Corporate Social Responsibility Issues Flashcards
Introduction
The rise of multinational enterprises (MNEs) has significantly influenced global economics and politics, often surpassing the power of many nations in terms of revenue. This has raised critical questions about their ethical and social responsibilities, particularly as they may use their international structure to evade national regulations or exert pressure on weaker states, especially in the developing world.
While some critics view MNEs as driven solely by profit and avoiding responsibility, it’s unclear how widespread such behavior is. The central questions include whether MNEs should engage in CSR beyond legal obligations, what motivates socially responsible behavior, and whether they should adhere to national standards or adopt global minimum standards.
The chapter explores these concerns, looking at applicable international law norms, voluntary codes of conduct, and other incentives for CSR. It emphasizes that CSR is no longer a theoretical issue but a pressing practical matter that MNEs must address seriously.
9-1
Is this a good strategy?
No, this is not a good strategy—legally, ethically, or from a long-term business perspective.
While Dresser’s CEO insists on following local labor laws strictly, this “lowest common denominator” approach reflects a race to the bottom in practice, even if not in name. Simply complying with minimal local labor laws may shield the company from immediate legal liability, but it does not protect against:
Reputational Harm: Consumers, advocacy groups, and media increasingly scrutinize corporate practices. Operating in countries with weak labor protections may lead to public backlash, boycotts, or pressure campaigns—even if the company is technically obeying the law.
Corporate Social Responsibility Expectations: Multinational enterprises (MNEs) are expected to go beyond legal compliance and adopt international labor standards (e.g., ILO conventions, UN Guiding Principles on Business and Human Rights). Stakeholders expect companies to respect worker rights, provide fair wages, and ensure safe working conditions, regardless of local norms.
Legal Risk from Home or Host Countries: Some countries (including the U.S. and EU members) allow for extraterritorial application of certain labor and human rights laws. Dresser could face lawsuits or sanctions if abusive practices are discovered abroad.
Employee Morale & Supply Chain Issues: Poor labor practices often result in high turnover, low productivity, and supply chain disruptions. Ethical sourcing is also a growing requirement from business partners and consumers alike.
Conclusion: A more sustainable and responsible strategy would be to comply not only with local laws but also adhere to international best practices on labor rights, including minimum wage, safe working conditions, and freedom of association. Doing so would protect Dresser’s brand, ensure long-term profitability, and demonstrate responsible global citizenship.
Problem 9-2
(1) Are MNEs subject to international legal norms?
Yes, multinational enterprises like NED are increasingly subject to international legal norms, especially concerning human rights, environmental protection, and labor practices.
Key international norms and frameworks applicable to NED include:
UN Guiding Principles on Business and Human Rights (UNGPs): These establish the corporate responsibility to respect human rights and provide access to remedy for abuses.
OECD Guidelines for Multinational Enterprises: These offer non-binding principles and standards covering employment, environment, consumer interests, and anti-corruption.
ILO Core Labor Standards: These include freedom of association, elimination of forced and child labor, and non-discrimination.
International Environmental Agreements: If NED deals with toxic chemicals, treaties like the Basel Convention (on hazardous waste), the Stockholm Convention (on persistent organic pollutants), and other environmental protocols may apply.
Though many of these frameworks are non-binding, they can shape regulatory environments, influence public expectations, and become part of soft law or contractual obligations in international operations.
(2) Is it better or worse to be subject to international legal norms instead of just domestic regulation?
Better, for several key reasons:
Predictability and Consistency: International norms offer a uniform set of expectations across countries, making it easier to develop internal policies rather than navigating disparate and possibly conflicting domestic laws.
Reputational Benefits: Demonstrating adherence to international norms signals that NED is a responsible and ethical global player, which strengthens brand image and stakeholder trust.
Risk Management: Aligning with international standards reduces the risk of lawsuits, boycotts, and regulatory actions both at home and abroad.
Investor and Consumer Expectations: Many investors (e.g., ESG-focused funds) and consumers prefer companies that demonstrate commitment to sustainability and human rights.
However, the challenge is that public international law norms often lack direct enforceability against private corporations. But this doesn’t mean they’re irrelevant—they shape enforcement trends, influence domestic laws, and can still create serious consequences if ignored.
Conclusion: Embracing international legal norms is not only ethically advisable but also makes strategic business sense. NED can lead by example, minimize legal and reputational risks, and contribute positively to the communities where it operates.
**Doe I v. Wal-Mart Stores, Inc.
United States Court of Appeals, Ninth Circuit, 2009
572 F.3d 677**
Facts:
Plaintiffs were employees of foreign factories in countries such as China, Bangladesh, Indonesia, Swaziland, and Nicaragua.
