Transnational corporations and developing countries.
(by Róbinson Rojas Sandford)(1998)
__________________________________________________
See also: The Multilateral Agreement on Investment
__________________________________________________
"Transnational corporations as engines of growth" have been the main
tenet of every theory of international business since the early 1950s.
By the late 1960s, when nationalist political movements were sweeping
Latin America, Asia, and Africa, the U.S. government organized a
special devise for protecting its own "engines of growth" operating in
developing countries:
-the Overseas Private Investment Corporation (OPIC).
THE U.S. TRIPLE ALLIANCE: U.S. TNCs, government and army
OPIC was established by the Foreign Assistance Act of 1969 as a succesor
to the Agency for International Development (AID) investment guarantee
program for U.S. corporations operating in developing countries. Its
purpose was to insure U.S. investment capital "against losses from
certain specific political risks" including "loss of investment due
to expropriation, nationalization, or confiscation by the foreign
government". (taken from J. Petras and M.Morley, "The United States
and Chile: Imperialism and the Overthrow of the Allende Government",
Monthly Review Press, 1975).
Commenting on the above, the U.S. senator Frank Church summarized the
impact of the OPIC's activities on U.S. government policy:
"...once the Government assumes the insurance of the company, the
company's interest and that of the Government become identical,
and the company can fall back on the Government or threaten to
fall back on the U.S. Government, whenever it deals with a
foreign government..." (U.S. Congress, Senate, Committee on
Foreign Relations, Subcommittee on Multinational Corporations,
"Multinational Corporations and United States Foreign Policy",
Part 3, 1st session, July 18, 19, 20, 30, 31, August 1, 1973.
Washington: U.S. Government Printing Office, 1973, p. 141)
Three years before, the U.S. Congress, House, "Report of the Special
Study Mission to Latin America on I. Military Assistance Training and
II Development Television", 1970, concluded:
"In conclusion, the study mission wishes to point out that the
majority of issues which must be addressed about Military
Assistance Program (MAP) training are political and economic in
nature, rather than strictly military. This emphasis reflects
our strong convictions that military assistance programs are
primarily an instrument of American foreign policy and only
secondarily of defense policy" (p. 21)
Page 145 of the same report quotes "a high-level Defense Department
policy-maker" describing the rationale behind U.S. military assistance:
"We are furnishing assistance in the form of military training
to almost all the countries of Latin America. It is sometimes
difficult to sort out those that have elected governments from
those that don't. We feel it is extremely important to maintain
our relations with the people who are in positions of influence
in those countries so we can help to influence the course of
events in those countries".
Clearly, U.S. transnational corporations, U.S. civilian government and
U.S. military establishment form a triple alliance to make of developing
economies the "natural extension" of their global businesses.
"The politics of the new imperialism is characterized by the
collusion of the multinationals. Latin American militaries,
the managers of state enterprises, and a Latin American
bourgeoisie that has accommodated itself to the new international
division of labour. Within this context, the hypothesized
relationship between economic development and democracy examined
above becomes irrelevant because in the imperialist system it is
not the form of the government that matters but the fact of
economic and political domination by the agents of international
capitalism. Wether the game is populist, democratic reformist,
or military authoritarian makes little difference because real
power continues to be held by the same players" (G. W. Wynia,
"The politics of Latin American Development", Cambrige University
Press, 1978, p. 319)
At the beginning of this century, when U.S. big business was colonizing
Central America and the Caribbean using the U.S. marines to establish
military protectorates as defenders of the "new markets", the dynamics
was exactly the same:
"I helped make Mexico and especially Tampico safe for American
oil interests in 1914. I helped make Haiti and Cuba a decent
place for the National City Bank boys to collect revenue in...
I helped purify Nicaragua for the international banking house
of Brown Brothers in 1909-12. I brought light to the Dominican
Republic for American sugar interests in 1916. I helped make
Honduras "right" for American fruit companies in 1903".
(Major General Smedley D. Butler, U.S. Marine Corps, quoted
in J. Wiarda and H.F. Kline (eds.), "Latin American Politics
and Development", Westview Press, p.72)
In the process of making Latin America, Africa and Asia "safe" for
U. S. transnational business, the U.S. Army have been involved in the
development and teaching of the most barbaric techniques, making of
that army an even more despicable bunch of murderers at the service
of international capital than the Gestapo in nazi Germany and the
DINA in Pinochet's Chile.
