The legal status of transnational corporations as subjects of private international law

Tsygankov Alexander Yurievich ORCID: 0009-0009-1164-3363 PhD in Law Professor, Department of Legal Regulation of Economic Activity, Financial University under the Government of the Russian Federation 38 Shcherbakovskaya str., Moscow, 105187, Russia tsygan.alexandr2017@yandex.ru

Solomakhin Vladislav Andreevich Graduate student, Department of Legal Regulation of Economic Activity, Financial University under the Government of the Russian Federation 38 Shcherbakovskaya str., Moscow, 105187, Russia vlsolomakhin@mail.ru

Today, according to scientists, multinational corporations (TNCs) account for about a quarter of the world's gross domestic product (or GDP) (the Superstar Effect: how global companies affect local businesses // ECONOMICS URL: https://clck.ru/37J4Do (date of access: 02/11/2024)). Thus, TNCs can contribute to the economic and technological development of societies. Such a comprehensive impact cannot but have an impact on human rights, the environment, or even the criminal environment. National legislation is often unable to create a stable regulatory environment in which TNCs can operate, as well as control the illegal actions of organizations that fragment their activities around the world, operate in decentralized network structures and flexibly carry out money transfer operations. In addition, economically weaker States depend on TNK investments and may be unwilling to accept and enforce strict human rights and environmental standards in order to increase their attractiveness to foreign investors.

The main problem of regulating the activities of multinational corporations is that at the moment there is no universal international legal act in the world that would determine their status and, consequently, regulate their activities. The discussion about TNCs is characterized by an abundance of different terminologies. Turning to the concept of TNK, we recall that the United Nations (hereinafter referred to as the UN) first used it as a "multinational corporation" and characterized it as an enterprise that owns or controls production or service facilities outside the country in which it is based. Subsequently, the term "multinational corporation" was replaced by "transnational corporation" in order to emphasize the cross-border activities of the relevant company and distinguish it from such international companies that are owned and controlled by legal entities from several countries. However, this distinction was later abolished, and in the 2003 UN draft on the Responsibility of Transnational Corporations and Other Commercial Enterprises with respect to Human Rights, a TNC is defined as an economic entity operating in more than one country, or a group of economic entities operating in two or more countries, regardless of their legal form, whether in the country where the legal entity was registered or in the country where the business activity is actually carried out, and regardless of whether they are taken individually or collectively.

On the other hand, in the documentsThe Organization for Economic Cooperation and Development (OECD) and the International Labour Organization (ILO) use the term "multinational corporations" ^[1;2]. The OECD Guidelines for Multinational Enterprises, which reject the need for a precise definition, describe them as follows:

- the presence of branches in two or more countries, regardless of their organizational and legal form and field of activity;

- the possibility of the existence of TNCs of any form of ownership, including state ownership;

- the presence of one or more decision-making centers;

- concentration of R&D at headquarters in the home countries under their full control;

- foreign enterprises adapt goods to local conditions ^[3].

Terminological confusion also exists in legal science. Despite the fact that scientists attribute different meanings to the terms "transnational" and "multinational", and even though "corporation" can be understood more narrowly, designating a legal entity characterized by legal personality, transferable shares, limited liability, centralized management and investor ownership, unity is recognized between these terms. This terminological uncertainty is the result of a lack of regulatory regulation. TNCs today include many economic entities of various legal forms and demonstrate various forms of integration. As Gatto noted, TNCs "do not have a consistent existence as a legal entity, but are a political and economic reality, which is expressed in a confusing variety of legal forms and mechanisms" ^[4]. Therefore, it is important to focus on the characteristics that distinguish TNCs from their national counterparts. In addition to domestic enterprises – even those that manage production facilities abroad or export goods and know-how – TNCs have the flexibility to move production sites and assets between countries. They structure management units regardless of national borders and lose all connection with the national state, except for the formal connection of incorporation. This operational flexibility and the resulting isolation from internal borders are one of the main reasons why national legislators are unable to properly limit the powers of TNCs, which is why TNCs have become the focus of international law.

