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 Springer 2005

Journal of Business Ethics (2005) 59: 175–198 DOI 10.1007/s10551-005-3414-z

‘‘Minding Our Business’’: What the United States Government has done and can do to Ensure that U.S. Multinationals Act Responsibly in Foreign Markets

ABSTRACT. The United States Government does not mandate that US based firms follow US social and environmental law in foreign markets. However, because many developing countries do not have strong human rights, labor, and environmental laws, many multinationals have adopted voluntary corporate responsibility initiatives to self-regulate their overseas social and environmental practices. This article argues that voluntary actions, while important, are insufficient to address the magnitude of problems companies confront as they operate in developing countries where governance is often inadequate. The United States can do more to ensure that its multinationals act responsibly everywhere they operate. First, policymakers should define the social and environmental responsibilities of global companies. They must consistently make their expectations for global business clear – and underscore that this objective can often be accomplished without mandates. Second, the US should closely examine the policies that undermine global Susan Aaronson is Senior Fellow and Director of Globalization Studies at the Kenan Institute Washington Center, an arm of the Kenan-Flagler Business School, University of North Carolina Chapel Hill. Her scholarly research focuses on international investment and social responsibility issues. Aaronson devised and directed a study, funded by the Ford, UN and Levi Strauss Foundations, that examined how U.S. public policies can promote or undermine global corporate social responsibility. She is now beginning a Levi-Strauss funded project on trade and human rights. Aaronson is a frequent speaker on public understanding of globalization issues and the author of four books on globalization including, Taking Trade to the Streets: The Lost History of Public Efforts to Shape Globalization (Michigan: 2001).

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Corporate Social Responsibility (CSR) and address the many conflicting signals sent by policymakers. Third, the President should make the US government a CSR model by examining how to use its purchasing power to promote human rights. Finally, the US government should require pension funds to report on the social and environmental consequences of their investments. In these ways, Americans can mind our business – and thus make sure that US based firms do not undermine social and environmental progress when they operate in the developing world. KEY WORDS: Economic, foreign, global corporate social responsibility, human rights, labor standards, public policies, sustainability development, trade

Overview American business represents America and Americans overseas. As Secretary of State Colin Powell has noted, American companies are ‘‘ambassadors of American values – values like democracy, freedom and respect for human dignity’’ (Powell, 2003). If US multinationals do not uphold such values as they produce goods and services abroad, America’s foreign policy interests can be compromised. Global corporate social responsibility (CSR) is also an economic issue. (Lindblad et al., 2002). As America’s population ages, executives at US multinationals recognize their future growth markets will be overseas, particularly in Asia and Latin America. Thus, these companies are focusing their investment

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in nations such as China, Brazil, Thailand, and India. These nations have strong growth but often do not have an effective public sector that can deliver public goods equitably and efficiently or ensure the rule of law (UNCTAD, 2004). Executives and their stakeholders struggle to ascertain a company’s obligation to society at large when it operates in such nations. In the face of such ambiguity, many executives turn to CSR initiatives such as codes of conduct or audits of their social and environmental practices. Policymakers and citizens must wrestle with the issue of how US multinationals affect the world’s people and the global commons. American citizens work for, invest in, and purchase from the companies struggling with issues of global corporate responsibility. These companies are the backbone of the US economy (BEA, 2002). Their future is our future. Moreover, Americans want these firms to act responsibly. When Americans make decisions about employment, investment and consumption, polling data reveals that they take stock of a firm’s corporate social responsibility practices (Wirthlin, 2004). This article begins with a brief discussion of the roots of CSR pressures on the multinational corporation (MNC). It then gives some examples of how these pressures have influenced US policymakers and policy. The researcher then examines the signals US policies send to global market actors regarding their social and environmental practices. (The study does not focus on philanthropy, lobbying, or payments to foreign governments to obtain or maintain business.) This review reveals that the US often sends confusing and contradictory signals to MNCs. Moreover, the US government is not itself a model of CSR practices. But the US does have several promising initiatives and platforms to promote globally responsible business practices. The article ends with suggestions on how the US can ‘‘mind its business’’ by encouraging and assisting US firms to act responsibly everywhere they operate.

The relationship between voluntary CSR initiatives and public policy The rights and responsibilities of corporations are relatively easy to define within national boundaries, because citizens share norms regarding the roles of

public and private sectors. But the responsibilities of the global corporation are ill defined. The system of rules governing international investment does not delineate the social and environmental responsibilities of global investors (Aaronson and Reeves, 2002). As a result, corporate officials do not have clear policy guidance regarding their social and environmental practices at the international level. These executives confront a world not only with many different governments, languages, cultures, and norms, but also with many different expectations for the private sector. Some individuals allege that because of the lack of universal rules to govern international investment, companies attempt to shift their operations with lower social environmental or transparency requirements or weak enforcement of such rules. There is no evidence that firms deliberately seek locations with inadequate governance to lower their costs. It is one of many factors that firms weigh and that their investors assess over time. However, investment is increasingly flowing from the developed world, where social and environmental regulations are relatively comprehensive and well enforced, to the developing world where such laws and regulations are inadequate or poorly enforced. For example, China has become the world’s leading recipient of investment (UNCTAD, 2004). China does not enforce its own social and environmental laws adequately at the federal, provincial or local level. As a result, corporate adherence to the rule of law is essentially voluntary in China. Many responsible companies find their suppliers violate their codes, falsify audits, or violate Chinese laws. Thus many goods from China are produced in unacceptable social or environmental conditions. This poses a great challenge to policymakers, companies and their stakeholders (Kenan Institute Working Group on CSR in China, 2004). Many readers may not believe global corporate responsibility is an issue for policymakers. After all, CSR is all about voluntary practices – it is up to executives and shareholders to determine if, when, and how their firms should behave. Moreover, they may argue that market forces (consumers, producers, and other stakeholders) are clearly demanding responsible behavior. It is up to managers to respond to these market signals or risk the consequences. But

Minding Our Business markets fail. Although market forces are increasingly pressing companies to act responsibly, markets have not succeeded in prodding all corporations to ‘‘do the right thing’’ everywhere they operate all of the time. While policymakers may not want to regulate globally responsible behavior, policy sets the context in which multinational enterprises compete. The right kind of policy initiatives may enable ever more companies to act responsibly. Moreover, the right mix of policy may have broad spillover effects in the developing world, by encouraging more developing country firms to strive to meet internationally accepted standards for sustainable development and human rights. In this way, CSR initiatives can help build demand for better governance in the developing world. Clear policy signals are extremely important in the area of human rights. When human beings are mistreated as goods and services are produced, it is not just a moral failure, but a market failure. While international law clearly delineates that nations have the primary responsibility to protect human rights, it also says companies have some human rights responsibilities, particularly to their employees and the communities where they operate. Companies seem to recognize these responsibilities because many multinationals codes of conduct include specific sections on human rights (Business-Human Rights.org, 2004). But the direct responsibilities of corporations to protect human rights are vague. The Universal Declaration on Human Rights adopted by 191 members of the UN, calls on all organs of society, whether civic groups, corporations or governments, to protect and promote human rights. The 1969 Convention on Civil Liability for Oil Pollution and 1982 UN Convention law of the Sea establishes obligations on companies or ‘‘juridical persons.’’ These international laws suggest that companies do have direct responsibilities under international law but those responsibilities need further delineation and clarification (United Nations Commission on Human Rights, 2004). Moreover, the human rights responsibilities of multinationals have increasingly become the subject of litigation. Firms as diverse as Broken Hill Proprietary (BHP), Coca Cola, IBM, General Motors, Exxon Mobil, Shell, and Unocal have been called into court for allegedly aiding and abetting human

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rights abuses in nations such as Burma, South Africa (under apartheid), Indonesia, Columbia, Nigeria, and Guatemala. These cases have proliferated in the United States (and to a lesser extent, Britain, Australia, Canada, and Belgium, Aaronson, 2003). These cases signal that policymakers must provide clarity at the national and international levels (Koh, 2003). Finally market forces have not yet rationalized the plethora of voluntary approaches to promote CSR around the world. These approaches include codes of conduct, certification strategies, and reporting requirements. Codes of conduct are formal statements of the values and business practices for companies or business sectors. Certification strategies are strategies that allow firms to use audits to reassure their stakeholders that their factories have been certified to meet internationally accepted standards. Reporting standards are guidelines for reporting on the economic and social performance of corporations. In 2001, the Organization for economic cooperation and development (OECD) found 246 codes of conduct alone designed to promote global corporate responsibility. Many of these codes are incompatible (OECD, 2001). Executives and citizens find it hard to sort out these many different approaches. Policymakers may encourage greater cooperation between these different approaches.

