Multinational corporations, private codes, and technology transfer for sustainable development.

• Author: Baram, Michael S.

1. INTRODUCTION: SUSTAINABLE DEVELOPMENT

   The struggle to advance human well-being in developing nations is on a collision course with growing efforts to protect the global environment. To prevent foreseeable conflicts, the principle of sustainable development has been proposed and has become widely accepted.(1) Putting this principle into practice will require policies that permit industrial, agricultural, and other developments, yet also protect natural resources and public health for the benefit of future generations.(2)

   Technological expertise will play a vital role in sustainable development, fostering the design of new energy, transport, and water supply systems for minimal environmental impact, and enabling performance of hazardous mining and manufacturing activities in a manner that protects natural resources and public health. Technological expertise is crucial in preventing waste disposal problems, in developing biodegradable packaging, and in designing new products that are more compatible with the environment throughout their life cycles, such as substitutes for harmful chemical pesticides.(3)

   Continuous advance in technological expertise is necessary for sustainable development because environmental parameters change over time. As developmental activities multiply, regional and global environments will experience greater stress no matter how carefully each activity may have been designed and conducted. As human well-being advances, citizens of developing nations are likely to place greater emphasis on the protection of natural resources and environmental amenities. As environmental sciences progress, new problems will be identified and demand mitigation. Thus, sustainable development policies must promote continuing technical advances and facilitate technology transfer for environmental protection.

   Finally, policies for sustainable development must be brought to bear on the major proponents of developmental activities: private multinational firms and public agencies. Multinational corporations (MNCs) are aggressively seeking new resources, markets, joint ventures, and facility sites. Recent studies show that such global expansion is growing significantly because "it pays."(4) Public agencies in industrial countries are under increasing pressure to facilitate MNC activities in poorer nations, and counterpart agencies in those nations are pursuing development opportunities with MNCs. Thus, MNC activities are being "pushed and pulled" toward developing nations at an increasing rate, and policies for sustainable development must ensure that MNCs provide the requisite technical expertise.(5)

   This Article addresses the role of MNCs in sustainable development. It evaluates one policy option for promoting the development and transfer of technological expertise: reliance on the private codes of environmental conduct that MNCs and their trade associations are developing. These private codes provide a voluntary "system" for ensuring that such firm provide the requisite technology for sustainable development.(6) Commentators have suggested other policy options for multinationals and technology, including international regulation of MNCs, government programs for transfer of MNC technology, international harmonization of standards or laws applicable to MNCs, and the extraterritorial application of laws enacted by the countries of origin of MNCs.(7)

   However, as indicated in Table 1, these public sector initiatives will require substantial public sector efforts to overcome political and economic obstacles, and deserve consideration only to the extent that private voluntary codes prove inadequate.

   Section II examines various types of MNC activities in developing nations. Section III surveys private codes of conduct adopted by corporations in the United States and other developed nations. Section IV concludes that corporations generally do not apply these codes in developing nations and examines the effectiveness of three approaches currently used to remedy this situation. Section IV outlines several strategies that could enhance private codes of conduct as a viable policy option. The Article concludes that reliance on MNC codes of environmental conduct, coupled with supportive strategies, provides a pragmatic policy option for achieving sustainable development.(8)

2. ACTIVITIES OF MULTINATIONAL CORPORATIONS

   An assessment of reliance on private codes as a policy option must begin with a delineation of the types of MNC activities in developing nations, the parties involved, and the risks posed to sustainable development. This will illuminate where and when technological expertise is needed, and will highlight potential avenues of technology transfer for each type of activity. After such an initial assessment, the efficacy of private codes for promoting and directing the requisite technological expertise can be evaluated.

   1. Large Scale Development

      One type of MNC activity is Participation in joint ventures for the sitting, design, and construction of large public projects intended to provide for human needs in developing nations. Examples include water supply and waste disposal systems, energy facilities, and communications and transportation systems. Usually, an MNC works on such projects under a long-term contract with several participants that may include other MNCs, host country firm, national agencies, and local governments. Technical expertise and equipment capable of minimizing a broad range of future environmental impacts is needed at the outset for the siting and design of such projects, and subsequently for the construction or

      on stage. At a later stage, additional technological expertise and new equipment may be required for project modifications in response to new findings of environmental impacts, and for ongoing project management to meet increasingly stringent requirements for the conservation of resources. An MNC's responsibilities for providing this technological input will depend in part on its contractual obligations and its level and duration of involvement.(9)

      For this type of activity, an effective private code must mandate MNC responsibilities for technological innovation and transfer when the MNC is working under a long-term contract with many other participants. Such contracts often provide for transfer of technological expertise by the MNC to the other parties. However, from a legal perspective, long-term contracts are problematic because they involve the transfer of incorporeal goods such as "know-how"(10) and frequently require secrecy to protect proprietary information. Further, long-term contracts are often skeletal in that they avoid detailed requirements because of numerous contingencies and emphasize cooperative relationships instead. The parties anticipate controversies and usually provide for their resolution by including a contractual provision for arbitration or another form of dispute resolution.(11)

   2. Facility Operation

      A second common type of MNC activity involves the ongoing operation of a manufacturing facility or a resource extraction activity in a developing nation. The MNC may be involved in several ways: as the parent of a wholly owned subsidiary which owns and operates the facility; as one of several private and public partners in a joint venture; or as the licensor of technology to an independent organization conducting the activity.(12) Such operations in developing nations increasingly involve the use of hazardous materials(13) and pose several risks to sustainable development. These risks include potential accidents with sudden or long-term impacts on the environment and public health (such as Bhopal(14) and Seveso(15); routine release of toxic air and water pollutants; ongoing generation of hazardous wastes; and the depletion of natural resources (such as water supply).(16) Sustainable development will require technical expertise in the form of analytic and monitoring capabilities, "know-how," and sophisticated equipment and training programs designed to prevent accidents. It will further require technologies for waste recycling and source reduction, and methods for minimizing routine releases and fugitive emissions.(17)

      As the state of the art in these areas of technical expertise advances (most likely at MNC facilities in the country of origin), the newly gained expertise should be transferred and applied to host country operations to maintain sustainable development. Thus, an effective private code must mandate MNC responsibilities for technology transfer under several arrangements--intrafirm arrangements, joint ventures, and licensing relationships.(18) However, two conditions prevent broad dissemination of this technical knowledge: First, such transfers will be confined to the firm's own subsidiary or others such as joint venture partners or licensees involved in the business venture with the MNC. Second, the MNC technology may be proprietary and shared only with its partners or licensees under trade secret restrictions. As a result, an important advance in accident prevention or waste recycling may be applied in the MNC operation, but kept from competitors which conduct similar operations in the developing nation.

   3. Sale of Products

      A third type of MNC activity in developing nations involves the sale of the MNC's products--either domestic products made by its local facility or products manufactured elsewhere and exported to the developing nation. In either case, the MNC may sell the products to customers directly or through distributors or brokers. Some products, such as bulk commodity chemicals or agricultural pesticides, may be destined for industrial or large institutional customers; others, such as appliances, automobiles, or pesticides for home and family farm use, may be sold "over the counter" to individual consumers.

      Many of these products pose environmental risks during the use and disposal stages of their life cycles. This may be due to...