The term "transnational corporation" is an economic category, which leads to a limitation in understanding its essence, since it does not disclose its legal status and legal status. In our opinion, the most appropriate term is "transnational legal structure." The choice of such a term is justified by the fact that such a structure may include companies, branches or subsidiaries registered in different countries and subject to different jurisdictions, but at the same time having limited responsibility, including to government agencies. The determining decision is made by the main organization. For a better understanding, let's give an example. According to the decision of the Tagansky Court of Moscow, three fines for non-removal of prohibited content posted on the Internet, amounting to more than 21.77 billion rubles, came into force against Google LLC. As a result, the Russian structure of Google LLC, GOOGLE LLC (TIN: 7704582421), filed for voluntary bankruptcy with the arbitration court (as of the date of writing, bankruptcy proceedings are continuing in case no. A40-126705/2022 against GOOGLE LLC) (Google's legal entity in Russia has planned to begin bankruptcy proceedings // vc.ru URL: https://vc.ru/money/424340-yurlico-google-v-rossii-zaplanirovalo-nachat-process-bankrotstva (date of access: 02/11/2024)).

The discussion about TNCs in international law focuses on the question of whether they are subjects of international law, that is, whether they are capable of having international rights and obligations and have the ability to assert their rights by making international demands. Traditionally, international law was perceived as regulating only mutual transactions between independent entities. However, with the advent of international organizations and international human rights law, the existing range of subjects of international law has gradually expanded. Positivists (H. A. Abashidze, K. K. Hasanova)^[5] argue that States, which remain key subjects of international law, can "elevate" non-State actors to subjects of international law, endowing them with rights and responsibilities. Thus, non-State actors acquire their subjectivity from States and depend on their recognition.

There is another point of view, according to which TNCs do not have international legal personality (A.A. Sinyavsky, M.R. Suleymanov)^[6;7]. It is alleged that they were not given rights or obligations under international law. There is a third theory. Adherents of the third theory (M.S. Zhilin, V.V. Goncharov)^[8] determine that not the entire transnational corporation (together with its branches and subsidiaries) has legal personality, but only its individual parts, that is, legal personality is reduced to individual parts of a TNC ^[9]. It turns out that, in fact, only those parts of TNCs that have been registered by special authorities of the respective States of origin of TNCs have the status of legal entities. With the development of international economic relations in the process of globalization, this state of affairs ceases to satisfy all participants in the global economy (in particular, the countries where parts of TNCs are located).

As mentioned above, the main problem of regulating the activities of multinational corporations is that currently there is no universal international legal act in the world that would regulate their activities. Such regulation takes place at the national level of the country where such an organization is registered, which is not entirely fair, since in addition to the headquarters and the parent company, there are subsidiaries and other branches of TNCs located in other countries.

It should be taken into account that TNCs are a set of legal entities belonging to different states, which means that they have legal personality under other laws ^[10]. It follows that the activities of TNCs should be coordinated internationally. Today, TNCs are not just a commercial organization, but also a special type of international education, comparable in strength and power to the state, since the capital of some TNCs may exceed the budget of a particular country ^[11]. To confirm this idea, it seems necessary to give an example. The head of the Indian company Snapdeal, Kunal Bahl, offered Elon Musk instead of acquiring the microblogging service and the Twitter social network (at the time of writing, the platform was acquired by Elon Musk and renamed "X") worth $43 billion. to buy the external debt of the state of Sri Lanka, the size of which, as of April 14, 2022, was $45 billion (Elon Musk was offered to buy the external debt of Sri Lanka instead of Twitter // ГАЗЕТА.ги URL: https://www.gazeta.ru/business/news/2022/04/16/17579312.shtml (date of access: 02/11/2024)).

The legal personality of TNCs is based on three criteria:

- participation in international economic relations;

- the existence of private and public law obligations;

- the presence of an autonomous will ^[12].

Currently, there are three levels of legal regulation of TNCs: domestic legislation, bilateral and multilateral agreements ^[13].

Internal regulation assumes that all branches and subsidiaries are subject to the national legislation of the host country, and in most cases it is investment law that determines the legal status of a foreign investor. However, this method of regulation has its drawbacks. For example, the desire of the TNK-based countries to extend domestic legislation to foreign branches of companies, the lack of institutions of national legislation of the host countries.

At the second level of regulation, the countries concerned conclude bilateral agreements. Currently, the most common way to regulate the activities of TNCs is through bilateral agreements between the host country and the home country. Such agreements expand State practice and lead to the unification of norms, which contributes to the development of international law in the field of economic cooperation. Nevertheless, there are drawbacks here: developing countries in need of an influx of investments conclude such agreements directly with TNCs, thereby providing significant privileges for foreign capital, which jeopardizes the stability of economic relations.

