Guest Post from William J. Magnuson of Texas A&M University School of Law

Many thanks to the Business Law Prof Blog for giving me the opportunity to post here.

I’d like to start off with a brief observation: corporations are more international than they have ever been.  Just in the last week, we have witnessed the European Commission ordering Apple to pay $14 billion in back taxes to Ireland, Samsung recalling its Galaxy Note phones from 10 countries due to battery fires in the devices, and Caterpillar announcing a global restructuring that could lead to the closing of its factory in Belgium in favor of a location in Grenoble, France.

While the globalization of international business today benefits society in a number of ways, it also has costs.  One of these costs is the increasing difficulty of regulating globalized companies.  When companies can easily restructure and relocate in order to avoid burdensome regulation, government regulators face a stark choice: they can pursue their policy priorities and risk causing companies to flee their jurisdiction (see the inversion craze of the last few years), or they can abandon those priorities in the hopes of attracting and retaining corporate business.  Neither of these is a particularly attractive option.

International cooperation provides one resolution to this dilemma.  By binding countries to particular regulatory frameworks, multilateral agreements can prevent the kind of “race to the bottom” dynamic that government regulators fear.  And indeed, a growing number of scholars have argued that international agreements are necessary to solve the regulatory problems associated with the internationalization of business.  But multilateralism suffers from a number of well-known flaws, including the difficulty of negotiating, monitoring and enforcing international agreements. 

In my forthcoming article, Unilateral Corporate Regulation, due out next semester in the Chicago Journal of International Law, I argue that the emphasis on multilateral solutions obscures the extent to which individual countries, and in particular large economic powers like the United States, China and the European Union, can unilaterally impose their domestic regulations on international firms.  This kind of unilateral corporate regulation can solve, or at least mitigate, many of the global problems that government decisionmakers face.  The United States, for example, imposes its corruption norms (the FCPA) and banking rules (FATCA) on foreign companies, even when those companies have minimal ties to the US.  The European Union does the same with its data privacy rules. 

At the same time, the rise of unilateralism raises a number of important questions for the future of corporate regulation.  How can we ensure that unilateral regulation by individual countries is fair and balanced?  How can we prevent biased and conflicting regulation from sprouting up around the world?  And what are the ethical limits on a country’s imposing its laws on businesses outside its borders?  These are difficult questions, and ones that are largely overlooked in the current debate.