The Multinational Monitor


E X P O R T   O F   H A Z A R D S

Remedies Against Hazardous Exports

Compensation, Products Liability and Criminal Sanctions

by Sheila Jasanoff

During the 1970s, the United States and other industrial countries enacted tough new environmental laws to protect their citizens against hazardous substances in consumer products, the environment, and the workplace. In doing so, they unwittingly created problems for many developing countries that are only now embarking upon the process of industrialization, and for whom comparable programs of preventive regulation are economically, technically, and politically out of the question. Products deemed too dangerous in producing countries--drugs, pesticides, defective consumer goods-are sold abroad in countries with less stringent quality control standards. Hazardous industries locate new plants in these countries to avoid costly pollution control requirements. While few receiving nations would deny entry to all such "exported" hazards, none is prepared to accept a wholesale flight of risk from the more highly industrialized areas of the world.

The industrialized nations have taken some action in recent years to control the export of hazards to developing countries. Most such initiatives are directed at informing receiving countries of risks associated with products that are banned or severely restricted in country of origin. In the U.S., for example, half-a-dozen laws now require notification or the express consent of importing governments for the export of such regulated products. Along similar lines, the Organization for Economic Cooperation and Development (OECD) issued a decision and guidelines in 1984 concerning transfrontier shipments of hazardous wastes. The guidelines include a call for "international prenotification and cooperation" among exporting, importing, and transit countries.

For developing countries, such actions provide only a partial answer to the problem of hazardous exports. To begin with, notification policies can be undermined by a failure of political will in the exporting countries. The Reagan administration, for example, has been charged with systematically undermining the U.S. hazard export policies developed under President Carter. More important, notification alone provides no security against risk. Exporters understandably see notification as a logical endpoint for their obligations to users and consumers. For importing countries, however, information merely provides a starting point for further regulatory action. Ultimately, the governments of importing countries must develop their own rules for holding manufacturers and producers accountable for trade in hazardous materials.

Yet, realistically, the developing countries will not soon be in a position to regulate industrial hazards as strictly or as comprehensively as richer, more technologically advanced nations. Developing economies can not afford the luxury of being excessively risk averse. What, then, can policy-makers in these nations do to mitigate the impact of hazardous! industrial processes upon the health of their citizens and their environment? If prevention proves impracticable, they should attach much greater weight to designing remedial measures for coping with disasters after they occur. The legal system should be modified as needed to accomplish two new objectives: to provide fair compensation to victims of hazardous products and processes, and to penalize irresponsible firms and their officers through appropriate civil and criminal sanctions. The threat of sanctions, both economic and penal, may prove more effective in the long run than half-hearted attempts at preventive regulation.

Administrative Compensation Programs

Ill health caused by hazardous industrial processes often catches the victim unawares. Accidental exposure to toxic substances or prolonged contact with substances of unsuspected toxicity can lead to crippling disease and death. Victims in the developing countries are rarely prepared to bear the costs of chronic debilitating illness and the resulting impairment of their earning capacity. One way of mitigating their losses is to create compensation programs to handle the claims of pollution victims. Financial responsibility for such victim compensation programs should be allocated between government and the private sector so as to give maximum relief to the immediate victims of pollution. Hazardous industries should assume the larger share in funding such compensation programs. Holding them financially accountable for the damage caused by their operations is not only morally justified, but creates economic pressure for them to clean up their production process.

Before turning to questions of financial responsibility, however, policy-makers in developing countries have to confront a basic strategic choice. How widely should they cast the safety net of victim compensation? Should all possible claimants be entitled to seek compensation for injuries caused by exposure to hazardous industrial processes? Or should administrative compensation programs be limited to smaller sub-groups of claimants? The total number of claimants, the source of their exposure to toxic substances, and the severity of their injuries have serious implications for the legal and institutional design of a compensation program. A scheme to compensate members of the general public for damage caused by toxic wastes calls for quite different administrative procedures and financing arrangement from one that is designed solely for workers in chemical factories.

Workers Compensation. - At a minimum, developing countries should make every effort to provide the fullest possible coverage for workers who are directly employed in hazardous industries or whose employment involves regular contact with toxic substances. Without the protection of a comprehensive workers' compensation statute, their ability to recover for work-related injuries is likely to be severely limited by their economic dependence on the employing industry.

The basic principles of workers' compensation are now accepted in most countries where industrialization has taken place on a substantial scale. Employees are insured, usually by means of employer contributions, against physical incapacity suffered during the course of employment. In exchange for guaranteed recovery of medical costs and wage losses up to specified limits, workers relinquish the right to recover damages through private litigation against the employer. If workers' compensation is designated as the exclusive remedy for employment-related injuries, the program should be structured to offer employees the fullest possible relief. Unfortunately, this is not always the case in practice.

In the United States, for example, after almost a century of development, workers' compensation laws in many states still provide far less satisfactory coverage for victims of occupational disease than for workers suffering traumatic injuries. A variety of legal impediments have tended to limit recovery for diseases caused by exposure to hazardous substances, including, in particular, occupational diseases with long latency periods.

