Global Policy Forum

Liz Stuart*

The only person doing a roaring trade in the village of Plachimada, south India, is the man who runs the tea shop next to the giant Coca-Cola factory in this sleepy Keralan village. "Business has never been better," he said, when I talked to him last week. But other residents, as the Guardian reported recently, are not so happy. The Coca-Cola factory here has been distributing slurry, billed as "fertiliser", to local farmers. This was later found to contain carcinogens.

Locals also say the plant is sucking up precious ground water from the surrounding area, leaving the rural poor to walk five miles a day to reach a useable well. Farmers' yields in the area have dropped so much that some have been forced to abandon their fields and seek labouring work faraway. Rainfall for the past two years has been scant, but the factory continues to pump water.

Coca-Cola's Plachimada factory is perfect argument for why the world needs stricter not laxer rules governing multinational companies. National governments such as that of India, and within them, states such as Kerala, are desperate to attract multinationals. For this reason, they are loathe to impose the kind of environmental, social and labour standards that are now the norm in the west. Instead, developing nations' governments offer generous tax breaks, subsidies and, commonly, free electricity or water, as a lure.

The companies are hooked by these, and the prospect of cheaper labour than at home, as well as access to a new market. Coke, for example, was given a glittering cashback of 15% of its investment in the Plachimada factory by the government of Kerala, in return for moving into an impoverished region within the state. Of course, the multinationals bring with them jobs and investment and transfer technology and skills. These are all, to varying degrees, positive for the host country.

But the main issue is this: in many parts of the world, companies are able to get away with behaviour that would not pass in Europe or the US. Global companies ought to be regulated not just at the local level - where it can be hard to resist large investors - but also at the international one, and on a legally binding basis.

The argument is not even that Coke would be subject to the same environmental and labour laws in Kerala as it would be in Kirklees, Kerry or Kansas City. It is that there would be universal minimum standards to which all companies could be held accountable. These standards would be based on the principle that companies should not harm people or the environment. There would be a strong role for domestic governments in a system such as this: as with human rights laws, international rules would be cast to strengthen national legislation. It would ideally also work in the same way as a convention, similar to those of the International Labour Organisation, which countries sign up to, and which supersede domestic law. The ultimate enforcer would be the UN.

That it should have the force of law is important. Coca-Cola, like most multinationals, has a policy on corporate social responsibility and has committed itself to behaving like a good citizen. It says it strengthens communities and is committed to preserving the environment. But in India it is falling short of those aims. What companies such as Coca-Cola are failing to do voluntarily, they must be made to do by stronger means.

The Indian constitution, unlike those of some developing countries, is extremely comprehensive. For example, there is now, a Kerala groundwater control and regulations act (2002), which monitors commercial water usage in drought-prone areas. There is also strong existing legislation covering water pollution and environmental protection.

The problem in countries such as India is not a lack of laws, it is that so few of these are enforced. One major reason is that governments can be unwilling to pursue violators for fear of deterring future overseas investors. Meanwhile, it is too expensive for most individuals or groups to bring cases against a corporation; for swaths of India's 1bn population, justice is out of range.

But if all countries enforced minimum standards, there would be less incentive for some governments to turn a blind eye to polluters or union breakers. Alarmingly, the argument around regulation is currently moving in the wrong direction. At the World Trade Organisation meeting in Cancun, Mexico, next month, one of the new issues to be debated is the further liberalisation of international investment. This would increase the power of investing companies while making it harder for developing countries to regulate in the public interest. Kerala's farmers are just one reason why this should not happen.

About the Author: Liz Stuart works for Christian Aid and is contributing to its forthcoming report on corporate social responsibility.

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