation, the NCP submits a “final statement” on whether or not the multinational
enterprise has complied with the Guidelines, if necessary, with recommendations for future
conduct. NCPs also monitor subsequent compliance in a follow-up to the final statement. Just
like the Guidelines themselves, the recommendations of the NCPs are not legally binding. 33 Still,
the statements of NCPs may have considerable impact by “naming and shaming”. As a rule,
complaints (mostly presented by NGOs) will be brought before the NCP of the home State of an
enterprise or the NCP of the State where a business or project is located.
The OECD Guidelines have the merit of being to date the most comprehensive and most
effective multilateral document dealing with corporate social responsibility of multinational
enterprises. The inherent weakness of being a non-binding instrument is to some extent
compensated by the supervisory function of NCPs which blurs the distinction between “soft”
standards and “hard” obligations buttressed by palpable sanctions. The findings of NCPs are the
exercise of public authority and can have massive impact on an enterprise’s standing in the
public eye. Likewise, the UN Principles on Business and Human Rights apparently do not
purport to modify existing rules of international law; still they foster an international consensus
on MNCs’ obligations under international law and a concurrent practice of home and host States.
The OECD is also responsible for having developed the OECD Convention on Combating
Bribery of Foreign Public Officials in International Business Transactions (1997), adopted by
30
Part.I of the Council Decision and Part I of the attached Procedural Guidance.
31
Part.II Procedural Guidance, ch.I C.
32
See <http:// www.state.gov/ e/ eb/ oecd/ usncp/ specificinstance/ >
33
See Global Witness v Afrimex Ltd Final Statement by the UK National Contact Point for the OECD Guidelines for
Multinational Enterprises (2008) <www.oecdwatch.org/ cases/ Case_ 114/ 561/at_ download/ file>
thirty-seven nations. It calls for adopting countries to criminalize the bribery of foreign
government officials by individuals and corporations and sets up a method for nations to monitor
each other’s compliance with the convention.

8. Codes of conduct from trade associations and private organizations.

Some codes of conduct are developed by trade associations and organizations representing
industry, private citizens, or public interest groups. There are industry codes for the oil, apparel,
electronic, and chemical industries, to name a few.
For example:
- the Coalition for Environmentally Responsible Economies, or CERES, is a private, mostly
American, network of environmental groups, socially conscious investors, and companies
committed to following the CERES Principles of environmental and social accountability. One
provision of the CERES Principles requires the appointment of at least one member of senior
management and one member of the board of directors to represent environmental interests.
- The International Organization for Standardization (ISO) adopted ISO Standard 26000 on
“Social Responsibility” (2010).34
- The International Finance Corporation (IFC) laid down the “IFC Performance Standards on
Environmental and Social Responsibility” which govern private investment projects.
An emerging issue is the relationship between the standards of corporate social responsibility
and investment protection. Especially human rights protection and sustainable development are
areas with a potential of conflict with investors’ rights under international and domestic law.
New human rights obligations of host States under international treaties are the benchmark for
corporate social responsibility and require specific undertakings to trump accorded stabilization
of an investor’s liability.35
The Agreement on the TPP emphasizes the corporate social responsibility of investors:
Article 9.16: Corporate Social Responsibility
The Parties reaffirm the importance of each Party encouraging enterprises operating within its territory or
subject to its jurisdiction to voluntarily incorporate into their internal policies those internationally recognised