These factories produced goods for Wal-Mart under supply contracts that incorporated Wal-Mart’s “Standards for Suppliers”, which set labor condition expectations.
The Standards reserved Wal-Mart’s right (not obligation) to inspect supplier factories and terminate relationships if violations occurred.
Plaintiffs alleged poor working conditions and that Wal-Mart failed to monitor its suppliers effectively, despite knowing about violations.
They filed claims based on four legal theories: third-party beneficiary, joint employer, negligence, and unjust enrichment.
The district court dismissed the complaint under Rule 12(b)(6) for failure to state a claim. Plaintiffs appealed.
Issue:
Did Wal-Mart owe any legal duty or have any enforceable obligations to the foreign workers under the Standards for Suppliers or under common law principles that would make Wal-Mart liable for the workers’ poor treatment?
Rule:
Third-Party Beneficiary: Only intended beneficiaries can enforce promises in contracts (Restatement (Second) of Contracts §§ 302, 304).
Joint Employer: A joint employer must exercise a comprehensive, day-to-day level of control over workers’ employment conditions.
Negligence: Requires a duty of care owed by defendant to plaintiff.
Unjust Enrichment: Requires a direct relationship and circumstances making it unjust for defendant to retain a benefit at plaintiff’s expense.
Application:
Third-Party Beneficiary: The Standards gave Wal-Mart discretionary rights, not duties, to inspect and enforce labor standards. There was no promise to monitor that extended to workers. Thus, workers were not intended third-party beneficiaries.
Joint Employer: Wal-Mart’s control was limited to standard supply chain contract terms (e.g., price, deadlines). There was no direct, day-to-day control over factory workers.
Negligence: All negligence claims failed because Wal-Mart owed no legal duty to monitor or protect the plaintiffs.
Unjust Enrichment: There was no direct relationship between Wal-Mart and plaintiffs. Any benefit Wal-Mart received from suppliers was too remote to support a restitution claim.
Conclusion:
The Ninth Circuit affirmed the dismissal. Wal-Mart owed no contractual, employment, or tort duty to the plaintiffs, and the claims were insufficient as a matter of law.
Problem 9-3
- Liability Under Public International Law:
Traditionally, public international law was seen as applying only to states, not private actors like corporations. However, this view has evolved significantly, particularly in areas such as human rights, environmental protection, and labor standards. While corporations are still not subject to the same obligations as states under treaties, they may incur liability or reputational harm through several mechanisms:
International Norms and Soft Law: Instruments like the UN Guiding Principles on Business and Human Rights (UNGPs) emphasize that corporations have a responsibility to respect human rights, even if not legally binding. These principles are widely accepted and can influence both public perception and future regulation.
Complicity Doctrine: A corporation can be held complicit in violations of international law if it knowingly benefits from or enables abuses by its state partners. For example, if Zenos knowingly operates in partnership with a regime that commits forced evictions or pollutes indigenous lands, it could face civil liability in some jurisdictions or even international condemnation.
Alien Tort Statute (ATS) in the U.S.: Though its scope has narrowed (e.g., Kiobel v. Royal Dutch Petroleum), the ATS has been used to bring claims against corporations for aiding and abetting human rights violations abroad. While harder to apply post-Kiobel, it remains a cautionary example.
- Strategic Consideration – The “Business Case”:
Yes, the nature of the foreign government absolutely becomes part of the business case:
Reputational Risk: Associations with abusive regimes can cause consumer backlash, activist campaigns, shareholder divestment, or NGO scrutiny.
Legal Risk: Even if Zenos does not directly engage in abuses, its business partners’ misconduct could draw Zenos into litigation or regulatory investigation.
Operational Risk: Repressive regimes often come with political instability, lack of rule of law, corruption, and unpredictable enforcement, which can increase business risk significantly.
ESG Expectations: Investors are increasingly focused on Environmental, Social, and Governance (ESG) metrics. Involvement with questionable regimes can lead to reduced access to capital or investment downgrades.
Conclusion:
While Zenos Industries, as a private company, is not automatically bound by public international law norms applicable to states, it can incur legal, reputational, and financial consequences if it knowingly partners with a repressive regime engaged in violations of such norms. Therefore, yes, the character and conduct of a foreign government should be a central factor in Zenos’s investment decision-making process, not just for ethical reasons, but also as a sound risk management and CSR strategy.
Codes and Standards of Conduct
Efforts have been made to create general policies and standards for governing the conduct of multinational enterprises (MNEs). The most notable example is the OECD Guidelines for Multinational Enterprises, which serve as a voluntary code of conduct. However, no legally binding international code currently exists. The section also introduces practical problems related to the application of these OECD guidelines.
Problem 9-4
Issue:
Why would a multinational enterprise (MNE) voluntarily follow the OECD Guidelines for Multinational Enterprises, which may create additional social obligations?