A brief history of global CSR pressures on US corporate actors and their policy implications From 1945 until the late 1960s, when the US dominated the global economy, few Americans questioned the benefits of international investment to the global economy or polity. After all, international trade and investment were much less important to the nation’s economic health. Moreover, the bulk of American capital was invested in the home market because it was attractive, stable, and lucrative. Many Americans remained supportive of international investment because they thought it could help promote global prosperity and help prevent the spread of communism. Neither policymakers nor citizens focused on the dark side of American capitalism. US investors (as well as those from other countries) were sometimes linked to corrupt and

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tyrannical regimes. US firms overlooked the often substandard work conditions of their suppliers and subcontractors and they ignored how their firms affected the environment and local culture. But in the 1970s, several events forced Americans to pay closer attention to the behavior of US companies. First, Americans learned that US companies had not only funded the opposition but encouraged the US government to act against the elected socialist government of Salvador Allende in Chile (National Security Archive, 2000). After a general review of such tactics, the US securities regulator, the Securities and Exchange Commission (SEC) found more then 400 companies admitted making questionable or illegal payments to foreign government officials (US Congress, 1977). For the first time, Congress began to regulate the behavior of multinationals. In 1977, Congress passed the Foreign Corrupt Practices Act (FCPA), which set rules regarding bribery and corruption in overseas markets. The FCPA was the first domestic law that effectively regulated global corporate behavior: companies not acting ‘‘ethically’’ around the world could be denied taxpayer-funded benefits. The Act was a mandate – because voluntary standards had failed (US Congress, 1977). But it also provided an example of how steps taken in the United States led to a more comprehensive international initiative. When the FCPA became law, some business leaders argued it made US companies less competitive. These executives began to pressure other governments to act on corruption so that their overseas competitors would not underbid US companies, constrained by domestic regulation. Ultimately, these multinationals succeeded in urging other governments to sign an international code of ethics. In February 1999, the OECD Bribery Convention went into force, signed by 34 countries (Department of Commerce, 1999). Thus, the FCPA gradually encouraged the development of shared norms regarding how corporations should behave in international markets where corruption was endemic, enabling more companies to act responsibly. Meanwhile, Congress also began to address what some Americans saw as unfair competition between US workers and those workers in countries where core labor rights were not protected. These rights include a ban on child labor, the right of association, the right to organize, and the right to collectively

bargain. In 1974, Congress directed the President to seek ‘‘the adoption of international fair labor standards and of public petition and confrontation procedures in the GATT.’’ (US Congress, 1975). But the GATT, the system of rules governing trade, moved forward only by the consensus of its members. Many other governments could not support such labor standards language, fearing it was a de facto trade barrier. The GATT, which was subsumed by the World Trade Organization (WTO) in 1995, still doesn’t include explicit language on how workers should be treated as they make goods and services (Eliott and Freeman, 2003).

An overview of how the USG attempts to encourage global CSR America’s early efforts to promote global CSR by and large dissipated in the 1980s and 1990s. In fact, today the US is a laggard, rather than a leader, of using policies to promote global CSR (Aaronson and Reeves, 2002). Bush Administration officials frequently exhort US firms to act responsibly in global markets. But these pretty words have rarely translated into effective policy initiatives. Like the Clinton Administration before it, Bush Administration officials have developed policies, convened meetings, and even nurtured organizations and new strategies to encourage US multinationals to act ethically in the developing world. Yet the US approach is incoherent. There is no one agency or individual in charge of coordinating global corporate responsibility, despite the importance of multinational enterprise to global economic stability and growth. Moreover, there is no coordinative body, such as an interagency working group, that can mitigate between agencies with different mandates and constituencies. Finally, even within cabinet departments, different branches promote different CSR initiatives, further confusing market actors regarding global CSR (see Appendix A).

Global corporate responsibility as an objective of U.S. foreign policy The Department of State leads America’s foreign policy activities and thus takes a substantive and

Minding Our Business coordinative role in promoting global corporate responsibility. But State must balance many foreign policy objectives, from advancing US security interests to advancing US economic interests. Thus, its policies on global corporate responsibility can appear disorganized and inconsistent. No Undersecretary or bureau has overall responsibility for global CSR. Two bureaus, Global Affairs and Economic and Business Affairs, promote their own CSR initiatives. While the two bureaus share many of the same objectives and meet frequently, their staff does not have a coordinated approach to managing and promoting CSR initiatives. Neither bureau has made outreach to business a top priority. The Bureau of Democracy, Human Rights and Labor Rights (DRL) in Global Affairs generally is the most active arm of the US government regarding global corporate responsibility. This bureau attempts to promote human rights, rule of law and democracy around the world and it reports on global human rights practices. This bureau’s principal CSR initiative is the Voluntary Principles on Security and Human Rights (Craner, 2002). This is an extractive industry specific initiative designed by a Clinton Administration official, Bennett Freeman, in 1999, to govern extractive industry security and human rights issues. The initiative was put forward jointly by the governments of the UK and the US and is a rare example of global CSR cooperation to achieve foreign policy goals. The companies signatory(?) to the Principles agree to report credible allegations of human rights abuses by government authorities and to press for ‘‘proper resolution.’’ (Department of State, 2000). As of April 2004, 14 companies, and four governments (Netherlands and Norway, as well as Britain and the US), are working to make these principles business reality in the extractive sector. The principles are also being implemented through a dialogue with the governments and extractive industry companies in Colombia, Indonesia, Nigeria, Georgia, Azerbaijan, and Turkey (Freeman, 2004 Personel Communication). Many of these nations have witnessed major human rights abuses in recent years, and the Principles may help the US Government convey the message that if these governments protect human rights, they are likely to attract stable investment.