34
See ISO Standard 26000 (2010) <http://www.iso.org/iso/home/standards/iso26000.htm>
35
International Finance Corporation and J Ruggie, ‘Stabilization Clauses and Human Rights’ (2009),
<http://www.ifc.org/wps/wcm/connect/9feb5b00488555eab8c4fa6a6515bb18/Stabilization%2BPaper.pdf?
MOD=AJPERES>
 standards, guidelines and principles of corporate social responsibility that have been endorsed or are supported
by that Party.
9. Corporate Codes of Conduct
In recent years, many companies have had an increased interest in enacting their own codes
of conduct. There are surely many reasons for a company doing this. It might be seen as good
business, in that it creates goodwill with customers and investors. It might be seen as an
opportunity to foster an ethical and responsible attitude in their employees. It might be viewed as
an opportunity for self-regulation that could forestall the enactment of more restrictive national
laws and regulations. In the United States, the guidelines for sentencing corporate offenders
allow for reduced fines and sentences if a defendant can show that it has had a code of conduct
and compliance program to reduce the likelihood of criminal conduct.
An example of corporate code related to international business is The Levi Strauss & Co.
Global Sourcing and Operating Guidelines. They are generally recognized as the first code of
conduct created by a multinational corporation and made applicable to its foreign suppliers.
While they address certain issues important to an apparel company like Levi Strauss, their basic
ideas could be applicable to any firm that does business through a global supply chain or with a
supplier or contractor in a developing country. These guidelines include the Business Partner
Terms of Engagement. They represent an effort by Levi Strauss to control the activities of its
more than five hundred overseas contractors and suppliers. In the 1990s the company discovered
(as did many U.S. apparel and footwear makers) that 25% or more of its subcontractors had
abused employees in some fashion. One plant in Bangladesh was found to be using child labor.
The company not only reacted quickly to stop the practice, but developed guidelines to ensure
that its contractors could not do it again. The Terms of Engagement sets out, in more than
seventy pages, the minimum standards for the protection of the environment and for the fair
treatment of workers that must be met by any foreign firm wishing to supply or contract with
Levi Strauss. It addresses specifics such as wages, working hours, the use of corporal
punishment, and how workers should be treated on the factory floor. For instance, the guidelines
state, “Use of child labor is not permissible. Workers can be no less than 14 years of age and not
younger than the compulsory age to be in school.” Levi Strauss provides its suppliers with
manuals and training programs to implement their standards. The company has also developed
its Country Assessment Guidelines—factors to be considered in deciding in which countries they
will do business, including whether the human rights record of the country would be damaging to
the Levi Strauss corporate reputation or brand image. The company also makes public its list of
all overseas factories producing Levi Strauss products.
Other apparel companies have similar codes include: The Gap (Code of Vendor Conduct),
The Limited (What We Stand For), Sara Lee (Global Business Standards and Global Standards
for Suppliers), Wal-Mart (Ethical Standards Program), and many others.
It is generally agreed that for any company’s code of conduct to be effective it must be
communicated to its employees, become a part of its corporate culture, include disciplinary
measures and other methods for ensuring compliance, include a system for measuring its
effectiveness, and provide a means of shareholder and public accountability.

