This Article is written by Advocate Bhawna Puri, an intern under Legal Vidhiya
ABSTRACT
Corporate governance in global trade agreements, it’s all about the rules and regulations that companies need to follow. These rules make sure that businesses are fair, transparent, and accountable. It’s like a roadmap for how companies should behave when they’re doing business internationally it means that there are specific laws and regulations in place to ensure that companies operate ethically and responsibly when engaging in international trade. These laws cover various areas, such as financial reporting, board responsibilities, shareholder rights, and transparency. In the world of global trade agreements, corporate governance plays a crucial role. It refers to the rules and regulations that companies must follow when conducting business internationally. These rules ensure that businesses act in a fair, transparent, and accountable manner. They cover various aspects, such as financial reporting, board responsibilities, and shareholder rights. The goal is to promote ethical behavior, prevent corruption, and protect the interests of stakeholders. By establishing a framework for corporate governance in global trade agreements, it helps create a level playing field for businesses worldwide. This fosters trust, confidence, and a fair business environment. So, corporate governance in global trade agreements are all about setting the rules for responsible and ethical business practices on a global scale.
Keywords
Corporate Governance, trade agreements, Business, Law, Company
INTRODUCTION
When companies engage in global trade, it’s important to have a set of rules and regulations in place to ensure fair and ethical business practices. Corporate governance refers to the system of rules, practices, and processes that govern how a company is directed, controlled, and operated. It sets the framework for how businesses should behave, make decisions, and be accountable to their stakeholders. In the context of global trade, corporate governance becomes even more significant. It helps establish a level playing field for companies from different countries, ensuring that they adhere to similar standards and principles. These standards cover a wide range of areas, including financial reporting, board responsibilities, transparency, and shareholder rights. By having consistent corporate governance practices across borders, it promotes trust, confidence, and stability in global trade. Global trade agreements play a vital role in shaping corporate governance practices. These agreements often include provisions that encourage transparency, anti-corruption measures, and responsible business conduct. They establish guidelines that companies must follow when operating in different countries, ensuring that they comply with local laws and regulations while upholding international standards. Effective corporate governance in global trade helps protect the interests of various stakeholders, such as shareholders, employees, customers, and the wider society. So, corporate governance in global trade is about making sure companies do the right thing when they trade internationally.
OBJECTIVE
Global trading laws provide rules that countries follow when they do business with each other. These rules help make sure that everyone has a fair chance and that products and services are available to consumers. They also help keep markets open for producers and exporters. By having these laws, it helps create a better and more peaceful economic world. International trade law is how governments use rules to fix any problems that come up in trade. It’s all about making sure that trade is fair and follows the right guidelines. So, in simple words, global trading laws help make trade better for everyone involved.[1]
EARLY DAYS OF GLOBAL TRADING
Trade has played a big role throughout history, from the Silk Road to organizations like GATT. From 1948 to 1994, the GATT was like the boss of trade rules and helped trade grow a lot. But here’s the thing: even though it seemed like a solid and permanent organization, it was actually just a temporary agreement and organization during those 47 years. It has helped with economic development and promoting peaceful relations between countries. For example, China protected the Silk Road with its military to support trade, and Rome conquered Egypt to secure a good supply of grain. After World War II, people wanted to prevent another war, so they created global trade rules. The WTO, established in 1995, brought important changes and covers not just goods, but also services and intellectual property. It also introduced new ways to resolve trade disputes. Trade and foreign policy have always been closely connected.[2]
LEGAL ASPECTS OF CORPORATE GOVERNANCE IN GLOBAL TRADE
World Trade Organisation
The Rules of Origin Agreement of the WTO says that countries have to use their rules of origin in a fair and consistent way. These rules help figure out where a product comes from, but it can be tricky when different countries are involved. Rules of origin have a bunch of uses, like deciding how much tax to charge, giving trade preferences, and managing government purchases. The important thing is that these rules shouldn’t mess up international trade. They should be applied in a fair and clear way.[3] The organization’s contribution to facilitating trade can be seen through the principles it has adopted. The following are some principles:
A) Trade without discrimination
The WTO makes sure that trade is fair and equal for all its members. They don’t allow any unfair treatment or favoritism. If one country gives special treatment to another country, they have to give the same treatment to all other countries in the WTO. This is called the most-favored-nation treatment. It means that all countries in the WTO have an equal chance to trade with each other. Another important rule is that WTO members have to treat imported products the same as products made in their own country. They can’t give any unfair advantages to their own products. This helps increase the amount of trade between countries because it creates a level playing field.
B) Freer trade
The WTO works hard to make trade between countries even easier. They have lots of talks to lower the barriers that can get in the way of trade. But they don’t force anyone to make sudden changes. They understand that developing countries have weaker economies and need more time to make the recommended changes. This way, the WTO promotes fair trade and helps developing countries follow the rules without being at a disadvantage. It’s all about making trade freer and fairer for everyone involved.