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DRL does more than any other arm of the US government to encourage corporations to ensure that human rights, including labor rights, are not undermined as these companies produce goods and services. It funds labor monitoring initiatives and encourages companies to experiment with new ways to act collectively (both within and between sectors). Its projects include as a global toy industry code of conduct as well as plans for a supplier-training institute in China (State, 2004). Yet the bureau appears to have little clout within the Bush Administration. In contrast with the Economic Bureau, it does not have an advisory committee of business and civil society leaders to help guide its work and advocate for its programs with Departmental and Congressional leaders. And it has not been able to press for a consistent and clear message that companies have human rights responsibilities. It has often lost battles with another arm of the State Department, the Legal Advisor. In fact, the Legal Advisor has consistently argued against the use of US law to ensure that corporate actors do not undermine human rights overseas. Under US law, however, private individuals can file civil actions for grave human rights abuses committed in another country. The complainants can seek monetary damages, and in some of the cases against multinational corporations, also seek court action to stop the abuses (Corn, 2004). At the behest of the Legal Advisor, the Department has intervened in several important cases that have moved forward in US courts. These cases, which involved human rights allegations against extractive industry firms, were based on the Alien Tort Claims Act (ATCA), which has been part of American law since 1789. These cases involve allegations of direct or indirect complicity in overseas human rights violations. ATCA grants the federal district courts ‘‘original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.’’ The ATCA was rarely used until 1980, when the US Court of Appeals for the Second Circuit took a more expansive view of the law. It has been held to apply to human rights violations by agents of foreign nations occurring outside the United States. It has also been held to apply to violations of certain core principles of human rights. When the US Government has intervened in these cases, it has generally argued that these cases could

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impinge the international interests of the US, including the fight against terrorism (Kass and McCarroll, 2004). In March 2004, a case involving ATCA was brought to the Supreme Court. The Supreme Court upheld the legislation, but because the case did not center on this question, it did not rule on whether or not companies could be sued (US Supreme Court, 2004). Meanwhile many US and foreign multinationals are lobbying Congress to narrow ATCA. They stress that ATCA cases are multiplying in the US because US courts can award huge damages (USA Engage, 2003). But these cases are proliferating not because companies have deep pockets, but because around the world, some citizens allege that their rights have been violated by corporate activities. As of this writing, not one case has resulted in a final judgment against a US company, although many companies have settled such cases, including most recently Unocal (December 14, 2004). The federal courts have dismissed frivolous cases. It is ironic that executives want to limit ATCA, but have not sought greater specificity regarding their human right obligations. Beyond the Voluntary Principles, the DRL has not been able to collaborate with multinationals to delineate these responsibilities. The Bush Administration remained strangely silent during the discussions about the UN Norms (a set of norms for multinationals developed under the aegis of the UN Commission on Human Rights). The Norms were designed to bring together international human rights instruments in a single code and envisage ways to enforce it. But the Democracy, Human Rights bureau has basically monitored the Norms rather than trying to actively shape them. Some European firms such as ABB, Novartis, Barclays Bank, and Statoil, as example, have agreed to ‘‘road-test’’ these Norms, in the hopes of providing feedback on their utility. But many multinationals (in particular American firms and their associations) continue to argue that such a code shifts the obligation for protecting human rights from governments to corporations (International Organisation of Employers & International Chamber of Commerce, 2004; Maitland, 2004). The other arm of the Department that plays a key role in corporate responsibility is the Bureau of Economic and Business Affairs, which monitors

foreign economic developments. This bureau administers the Corporate Excellence award, which is designed to recognize best practices, strong community service programs, and exemplary CSR practices of US businesses abroad. This bureau also has responsibility for the one code of conduct advanced by governments and linked to international investment rules, the OECD Guidelines. The Guidelines are recommendations addressed by governments to multinational enterprises operating in or from adhering countries. They provide voluntary principles and standards for responsible business conduct in a variety of areas including employment and industrial relations, human rights, environment, information disclosure, competition, taxation, and science and technology. The Guidelines have the support of all the member countries of the OECD, including the US, as well as Argentina, Brazil, Chile, Latvia, Lithuania, Estonia, Israel, and Slovenia (OECD, 2004). With the prominent exception of China, these countries are the principal recipients of US foreign investment. Yet the Economic Bureau has done little to promote the use of these Guidelines and to make them useful to executives working on the ground. Although the Guidelines were approved in 2000, it was not until 2002 that information about the Guidelines was posted on the State Department web site. The site is one of the few venues where citizens can learn about US activities to promote CSR (US Department of State EB, 2002).

Global corporate social responsibility as a tool to stimulate sustainable development In 2002, the Bush Administration agreed that promoting sustainable development, rather then development per se, should be a foreign policy objective for the US. Policymakers recognized that economic growth should not undermine social and environmental progress. These policymakers decided the best way to promote sustainable development was not simply to offer foreign aid, but to offer expertise, by partnering with civil society, academia and in particular, the private sector (US Department of State, August 2002). Companies often want to partner with the US Government to explore new markets, obtain new

Minding Our Business expertise, or to obtain risk insurance and export funds. The US could leverage this desire to promote CSR and help companies help their suppliers achieve internationally accepted standards for human rights and the environment. But thus far, the US has not leveraged taxpayer funding to promote global social responsibility to the extent it could. The US Agency for International Development (AID), develops and administers US foreign aid policies. Its partnership program with business is called the Global Development Alliance (GDA). GDA has partnerships in areas such as basic education, vocational training, information technology, forest certification, and sustainable tree crops (USAID, 2003). For example, in Angola, USAID is cooperating with a US oil company to promote small business development in rural communities (USAID, 2004). Unfortunately some of these partnerships seem designed to create new markets for US producers instead of creating new markets for goods and services produced in the developing world. For example, the US has partnered with Procter and Gamble in Nicaragua to ‘‘show the nutritional benefits of the P&G patented beverage Nutristar.’’ The USG claims the partnership helps to improve mother child health among the poor (State, 2003). But it also looks like the partnership helps create a new market for the Procter and Gamble. Another partnership focuses on the world coffee crisis. The US is the world’s largest market for coffee (Oxfam America, 2003). In recent years, Brazil and Vietnam have flooded the market with cheaper robusta grade coffee beans, and as a result, the price of coffee is down to about 80 cents a pound. This oversupply of coffee appears to be contributing to societal meltdowns affecting an estimated 125 million people. Many of these people live in America’s backyard-Mexico, Central and South America (Castro, 2002). Farmers in some of these countries have turned to coca plants (which can be turned into cocaine) as an alternative crop, to ensure that they can feed their families and escape poverty. To address this dilemma, US AID is working with coffee wholesalers as well as civil society groups such as Oxfam to increase both the demand for coffee and the price given to farmers through fair trade certified coffee. Fair trade companies agree to pay producers a living wage – or one that gives them enough money to meet basic monthly needs in their communities.

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Markets are beginning to respond. A growing number of companies are marketing fair trade coffee, including Dunkin Donuts and Procter and Gamble (Transfair, 2004). But the biggest coffee sellers such as Nestle and Maxwell House, and even coffee purveyors such as McDonalds, are not marketing fair trade coffee – nor relying on the more expensive Arabica beans traditionally produced in this region. Moreover, USAID’s support for fair trade coffee is not backed by consistent policies throughout the USG. For example, the US has done little to coordinate its procurement policies with its efforts to promote sustainable development. This effort on coffee is a good example. The US Government buys a lot of coffee for its personnel (in civilian and military cafeterias and stores). It could assist AID in promoting development (and assist other government agencies in the war against drugs) by purchasing and requiring its contractors to purchase only fair trade coffee. This would bring these efforts greater attention and larger market share, and could prod more producers to sell more fair traded products. And it would send clear signals to business that development efforts and profit maximization can be complementary. America’s commitment to sustainable development would be more credible if its trade and development policies were better coordinated. For example, the U.S. continues to subsidize and protect key agricultural sectors including sugar, rice, and cotton (Griffin, 2004). These subsidies make it harder for developing country farmers to sell to the US. Agribusiness firms dominate some of these same sectors and thus, a few large corporations are reaping the benefits of relatively closed markets – not a socially responsible position. The US and other nations recently proposed reducing these subsidies as part of the Doha Round of trade talks. However, many analysts question America’s commitment to liberalizing agriculture to assist the smaller farmers in the developing world. They cite the 2002 Agriculture bill, which increased subsidies to certain agricultural sectors (US Department of Agriculture, 2002). If such trade liberalization occurred, it would make it much easier for foreign agricultural producers, especially smaller farmers in the developing world, to sell to US markets (Williams, 2004). Trade policy cannot bear all the blame for continued poverty in many of the world’s poorest

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countries. In the 1990s, aid levels fell substantially around the world. Moreover, the US did not use its considerable wealth to further encourage sustainable development in this boom period. Throughout the 1990s, the US dedicated only 0.10% of its GNP to development assistance (Oxfam International, 2002). But in 2001, in reflection that the past approach wasn’t working, the Bush Administration reevaluated its strategy for foreign aid. On March 14, the US announced a new development strategy, called the Millennium Challenge Account. The US agreed to increase core assistance to developing countries by 50% over the next 3 years to those countries that meet the following criteria: (a) don’t sponsor terrorism; (b) respect human rights and the rule of law; (c) promote sustainable health and education policies; and (d) strengthen economic freedom by opening markets and promoting free trade (Millennium Challenge Corporation, 2004). If fully funded, this rethinking of foreign aid could help promote CSR, by improving governance in the developing world and by sending a signal that good governance is important to attracting foreign investment.

