1. International Contracts Slide Set 1 The Legal Environment of International Markets: Corporate Social Responsibility and Business Ethics Matti Rudanko

2. 2 Responsibilities of Companies 1 WTO: duties of states –most favored nation (mfn) principle –discrimination ban –national treatment –protection clause against market disruptions –settlement of disputes –special treaties OECD: duties of states industrialized states (Finland 1969) economic growth and employment stability of the financing system environment, development cooperation International Contracts 1

3. 3 Responsibilities of Companies 2 WTO special treaties (free trade) –TRIMS: trade related investment measures –TRIPS: international protection of industrial property rights –TBT: technical barriers to trade (e.g. standards) –GATS: trade in services UNCTAD (duties of states) –developing and transition economy countries –the customs preferences system GSP –raw materials and technology; environment International Contracts 1

4. 4 Responsibilities of Companies 3 Rio (-92) and Kioto (-98) conferences on environment and trade –UN –climate, biodiversity –the rights of states to their territories (with no damage to others) –openness of trade; discrimination and disguised barriers –share of economic growth to all and sustainable development Other environment treaties –CITES 1973: endangered species –Montreal protocol (in force 1988): ozone –Basle treaty: dangerous waste includes Finland International Contracts 1

5. 5 Legal Obligations of Companies OECD, UNCTAD, environmental treaties –have an impact on the environmental legislation of the member states –OECD: e.g. criminalization of bribery in international trade international competition and marketing law (EU) –harmonization of national rules: national supervision –supranational authorities (EU rules of competition ) International Contracts 1

6. 6 Law and Morals in a developing legal system the rules are modified by morals notice e.g. the proposed MAI treaty the role of morals –the (moral) purpose of a business undertaking is to be profitable (instrumental – inherent value)? relation to other moral values? –morals as a (pecuniary) image value International Contracts 1

7. 7 Law and Morals 2 knowledge of the legal development and different legal orders offers a touch with moral development (and vice versa) law as a tool of business management –this role is especially important in international trade –contractual relations and tax planning –marketing, finance –labor relations and environment management –etc. International Contracts 1

8. 8 Lawyering as Justice E.g. rules on the just arrangement of business relationships crystallizes ethics and other ”value dimensions” –equity, equality, aspects of income distribution (i.a. remuneration of labor and capital) no controversy with efficiency, at least with that of Pareto type (no one’s welfare is not reduced), but there is mutual dependency between them) –cf. Kaldor-Hicks efficiency with a hypothetic compensation International Contracts 1

9. 9 Profitability as a Moral Value an instrumental value for realizing other values –national economy: economic growth, employment –profit as an incentive: e.g. technical progress (cf. the socialist ideology) “byproduct” –a good business idea prevents alienation (owners, workers) –e.g. shopping as an experience (clients) International Contracts 1

10. 10 The Changing Role of Firms ”marketization” (privatization) multinationals are taking over more and more global activities from states the contents requirements of the decision- making in companies –environment –social values (e.g. equality, distribution of income, values of labor life, human rights) the values of companies International Contracts 1

11. 11 Case 1 A multinational uses wood from a tropical rain forest as raw material that is processed elsewhere the government of the country of origin of the raw material supports the firm because it brings money as a price of the stuff (and other payments, even “unofficial” ones) and improves employment the government is alleged to violate the human rights of a minority lumbering of rain forest has caused evacuation of the population International Contracts 1

12. 12 Case 2 The foreign business partner of firm A may use child labor because of what civic organizations have demanded a boycott of the business partner the firm has activities in “rogue country” X that is on a black list of civic organizations as well and is at risk to fall into boycott by the “international community” International Contracts 1

13. 13 Case 3 The international marketing of consumer goods effected by a company is considered offensive in countries in which different views of equality prevail the company investing in environment management has promised a share of the profit from the campaign for the benefit of endangered species International Contracts 1

14. 14 Case 4 The funds marketed by a common fund invest i.a. in tobacco and arms industry a pension insurance company considers buying fund units in question because it is well-grounded from the point of view of rational investment activity International Contracts 1

15. 15 Argumentation, case 1 Impact on the employment and wealth of the target country cf. Rawls: a process is just if it improves the position of the weakest (increased income differences do not matter) Impact on the environment –law: Rio (bio-diversity), Kioto,CITES –cf. MAI project the social structure of the target country –governmental system –human rights International Contracts 1

16. 16 Argumentation, Case 1, cont. The international distribution of income (raw material / value added by processing economic efficiency –transaction costs –environmental costs of logistic solutions International Contracts 1

17. 17 A Solution Scheme + profit + other business economic value added - legal sanctions: probability of realization (e.g. the effectiveness of control) x estimated monetary value (x time factor) etc. - quantifying a moral reaction is difficult - assessing the social aspect (i.a. human rights) is likely to be impossible International Contracts 1

18. 18 Argumentation, case 2 The social significance of employment the possibility of social influencing by corporate culture a boycott would probably weaken most the situation of the weakest the possible interference by competition authorities with the boycott (case 1) The image as as profit seeker by social dumping (case 1) the probability of a state boycott could be in favor of a withdrawal as early as possible (case 2) International Contracts 1

19. 19 Argumentation, case 3 The result of the campaign the possibility of social influencing by advertising moral judgment: the reaction by whom image questions –equality –“cultural imperialism” The legal norms on marketing have to be checked –national / supranational (EU) –self-regulation of the trade: the basic international rules of advertising the influence of the reactions on the result International Contracts 1

20. 20 Argumentation, case 4 Business economic criteria the social responsibility of a pension insurance company No legal barriers questions of image “the dilemma of the bishop” (Ahlfors) International Contracts 1

21. 21 Moral judgment in world trade 1 Ethics of obligations (means) - ethics of consequences –e.g. the boycott and its consequences business ethical criteria (L. Koskinen, Mikä on oikein [What is Right] 1995): evaluation by the following criteria –honesty –environment –personnel policy –social responsibility –business idea International Contracts 1

22. 22 Moral judgment in world trade 2 An evaluation scale +3 +2 +1 0 -2 innovations, on top of the moral development Exemplary activity, active improvements Investments to comply with the spirit of the law Complying with the letter of the law, avoiding legal sanctions Repeated admonitions from authorities Sentences e.g. of environmental offences International Contracts 1