C) Maintaining predictability through binding and transparency
The WTO wants to make sure that international trade is predictable and transparent. This helps protect its members from unexpected changes in tariffs or other trade rules that could cause big losses. By keeping things predictable, members feel more confident to trade with each other. But if a member wants to make changes to their tariffs or trade laws, they have to agree with their trading partners and maybe give them compensation. This rule encourages members to trade without worrying about sudden changes in their partners’ laws. It’s all about creating a stable and fair-trading environment.
D) Promoting fair competition
WTO makes sure that all its members are treated equally when it comes to trade. But it also has rules in place to protect its members from any unfair practices. For example, if a country is being harmed by other countries selling their products at very low prices, the WTO allows that country to put tariffs on those products. This helps the country protect its own economy and promotes fair competition among the members. So, the WTO is all about making sure trade is fair and balanced for everyone involved.
E) Encouraging development and economic reform
WTO is a dynamic organization that encourages development and economic reform in its member countries. Some developing countries in the WTO haven’t fully embraced the free market economy in their own economies. But the WTO provides assistance to these countries to help them develop their economies. For example, during the Uruguay Round, over 60 developing countries implemented programs to open up their economies and promote trade. The level of economic reforms in developed countries is closely tied to international trade. As countries become more developed, they tend to engage in more imports and exports, which boost international trade. So, the fifth principle of the WTO also contributes positively to international trade between countries. It’s all about promoting growth and cooperation.[4]
TRIPS
TRIPS, which are short for Trade-Related Aspects of Intellectual Property Rights, came into effect in 1995 as part of the agreement that created the World Trade Organization (WTO). This agreement made it clear that protecting intellectual property rights is an important part of international trade. Before TRIPS, different countries had different levels of protection and enforcement for intellectual property rights. This caused some issues in international trade because intellectual property became more valuable. To bring more order and fairness, new rules for intellectual property rights were needed. It sets the minimum standards for how intellectual property should be protected and used. It covers things like trademarks, copyrights, patents, geographical indications, industrial designs, layout designs for integrated circuits, and trade secrets. It applies to all member countries of the WTO. The agreement also allows for some exceptions and limitations to protect public health and promote economic development. TRIPS is the most comprehensive international agreement on intellectual property and helps promote trade in creativity and knowledge. It also helps resolve disputes related to intellectual property and allows countries to pursue their own policy goals. It’s all about creating a fair and balanced system for everyone involved.[5]
INTERNATIONAL CHAMBER OF COMMERCE (ICC)
The International Chamber of Commerce (ICC) is the biggest and most diverse business organization in the world. It represents 45 million companies in over 100 countries with a wide range of business interests. The ICC has networks of committees and experts that cover various business sectors. They also maintain connections with the United Nations, the World Trade Organization, and other intergovernmental agencies. The ICC aims to promote and protect open markets for goods and services, as well as the free flow of capital. It provides functions such as establishing rules, resolving disputes, advocating for policies, and offering training to businesses. The ICC’s committees and experts keep members informed about industry-related issues. As ICC members engage in international business, the ICC has significant authority in setting rules for cross-border business. Although these rules are voluntary, many daily transactions follow the ICC-established rules as part of regular international trade. It’s all about ensuring fair and smooth business operations across borders.[6]
Some Case Laws Related to Corporate Governance
- One landmark case related to corporate governance in the context of global trade is the United States v. Siemens AG 2008. In this case, Siemens, a German multinational conglomerate, was charged with violating the Foreign Corrupt Practices Act (FCPA). The case highlighted the importance of strong corporate governance and anti-corruption measures in global trade. Siemens was accused of engaging in widespread bribery and corruption to secure contracts in various countries. The company ultimately agreed to pay a substantial fine and implement significant changes to its corporate governance practices. This case served as a wake-up call for multinational companies operating in global trade, emphasizing the need for robust compliance programs, ethical conduct, and transparent business practices. It highlighted the importance of corporate governance in preventing corruption and maintaining the integrity of global trade. [7]
- Another case that is WorldCom 2000, a telecommunications company based in the United States, was involved in one of the largest accounting frauds in history. WorldCom inflated its financial statements by billions of dollars, misleading investors and stakeholders. The scandal led to the company’s bankruptcy and highlighted the importance of corporate governance in preventing fraudulent activities. The case resulted in significant regulatory changes, such as the Sarbanes-Oxley Act, which aimed to strengthen corporate governance practices and increase transparency in financial reporting. It served as a catalyst for stricter oversight and accountability measures in global trade. The WorldCom scandal underscored the need for effective corporate governance mechanisms, including independent boards, internal controls, and ethical leadership, to prevent fraudulent practices and protect the interests of shareholders and stakeholders.[8]
Changes that have been observed from Past Few Years
Over the years, there have been several changes in corporate governance in the context of global trade. These changes are aimed at enhancing transparency, accountability, and ethical practices in businesses operating internationally. Some notable changes include:
1. Strengthened regulations: Governments and regulatory bodies have implemented stricter regulations and laws to promote good corporate governance. For example, the Sarbanes-Oxley Act in the United States and similar legislation in other countries have imposed more stringent reporting and disclosure requirements on companies.