Response:
While the OECD Guidelines are non-binding, there are strong business reasons to adopt them:
Reputation and Brand Value:
Adhering to ethical standards builds consumer trust and enhances brand reputation—key competitive advantages in global markets.
Risk Management:
Following the Guidelines helps avoid scandals, lawsuits, or boycotts tied to labor abuses, corruption, or environmental damage, which can be financially and reputationally devastating.
Investor Confidence:
Many institutional investors prioritize ESG (Environmental, Social, and Governance) factors. Aligning with OECD Guidelines makes your company more attractive to socially responsible investors.
Operational Stability:
Ethical practices reduce the risk of labor unrest, community opposition, or regulatory backlash in host countries, ensuring smoother long-term operations.
Market Access:
Governments and major buyers increasingly prefer suppliers that meet international ethical standards. Voluntary adherence can open doors and strengthen partnerships.
Preemptive Compliance:
Voluntary adoption of recognized standards helps prepare the company for future mandatory regulations and reduces the cost of compliance over time.
Conclusion:
Voluntarily following the OECD Guidelines isn’t just about ethics—it’s a smart strategic move that can protect and grow the bottom line.
Problem 9-5
Issue:
Should Hyde Industries accept incentives offered by a Southeast Asian government that include exemptions from environmental and labor laws and free labor?
Response:
No, accepting these conditions would violate several key principles of the OECD Guidelines:
Environmental Standards (Chapter VI):
The ten-year exemption from environmental regulations contradicts the OECD’s emphasis on sustainable development, pollution control, and respecting international environmental standards.
Labor Rights (Chapter V):
The five-year exemption from labor laws and use of government-supplied “free labor” violate fundamental principles of freedom of association, non-discrimination, and the elimination of forced or child labor.
Human Rights (Chapter IV):
Accepting such conditions could be seen as contributing to human rights abuses, especially if the “free labor” involves coercion, child labor, or unfair treatment.
Taxation (Chapter XI):
A five-year tax holiday—particularly when offered outside the law—raises concerns about transparency, fair competition, and responsible tax practices.
Corruption and Bribery (Chapter VII):
Although not a direct bribe, accepting extralegal benefits in exchange for investment may be interpreted as improper influence or corrupt conduct, especially if it lacks transparency.
Conclusion:
Since Hyde Industries has pledged to follow the OECD Guidelines, accepting these conditions would undermine the company’s stated commitments, expose it to reputational and legal risks, and could be considered complicit in unethical practices. The company should reject the offer and seek to negotiate terms that comply with both local laws and international standards.
Note on Implementation of the OECD Guidelines for Multinational Enterprises
OECD Guidelines are non-binding, but each OECD country appoints a National Contact Point (NCP) to promote and oversee compliance.
Example: In 2008, the UK NCP found Afrimex Ltd. violated the Guidelines by paying bribes and buying metals from mines using child and forced labor in the DRC. The NCP issued non-binding recommendations.
Efforts Toward Binding Standards
No universal binding code exists for multinational enterprises (MNEs), despite their vast global influence (77,000 MNEs and 770,000 subsidiaries).
John Ruggie’s 2008 UN report, Protect, Respect, and Remedy, concluded:
States are primarily responsible for protecting human rights.
No universal international law on corporate social responsibility exists.
Enforcement of norms depends on local governments.
UN Guiding Principles (2011)
Adopted by the UN Human Rights Council, based on Ruggie’s work:
State duty to protect human rights.
Corporate responsibility to respect human rights.
Access to remedies for victims of corporate abuse.
Legal Endorsements and Developments
The American Bar Association (ABA) endorsed the Ruggie Report and OECD Guidelines in 2012 (Resolution 109).
France passed a binding law in 2017 (Loi de Vigilance) requiring large companies to:
Implement a Vigilance Plan.
Identify and prevent human rights and environmental violations.
File annual reports on due diligence efforts.
“Note on the ‘Polluter Pays Principle’ as the Basis of Encouraging Multinational Companies to Engage in Sustainable Development
Here’s a summary of the “Note on the ‘Polluter Pays Principle’ as the Basis of Encouraging Multinational Companies to Engage in Sustainable Development”:
Summary: Polluter Pays Principle & Sustainable Development
- Sustainable development is essential for balancing economic growth with environmental protection.
- The Business Council for Sustainable Development (BCSD) promotes the “polluter pays principle”, which means companies should bear the full cost of pollution and remediation.
- The goal is to internalize environmental costs—treating pollution not as an externality but as a business expense.
Three Main Mechanisms to Internalize Environmental Costs:
1. Government Regulation (command and control):
- Sets minimum standards.
- Widely used but often inflexible and overused.
