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Alliance > Артикли  > The role of transnational corporations (TNC) in the implementation and regulation of international economic relations

The role of transnational corporations (TNC) in the implementation and regulation of international economic relations

Transnational corporations are one of the subjects involved in the institutional regulation of international economic relations. Today, TNC acts as one of the important operators of globalized international economic relations. In legal sources and in practice, the term «transnational corporation» is sometimes used to refer to such companies as «multinational company», «multinational enterprise» [1].

According to the United Nations Commission on International Trade Law (UNCITRAL), the term “multinational company” is used in a broad sense to refer to companies engaged in significant commercial or other economic activities in countries through branches, affiliates or other organizations. According to the Institute of International Law, a «multinational enterprise» is a group of companies operating on the basis of common property or under general control, the members of which are established by the law of at least one state. However, the term «transnational corporation» is used more in modern scientific theory and practice. What is a transnational corporation? TNCs are large, usually multidisciplinary Companies, with offices and subsidiaries in most countries around the world [2].

TNC consists of 3 main parts:

  1. Head company or Main Centre — is the entity that directly or indirectly owns the majority of the shares or otherwise controls the other companies that make up the TNC.
  2. Subsidiary Company — a company owned or controlled by another company belonging to the same group of companies. Typically, such companies are established under the laws of the countries in which they intend to establish them.
  3. A branch — is a part of a company that is not established as an independent entity in the state in which it operates.

As important subjects of international economic relations, TNCs have the ability to significantly influence the development of national and world economies. For example, two-thirds of payments for the transfer of modern technologies, the main activity in the field of exploration, production of hydrocarbon resources, ensuring a balanced level of essential food products in the world belong to TNC. TNCs have the power to use their economic power to influence the policies of economically and legally weak states, especially the host state. Using its connections, TNC speculates on currency, extorts money from local officials, evades taxes, transfers its capital to branches in other countries to avoid economic instability, pursues an exponential policy on strategic aspects of international trade, and is economically disadvantaged. concentrates harmful production in one country, etc [3, p. 765].

Unlike states, TNCs have the ability to solve economic problems faster than states because they have fewer and more sophisticated bureaucratic mechanisms. And therefore, in the process of modern economic integration, the activities of the TNC are considered legitimate and are given more priority.

The majority of TNCs often use their multinationality to evade national control. The most effective control for this is only international control. The general principle in relation to the TNC is set out in the 1974 Charter on the Economic Rights and Duties of States. Article 2 of the Charter states that each state has the right to regulate and control the activities of the TNC within the limits of its national jurisdiction, and to take measures to ensure that such activities comply with its laws, social and economic policies.

Defining a general principle does not mean solving the case on the merits. Because the TNC has the ability to harm its economy without violating the laws of the host country. Therefore, it is necessary to determine the specific rules of conduct of the TNC. Given the importance of the problem, the UN Social and Economic Council has established a Center for TNC and a Commission on TNC. Currently, there are documents related to the activities of these companies, such as the Draft Code of Conduct for the TNC within the UN, the OECD Guidelines for Multinational Enterprises in 1976, and the ILO Principles on Multinational Enterprises and Social Policy in 1977.

The basis of the legal status of the TNC is determined by the general norms of international law. The territorial jurisdiction of the receiving state has long been considered the norm of international law, and this fact has been confirmed by the logic of the principle of sovereignty of the state over its natural resources and economic activity [3, p.822].

The state does not relinquish its legislative powers when concluding contracts with foreign corporations. To circumvent this provision, the concepts of quasi-international law (Cheng, Ferdros, etc.) and «transnational law» (F. Cessup, E. Langen) of concession contracts were put forward. The essence of the concept of quasi-international law (treaty) is that it gives the contract the status of a quasi-international treaty subject to international law, removing the legal relationship between the receiving state and the TNC from the jurisdiction of the state [4, p. 55].

In other words, this concept removes the contracts concluded between the state and the TNC from the scope of domestic law and subordinates it to international law. Such a status deprives the state of the right to change its legislation in violation of the contract, and in fact raises the TNC to the level of a subject of international law. On the other hand, because the state enters into special legal relations, according to the theory of functional immunity, it renounces its sovereign immunity and becomes an equal partner with the TNC, ie a trading entity (ius gestionis). Otherwise, TNCs are not interested in investing [4, p.57].

The essence of the concept of transnational law is that in international economic relations, in order to exclude the immunity of the host country, the TNC tends to subordinate the legal regulation of the relevant relations to the third rule of law. A state wishing to attract investment cannot disagree with the application of the rule of law formed with the participation of the TNC. For TNC, the step-by-step and at the same time changeable domestic rule of law, which slows down foreign investment, is forced to adopt transnational legal mechanisms that exclude immunity from state jurisdiction. Contracts dominated by transnational law are concluded mainly with developing countries with natural resources. [4, p. 58].

In order to neutralize the rule of national legislation in the applicable law of modern contracts, the rule of law of the receiving state is governed by the law of the state to which the TNC belongs, or İnternational law, the principles of civilized peoples, and so on applied together.


References and Sources:

  1. Transnational Corporations: understanding the meaning — https://legal-dictionary.thefreedictionary.com/Transnational+Corporation
  2. Transnational Corporations Journal / Volume 27, 2020, Number 3 — https://unctad.org/webflyer/transnational-corporations-volume-27-2020-number-3
  3. Donald Earl Childress “Transnational Law and Practice” / Wolters Kluwer; 2nd edition September 15, 2020, p.1056.
  4. Gwynne L Skinner “Transnational Corporations and Human Rights” / Cambridge University Press, p.250.



Graduated from Baku State University,

Faculty of Law (SABAH group) Kamran Khalilov





Bakı Dövlət Universiteti Hüquq fakültəsi

(SABAH qrupu) məzunu Kamran Xəlilov


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