2. Increased focus on board independence: There is now a greater emphasis on having independent directors on corporate boards. Independent directors bring objectivity and diverse perspectives, reducing the potential for conflicts of interest and improving decision-making processes.
3. Enhanced shareholder rights: Shareholders now have more rights and avenues to voice their concerns and hold companies accountable. This includes the ability to vote on important matters, access to information, and the right to nominate directors.
4. Emphasis on risk management: Companies are now expected to have robust risk management frameworks in place to identify, assess, and mitigate risks. This includes addressing financial risks, operational risks, and compliance risks.
5. Increased focus on sustainability and social responsibility: Corporate governance has expanded to include considerations of environmental sustainability and social responsibility. Companies are expected to integrate environmental, social, and governance (ESG) factors into their decision-making processes.
These changes reflect a growing recognition of the importance of ethical behavior, transparency, and accountability in global trade. They aim to restore trust and confidence in corporate practices and protect the interests of various stakeholders involved in international business transactions.
CONCLUSION
To sum up I’d want to draw the conclusion that corporate governance in the context of global trade agreements encircle a wide range of legal aspects keeping with international standards, securing investor’s right, encouraging ethical business practices, and labeling social and environmental concerns. It ensures fair competition and prevents unfair practices protects intellectual property rights and raising transparency and accountability. Additionally, these agreements encourage environmentally friendly practices and the conservation of natural resources. By holding companies accountable for their actions, corporate governance contributes to a more equitable and sustainable global economy By embedding to these legal aspects, companies can bloom in the marketplace all along keeping alive the faith and reliance among stakeholders.
REFERENCES
1 International Trade Law, Wikipedia (2023), https://en.wikipedia.org/wiki/International_trade_law#:~:text=International%20trade%20law%20is%20the,international%20trade%20law%20governing%20trade visited on April 6, 2024
2 The History of Multilateral Trading System, WTO, https://www.wto.org/english/thewto_e/history_e/history_e.htm visited on April 7, 2024
3 279, Trade guide: WTO Roo International Trade Administration | Trade.gov, https://www.trade.gov/trade-guide-wto-roo#:~:text=The%20Rules%20of%20Origin%20Agreement,distort%20or%20disrupt%20international%20trade visited on Apr 7, 2024
4 World Trade Organisation (WTO): Scope, contribution and criticism, Research (2012), https://research-methodology.net/world-trade-organisation-wto-scope-contribution-and-criticism/ last visited Apr 7, 2024.
5 Admin (2023a, June 26). Trade-related aspects of intellectual property rights, Trips Agreement for UPSC. BYJUS https://byjus.com/free-ias-prep/trade-related-aspects-of-intellectual-property-rights-trips/ visited on April 7 2024
6 Kenton, W(n.d.). International Chamber of Commerce (ICC) definition, activities. Investopedia. https://www.investopedia.com/terms/i/international-chamber-of-commerce-icc.asp visited on 7 April 2024
7 Securities and Exchange Commission v. Siemens Aktiengesellschaft, Civil Action No. 08 CV 02167 (D.D.C.)
8 Securities and Exchange Commission v. Worldcom, INC 2002 No. 02 Civ. 4963(JSR)
[1] International Trade Law, Wikipedia (2023), https://en.wikipedia.org/wiki/International_trade_law#:~:text=International%20trade%20law%20is%20the,international%20trade%20law%20governing%20trade (last visited Apr 6, 2024)
[2]The History of Multilateral Trading System, WTO, https://www.wto.org/english/thewto_e/history_e/history_e.htm (last visited Apr 7, 2024)
[3] 279, Trade guide: WTO Roo International Trade Administration | Trade.gov, https://www.trade.gov/trade-guide-wtoroo#:~:text=The%20Rules%20of%20Origin%20Agreement,distort%20or%20disrupt%20international%20trade visited on Apr 7, 2024)
[4] World Trade Organisation (WTO): Scope, contribution and criticism, Research (2012), https://research-methodology.net/world-trade-organisation-wto-scope-contribution-and-criticism/ (last visited Apr 7, 2024).
[5] Admin (2023a, June 26). Trade-related aspects of intellectual property rights, Trips Agreement for UPSC. BYJUS https://byjus.com/free-ias-prep/trade-related-aspects-of-intellectual-property-rights-trips/ visited on April 7, 2024
[6] Kenton, W. (n.d.-a). International Chamber of Commerce (ICC) definition, activities. Investopedia. https://www.investopedia.com/terms/i/international-chamber-of-commerce-icc.asp
[7] 7 Securities and Exchange Commission v. Siemens Aktiengesellschaft, Civil Action No. 08 CV 02167 (D.D.C.)
[8] Securities and Exchange Commission v. Worldcom, INC 2002 No. 02 Civ. 4963(JSR)
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