2. Self-Regulation:
- Potentially lower cost.
- Risk of cartels or protectionism.
3. Economic Instruments (favored by BCSD):
- Taxes, fees, or incentives to promote cleaner business practices.
- More cost-effective and flexible than regulations.
- Encourage innovation in clean technologies.
Key Benefits of the “Polluter Pays Principle”:
- Encourages companies to view pollution as a sign of inefficiency.
- Promotes integration of environmental practices into core business operations.
- Creates market incentives for sustainable technologies.
- Makes sustainability a competitive advantage.
- Reduces waste, fines, and long-term costs of environmental damage.
Corporate Example:
- Agilent Technologies affirms that environmentally sustainable operations are critical to long-term business success and aligned with corporate goals.
Problem 9-6
Here’s a structured response to PROBLEM 9-6 that incorporates the principles from the OECD Guidelines, the Polluter Pays Principle, and international norms on environmental and corporate responsibility:
✅ 1. Is Webb’s environmental management plan a good idea?
Yes, Webb’s proposed environmental management structure is not only a good idea, but aligns with international best practices and corporate social responsibility (CSR) standards. Here’s why:
A. Aligns with OECD Guidelines for Multinational Enterprises
- The OECD Guidelines recommend that multinational enterprises implement management systems to address environmental impacts across their global operations.
- The appointment of a Senior VP for Global Environmental Responsibility and local Directors of Environmental Compliance aligns with recommendations for central oversight and local implementation of environmental standards.
B. Fulfills Corporate Duty under the “Polluter Pays Principle”
- By addressing environmental damage internally and proactively, Webb would be internalizing the environmental costs of doing business—just as the polluter pays principle requires.
- Establishing a compliance structure signals that Webb recognizes pollution as a cost of inefficiency and is committed to preventing future incidents.
C. Supports Long-Term Business Success
- A structured sustainability program enhances brand reputation, mitigates legal and financial risks, and creates competitive advantage through cleaner, more efficient practices.
🚫 2. Can Webb prevent disclosure of the industrial accident?
No, Webb should not attempt to prevent disclosure of the Myanmar incident, even if the government is cooperative. Here’s why:
A. Risk of Breach of International Norms and Corporate Responsibility
- Transparency is a key element of both the OECD Guidelines and the UN Guiding Principles on Business and Human Rights.
- Suppressing information—especially regarding a serious environmental incident—violates the principle of public accountability and undermines Webb’s CSR commitments.
B. Legal and Reputational Risks
- Although Myanmar may offer to cover up the accident, disclosure could still emerge from NGOs, whistleblowers, media, or rival firms.
- If discovered, any effort to conceal the damage would lead to greater reputational damage, legal liabilities, and potential violations of securities regulations (especially given Webb’s public status in the U.S.).
C. The Ruggie Report’s Guidance
- The UN Protect, Respect, and Remedy framework makes it clear: companies must respect human rights and environmental standards, and ensure access to remedies for affected communities.
- Suppressing information denies affected communities that remedy and violates international expectations.
✅ Recommendations:
1. Implement the management plan with clear oversight, accountability, and periodic environmental audits.
2. Disclose the incident in a transparent and responsible manner—perhaps through a press release that:
- Acknowledges the incident.
- Details the company’s plan to fully remediate the damage.
- Reaffirms Webb’s commitment to environmental responsibility.
3. Consider using this event to publicly launch the new environmental governance structure—turning a crisis into a step toward corporate leadership in sustainability.
Instituting a Corporate Environmental and Safety Management System
Summary: Instituting a Corporate Environmental and Safety Management System
An Environmental and Safety Management System (EMS) is a structured program designed to achieve specific environmental and safety goals within an organization. It involves the following steps:
- Adopting Policies: Establishing company-wide environmental and safety policies.
- Implementation: Ensuring these policies are applied at all levels within the company.
- Monitoring and Auditing: Regular checks to ensure compliance with set standards.
- Corrective Actions: Making necessary improvements where deviations are found.
- Ongoing Management Review: Continuous oversight to ensure the system’s effectiveness.
For EMS to succeed, top management involvement is critical, ensuring the alignment of corporate goals with environmental and safety standards.
The ISO 14000 series, particularly ISO 14001:2015, is the global standard for EMS. Companies using ISO 14001 do not need to meet specific environmental quality goals but must follow a framework that includes policy adoption, planning, implementation, monitoring, corrective actions, and periodic reviews. Over 250,000 companies globally participate in this standard, gaining benefits like improved efficiency, cost reductions, and enhanced public relations.