Global corporate social responsibility as a tool to bolster US trade objectives During the waning months of the Clinton administration, trade policymakers began to discuss how CSR initiatives might be linked to trade agreements and policies. The Bush administration continued to explore this idea. However, it is not easy to create such a link. Trade agreements regulate the behavior of governments, but they do not directly obligate corporations. If CSR initiatives are embedded into trade agreements, the language placing obligations upon corporations must be voluntary or it will not be ‘‘CSR.’’ Moreover, such a link must be done in a way that does not violate America’s most favored nation trade obligations. Under the international system governing trade (the WTO) rules, the US is obligated to treat all of its trading partners as most favored nations (except nonmembers of the WTO or terrorist nations) (WTO, 2004). When it finalized these bilateral agreements, the Bush Administration accepted exhortative language designed to encourage CSR in the Singapore, Chile,

and Central American Free Trade Agreements. These bilateral free trade agreements are outside of the scope of the WTO, and thus they do not undermine the nondiscriminatory principle on which it is based. This language, now contained in article 17.4 of the environmental chapters of the recent agreements calls upon each party to encourage the development and use of incentives and voluntary mechanisms to protect or enhance the environment (USTR, 2004). Bush Administration policymakers did not propose equivalent language in the labor sections of these Free Trade Agreements. After some initial hesitation, the Bush Administration took a lead role in linking the WTO to an international CSR initiative designed to protect human rights. During the 1990s, the United Nations found that significant human rights abuses had occurred in diamond mining in Africa and the funds from trade in such diamonds had been used to finance several conflicts. The US is the world’s largest market for diamonds. Diamond manufacturers and retailers came to understand that consumers would not buy diamonds with such a taint. The Clean Diamonds Trade Act (USTR, 2002) allowed the US to participate in a trade waiver from its WTO obligations in unprocessed diamonds. Other nations passed similar bills and ultimately WTO members agreed to trade only those diamonds certified that human rights abuses were not committed during their mining. (Customs, 2004). The certification is called the Kimberley Process. The Kimberley process marked the only time that the WTO has approved a waiver of trade obligations based on a human rights rationale. It is also the first time that the WTO (and the US) has accepted a waiver linked to a private voluntary certification process (a CSR initiative). It can and should do so in other instances where the UN has found conflict and multiple human rights abuses and where corporate involvement could change the behavior of governments that abuse human rights. For example, such a strategy might be useful in the Congo, where coltan, used in cell phones and electronic devices is mined. A 2002 UN Security Council report outlined the alleged exploitation of Coltan by militia and armies from other countries. These forces smuggled Coltan out of the Congo and used it to finance their arms purchases and prolong a bloody civil war in this

Minding Our Business region (UN, 2003). The UN determined that nations must cooperate to ensure that coltan is not used to finance human rights abuses and this longstanding conflict. The US may also find CSR initiatives helpful in improving a key aspect of human rights-labor standards (how workers are treated as they produce goods and services). The US has two trade policy tools at its disposal: a preference system and trade capacity building funds. The Generalized System of Preferences (GSP) was begun in the 1970s to offer trade preferences to developing countries. This preference system is designed to lower tariffs for exports of developing countries; it is based on an internationally accepted waiver of WTO obligations. Many industrialized countries have such trade preference programs to stimulate both trade and development. As of 2001, the US offered nonreciprocal trade preferences to 151 countries and territories (GAO, June 2001a). Under GSP today, any interested party may petition the committee monitoring GSP, the Trade Policy Staff Committee, to review the eligibility status of any country designated for benefits. If a country is selected for review, the committee then conducts its own investigation of labor conditions and decides whether the country will continue to receive GSP benefits (GAO, 2001). The review can be used by USG officials as leverage with foreign officials, factory managers and suppliers to ensure that labor conditions really improve (International Labor Rights Fund, 2004). This situation happened in Guatemala, where Guatemalan workers, collaborating with US unions and to a limited degree, officials of US textile companies, prodded their Guatemalan suppliers to improve Guatemalan labor law and work conditions (Frundt, 1999). The US has also used capacity building funds (foreign aid linked to specific trade agreements) to help governments improve their ability to enforce their own social and environmental laws. The largest share of these funds goes towards ensuring that these nations do not produce products made by child labor. However, these funds could also be used to build local business constituencies that can meet internationally accepted social and environmental conditions. The US has supported only one trade capacity building project in Guatemala designed to help Guatemalan firms adhere to

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internationally acceptable labor standards in their factories (US Trade Representative, September 2003). This project gained great traction when a specific US company, the GAP, pressed for such an approach to trade capacity building (US Council for International Business, December 2003) (see Appendix B). Finally, during the Clinton Administration, the US began to link market access to social and environmental improvements (although this strategy is only possible for nonWTO members). The US Cambodia bilateral textile agreement allows Cambodia an increase in its textile quotas (they can sell more textiles to the US) if they work in concert with the International Labor Organization to ensure labor rights are protected in Cambodian textile factories (USTR Press Release, 2002). This strategy may be an inducement for textile firms to locate production in Cambodia. Firms get some minimal guarantee that their goods will not be produced in conditions where worker rights are undermined. Moreover, the costs of auditing workplace conditions are paid by the US and Cambodian governments with the help of the International Labor Organization. But Cambodia’s success in attracting investors concerned about labor standards is jeopardized by potential competition from China. Like the Clinton Administration before it, the Bush Administration has been much less forceful about working with the Chinese government to improve social and environmental conditions. Here again a link between CSR initiatives and trade policies could be helpful. Many US and Chinese companies want to act responsibly in China but they face several problems. First, the Chinese government does not consistently implement its own laws. As a result, it is difficult for foreign investors to identify which laws (local, provincial national) apply. Moreover, compliance with Chinese law is often voluntary. Chinese citizens and policymakers frequently do not know about their rights and responsibilities under Chinese law. Chinese law does not fully protect human rights, in particular worker rights as defined by International Labor Organization standards. CSR initiatives cannot create a culture of compliance independent of Chinese government action. But they can be useful to investors, activists, and workers as they work to help