Some of the most common deficiencies of existing workers' compensation laws can easily be avoided in drafting new statutes. Coverage should be provided across the board for any employment-related disease or injury.

Pollution Victims' Compensation. - As for pollution victims, national governments might consider the enactment of victim compensation laws that assist claimants by means of rebuttable presumptions. These make it possible for a claimant to shift the burden of proof to the alleged polluter on the strength of a minimal showing, not amounting to full proof of causation. If the defendant cannot produce an adequate rebuttal, the claimant recovers. Rebuttable presumptions vastly improve the pollution victim's chances of recovery in the setting of a private lawsuit. But these modifications in the standard of proof neither alter the basic twoparty structure of the compensation process nor provide a mechanism by which the public, as the principal beneficiary of industrialization, assumes a proportionate share of the costs of compensation.

The Case of Japan. - The use of levies on industry to finance a compensation program is entirely consistent with the "polluter pays" principle. Originally articulated by the OECD and now widely accepted as a guiding rule for sound environmental management, this principle requires polluters to pay both the direct cost of reducing pollution and the indirect cost of pollution-related damage to public health and the environment. Although the principle has been widely discussed, Japan is the only major industrial country that has incorporated it into a compensation program for pollution induced disease. The Pollution-Related Health Damage Compensation Law of 1973 designates certain areas of the country as "regions where marked air or water pollution has risen over a considerable area as a result of business activity or other human activity and where diseases are prevalent which would not occur without some material or materials which are the cause for such air or water pollution and which are generally considered to be linked to such diseases."

A national government agency is responsible for designating the pollution districts and identifying toxic environmental pollutants and related compensable diseases in each district.

To obtain compensation, claimants from polluted regions must demonstrate only that they are suffering the symptoms of a designated disease and that they have resided in the district for a sufficient length of time. This procedure vastly reduces the burden of proof for individual claimants. Polluters pay the entire cost of compensation through a system of emission charges and taxes.

On its face, the Japanese law seems to achieve a fairly equitable distribution of the costs of pollution-related disease, but the history of its adoption and problems encountered in implementing it suggest that political support for similar legislation may be difficult to garner in other countries. The Japanese law was enacted only after a series of environmental disasters and the resulting lawsuits alerted the public to the tragic consequences of industrial pollution. Industry initially acquiesced in the development of an administrative compensation program to avoid continual litigation and potentially unlimited liability. Since that time, however, the growing burden of the pollution levy has aroused bitter industrial opposition and the system has come under attack as both unfair and scientifically unsound. The future of the compensation program depends on a satisfactory resolution of the economic and technical controversies surrounding the system's current approach to cost allocation.

Compulsory Insurance

Compulsory insurance offers an alternative approach to ensuring financial responsibility. Hazardous industries can be required by law to carry adequate amounts of liability insurance, although such provisions must take account of the insurance industry's ability and willingness to cover liability arising out of industrial disasters. Most liability insurance contracts written in the U.S. today exclude coverage for bodily injury or property damage caused by toxic chemicals unless the release of these substances is sudden or accidental. Under such agreements, the insurer is not obliged to pay for illness caused by prolonged exposure to substances like asbestos or mercury, nor for adverse health effects resulting from intentional releases of highly toxic substances.

Legislative attempts to broaden the accepted formulas for coverage are likely to encounter stiff opposition from the insurance industry. Insurers are notoriously reluctant to extend coverage or low-probability, high-risk occurrences that could expose their insureds to astronomical claims for personal injury and property damage. One way to overcome the insurance industry's opposition is for the government to offer itself as a major insurer. The U.S. government adopted this policy when it required the nuclear industry to carry mandatory insurance under the Price-Anderson Act. The decision was part of the federal government's comprehensive plan to encourage private development of nuclear technology for commercial use. The Price-Anderson Act originally required the U.S. government to satisfy liability claims in excess of the amount provided by private insurers and below the ceiling of $560 million. Despite the promise of government indemnification, the insurance industry could not have generated its share of insurance capacity without an extraordinary pooling of resources by a large number of U.S. and international firms. Outside the nuclear context, however, the problem of inadequate insurance capacity may loom less large, since the consequences of catastrophic accidents are likely to be more limited, and industry's potential liability correspondingly lower.

Administrative compensation schemes can easily combine the concept of mandatory insurance with an environmental liability fund. This approach was adopted by the U.S. Congress in establishing a "Superfund" to pay for clean-up, containment, and damages to natural resources caused by releases of hazardous substances into the environment.

Product Liability

While the area of victim compensation offers many opportunities for innovative policymaking, developing countries will have to solve difficult legal, political, and economic problems before they can establish mechanisms for equitably reallocating the losses caused by hazardous products and processes. Until systematic programs are developed and implemented, it is critically important for national legal systems to provide traditional tort law remedies for harm caused by industrial activity. Product liability laws should receive especially high priority in a comprehensive legal strategy for protecting the public against hazards exported to the developing countries.