The advantages of an EMS include:
- Reduced material and resource usage
- Lower energy consumption and waste
- Improved process efficiency
- Lower insurance costs
Key Steps to Implement an EMS:
1. Define Goals: Set clear environmental goals tailored to the company’s operations.
2. Secure Top Management Approval: Management must understand the benefits and costs involved.
3. Appoint an EMS Leader: This person will oversee the EMS and ensure its success.
4. Form an Implementation Team: A cross-functional team should handle planning, execution, and monitoring.
5. Preliminary Review: Assess the current compliance levels before developing a detailed plan.
6. Prepare a Project Plan: Include a schedule and budget for EMS implementation.
EMS Implementation Steps:
1. Adopt an Environmental Policy: Consider the company’s environmental footprint, including product lifecycle impacts.
2. Planning: Set specific objectives for waste reduction, energy use, etc.
3. Implementation: Action plans are executed by designated individuals.
4. Monitoring and Corrective Action: Track progress and take corrective actions as needed.
5. Management Review: Regular reviews ensure the EMS stays aligned with goals and addresses any shortcomings.
Special Considerations for Transnational Companies:
- Distinguish EMS Policy from Implementation: Parent companies should create policies but leave implementation to subsidiaries to avoid liability.
- Monitoring vs. Audits: Parent companies can monitor, but detailed inspections by them can lead to liability.
- Recommendations vs. Requirements: Parent companies should provide recommendations, not enforce requirements.
- Clear Documentation of Responsibility: Any operational responsibilities taken by the parent company should be well-documented and limited in scope.
By following these steps, companies can integrate environmental and safety management into their core operations, leading to better regulatory performance and overall business success while avoiding potential legal pitfalls.
UN Global Compact
The UN Global Compact is not regulatory in scope. A participating company agrees voluntarily to implement the nine principles and to publish an annual report on its achievements.
The ten principles are as follows:
Human Rights
Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
Principle 2: Make sure that they are not complicit in human rights abuses.
Labour
Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
Principle 4: The elimination of all forms of forced and compulsory labour;
Principle 5: The effective abolition of child labour; and
p. 829
Principle 6: The elimination of discrimination in respect of employment and occupation.
Environment
Principle 7: Businesses should support a precautionary approach to environmental challenges;
Principle 8: Undertake initiatives to promote greater environmental responsibility; and
Principle 9: Encourage the development and diffusion of environmentally friendly technologies.
Anti-Corruption
Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.
Environmental Liability Disclosure Obligations of Public Companies
Summary: Environmental Liability Disclosure Obligations of Public Companies
U.S. public companies are required to disclose environmental liabilities under the Securities Exchange Act of 1934. These obligations ensure transparency regarding the financial and operational impacts of environmental compliance and liabilities. The key disclosure requirements are as follows:
- SEC Regulation S-K, Item 101 (Description of Business): Requires disclosure of how environmental compliance or non-compliance affects the company’s capital expenditures, earnings, and competitive position.
- SEC Regulation S-K, Item 103 (Legal Proceedings): Mandates disclosure of any pending legal proceedings involving the company and a government authority that could result in a monetary sanction exceeding $100,000. It also covers material legal proceedings affecting the company’s financial condition or involving claims above 10% of the company’s assets.
- SEC Regulation S-K, Item 303 (Management’s Discussion and Analysis): Requires disclosure of environmental contingencies such as trends, demands, or uncertainties that may materially affect sales, revenues, or income. This includes costs related to environmental compliance.
To meet these obligations, companies must have adequate internal systems in place for determining and disclosing material environmental matters. Resources such as the EPA’s Enforcement and Compliance History Online (ECHO) website and similar state databases can help identify violations, enforcement actions, and penalties.
The Sarbanes-Oxley Act of 2002 further strengthens these requirements:
- Section 302: Mandates CEOs and CFOs to certify the accuracy of SEC reports and ensure effective internal controls over financial reporting, with criminal penalties for violations.
- Section 409: Requires urgent disclosure of material changes to a company’s financial condition or operations, including those related to environmental issues.
In practice, compliance with these disclosure requirements necessitates close cooperation between senior business leaders, environmental managers, legal counsel, and outside consultants to ensure accurate and timely reporting.
A Guide for the Perplexed: Creating a CSR Program for Your Company
Key Points:
- Challenges: Managers must choose the right international CSR standards to use from options like the UN Global Compact, OECD Guidelines, and ISO 14001 (environmental management).
- ISO 26000: A 2010 standard that harmonizes existing CSR criteria and offers guidance on integrating socially responsible conduct into business practices.
- Tailoring CSR Programs: Companies should create a CSR program suited to their unique needs, considering:
- Scope: Issue-specific or comprehensive?
- Framework: National or global?
- Standards: Legal vs. voluntary measures?
- Implementation Plan: Clear steps and responsibilities.
- Performance Metrics: How to measure success.
- Communication Plan: Internal and external communication strategies.