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businesses improve social and environmental conditions in China. When socially responsible multinational companies require and then assist their suppliers in implementing better business practices, these Chinese-based suppliers learn how to operate efficiently in a more sustainable and humane manner. But these Chinese based suppliers will also want to find ways to avoid being undercut by their less responsible local competitors. These firms will demand better governance from China. Ultimately these Chinese suppliers could – become advocates for a culture of compliance in China (Kenan Institute Working Group on CSR in China, 2004). The US could also help socially responsible companies promote better social and environmental conditions in China by using the leverage of section 771 (18) (B) of the Tariff Act of 1930. This Act allows the US government to designate countries as either market economies or nonmarket economies. Most formerly Communist countries including Russia, Poland, and Bulgaria have been named market economies. The Chinese would like this designation too. The US could state it willingness to provide such a designation if China provides evidence it is enforcing its labor laws and giving employees minimum worker rights. Such rights include freedom of association, the right to organize and join their own unions and not the official Chinese union (the All China Federation of Trade Unions – ACFTU), and the right to collectively bargain. The US could provide China with this benefit if it agrees that all firms (foreign and Chinese) operating in China must post both Chinese labor laws and international labor standards and to respect the creation of independent workplace committees outside of the ACFTU (Kenan Institute Working Group on CSR in China, 2004). As noted above, while trade agreements and policy can undermine CSR, trade policies and agreements can also encourage more responsible business practices. First such links might encourage more companies to experiment with CSR initiatives. Second, such links could strengthen the ability of trade agreements to promote global standards by linking them to CSR initiatives. They could become, over time, an additional way to strengthen developing country compliance with global standards. Finally, one side effect might be to

encourage greater communication between citizens in developed and developing countries alike about the importance of ensuring that workers and the environment are treated fairly as goods and services are produced.

Ignoring potential bridges between global corporate social responsibility initiatives and investment rules While the US Trade Representative has some understanding of how trade and CSR are being linked, it has not developed a position on the relationship of investment policy to CSR initiatives. As noted above, there is no system governing the rights and responsibilities of investors and recipient states. The EU and Japan pushed to have investment negotiations incorporated into the new round of world trade talks (WTO, 2002). The US was not enthusiastic about such negotiations, but it did not object to this strategy. India, China, and other developing countries proposed that the WTO find ways to develop international investment rules that encourage CSR strategies. They argued that by so doing, foreign investors would press their suppliers in the developing world to adhere to international standards (Global Policy, 2002). However, many activists and policymakers in the US and abroad are concerned about embedding investment rules within trade agreements and in particular, are concerned about rules that delineate how investors should behave. The US has never supported formal delineation of investor responsibilities within such agreements (Graham, 2000). The US Government also does not see CSR strategies such as the OECD Guidelines as a tool to clarify the responsibilities as well as the rights of investors in countries where governance is inadequate (USTR, 2001). Other governments have made the OECD guidelines a prominent part of their investment and trade agreements. As noted above, the Dutch require all firms seeking taxpayer-funded credits to state they adhere to the OECD Guidelines. The EU has begun to put CSR language in its cooperation agreements (its free trade agreements). The language states that the signatories, ‘‘jointly remind their multinational enterprises of their recommendation to observe the OECD Guidelines wherever they operate’’ (European Commission, 2003). In

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fact, during the course of this research, many US Government officials confessed they had never heard of the OECD Guidelines.

environmental and social sustainability (International Finance Corporation, 2004) The United States should begin a similar review.

The failure to link business promotion with global CSR initiatives

Ignoring the market power of the US government to stimulate corporate social responsibility

The US has two agencies, the Export Import Bank, and the Overseas Private Investment Corporation (OPIC), that serve to promote international trade and investment. These agencies receive some taxpayer support and firms voluntarily apply for their services such as risk insurance or export financing. But policymakers have not used these agencies as platforms to promote global CSR. The Ex–Im Bank helps US firms finance exports. In 1992, Ex–Im’s charter was revised to require the bank to establish environmental review procedures consistent with the bank’s overall export promotion objectives. The charter also authorizes the Board of Directors of Ex–Im to grant or withhold financing support after taking into account the beneficial and adverse environmental effects of proposed transactions (EXIM, 2003). OPIC mobilizes and facilitates the participation of US private capital and skills in the economic and social development of less developed countries as well as countries in transition from nonmarket to market economies. OPIC is supposed to ‘‘assure that the projects it supports are consistent with sound environmental and worker rights standards’’ (OPIC, 1999). Since 1985, OPIC has been required by statute to assess the environmental impacts of projects under consideration for insurance and financing. While these agencies have environmental review policies, they have no clear procedures in place to support workers rights (OPIC, 2002, 2003). As a result, these programs send a message to business that how workers and communities are treated is less important than how companies treat the environment. Export credit agencies from other countries such as Canada are working to ensure that international investment programs stimulated by taxpayer revenues must be designed to ensure that they do not undermine social and environmental progress (NGO Working Group, July 2004). The World Bank Group is now reviewing its operations to ensure that funds provided to governments and firms integrate

Each year, the Federal Government buys about 200 billion of products and services. Through its purchasing the government affirms its social and environmental goals and sends important signals to market actors. With its global market clout, the federal government could create an environment more supportive of reducing solid waste, increasing recycling, and stimulating markets for fair trade, organic, or environmentally preferable products and services. In 1976, Congress directed EPA to identify products made with recycled materials. In 1998, President Clinton issued an Executive Order encouraging federal agencies to buy products that are environmentally preferable (less toxic to human health and the environment) and/or bio based. However, in a study of government procurement, the Congressional agency GAO found while government agencies are trying, they have been slow to develop and implement these programs (GAO, June 2001b). Moreover, the US government has not determined how it can best ensure the promotion of labor rights through its purchasing power. As a result, the US has not used its procurement power to the extent it could to encourage producers to produce responsibly. The US Department of Defense (DOD) procures more goods and services then any other US agency. It also is the largest retailing arm of the USG. The DOD has experienced some scandals related to procurement and workers rights. The DOD operates retail stores called military exchanges to provide merchandise and services for America’s armed forces. These exchanges have sales of some 9 billion a year. In 2001, GAO found that the DOD military exchanges were selling goods produced in unacceptable working conditions. Some of these goods were made in countries where workers rights have been abused (for example child labor, forced overtime, or poor working conditions). The House Armed Services Committee Report for the Fiscal

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Year 2002 directed the Secretary of Defense to ensure that the military exchanges implement a program to assure that their private labor merchandise was not produced by child or forced labor (GAO, January 2002). DOD did do so, but GAO has not reaudited the Defense Department since 2001, to see how well this strategy is working. The DOD may want to review all of its products to ascertain if their production meets internationally accepted standards for human rights and sustainability and if not, provide incentives to do so.

Underfunding workers rights programs, including those based on CSR initiatives Several US agencies have programs designed to promote international workers rights. The Department of State, Labor, and USAID fund several such projects, but few of these are aimed at increasing the ability of developing country firms to meet core labor standards. The Department of Labor has direct responsibility to help developing countries improve workplace conditions. But the US has not made promotion of labor rights abroad a top priority for the United States. Labor Department officials issue reports on global child labor, develop programs designed to help other nations eliminate child labor; and research overseas labor conditions (Department of Labor, 2002). Although the US Congress has designed international acceptance of international labor standards as an objective of trade agreements, no US agency can ensure that such standards are enforced by foreign government or either adhered to by US investors. The Labor Department does not have the authority to inspect foreign factories and thereby assess or monitor how nonUS citizens are treated abroad. (Department of Labor, 2002). However, the Labor Department has worked with other US entities to do more to improve overseas working conditions. In August 1996, the Department of Labor called upon representatives of the apparel industry, labor unions and nongovernmental organizations to join together as the Apparel Industry Partnership. This organization later became the Fair Labor Association (FLA), and it developed a monitoring plan to assure consumers that apparel imports are not produced under abusive labor conditions. Participant companies are monitored for