The third level involves multilateral international treaties, which can be universal and regional. Universality is being implemented under the leadership of the United Nations within the framework of the Intergovernmental Commission on TNCs and the TNC Center. In 1975, a TNK Code of Conduct was developed, which has not yet been adopted. Countries disagree on the issues of obligations between TNCs and States, the possibility of granting national treatment to branches of foreign TNCs, the application of customary international law in relation to TNC activities and jurisdiction in dispute resolution. Disputes occur between groups of countries: host countries, which advocate unilateral obligations of TNCs to the host country, and home countries, which advocate mutual obligations of TNCs and their partners. To implement this Code, it seems necessary to create a special body that will have the right to make decisions, and an international mechanism for the application of appropriate sanctions.

Regional regulation is carried out within the framework of the European Union, the Latin American and Caribbean Community, and the Commonwealth of Independent States (CIS).

Let's consider the legal regulation of TNCs within the CIS. The purpose of legal regulation is to create multinational corporations as an important component of integration and investment activities ^[14]. The Agreement on Assistance to the Establishment and Development of Industrial, Commercial, Financial and Mixed Associations dated April 15, 1994 is the first CIS document regulating the activities of TNCs between the governments of Belarus, Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan and Russia. It should be emphasized that one of the goals of the measures taken to regulate the activities of TNCs is to create conditions for the normal functioning of small and medium-sized businesses along with companies in the public and large corporate sectors that form the economic basis of the CIS member countries ^[15].

Subsequently, in March 1998, the TNK Convention was signed, which establishes the legal basis for cooperation between the CIS countries in the field of regulation and establishment of TNK activities. The main problem hindering the development of TNCs in the CIS countries is the presence of inconsistencies in the national laws of the countries. An important condition for the development of a single post-Soviet economic space should be the harmonization of the legislation of the CIS countries on TNCs, which should be carried out on the basis of the CIS model legislation.

In our opinion, the international level of regulation and control over the activities of TNCs should be the most effective. It may be necessary to grant TNCs the status of international legal entities, which in itself will remove them from national jurisdiction. But at the moment, international legal entities are those that are formed by an international treaty or on the basis of national legislation adopted in accordance with an international treaty. It turns out that today TNCs cannot obtain the status of an international legal entity because they do not meet these two criteria.

There is a theory about the creation of international transnational law. Thus, V.M. Shumilov wrote that the essence of this branch of law is that participants in international economic relations themselves develop norms of behavior that go beyond domestic legislation and are not subject to either national or international law ^[16]. It turns out that transnational law could become a special area of law in which subjects of international law interact with subjects of domestic law. This theory has a place to be, as it would in many ways allow us to resolve situations where it is not enough to apply the norms of national legislation, and the norms of international law cannot be applied because the nature of TNC activities is private, and it is impossible to regulate them at the international level.

Thus, summing up the above, we can formulate a conclusion. Due to the fact that TNCs have economic power and might, the concept of recognition arises, affecting subjects of international law. This subject of attention has been reflected among foreign scientists, but today it is not possible to regulate relations between multinational companies within the framework of international norms. At the moment, these theories are not fundamental in the field of regulating the activities of TNCs. There have been various attempts to resolve this issue, but it remains open at the moment. At the moment, the restrictions of universal doctrines and norms have not yet been adopted, and current acts are often declarative in nature, as there is a lack of a concept of implementation. It should be noted that the circumstances stipulate that the acts are mostly advisory in nature and do not establish any legal rights and obligations for TNCs, but only allow them to choose the desired variation of behavior. Nevertheless, international regulation should be the most effective, as it will allow for more comprehensive supervision and control over the activities of the head offices of TNCs and their representative offices.

As a solution to this problem, it seems necessary to codify international norms governing the activities of TNCs (for example, the 1976 Code of Conduct for TNCs; the Tripartite Declaration of Principles on Multinational Corporations and Social Policy, as amended in 2017). The accumulation of legal norms based on the creation of a single convention will help ensure respect for the rights and legitimate interests of all parties, and also, to prevent abuse by TNCs. The possibility of solving the problem through codification is also confirmed by the fact that since 2014, an open-ended Intergovernmental Working Group on Transnational Corporations and Other Enterprises has been developing a project aimed at codifying regulation in international human rights law, the activities of transnational corporations and other enterprises (the Open-ended Intergovernmental Working Group on Transnational Corporations and Other Enterprises in the Aspect of human rights // UN Human Rights Council) ^[17] (URL: https://www.ohchr.org/ru/hr-bodies/hrc/wg-trans-corp/igwg-on-tnc (date of access: 02/11/2024)).