Exporting Hazard: Legal and Ethical Considerations
Many developed countries “sell” and then export hazardous substances and wastes to developing countries where the wastes are buried.
Problem 9-7
Analysis of GSI’s Statements:
1. “Most companies don’t behave this way, it’s just corporate bashing.” While many MNEs operate responsibly, the claim that only a few are rogue oversimplifies the issue. Systemic factors, profit pressures, and weak regulations often drive harmful practices even by large, reputable companies.
- “Some developing countries contribute to the problem.” Developing countries can indeed enable irresponsible behavior by offering weak regulations, lax enforcement, and economic incentives that prioritize growth over sustainability, allowing MNEs to exploit these conditions.
How Developing Countries Contribute to Irresponsible Behavior:
Weak Regulations: Inadequate laws and enforcement create opportunities for MNEs to exploit resources and violate environmental or labor standards.
Corruption and Oversight Gaps: Bribes and lack of oversight can lead to companies ignoring ethical practices.
Economic Incentives: Tax breaks or low wages attract MNEs but may encourage harmful practices.
Lack of Infrastructure: Poor infrastructure for waste management and worker protections can be exploited by MNEs.
Advice to Developing Countries:
Strengthen Regulations: Enforce strict environmental and labor laws, with effective monitoring.
Encourage CSR: Promote responsible corporate practices beyond legal compliance.
Invest in Capacity: Build local capacity for law enforcement and monitoring.
Promote Transparency: Require public disclosures on environmental impacts and labor practices.
Engage in Multilateral Agreements: Align with international standards and agreements for sustainable development.
Leverage International Pressure: Use global pressure from NGOs and organizations to encourage better corporate behavior.
In summary, both MNEs and developing countries share responsibility for corporate irresponsibility. Developing countries should balance investment attraction with strong regulations and sustainable practices.
Summary: Treaties Restricting Trade in Hazardous Materials
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Basel Convention (1989)
- Aims to control the transboundary movement and disposal of hazardous waste, ensuring human health and environmental protection.
- Requires prior informed consent for the export of hazardous waste, and prohibits trade with non-parties unless specific agreements are made.
- Amendment in 1995 bans hazardous waste export from OECD to non-OECD countries (not in force but generally followed).
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Rotterdam Convention (1998)
- Focuses on hazardous chemicals and pesticides in international trade, requiring prior informed consent and proper labeling.
- Exports of banned or restricted chemicals are subject to special notification and conditions.
- Countries may ban imports of certain chemicals and restrict domestic production.
-
Stockholm Convention (2001)
- Aims to eliminate or severely restrict dangerous persistent organic pollutants (POPs).
- Exportation of POPs is only allowed for environmentally safe disposal or specific uses approved by the treaty.
Note: The United States is not a party to any of these treaties.
Council Recommendation on the Application of the Polluter-Pays Principle to Accidental Pollution (1989)
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Polluter-Pays Principle
- The principle states that the polluter should bear the costs of pollution prevention and control measures introduced by public authorities. These costs should be reflected in the price of goods and services causing pollution.
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Accidental Pollution
- Operators of hazardous installations must bear the costs of measures to prevent and control accidental pollution, as mandated by public authorities before accidents occur.
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Post-Accident Costs
- After an accident, costs for controlling accidental pollution should be recovered as quickly as possible from the responsible party.
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Public Authorities’ Role
- Authorities may introduce specific fees (e.g., licensing fees) on hazardous installations to fund pollution prevention and control, ensuring more efficient resource allocation.
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Application of Fees and Taxes
- Fees may cover exceptional measures, such as special licensing or inspections, aimed at preventing accidents and controlling accidental pollution.
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Post-Accident Measures
- Costs of post-accident control measures (e.g., limiting emissions, cleaning, or environmental rehabilitation) should be charged to the operator of the hazardous installation. These measures aim to mitigate environmental damage promptly.
Summary: U.S. Controls on Exports of Hazardous Wastes
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Export Requirements
- U.S. exports must comply with the Export Administration Act, requiring export licenses and extensive documentation.
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Hazardous Exports
- Additional regulations apply to exports of hazardous chemicals, pesticides, and hazardous wastes under laws such as the Toxic Substances Control Act and the Federal Insecticide, Fungicide, and Rodenticide Act. These laws require exporters to notify importing countries about shipments.
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Notification vs. Consent
- U.S. laws typically require notification to importing countries, not consent. Only the Resource Conservation and Recovery Act mandates obtaining consent for hazardous waste exports.
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International Criticism
- Developed countries face criticism for lax controls on hazardous exports, with concerns that they use developing countries as dumping grounds for hazardous waste.
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Proposals for Improvement
- Suggestions include total export bans, improved information exchange, and requiring informed consent from importing countries before hazardous waste shipments.