Product liability law permits an individual who has been injured )'- a defective product to recover damages in a suit against the seller or manufacturer. In the United States, this has proved to be an extremely important legal remedy not only for consumers, but also for workers. Even though tort actions against employers are automatically barred by the rules of workers' compensation, workers can frequently sue the supplier of a hazardous material or the manufacturer of an intermediate product in a third-party lawsuit. Exposing suppliers and manufacturers to tort liability for defects in their products can promote greater responsibility in the manufacture and marketing of hazardous goods.

As a general matter, developing countries should note with interest the expansion of the seller's responsibility that has characterized product liability law in recent years. Generally, the movement has been away from liability based on negligence or contractual concepts such as warranty and privity. Instead, strict liability is now the preferred legal doctrine for harm caused by an unsafe product. Under the strict liability doctrine, the supplier of a defective product can be held liable for damages caused by it whether or not he knew or had reason to know of the defect.

What makes a product "defective" or "unreasonably dangerous" is decided on a case-bycase basis in tort decisions. It is hoped that these terms will be generously interpreted in cases involving hazardous exports. For example, the fact that a product is banned or severely restricted in another country could give rise to a legal presumption that it is "unreasonably dangerous." In addition, where the risk of harm from a pesticide or other chemical substance can be reduced only through appropriate labeling, the product should be regarded as unreasonably dangerous if it is not marked with proper warning labels. In this connection, developing countries should press for wider use of pictographs and other devices to provide information about health risks and safety precautions to users of pesticides and other hazardous substances.

Criminal Liability for Corporate Officers

Compensation and product liability create economic deterrents against hazardous enterprises, but offenses against public health and the environment can be deterred even more effectively by subjecting corporate officers to criminal sanctions. Criminal prosecutions of corporate officers are now fairly commonplace in the field of environmental policy. For example, several top executives of the Ipca dye factory in Cirie, Italy were convicted of manslaughter in 1977 for the deaths of more than 100 workers from bladder cancer over a 30-year period. In Japan, prison sentences were sought against retired officers of the Chisso Corporation who were charged with involuntary manslaughter in the Minamata mercury pollution case. Corporate officers in the U.S. have been held criminally liable for violations of a number of federal environmental and health and welfare laws, including negligent discharges of pollutants in violation of the Federal Water Pollution Control Act.

When corporate officers are tried for serious criminal offenses, such as murder or manslaughter, convictions are ordinarily based on the standards of wrongful intent usually associated with these crimes. It is not immediately obvious, however, what standard of criminal responsibility should be applied in the case of lesser violations. In the United States, personal participation by the officer in a criminal act has not been viewed as a necessary precondition for criminal prosecution under public welfare statutes. This area of law departs from ordinary criminal law in recognizing two additional bases for liability: -vicarious liability for the officer for the criminal acts of subordinates and liability for omissions.

The latter approach, for example, was upheld by the Supreme Court in U.S. v. Park, a case arising under the Federal Food, Drug and Cosmetic Act, in which the president of a large food chain was held criminally liable for rodent contamination of food stored in a company warehouse in violation of the Act's provisions against adulteration. The court noted that "the Act imposes not only a positive duty to seek out and remedy violations when they occur but also, and primarily, a duty to implement measures that will insure that violations will not occur." Liability was properly assigned in this case because "the defendant had, by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and. ..he failed to do so."

Attempts to use criminal sanctions against corporate officers under environmental or health and welfare statutes can backfire, however. Since such laws commonly provide for both civil and criminal penalties, there is always a danger that the latter will be ineffectually enforced. Prosecutors may use the threat of criminal prosecution merely to negotiate out-of-court settlements from corporations. Alternatively, criminal sanctions may be viewed as unnecessarily severe and allowed to lapse through lack of enforcement. These considerations must be weighed against the argument that precisely directed and justly enforced criminal sanctions are the most appropriate means of inhibiting or punishing flagrant endangerment of public health and welfare by corporate managers.

To deter irresponsible corporate behavior, developing countries could usefully begin considering the legal issues involved in obtaining jurisdiction over foreign or multinational corporations and their officers in criminal proceedings. It is possible that international agreements, based on common understandings of crimes against public welfare and standards of criminal responsibility, are needed to provide a sure basis for prosecuting such offenders. For the moment, one can only suggest that such accords would be a desirable goal for international decision making. Comparable agreements have evolved in the past in connection with other crimes that transcend national boundaries, such as hijacking, drug smuggling and international terrorism. The time may be ripe to add the export of industrial hazards to this list.


There are as yet few tried-and-true procedures for mitigating the impact of hazardous industries on health and the environment. Remedial policies directed against technological risks have generally lagged behind the development of preventive regulation in the industrialized nations. Developing countries may actually find themselves at a comparative advantage. Since many of them are just beginning to confront the problems of industrialization, their legal and institutional approach to regulation remains relatively flexible. They now have an unprecedented opportunity to combine preventive and remedial strategies into an effective comprehensive policy for industrial development.

Sheila Jasanoff is a Professor in the Program on Science, Technology and Society at Cornell University in Ithaca, New York.

Table of Contents