The Liability of Multinational Corporations and Home State Measures

Abstract

Unlike under the old law, there is now an increasing expectation, particularly among developing countries and non-governmental organisations (NGOs), that home states of multinational corporations should exert control over the activities of their corporate nationals operating overseas. This expectation is confirmed by a UN report which affirms a responsibility on the part of states to deter human rights violations by multinational corporations and to offer remedies through their national courts for harm caused to individuals in the host states. There is an obligation to take measures that seek to ensure that multinational corporations do not act to the detriment of host developing states. This chapter concentrates on such measures. The rationale is that developed states owe such a duty of control to the international community and do in fact have the means of legal control over the conduct abroad of their multinational corporations. In moral terms, the activities of multinational corporations eventually benefit the home state's economic prosperity. The argument is that it is therefore incumbent on the home state to ensure that these benefits are not secured through injury to other states or to the international community as a whole. The early law concentrated only on the protection of foreign investment through the diplomatic intervention of the home state. However, there is now an evolution of the notion that the home state has duties as well as rights in matters relating to foreign investment which require the home state to intervene to ensure that its multinational corporations act in accordance with emerging standards that require their accountability. As a matter of state responsibility, it may be possible to argue that a multinational corporation is constituted an agent of its parent state. It is encouraged to invest abroad. Its profits are taxed by the home state. It is given diplomatic and other protection by the home state. In such circumstances where the host state knowingly permits the activity of a multinational corporation which violates human rights or environmental interests, it bears responsibility for such violations as it can be said to have acted with knowledge of the acts of an agent or carried a duty of preventing such harm. The responsibility of a state for the acts of its agents abroad is well recognised. It is also relevant that a home state that does not interfere assists in the violation of conventions containing international obligations that its agent violates.