From Burma, China and Colombia to Ecuador, Nigeria and Sudan, the world's poor and exploited are coming to America. No, they're not coming here to live, work, or study. They're not coming to fill our factories, our schools or our neighborhoods. They're coming to our courthouses -- to seek justice from global corporations for exploitative business practices abroad.
American judges have embraced the opportunity to hold multinational corporations responsible for perceived abuses that result from international trade and investment. The result? Judicial activism has gone global. U.S. judges increasingly set the ground rules of the global economy. Whether or not the judges fully recognize it, this activism is turning out to be as much a threat to the makers of U.S. foreign and trade policy as it is to corporate executives.
Two remarkable recent court decisions highlight this lunge toward U.S. judicial oversight of globalization. Last month, a California state court removed the final obstacles to a trial of Unocal -- one of America's largest oil and gas exploration companies -- to determine its responsibility for human rights abuses during the construction of a natural gas pipeline in Burma, also known as Myanmar. The $1.2 billion project, completed in 1998, was a joint venture involving Unocal, the French oil giant Total, the Petroleum Authority of Thailand and Burma's military government.
The plaintiffs are Burmese villagers who lived along the path of the pipeline, in particular a 39-mile stretch crossing a region bordering Thailand. The villagers charge that Burmese military authorities forced them to work on the pipeline, and in some cases kidnapped and raped them. Independent human rights groups have reported that entire communities were uprooted to make room for the pipeline and its supporting roads, and that residents who were conscripted to work on the project faced slave-like conditions.
Is this a matter for a superior court judge sitting in Los Angeles? No, said Unocal. The firm has insisted that it never participated in human-rights abuses in Burma and that it cannot be held responsible for the actions of the armed forces of a sovereign nation. The judge disagreed. She ruled that just as a homeowner can be legally responsible for the negligence of a contractor or one business partner can be answerable for the mistakes of another, Unocal could be held accountable for abuses committed by the Burmese military. Such a decision would be reasonable, the court determined, if a jury accepted the plaintiffs' claims that Unocal knew that the military was relying on forced labor and that the company benefited, even if only indirectly, from the practice.
The burgeoning potential liability of multinational companies is not limited to industries such as oil or gas that often require intimate relationships with repressive regimes. In May, a federal court accepted a case brought by 30,000 foreign "guest" workers alleging that the U.S. apparel industry operated as a "criminal enterprise" by using dishonest recruiting methods in Asia. The workers claim that some of America's largest retailers -- including Gap Inc., J.C. Penney, Levi Strauss and the Limited -- conspired with their contract manufacturers on the U.S. island territory of Saipan to lure young women from China, Bangladesh and the Philippines with false promises of well-paying jobs. After the women paid "recruitment fees" -- often with money borrowed from family and friends -- to obtain the jobs in Saipan, they found themselves trapped in sweatshop conditions with long hours, forced overtime, unpaid wages, and unsanitary living conditions. The court rejected the retailers' arguments that they were merely customers of independent factories and were therefore shielded from liability for the recruiting tactics.
The rulings in the Saipan and Unocal cases represent a direct shot into every American corporate boardroom operating in the global economy, as well as the offices of the State Department and the U.S. trade representative. As U.S. courts begin to evaluate complicity between multinational corporations and the repressive governments with which they do business, the rules of global trade and investment are being rewritten. Our government's relations with foreign governments could become subject to the views of a county or federal judge.
When a jury is asked to decide whether apparel retailers conspired with manufacturers to keep costs down by exploiting foreign workers in Saipan, how long before other global industries -- in manufacturing, agriculture and high technology -- face similar challenges? How will a U.S. court determine when the invisible hand of market forces becomes the iron fist of exploitation?
For years, the multinational business community has strongly supported the development of a new "global financial architecture" to protect capital flows and property rights. But it has adamantly opposed creating a complementary "international social framework" of corporate responsibility to protect workers' rights or the environment.
Nature and American litigators abhor a vacuum. It is because local courts fail to offer these basic protections, that victims -- and U.S. activists -- have turned to American courts to judge corporate behavior. The Burma and Saipan cases are simply the first wave of cases. At least a dozen similar lawsuits are wending their way through U.S. courts -- against multinational companies as diverse as Pfizer, Texaco and Coca-Cola, with plaintiffs coming from every part of the developing world.
This litigation threatens to breach barriers that have historically shielded multinational corporations from liability. First, U.S. judges have shown an ever-greater willingness to assert jurisdiction over cases where the abuses take place in other countries -- affirming that liability, like commerce, can cross national boundaries. At the same time, judges have also been willing to hold multinationals accountable for the actions of their local business partners. Though courts still express reluctance to intervene if the challenged conduct is not egregious -- creating conditions of torture or slave labor, for example -- the safe bet is that the list of actionable abuses will grow over time.
None of these cases -- so far -- has made it to trial, verdict or final settlement. But the lawsuits represent a new force in the globalization debate. In the past, corporations accused of abusive practices faced public shaming by socially responsible investors, campus demonstrations and consumer actions. The level of corporate response was related to a company's visibility to the public. It is no accident that those with significant "brand equity" -- such as Nike, Gap or Starbucks -- became the primary targets for anti-globalization protesters. And it is no accident that these companies made the greatest investments in addressing protesters' concerns.
With the threat of protracted litigation, cost to a company's reputation could be compounded by legal -- and financial -- liabilities. This risk is unrelated to a company's public profile but tied to its economic scope and business practices. Depending on how their business partners behave, every company operating in emerging markets is a potential defendant.
So what will drive companies to adopt global standards for their behavior? The Saipan and Burma cases and their cousins force multinational corporations to confront a difficult choice. Like settlers of the Old West, they can recruit hired guns to protect their interests -- lobbyists to fight new regulations or litigators to stem the tide of U.S. judicial activism. This seems to have been the path taken so far. America's business community has effectively shot down virtually every foreign policy initiative that sought to link trade liberalization with the promotion of worker rights or environmental protection.
But smart multinationals should pioneer a different path. Companies need to scrutinize the practices of their business partners -- how they treat workers and the environment, how they interact with local military and political authorities -- to determine whether they violate international standards or offend the conscience of U.S. courts. By harmonizing acceptable business practices across markets, business can take the lead in building realistic global standards. Realistic standards minimize the threat of legal retribution.
Over the long term, the most important step multinational corporations can take to protect themselves is to strengthen justice systems in foreign countries. Companies should fund programs to train foreign court officials and judges, and consider supporting legal aid clinics for workers and their families. This may seem like an odd mission for the private sector, but distant villagers and laborers are turning to U.S. judges because of the failure of local courts. The legal costs to U.S. companies in the Unocal or Saipan cases probably represent a sizable fraction of the national court budgets of many developing countries.
This would also protect what is rightfully a matter of U.S. foreign and trade policy. Foreign courts should uphold the rule of law locally and implement internationally negotiated rules of commerce. But U.S. judges are not in the best position to set American policy toward the government of Burma or establish acceptable global standards of conduct.
When foreign victims can find meaningful redress in their home countries, U.S. judicial activism will smack of judicial imperialism. In theory and in practice, local courts should be able to identify problems earlier, resolve them faster, and tailor solutions more appropriately to local conditions. And yes, those solutions will cost less, since they will not require payments to U.S. plaintiffs' attorneys.
Elliot Schrage, formerly senior vice president of global affairs at Gap Inc., teaches at Columbia Business School and Columbia Law School.