Problem 9-8
International Laws and Norms on Garbage Export
The export of hazardous waste, including garbage, is regulated under treaties like the Basel Convention. Although the U.S. is not a party to it, the Convention restricts the trade of hazardous waste to countries that do not have adequate controls. The practice of shipping untreated garbage to a developing country like Z, especially if it’s dumped untreated in open-air sites, likely violates international environmental norms and raises ethical concerns related to environmental justice and human rights.
Liability of WSI for Contaminated Water
WSI may have liability for environmental harm caused by its subsidiary’s improper treatment of garbage. Although the subsidiary is a separate legal entity, WSI could be held responsible for environmental damage if it can be shown that WSI’s management practices or lack of oversight contributed to the toxic contamination. The Union Carbide case (Bhopal disaster) shows that parent companies can be held liable for the actions of their subsidiaries if there is negligence in monitoring and ensuring compliance with safety standards, especially when harm to human health and the environment occurs.
Problem 9-9
Union Carbide’s Corporate Structure in the Litigation Outcome
Union Carbide’s corporate structure, especially the distinction between its U.S. parent company and Indian subsidiary, played a significant role in the litigation outcome. The parent company’s claim of limited liability and separation from its subsidiary in India allowed it to avoid full responsibility for the disaster. The court’s inability to pierce this corporate veil contributed to the legal complexities of holding UCC accountable.
Forum Non Conveniens and the Indian Legal System
The dismissal of the U.S. case on forum non conveniens grounds, which shifted the lawsuit to Indian courts, negatively impacted the plaintiffs’ ability to obtain relief. The Indian legal system was seen as inefficient and less sophisticated compared to U.S. courts, hindering the plaintiffs’ access to justice. Delays, limited resources, and a lack of experience with complex international litigation diminished the prospects for meaningful relief.
Indian Government’s Pretrial Damages Award and Enforcement
The Indian government sought a pretrial award of damages to expedite compensation for victims and demonstrate accountability. Enforcement of the award against UCC was difficult due to the parent-subsidiary structure, and UCC had little concern about the potential award, given its distance from the incident and financial resilience. The Indian government showed legal skill by pursuing the case but struggled with the complexities of enforcement.
Pressure on the Indian Government and UCC
Both the Indian government and UCC were under pressure, but UCC was less directly affected by the disaster’s immediate impact, while the Indian government faced intense pressure from the public and international community to resolve the case quickly. The government’s desire for a fast resolution was influenced by the need to maintain political stability and address public outcry.
Equity and Fairness of the Damages Award
The award of damages was criticized as insufficient, particularly for wrongful death, when compared to similar incidents in the U.S., where wrongful death awards are typically much higher. The Indian victims received significantly lower compensation due to the perceived lower value of life in developing countries. If the incident had occurred in the U.S., the damages, especially for wrongful death, would have likely been far greater, given the higher thresholds for compensation in the American legal system.
UCC’s Financial Consequences and Deterrence
UCC did not suffer significant adverse financial consequences from the Bhopal disaster. The company was able to limit its financial exposure through legal tactics, including the corporate structure and the forum non conveniens ruling. This lack of severe financial repercussions arguably failed to deter UCC and other corporations from engaging in similarly negligent behavior in the future.
In re Union Carbide Corp. Gas Plant Disaster at Bhopal, India in December 1984
Facts:
- Incident: On December 2-3, 1984, a deadly gas leak from a Union Carbide India Limited (UCIL) plant in Bhopal, India, caused the deaths of over 2,000 people and injured over 200,000.
- Defendants: Union Carbide Corporation (UCC), a U.S.-based company, and its Indian subsidiary UCIL.
- Lawsuits: After the disaster, approximately 145 lawsuits were filed in U.S. federal courts. The lawsuits sought compensation for victims and were initially consolidated in the Southern District of New York.
- Indian Government’s Role: The Government of India (UOI) filed a lawsuit on behalf of the victims after India enacted the Bhopal Gas Leak Disaster (Processing of Claims) Act, granting the government exclusive rights to represent victims.
- UCC’s Motion: UCC sought dismissal of the lawsuits in the U.S. on grounds of forum non conveniens, arguing the case should be heard in India. The district court agreed, dismissing the lawsuits subject to conditions on UCC’s jurisdiction and cooperation in India.
Issue:
- Whether the claims by Indian citizens and the Government of India arising from the Bhopal disaster should be litigated in the U.S. or India.
Rule:
- Forum Non Conveniens: The court applied the Piper Aircraft Co. v. Reyno (1981) standard, assessing whether India provided an adequate alternative forum for the plaintiffs’ claims.