compliance in implementing the FLA Workplace Code of Conduct in the manufacture of their products. The Code of Conduct addresses forced labor, child labor, harassment or abuse, nondiscrimination, health and safety, and respect for the right of employees to organize unions and bargain collectively (Fair Labor Association, 2004). Today, the FLA is not directly connected today to the Department of Labor nor funded by it. It is funded by its members and can be seen as a successful US Government initiative to promote global CSR. But beyond that initiative, the US devotes relatively few resources to promoting labor standards through corporate responsibility initiatives. The International Labor Affairs Office of the Department of State administers a $4 million ‘‘anti-sweatshop initiative,’’ which funds development of and research into approaches and mechanisms to combat sweatshops at overseas factories that produce for the US market (Department of State/DRL, 2002). Labor gave the ILO some $40 million to work on programs on worker rights in developing countries (Human Rights Watch, 2004b). These are relatively small amounts. The Bush Administration recently slashed funding for programs designed to promote workers rights in the developing world. Its proposed 2005 budget sought only $12 million for international technical assistance capacity building, an 82% drop from the amount appropriated in 2004. The 2004 amount of $99.5 million was a 26% decrease in the 2003 budget (Human Rights Watch, 2004b). For FY 2005, the administration proposed funding ILAB at only $30.5 million, compared to $109.9 million in 2004, a reduction of $79.4 million (AFL, 2004). Although the US is under severe budget constraints, these cuts signal to corporations that promoting labor rights is not a top priority. The US thus misses many opportunities to partner with US and foreign firms to improve workplace conditions and to educate business leaders abroad that recognize that good workplace conditions often stimulate greater productivity (See Appendix B).

Sending mixed signals on sustainability and CSR In recent years, the US has moved away from command and control regulation and begun to partner with business to encourage sustainability.

Minding Our Business For example, the environmental regulatory agency EPA requires that appliance manufacturers list the energy costs of their products. This gives consumers useful information while prodding manufacturers to improve their energy efficiency. Many of the same initiatives that promote domestic energy efficiency and lower environmental costs have global effects (Brower and Leon, 1999). The EPA has developed other strategies that tap market forces to promote sustainability. It has developed many partnerships with business to promote greater environmental protection and improved human health. In these partnerships, organizations willingly set voluntary environmental goals and commitments like conserving water and energy, reducing greenhouse gases, toxic emissions, solid, waste, indoor air pollution, and pesticides. The EPA stresses that these programs should complement traditional regulatory programs. For example the government-business partnership Climate Wise helps companies rethink their energy use and efficiency. This partnership strategy of fostering environmental protection has also been implemented internationally (EPA, 2004). For example, EPA carries out bilateral cooperative programs with many other countries around the world. Like US AID, EPA provides grants to help improve environmental regulations, rule making, and to create markets for environmentally sound production and goods. Often these grants are designed to send clear signals to foreign investors that sustainable production is important. The bulk of these grants are designed to build capacity in the developing world to put in place and enforce environmental regulations. The agency says that these programs allow other countries – especially developing countries and countries with economies in transition – to benefit from US experience in developing appropriate and effective environmental programs (EPA, 2003a). But these initiatives are limited. As with labor rights, the US government has not explored how best to partner with companies to help their suppliers meet internationally accepted norms for sustainable production. EPA also collaborates with the Department of State and the US Trade Representative to ‘‘decrease the possibility that economic integration could lead countries to relax their health, safety and environ-

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mental standards in order to attract international investment or gain a competitive advantage in the market place.’’ It has negotiated many environmental agreements designed to help slow or reverse environmental degradation and are in various states of negotiation and implementation (EPA, 2003b). Despite such agreements, many critics of globalization argue that it is America’s failure to sign global environmental treaties such as Kyoto that prevent US companies from acting responsibly on climate change and other environmental issues (California Corporate Accountability Project, 2002). As a result, the US sends confusing signals regarding what companies can and can’t do on the environment. A prominent example relates to the ‘‘circle of poison.’’ US companies ship, sell, and use pesticides overseas that are banned in the United States. Moreover, US companies import and sell food sprayed with such pesticides (Global Pesticide Campaigner, 1998). Either these pesticides are dangerous and should be banned completely through international efforts, or the US should find ways to ensure that US companies do not knowingly export or use illegal pesticides overseas. EPA appears to be trying to signal that transparency can be an effective vehicle to promote global CSR. In January 2001, EPA launched a national campaign to get publicly traded companies to disclose their environmental liabilities to shareholders. Such disclosure is required by law. Environmental liabilities include costs of cleaning up any hazardous waste or polluted sites, or environmental litigation. In 1998, EPA reported that that although the SEC requires firms to report on their environmental liabilities, three out of every four publicly traded firms openly violated the SEC’s environmental financial debt accounting regulations (Sutherland, February 18, 2002). In 2004, the Congressional Research Agency, GAO, completed a study that examines why more companies don’t do this mandated reporting. It concluded that the data and indicator sets don’t provide clear enough data to help investors make informed decisions (GAO, 2004). The US Government could stimulate work on this data by encouraging more firms to road test internationally accepted standards such as the Global Reporting Initiative (2004). But the US government, particularly the key reporting agency, the SEC, have done nothing to stimulate such work.

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A lack of enthusiasm for reporting as a way to promote global CSR

Congress as a whole is unaware of the potential of global corporate social responsibility

The SEC regulates the US securities markets. The SEC is responsible for ensuring that companies publicly offering securities for investment dollars provide truthful material information about their business and the risks involved in investing (SEC, 2004). In 2002, activists in the investment and environmental communities asked SEC Chairman Harvey Pitt to mandate triple bottom line reporting-to require firms to report on their social and environmental practices (Gorte, 2002). Advocates of triple bottom line reporting note that the information they want is consistent with the SEC Act of 1934, which requires companies to supply all material information. Material information can be defined as anything that an average investor ought to know about before he or she buys a security. But investment managers and financial executives question the materiality of environmental or social reporting. Moreover, it will be difficult to implement new, comprehensive economic and social reporting standards. For such a broad approach to succeed, the SEC must develop, or build upon existing uniform reporting standards. Such standards must also have predictive value. According to Dr. Julie Gorte, Social Issues Director of Calvert Funds, one of America’s largest SRI funds, ‘‘in order for investors to take social and environmental reporting seriously, companies must show their investors that the information they provide predicts the companies’ future value.’’ (Gorte Interview, August 10, 2002). The SEC is unlikely to require such triple-bottom line reporting in the next few years. In a recent interview, Commissioner Harvey Goldschmidt said the SEC and companies are on overload trying to address the new corporate reporting requirements of the Sarbanes – Oxley legislation passed in the wake of 2002s corporate governance scandals.(Goldschmidt Interview, January 5, 2004). Moreover, while mandating such disclosure can help markets work more efficiently, it is still a mandate and thus unlikely to be supported by the Bush Administration and many corporate executives at this time.

