By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), Winner of Kenya’s ADR Practitioner of the Year 2021*

The international framework which is relevant in regulating the multinational corporations’ exploitation of international resources include legal and institutional framework under United Nations including United Nations Environmental Programme (UNEP) and United Nations Global Compact, World Trade Organization (WTO) including the Agreement on Trade-Related Investment Measures (TRIMs) and the Agreement on Trade-Related Aspects of intellectual Property Rights (TRIPs). They also include the Guidelines under the auspices of Organization for Economic Cooperation and Development (OECD).

The Agreement on Trade-Related Investment Measures (TRIMs), seeks to promote the expansion and progressive liberalization of world trade and to facilitate investment across international frontiers so as to increase the economic growth of all trading partners, particularly developing country Members. The agreement, thus, takes note of the vulnerable position which most developing countries usually are at and seeks to alleviate the situation in these countries. The agreement further provides for the importance of ensuring that transactions between corporations and states are done in a manner that is transparent.

The Agreement on Trade-Related Aspects of intellectual Property Rights (TRIPs), seeks to reduce distortions and impediments to international trade, and takes into account the need to promote effective and adequate protection of intellectual property rights, and to ensure that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade. TRIPS plays a useful role in the protection of intellectual property rights. However, it has been a subject of criticism in many African countries as it largely embodies western standards in I.P. Therefore, the agreement does not offer much protection especially to traditional knowledge, which is an important form of intellectual property in Africa.

The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, seeks to ensure that States establish mechanisms to ensure that parties to international business transactions who engage in corrupt practices are held liable for these actions. Each contracting party must thus take such measures as may be necessary, in accordance with its legal principles, to establish the liability of legal persons for the bribery of a foreign public official. This Convention has recognized that corruption plays a big role in illegal transactions and corrupt practices which are usually done at the expense of the governed and has sought to ensure that these entities are held accountable.

This Convention could be very useful in ensuring that cases of corruption by MNCs often reported in developing countries are effectively dealt with, so as to ensure that the proceeds of natural resource exploitation benefit the locals. In this regard, institutions have to be established which will ensure that the MNCs are held to account for their actions. The Convention has realized the importance of good governance in the running of MNCs and the need to ensure accountability. Accountability and transparency are said to be related principles which ensure good governance. In this regard, accountability mechanisms ensure that oversight is exercised over the actions of various entities. The broad aim of oversight is to ensure that initiatives by the government meet their planned objectives, respond to the needs of the citizenry and contribute to better governance and the reduction of poverty.

The OECD Guidelines for Multinational Enterprises (the Guidelines) are recommendations addressed by governments to multinational enterprises. They provide voluntary principles and standards for responsible business conduct consistent with applicable laws. The Guidelines aim to ensure that the operations of these enterprises are in harmony with government policies and ensure that confidence is built among the societies amongst whom these enterprises operate. The Guidelines are part of the OECD Declaration on International Investment and Multinational Enterprises, the other elements of which, relate to national treatment, conflicting requirements on enterprises, and international investment incentives and disincentives. They apply to multinational enterprises (MNEs) in all sectors, wherever they operate.

Enterprises should contribute to sustainable development, respect human rights, abstain from improper involvement in local political activities and refrain from retaliating against workers who report practices that contravene the law, the Guidelines or the enterprise’s policies. Further, they should conduct due diligence to avoid being involved in adverse impacts on matters covered by the Guidelines. These entities are also to endeavor to ensure that they take into consideration the views of members of the public in the governance process. All these initiatives relate to inclusion of democratic principles in the governance of MNCs. Democratic governance of MNCs is important in ensuring that there are increased levels of economic growth. The common aim of the governments adhering to the Guidelines is to encourage the positive contributions that multinational enterprises can make to economic, environmental and social progress and to minimize the difficulties to which their various operations may give rise.

The OECD Principles of Corporate Governance are intended to assist OECD and non-OECD governments in their efforts to evaluate and improve the legal, institutional and regulatory framework for corporate governance in their countries. It seeks to provide guidance and suggestions for stock exchanges, investors, corporations, and other parties that have a role in the process of developing good corporate governance. The Principles are of importance to both traded and non-traded companies and they represent a common basis that OECD member countries consider essential for the development of good governance practices.

The United Nations Environmental Programme (UNEP) helps States cooperate to achieve agreed environmental priorities, and supports efforts to develop, implement and enforce new international environmental laws and standards. UNEP observes that to achieve their environmental commitments and goals, States need strong legislative, political and judicial systems. To promote this, UNEP seeks to use its expertise in environmental policy and law to help States further develop these institutions, and enhance their ability to effectively participate in international negotiations. In this regard, therefore, Multilateral Environmental Agreements (MEAs) have been formulated and they are driven at formulating guidelines to states on how to deal with transboundary hazards. Despite the fact that these guidelines are in existence, practice has shown widespread occurrence of non-compliance by states and non-enforcement with respect to many MEAs.

The United Nations Global Compact is a call to companies everywhere to voluntarily align their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption, and to take action in support of UN goals and issues. The principles seek to guide the manner in which businesses are to operate and it seeks to ensure that these entities respect human rights in their operations. The UN Global Compact has largely adopted a voluntary approach to sustainability and currently has over 12,000 signatories from business and key stakeholder groups based in 145 countries.

The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, provides guidance on the application of the “arm’s length principle,” which is the international consensus on transfer pricing, i.e. on the valuation, for tax purposes, of cross-border transactions between associated enterprises. In a global economy, where multinational enterprises (MNEs) play a prominent role, transfer pricing is high on the agenda of tax administrators and taxpayers alike, and governments need to ensure that the taxable profits of MNEs are not artificially shifted out of their jurisdictions and that the tax base reported by MNEs in their respective countries reflect the economic activity undertaken therein.

The existing international framework governing multinational corporations is, however, seen to be inadequate as the international framework largely relies on implementation by States. The problem is particularly seen where there are violations within developing countries. These countries are usually not in a position to regulate the MNCs which operate within their countries since states have trans-border limitations and thus not in a position to effectively regulate the operations of the MNCs. States have also been complacent in ensuring that the MNCs are held to account for their actions. States are, thus, supposed to ensure that international norms that have been established are domesticated and ensure that any violations arising from the operations of these corporations are redressed.

*This is article is an extract from an article by Dr. Kariuki Muigua, PhD,Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards): Muigua, K., “Multinational Corporations, Investment and Natural Resource Management in Kenya,” http://kmco.co.ke/wp-content/uploads/2018/11/Multinational-Corporations-Investment-and-Natural-Resource-Management-in-Kenya-Kariuki-Muigua-November-2018.pdf. Dr. Kariuki Muigua is Kenya’s foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Africa Trustee of the Chartered Institute of Arbitrators and the Managing Partner of Kariuki Muigua & Co. Advocates. Dr. Muigua is recognized as one of the leading lawyers and dispute resolution experts by the Chambers Global Guide 2021. 

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