- Conditions for Dismissal: The court set conditions for dismissal, requiring UCC to:
1. Consent to jurisdiction in Indian courts.
2. Agree to satisfy any judgment rendered by an Indian court.
3. Cooperate with discovery in the U.S., with adjustments for Indian law.
Analysis:
- Forum Non Conveniens: The district court determined that India provided an adequate alternative forum despite some disadvantages in the Indian legal system, including inefficiency and limited sophistication.
- The majority of witnesses and evidence were located in India, including the plant’s operations and employees.
- UCC’s argument that the case should be heard in the U.S. was based on convenience, but the court found that the private and public interests weighed in favor of dismissing the case in favor of an Indian forum.
- Enforceability of Indian Judgment: The district court required UCC to consent to the enforcement of an Indian judgment in the U.S., but this was based on an erroneous assumption that a foreign judgment might not be enforceable without such consent.
- Discovery: The court’s requirement for discovery under U.S. Federal Rules was deemed inappropriate, as UCC should only be subject to the more limited discovery allowed by Indian law.
Conclusion:
- The U.S. Court of Appeals affirmed the district court’s dismissal on forum non conveniens grounds but modified two conditions:
1. The requirement for UCC to consent to the enforceability of Indian judgments was deleted.
2. The discovery requirement was modified to allow reciprocal discovery under the Federal Rules of Civil Procedure, subject to Indian court approval.
India was the adequate forum.
There was a gas leak which killed many people.
Why was the case in the US? Union Carbine Corp is the parent company which is based in the US. The case was about whether they could file the lawsuit in India and have the judgment delivered here.
India had a weaker legal system. Indian system was incredibly slow. The preference of the US was due to the likelihood for swifter justice and the payment awards for plaintiffs were likely to be higher if this occurred in the USA.
Most countries courts are more sympathetic to their own citizens (this is the same for people in different states in the US seeking justice). But, after the accidents, lots of US lawyers travelled to the US to help the indian plaintiffs. The Indian Gov also wanted the case to be tried in the US as the value of life in India would have been regarded as much higher. The accident was so highly televised that it also ended up with global sympathy.
Carbine claimed case should be transferred to India because the US was not the appropriate place to try the case. Why was it not the convenient forum?
- The accident was in India
- All Ps needing to testify were in India
- Victims unlikely to be able to attend a trial in India due to the time and cost
- All data/documents are in India
Although UC is a US company, forum non conveniens demonstrates that the appropriate forum for this was India.
Second Circuit said….
It was not up to the judge to come up with a whole new standard.
A judgment in a foreign court is much harder to enforce
You cannot dismiss it for an inconvenient forum as that is not where this lies
2nd circuit said you cant impose the rules of discovery on only one side, UC had no working relationship with the corporate entity which was in charge of the plant, before, during and after the accident.
Discovery should only be allowed to the limited extent allowed by Indian Law.
Case returns to India, Indian government request pre-trial compensation award. This turned out to be the key. They insisted on being paid something prior to going to trial (Indian gov had lots of pressure and slow system), but when this went to the supreme court of India, they didn;t have a legal base for pre-trial/interim damages. Indian SC negotiated a settlement of $470m which amounted to
US Alien Tort Statute
Flashcard Summary: U.S. Alien Tort Statute (ATS)
Definition:
The Alien Tort Statute (ATS), codified at 28 U.S.C. § 1350, grants U.S. courts jurisdiction over civil actions by aliens (foreign nationals) for torts committed in violation of international law.
Key Points:
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Historical Context:
- Enacted in 1789, rarely used until the 1990s.
- Now increasingly relevant in cases involving multinational enterprises (MNEs) and international human rights violations.
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Challenges in ATS Litigation:
- Violation of International Law: Plaintiffs must show a tort that violates a specific norm of international law, which can be difficult to prove (e.g., custom-based claims often dismissed).
- State Action Requirement: Generally, private parties can only be sued under the ATS if they act under state authority, except in cases of severe crimes (e.g., genocide, slavery).
- Forum Non Conveniens: U.S. courts often dismiss cases involving foreign incidents, even with allegations of corruption in the foreign judicial system.
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Landmark Case – Sosa v. Alvarez-Machain (2004):
- Interpretation: The U.S. Supreme Court confirmed that the ATS provides jurisdiction for a limited set of actions involving violations of international law, but only if the violation is a well-established and specific norm.
- Narrow Scope: The Court emphasized that the statute is not a broad cause of action and should only be applied to specific international law violations like piracy or torture.
- Impact: The case restricted the scope of claims under the ATS to those involving norms recognized by the international community and established with specificity.
Conclusion:
The ATS provides a narrow avenue for holding foreign parties accountable for international law violations in U.S. courts, but its application is limited by specific legal standards, making it difficult for plaintiffs to win cases, especially those involving MNEs and actions abroad.