The Executive Branch is not the only arm of the US government that sends ambiguous signals regarding how US companies should behave in foreign markets. Although some members have drafted legislation designed to prod greater corporate responsibility, Congress has rarely acted (the FCPA is a prominent exception). In 1991, Senator Ted Kennedy (D-MA) and Congressman John Miller (R-WA) drafted federal legislation S-1413 creating a code of conduct for US multinationals operating in China based on internationally recognized human rights. The bill never passed, but it did reflect Congress’s concern that if China were granted MFN each year, then US multinationals operating there should make clear their commitment to international norms as a price of admission to China. Ultimately, the US government called on companies to adopt a code of conduct for their operations in China, and a few firms complied (Library of Congress, 2004). But there has been no follow through on whether these firms have pressed their suppliers to do more to ensure that their operations do not undermine human rights. In 2000, Congresswoman Cynthia McKinney (D-GA) introduced HR 4596, the Corporate Code of Conduct Act. It required nationals of the US to implement a code of conduct with respect to employment. Under this bill, government agencies were supposed to investigate if firms violate their own code of conduct. If a violation was found, the bill said the US government should seek the withdrawal of government benefits to that firm. (Library of Congress, 2000). But this disincentive based approach, if it had been approved, could have undercut the voluntary nature of CSR. Recently some members of Congress devised a different approach. Three members of the House Appropriations Committee, Congressmen Don Price (D) and Cass Ballinger (R) and Congressman Sandy Levin of House Ways and Means, sent a letter asking GAO to survey the signals public policies send to global corporations regarding their social and environmental practices. Are these policies really in the national interest, or do they undermine it? GAO expects to issue its report in 2005.1 It may inspire Congress as a whole to examine how best to

Minding Our Business encourage responsible management practices in global markets.

What other industrialized countries are doing to promote global CSR America’s mixed signals to its corporations can best be understood in comparison with that of other countries. The nations doing the most are the two in the world that have entrepreneurial cultures similar to that of the United States – Great Britain and the Netherlands (Aaronson and Reeves, 2002). The British have a CSR minister and an explicit CSR policy strategy based on raising public awareness of CSR; promoting tools to facilitate transparency and corporate reporting; and encouraging socially responsible investment. Moreover, the British require pension funds to report on the social and environmental consequences of their investments. Finally, the British government has devised systems for evaluating how well it is achieving this vision (United Kingdom, 2002). The Dutch government is a leader because of its willingness to link the OECD Guidelines to taxpayer largesse. The Dutch require that all firms seeking taxpayer supported export credits adopt the OECD Guidelines as a code of conduct and attempt to adhere to it (there is no formal monitoring). The French do not have a coordinated program, but the French have taken the most radical step. They require publicly traded companies to report on their social and environmental practices (Europa, 2004). However, the French government did not delineate how firms should report. Why are these governments leading the way? European firms are more comfortable working with government and more comfortable in a regulated environment. Policymakers ask more of business and business expects government to do so. A short overview of what other governments have done and are doing is provided in Appendices C and D.

Conclusion and recommendations The US Government has a wide range of policies and programs that could promote global corporate responsibility. Yet many of these policies are not coordinated or even well defined. In several

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instances, agency staff in different bureaus did not cooperate or inform each other of their CSR strategies and objectives. Moreover, policymakers, like the public, are not well informed about the many US policies that can encourage global CSR. The US has a wide range of policies that undermine global corporate responsibility. These policies include subsidies, trade, procurement, corporate reporting, and environmental policies. American companies and citizens would benefit from a review aimed at making these policies more consistent. The US has not taken advantage of the leverage it has with taxpayer-funded programs such as export finance to encourage socially responsible practices. When companies benefit from taxpayer largesse, they should be held to the highest standards. Policymakers are clearly aware the global CSR pressures arise from inadequate governance in the developing world. Thus, they have a wide variety of programs to improve the rule of law in some developing countries. These programs fund labor unions and civil society groups as well as trains policymakers to help developing countries improve their regulatory environment. But the US does little to partner with US firms to help them train their suppliers improve social and environmental conditions in their factories. Such a strategy would be particularly useful in China, where Chinese labor law is unenforced and thus compliance is essentially voluntary. When the US does partner with business, as in the GDA, it is unclear whether such partnerships are designed to circumvent reduced taxpayer funding, to help companies create new markets, or to usurp traditional regulatory or program delivery strategies. Many public services should be the responsibility of government, others can best be achieved or delivered through partnership with business or civil society. These partnerships may or may not promote global CSR. Although this article argues that the US government should delineate a global CSR strategy, each sector is unique and markets constantly change. Thus government policies must be flexible and reflect country or sector specific differences. Such flexibility will not be easy to achieve. The United States can promote globally responsible behavior without explicit mandates for how US firms should behave. First, policymakers should define the social and environmental responsibilities of global companies are. They must consistently

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articulate and reinforce their expectations for how firms should behave when policymakers do not enforce the rule of law. They must clarify if firms are responsible for the behavior of their suppliers. Second, the US should closely examine the policies that undermine global CSR and address the many conflicting signals sent by policymakers, particularly those on human rights. Third, the President should make the US government a CSR model. US government officials should examine how to use America’s huge purchasing power to promote labor rights, in the same way that procurement policies support energy efficiency. Finally, the US should mandate pension funds to report on the social and environmental consequences of their investments. This will stimulate markets to move towards more long term responsible thinking. With these strategies, Americans can mind our business – and thus make sure that US based firms do not undermine social and environmental progress when they operate in the developing world. Acknowledgements The research for this paper was supported by grants from the Ford, United Nations, and Levi-Strauss

Foundations, with additional grants from Pfizer. I am grateful to Jamie Zimmerman, Bruce Moats, Kim Elliott, James Reeves, Louise Langhof Roos, Jennifer Bremer, Barbara Fiorito and the anonymous reviewers for this journal.

Note 1

The Letter was sent February 12, 2004. It said, ‘‘We applaud the work of American companies setting positive corporate examples all over the world. Unfortunately, they often face a complex, sometimes contradictory, and often counterproductive array of national and international standards, regulations, incentives and disincentives. While US multinational companies and US government representatives remain engaged and active participants in several international organizations and initiatives focused on voluntary CSR, there does not appear to be an effective federal policy to encourage it. We wish to better understand how the federal government and Congress can encourage voluntary use of best corporate practices without undermining competitive advantages or imposing new federal mandates.’’ On update, Personal Communication, L.Yager to S. Aaronson, May 7, 2004.

State

USAID

Foreign Policy

Development

Trade and investment/risk guarantee

OPIC

EX-IM Bank

USTR

Business promotion Commerce Department

Relevant Agency or Department

Policy Objective

Global Development Alliance (business partnerships) International Trade Administration

Democracy, Human Rights and Labor, Global Affairs, Economic Bureau

Bureau(s) Involved

International trade and investment promotion

US trade policy, business development; international trade and investment promotion; corporate stewardship Negotiates international trade agreements and with State and Treasury, negotiates investment rules International trade and investment promotion; export finance

International environmental and human rights from a foreign policy perspective Foreign aid; Development;

Issue Area(s)

None

Broad supportive language None in newest FTAs; accepts trade waivers from WTO obligations in extreme cases Charter allows Board of None Directors deny financing to proposals with potential adverse environmental effects Environmental impact review; None no clear procedures to support work rights

President’s Export Council has investigated

OECD Guidelines (EB) and Some Voluntary Principles on Security and Human Rights (DRL).Also funds CSR related NGOs and projects in China Global Development Alliance A piddle (business partnerships)

Principal Policies or Initiatives Long-Term Funding?

US commitment to global CSR

Appendix A

Starting

Negligible

pretty words

pretty words

Starting

Starting

Summary of Commitment

Minding Our Business 191

Defense Department

State and Labor

SEC

EPA and State

Congress

National Defense

Global Worker Rights

Corporate Reporting

Global Commons

Exhortation, Research, and Legislation

International

State: DRL; Labor: International Labor Affairs

Bureau(s) Involved

 Susan Aaronson and Jamie Zimmerman

Relevant Agency or Department

Policy Objective

Environmental protection and promotion of human health Congressional reports, legislation expressing the sense of Congress and legislation with particular mandates

Procurement; Goods sold at military exchanges should not be produced in socially or environmentally unacceptable condition Conducts research and formulates international economic, trade, immigration and labor policies Oversees and regulates US securities market

Issue Area(s)

Continued

Appendix A

Foreign Corrupt Practice Act (1977); Globally responsible procurement; 2000 HR 4596 Corporate Code of Conduct Act; GAO Survey requests

Focus on partnership developments

Reporting requirements, Regulation S-K requires reporting environmental liabilities

Requires that goods sold at military exchanges should not be produced in socially or environmentally unacceptable conditions Funds NGOs, recognizes importance

Some

N/A

Some

None

Principal Policies or Initiatives Long-Term Funding?