I quote from The Times, September 23, 1996, page 13:
"PENTAGON ADMITS IT TAUGHT LATIN AMERICANS TO TORTURE
From Ian Brodie in Washington
The Pentagon has admitted that its training centre for Latin
American military and police officers used manuals that advocated
torture, execution, blackmail and other forms of coercion against
insurgents.
Confirming accusations levelled by critics over the years, the
Pentagon conceded that the manuals at the US Army's School of the
Americas violated United States policy and principles.
For example, the volumes proposed that counter-intelligence agents
trying to recruit informants could employ "fear, payment of
bounties for enemy dead, beatings, false imprisonment, executions
and the use of truth serum". A manual entitled "Handling Sources"
advised intelligence officers that in seeking information from an
insurgent "involuntarily" they should consider arresting his
parents or giving him a beating.
The School of the Americas, based at Fort Benning in Georgia, was
originally intended to impede any advance of Communism in Latin
America. But it became notorious for the human rights abusers among
its graduates. They included Roberto D'Aubuisson, leader of the
right-wing death squads in El Salvador; 19 Salvadorean soldiers
linked to the murders of six Jesuit priests in 1989; and, most
infamous of all, Manuel Noriega, the deposed dictator of Panama
who is serving a life sentence in the US for drug trafficking.
Joseph Kennedy, a Democratic Congressman, has been trying to close
it as a Cold War relic that became a school for dictators.
He said: "This report shows what we have long suspected, that
taxpayers' dollars have been used to train military officers in
executions, extorsion, beatings and intimidation - all civil rights
abuses which have no place in civilised society".
A Pentagon investigation claimed that the coercive methods were
included in the manuals through bureaucratic oversight and were
compiled by army intelligence officers using outdated material
without the required "doctrinal approval" of their superiors".
The Pentagon's officers excuse is amazing, because it is well known
that the "outdated material" are the manuals used in the old School
of the Americas in the Panama Canal Zone. (see BOX 3)
ECONOMICS AND POLLUTION
One of the most common complain about the activities of TNCs in
developing societies is that they contribute to increase heavy-polluting
industrial activities. Some "scholars" have been very clear about
the "rationality" of polluting in developing societies.
A classical rationalization is the one uncovered in 1992, when the World
Bank was caught promoting pollution in the third world in order to
maximize profits for the transnational corporations. THE ECONOMIST,
February 8, 1992, reported the news as follows:
"LET THEM EAT POLLUTION
Lawrence Summers, chief economist of the World Bank, sent a memorandum
to some colleagues on December 12th. 'The Economist' has a copy. Some
of the memo has caused aa fuss within the Bank:
Just between you and me, shouldn't the World Bank be encouraging
MORE migration of the dirty industries to the LDCs? I can think of
three reasons:
(1) The measurement of the costs of health-impairing pollution
depends on the forgone earnings from increased morbidity and
mortality. From this point of view a given amount of health-
impairing pollution should be done in the country with the
lowest cost, which will be the country with the lowest
wages. I think the economic logic behind dumping a load of
toxic waste in the lowest-wage country is impeccable and we
should face up to that.
(2) The costs of pollution are likely to be non-linear as the
initial increments of pollution probably have very low costs.
I've always thought that under-populated countries in Africa
are vastly UNDER-polluted; their air quality is probably
vastly inefficiently low (sic) compared to Los Angeles or
Mexico City. Only the lamanetable facts that so much
pollution is generated by non-tradable industries (transport,
electrical generation) and that the unit transport costs of
solid waste are so high prevent world-welfare-enhancing trade
in air pollution and waste.
(3) The demand for a clean environment for aesthetic and health
reasons is likely to have very high income-elasticity. The
concern over an agent that causes a one-in-a-million change
in the odds of prostate cancer is obviously going to be much
higher in a country where people survive to get prostate
cancer than in a country where under-5 mortality is 200 per
thousand. Also, much of the concern over industrial
atmospheric discharge is about visibility-impairing
particulates. These discharges may have very little direct
health impact. Clearly trade in goods that embody aesthetic
pollution concerns could be welfare-enhancing. While
production is mobile the consumption of pretty air is a
non-tradable.
The problem with the arguments against all of these proposals
for more pollution in LDCs (intrinsic rights to certain goods,
moral reasons, social concerns, lack of adequate markets, etc)
could be turned around and used more or less effectively
against every Bank proposal for liberalisation.
The language is crass, even for an internal memo. But look at it another
way: Mr. Summers is asking questions that the World Bank would rather
ignore -and, on the economics, his points are hard to answer. The Bank
should make this debate public".