V. INTERNATIONAL PUBLIC COMPANIES (IPC)

While most multinational corporations are privately owned, an increasing number of state-
owned enterprises, primarily from developing countries, are operating globally. States do not
only participate in economic transactions directly but also through governmental agencies such
as State enterprises. Such separate entities owe their creation mainly to reasons of specialization
and efficiency. Many State enterprises exploit and market natural resources like oil and gas. In
recent years, several sovereign wealth funds (SWF) are ranking among the most potent investors
and allow their governments to implement an ‘ethical’ or otherwise selective investment policy.
The MNCs are different from International Public Companies (IPC) characterized in general
by an international agreement providing for cooperation between governmental and private
enterprises.
International public companies:
- have not been constituted by the exclusive application of one national law;
- whose members and directors represent several national sovereignties;
- whose legal personality is not based, or at any rate not entirely, on the decisions of a national
authority or the application of a national law;
- whose operations are governed, at least partially, by rules that do not stem from a single or even
from several national laws.
 They are usually legally and organizationally independent of the State, thus having the
capacity of having rights and obligations of all kinds in their own name. Such enterprises may
vary widely in constitutional nature and in competences. The personality question will depend
upon the differences between municipal and international personality. If the entity is given a
range of power and is distanced sufficiently from municipal law, an international person may be
involved, but it will require careful consideration of the circumstances.
Despite their legal autonomy, IPC acting as an extension of the State and exercising public
power or possessing assets serving sovereign purposes (e.g. legally independent central banks)
like the State itself enjoy immunity from legal proceedings. Separate treatment between State
enterprises and States is also inappropriate if the corporate veil has been established for purposes
of fraud and malfeasance. As a rule, actions of IPC and corporate obligations do not engage the
responsibility of the State. Conversely, State enterprises may only be held liable for obligations
of the State if a rigid divide between the two would lead to inequitable results.
The Articles of the International Law Commission (ILC) on State Responsibility (2001)
provide an exception from the general rule that actions of legally independent entities are not
attributable to the State.
Article 8 of the ILC Articles reads as follows: Conduct directed or controlled by a State
The conduct of a person or group of persons shall be considered an act of a State under international law if the
person or group of persons is in fact acting on the instructions of, or under the direction or control of that State
in carrying out the conduct.
The term “person” in Article 8 of the ILC Articles includes natural persons as well as legal
entities like companies, which are controlled by the State.
State responsibility may also be established when the State is “using its ownership interest in
or control of a corporation specifically in order to achieve a particular result”. Occasionally, IPC
seek release from their corporate liability arguing that the State defeated the fulfilment of their
obligations by imposing legal or administrative restrictions (e.g. export bans). This is a valid
reason as long as the enterprise, like a private entity, operates in full autonomy from the State. If,
however, the State deliberately intervenes by releasing its own enterprise from its contractual
obligations, the enterprise cannot rely on such collusive intervention. WTO law and regional
trade agreements also deal with State- owned enterprises, (e.g. Article XVII GATT 1994 and
Article 1503 NAFTA).
 Examples of such companies would include INTELSAT – established in 1973 as an
intergovernmental structure for a global commercial telecommunications satellite system;
Eurofima, established in 1955 by fourteen European states in order to lease equipment to the
railway administrations of those states, and the Bank of International Settlement, created in 1930
by virtue of a treaty between five states, and the host country, Switzerland.

VI. INDIVIDUALS

The question of the status in international law of individuals is closely bound up with the rise
in the international protection of human rights.
The link between the state and the individual for international law purposes has historically
been the concept of nationality. This was and remains crucial, particularly in the spheres of
jurisdiction and the international protection of the individual by the state. Each state has the
capacity to determine who are to be its nationals and this is to be recognized by other states in so
far as it is consistent with international law, although in order for other states to accept this
nationality there has to be a genuine connection between the state and the individual in question.
Individuals as a general rule lack standing to assert violations of international treaties in the
absence of a protest by the state of nationality, although states may agree to confer particular
rights on individual which will be enforceable under international law, independently of
municipal law.
A wide range of treaties have provide for individuals to have rights directly and have enabled
individuals to have direct access to international courts and tribunals. One may mention as
examples the European Convention on Human Rights, 1950; the European Union treaties; the
Inter-American Convention on Human Rights, 1969; the Optional Protocol to the International
Convenant on Civil and Political Rights, 1966; the Convention on the Settlement of Investment
Disputes, 1965.
As far as obligation are concerned, international law has imposed direct responsibility upon
individual in certain specified matters, such as criminal responsibility (piracy and slavery, crimes
against humanity etc.)

Conclusions
 The International Court clearly recognized the multiplicity of models of personality in
stressing that “the subjects of law in any legal system are not necessarily identical in their nature
or in the extent of their rights.”
There are 2 basic categories:
- objective personality – the entity is subject to a wide range or international rights and duties
and it will be entitled to be accepted as an international person by any other international person
with it is conducting relations; it will operate erga omnes.
- qualified personality – the entity is accepted by the consenting subject, in relation to itself and
that determination will operate only in personam.
 States are the original and major subjects of international law. Their personality derives
from the very nature and structure of the international system. Statehood will arise as a
result of the factual satisfaction of the stipulated legal criteria. All states, by virtue of the
principle of sovereign equality, will enjoy the same degree of international legal
personality.
 International organizations, rather than being derivative subject of international law,
possess an inherent personality directly from the system and will thus constitute general
and even objective subjects of international law.
Also, NGOs, MNCs and individuals are derived subjects possessing only such
international powers as conferred exceptionally upon them by the necessary subjects of
international law.