Registers with individual members, barely registering at committee level

SEC still struggling with fall-out from Sarbanes-Oxley. Not a top priority but registering Starting

Recognition of importance

Starting re. labor standards; Lacking on behavior of corporate subcontractors

Summary of Commitment

192 Susan Ariel Aaronson

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Appendix B 2002 trade capacity building assistance: Human resources labor standards Activity objective

Total

% of total

% of category

International standards compliance Child Labor Trade Unions Other

75,322,054 54,193,421 7,149,138 13,979,495

75.6

100.00 71.95 9.49 18.56

Domestic standards compliance Domestic Private Sector Other

10,968,718 200,000 10,768,718

11.0

100.00 1.82 98.18

Other

13,373,755

13.4

100.00

Total

99,664,527 2003 trade capacity building assistance: Human resources & labor standards

Activity objective

Total

% of total

% of category

International standards compliance Child Labor Trade Unions Other

86,288,670 77,200,000 2,441,053 6,647,617

74.8

100.00 89.47 2.83 7.70

Domestic standards compliance Domestic Private Sector Other

21,738,991 300,000 21,438,991

18.9

100.00 1.38 98.62

Other

7,165,245

6.2

100.00

Total

115,292,906 2004 trade capacity building assistance: Human resources & labor standards

Activity objective

Total

% of total

% of category

International standards compliance Child Labor Trade Unions Other

120,332,641 117,400,000 902,641 2,030,000

94.9

100.00 97.56 0.75 1.69

Domestic Standards Compliance Domestic Private Sector Other

4,680,371 1,190,900 3,489,471

3.7

100.00 25.44 74.56

Other

1,822,732

1.4

100.00

Total

126,835,744

 Louise Langhoff-Ross and Jamie Zimmerman, Kenan Institute of Private Enterprise – Washington Center International Standards Compliance – focus: to promote international core labor standards compliance: (1) Elimination of all forms of forced or compulsory labor; (2) Effective abolition of child labor, with priority to the worst forms; (3) Equal opportunity and nondiscrimination in employment; and (4) Freedom of association and the right to collective bargaining. Child Labor – focus: to combat child labor principally by increasing school attendance Trade Unions – focus: to strengthen union’s capacity to organize Domestic Standards Compliance – focus: to improve compliance with domestic laws and build capacity of local government institutions Domestic Private Sector – focus: to educate local suppliers to meet international labor standards

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Appendix C Selected Policy Descriptions, by country Belgium  Has a National Contact Point (OECD Guidelines).  Requires pension funds to declare how they integrate socially responsible behavior in their investment decisions, instituted in 2001.  In 2001, the Belgian Parliament drafted legislation on social labeling for companies to put on products if that company adhered to ILO standards. It is under review by the European Commission to make sure that it does not violate WTO rules or EU consensual trade policy. Canada  In 2001, the National Contact Point (OECD Guidelines) was reorganized as an interdepartmental committee, which meets every two months.  Canada has ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and has passed legislation to endure that Canada is in compliance with the Convention.  In 1995, the Canadian Parliament adopted Amendments to the Auditor General Act that require each federal department to produce a sustainable development strategy and to table it in Parliament every three years. The strategies are to cover each department’s internal and external operations, including those involving the private sector and industry.  Canadian Export Development Corporation is examining how to ensure that its programs promote human rights and sustainability. Denmark  Its National Contact Point (OECD Guidelines) is a tripartite body that meets four times a year, with members from government, business and labor.  First country to adopt legislation on public environmental reporting.  The Danish Center for Human Rights is developing a Human Rights Impact Assessment based

on more than 80 international agreements and treaties, a software program that allows companies to voluntarily evaluate their business practices and identify operations that directly or indirectly violate human rights. European Union  In December 1996, the European Parliament (EP) issued an annual report on human rights that called for a code of conduct for European companies operating in developing countries.  1997: reissues call for a code of conduct in adopting a report on foreign direct investment in third-world countries.  July 1998: EP adopts the Fassa Report on fair trade with developing countries, and urges multinationals to adopt codes of conduct to guide their operations in developing countries.  2001: The European Commission issues a Green Paper, Promoting a European Framework for Corporate Social Responsibility.  July 2002: The Commission issues its ‘‘Communication’’ on CSR, proposing a European Multi-Stakeholder Forum to make CSR more transparent and more credible, to show that CSR does not just benefit multinationals but also small companies, and to promote external benchmarking of companies’ social and environmental performance. France  Has a National Contact Point (OECD Guidelines)  Requires pension funds to declare how they integrate socially responsible behavior in their investment decisions.  Requires companies listed on the French Stock Exchange (Bourse) to describe the social and environmental consequences of their activities in their annual reports. (2002)  As of 2002, all French companies have to disclose their human rights performance and their dialogue with stakeholders on social and environmental issues, although the law is not specific about whether a company must report on its international operations or only its French-based operations.

Minding Our Business Germany  Requires pension funds to declare how they integrate socially responsible behavior in their investment decisions.  Mandatory reporting for large companies with major environmental impacts. The Netherlands  Has a National Contact Point (OECD Guidelines).  Over 300 companies are covered by legislation on mandatory environmental reporting beginning in FY 1999.  In 2000, the Dutch Parliament requested the government to link the OECD Guidelines to government subsidies for international trade and investment. United Kingdom

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 Requires pension funds to declare how they integrate socially responsible behavior in their investment decisions. (1996 Occupational Pension Schemes [Investment] Regulations, entered into effect July 3, 2000)  In 2000, the promotion of CSR becomes an official policy strategy. Prime Minister Blair appoints a Minister to coordinate CSR policies, and the government begins to explore and establish innovative policies on global issues such as stimulating ethical trade and reducing global poverty.  In 1998, the Department for International Development (DFID) created Business Partners for Development, to foster relationships with socially responsible firms.  2000: DFID White Paper, Eliminating World Poverty: Making Globalization Work for the Poor.  October 2001, issues guidelines on corporate environmental reporting.

Appendix D Global corporate social responsibility around the world Country

Private sector participation

Government advocacy & promotion

General public awareness

Austria Belgium Canada Denmark EU France Germany Netherlands Sweden United Kingdom United States

Low High Medium–High Medium–High Medium Medium Low–Medium High Medium–High High Medium

Medium High Medium High Medium–High Medium Medium High Medium High Low–Medium

Low Medium Medium–High Medium Low–Medium Medium Low–Medium High Low–Medium High Low–Medium?

Low – Difficult to find support or information; minimal promotion (i.e. through booklets or conferences and an inadequate/nonexistent Web site); little knowledge, activity or advocacy by the public. Medium – Some involvement by the private sector; some promotion by government, although not highly active (i.e. satisfying the stipulations for the OECD Guidelines, but not going beyond minimum standards); some public awareness. High – Very active; government information is easy to find; corporate citizenship is promoted by government officials/ offices through updated Web sites, handbooks, legislation, and sponsored conferences; public actively engaged in the issue.

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Kenan Flagler Business School Globalization Studies, University of North Carolina, 1300 Pennsylvania Ave NW, Washington DC 20004, USA E-mail: [email protected]