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Discuss the Rationale of Code of Conduct for TNCs.

Discuss the Rationale of Code of Conduct for TNCs.

Course: M.Com

1 Answer

With the rapid expansion of transnational corporations (TNCs) there have been some problems faced by TNCs as well as host countries. It is widely felt that there must be a code of conduct to guide and regulate TNCs. According to the Brandt Commission, the principal elements of an international regime for investment should include:

A framework to allow developing countries as well as transnational corporations to benefit from direct investments on terms contractually agreed upon. Home countries should not restrict investment or the transfer of technology abroad, and should desist from other restrictive practices such as export controls or market, not restrict current transfers such as profits, royalties and dividends, or the repatriation of capital, so long as they are on terms which were agreed when the investment was originally approved or subsequently negotiated.


Legislation promoted and coordinated in home and host countries, to regulate the activities of transnational corporations in such matters as ethical behaviour, disclosure of information, restrictive business practices, cartels, anti-competitive practices and labor standards. International codes and guidelines are a useful step in that direction.

Cooperation by Governments in their tax policies to monitor transfer pricing and to eliminate the resort to tax havens.
Fiscal and other incentives and policies towards foreign investment to be harmonized among host developing countries, particularly at regional and sub-regional levels, to avoid the undermining of the tax base and competitive positions of host countries.

An international procedure for discussions and consultations on measures affecting direct investment and the activities of transnational corporations. The Code of Conduct for TNCs, drawn by the Commission on Transnational Corporations, setup by the UN’s Economic and Social Council, required TNCs, inter alia, to

  • Respect the national sovereignty of host countries and observe their domestic laws, regulations and administrative practices.
  • Adhere to host nations economic goals, development objectives and socio-cultural values.
  • Respect human rights.
  • Not interface in internal political affairs or in intergovernmental relations.
  • Not engage in corrupt practices.
  • Apply good practice in relation to payment of taxes, abstention from involvement in anti-competitive practices, consumer and environmental protection and the treatment of employees.
  • Disclose relevant information to host country governments.

According to the 1976 declaration of the OECD Code of Practice on TNC operations, TNCs should contribute positively to economic and social progress within host nations. Its main provisions were that TNCs should

  • Contribute to host countries science and technology objectives by permitting the rapid diffusion of technologies.
  • Not behave in manners likely to restrict competition by abusing dominant positions or market power.
  • Provide full information for tax purposes.
  • Consult with employee representatives regarding major changes in operations, avoid unfair discrimination in employment and provide reasonable working conditions.
  • Consider the host country’s balance of payments objectives when taking decisions.
  • Regularly make significant information on financial and operational matters, host countries themselves should posses the absolute right to nationalize foreign owned assets within their frontiers, but must pay proper compensation.

However, the demand made by developing countries that code become legally binding were rejected by the UN General Assembly at the behest of economically advanced countries.

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February 8, 2019