Multinational Corporations, Global Markets, and the Constitution

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MULTINATIONAL CORPORATIONS, GLOBAL MARKETS, AND THE CONSTITUTION

Multinational corporations (MNCs) are regulated by domestic and international law. In the United States, corporations are normally established pursuant to state law, and their activities are regulated by state and federal law as limited by the Constitution. The authority of the United States to regulate activities of MNCs abroad is subject to limits established by international law.

Typically a "parent" MNC will conduct its operations in countries abroad through "subsidiary" corporations that the parent owns or controls. Under international law a corporation takes the nationality of the country in which it is incorporated, and that country thereby acquires the authority to regulate the conduct of its corporate nationals anywhere in the world. Thus, the United States has international law authority to tax and otherwise to regulate the worldwide conduct of its parent MNCs. In cases such as Blackmer v. United States (1932), the Supreme Court has confirmed the constitutional authority of Congress to adopt such legislation. Politically, however, Congress has generally been reluctant to impose U.S. economic regulation on American MNCs abroad for fear of putting them at a competitive disadvantage as against European and Asian competitors. The principal exceptions have been where regulation had high foreign policy significance, as in economic sanctions, or was important domestically, as in antitrust and anticorruption legislation.

Most controversially the United States has claimed authority to regulate the conduct of foreign subsidiaries of U.S. parent MNCs in the case of economic sanctions legislation, even though those subsidiaries are also nationals of the foreign country where they are incorporated. The result has often been a conflict between the respective countries' trade and economic policies (involving countries such as China, the former Soviet Union, Iran, Libya, and Cuba), with the result that major trading partners of the United States have challenged its authority under international law to impose such regulation extraterritorially. In the face of intense opposition the United States has negotiated compromises, provided administrative and judicial relief to otherwise applicable penalties, and otherwise moderated its claims in particular cases, but it continues to defend the legitimacy under international law of its extraterritorial application of nationality-based economic sanctions law. The Supreme Court has never denied Congress's constitutional authority to adopt such legislation. Indeed, the Supreme Court has repeatedly held that, for purposes of determining the law to be applied in American courts, a subsequent statute supersedes an earlier inconsistent international rule—that is to say, Congress may violate international law. The International Court of Justice has not ruled on the U.S. position regarding the legality of its extraterritorial economic sanctions legislation under international law, although European courts have rejected it.

Under international law a country also has authority to regulate the conduct of MNCs within its territory, and Congress has similar power in the United States under the commerce clause. Here too the United States has asserted the power to apply its law extraterritorially, for example, over the foreign conduct of foreign MNCs having a direct and substantial effect in the United States. These assertions have also been controversial politically and have been challenged as violative of international law. The Supreme Court has nevertheless upheld Congress's authority to pass such legislation. American courts normally construe ambiguous statutes to be consistent with international law, and Justice antonin scalia has recently opined that international law requires a narrow construction of the antitrust laws in an extraterritorial context. The majority of the Supreme Court, however, declined to so hold. Thus, even the foreign activities of foreign MNCs are constitutionally subject to U.S. regulation if they cause a direct and substantial effect here. Again, an act of Congress supersedes international law as far as American courts are concerned.

Despite the potentially bewildering maze of nationality-and territorial-based regulation, and the potentially significant conflict that could result, MNCs' exploitation of global markets has been facilitated by international law. To the extent that legitimate economic regulation is strictly limited to a nation's territory or to its own corporate nationals, MNCs can better plan their operations. In addition, the free-trade regime centered on the World Trade Organization (WTO) provides stable rules on tariffs, quotas, taxation, subsidies, and unfair pricing of traded goods. The objective of the regime is to promote free trade, and the WTO now supervises related subjects including trade in services, intellectual property protection, and protection of investment and capital flows. All these international law guarantees significantly benefit MNCs in their development of global markets. Moreover, the WTO has introduced a legal dispute–settlement system, which promises to be more effective than previous international law institutions. Some of the U.S. assertions of extraterritorial application of law described above can even be challenged in the new WTO courts, so that Congress may be further inhibited from exercising its full constitutional power to regulate MNCs abroad.

To date, the focus of international law has been to support MNCs, with less attention to the ancillary social and environmental consequences of their access to global markets. Efforts in the United Nations to draft a Code of Conduct to regulate the behavior of MNCs have never been completed. Other codes, like those produced by the Organization for Economic Cooperation and Development (OECD), the International Labor Organization (ILO), and MNCs themselves, are either voluntary or are not legally binding. Consequently, the only effective regulation of MNCs is national legislation and even this alternative is limited by international law.

Phillip R. Trimble
(2000)