--------------------------------
Of course, the World Bank never made the debate public. And it didn't
because the World Bank represents the capitalist system which has
GLOBALIZED the ways in which production is performed on our planet.
ECONOMICS AND EMPLOYMENT
Apart from the triviality that TNCs produce in developing countries
goods that couldn't be produced without TNCs' technologies and therefore
there is an element of "modernization" and "progress" in their presence,
'employment' is considered as crucial for judging the positive role
of industrialized countries' capital in developing areas.
Working with the data available in
"World Investment Report 1994. TNCs, employment and the workplace",
United Nations, 1994, the following emerge:
WORLD FOREIG DIRECT INVESTMENT STOCK AND ESTIMATED EMPLOYMENT GENERATED
BY TRANSNATIONAL CORPORATIONS.- 1975, 1985, 1990, 1992
1975 1985 1990 1992
Total FDI stock (US$ billions) 289 674 1649 1932
of which: in LDCs .. 190 310 400
Estimated employment in TNCs (millions) 40 65 70 73
Of which:
Employment in parent company at home .. 43 44 44
Employment in affiliates in
industrial countries 15 17 17
Employment in affiliates in LDCs 7 9 12
Of which:
in China 3 6
------------------------------------------------------------------
Memorandum: Employment in U.S. TNCs 26 25 25
of which: in foreign affliates 7 6 7
------------------------------------------------------------------
Memorandum: Employment generated by Nissan in the UK, 1992
Direct employment at Nissan (UK) 4,600 workers
Subcontractors (catering, etc) 247
Other related Nissan companies 162
Components suppliers (on site) 1,020
---------
Total permanent employment on site 6,029
Other North-East region component suppliers 2,000
TOTAL permanent employment generated in the
North-East region of the U.K. 8,029
(source: Nissan brochure 1994)
---------------------------------------------------------------------
From the above, there was a creation of employment which is 1.75
times the employment on site.
Data for 14 developing countries, which accounted for 93% of
TNCs employment in developing countries, gives the following:
Year 1990 Labour TNCs TNCs contribution
Force employment to total employment
(millions) (millions) (percentage)
China 670 6.0* 0.9%
Korea, South 19 0.3 1.6%
Brazil 55 0.9 1.6%
Mexico 33 0.7 2.1%
Indonesia 80 0.4 0.5%
Singapore 2 0.3 15.0%
Taiwan 9 0.3 3.3%
Thailand 32 0.2 0.6%
Malaysia 7 0.2 2.9%
Total 9 countries 907 9.3 1.02% (1.785%)
Cote d'Ivoire 5 0.06 1.2%
Zaire 14 0.07 0.5%
Senegal 4 0.04 1.0%
Cameroon 5 0.04 0.8%
Botswana 0.5 0.035 7.0%
Total 5 countries 28.5 0.245 0.86% (1.504%)
Rest of LDCs 1044 2.455 0.2% (0.350%)
Average: all LDCs 1979 12.0 0.6% (1.061%)
------------------------------------------------------------------
Industrial countries 375 61.0 16.3% (28.5%)
------------------------------------------------------------------
* data for 1992
(World Development Report, 1994, and World Investment Report 1994
------------------------------------------------------------------
Summary: employment generated in developing countries is negligible,
BUT EMPLOYMENT GENERATED IN HOME COUNTRIES IS VERY SIGNIFICATIVE.
There is an explanation why employment in developing countries tend
to be so reduced, as compared with employment in industrialized
societies. The following table describes the pattern:
______________________________________________________________
TRANSNATIONAL CORPORATIONS
INVESTMENT, PROFITS ON INVESTMENT AND EMPLOYMENT
(CUMULATIVE AND PERCENTAGES)
FDI Factor payments
Stock to abroad Employment
--------------------------------------------------------------
Africa 2.3% 20.8% |
Latin America 6.8% 30.8% |------> 13.0%
Asia 10.1% 16.9% |
Industrial countries 80.7% 31.6% 87%
------ ------ ------
100.0% 100.0% 100.0%
sources: World Investment Report, United Nations, various years.
World Indicators 1997, World Bank, CD, 1997
_______________________________________________________________
From the above, is clear that in developing countries the use
of capital-intensive technologies are the norm for transnational
corporations.
This behaviour of TNCs is just the outcome of the dynamics of the
capitalist system, whose main motive force is maximizing profits.
Thus, in accordance with main stream literature, this tendency to
use capital-intensive technologies can be attributed to the following
factors:
A.- Engineers who design a plant for a TNC are ussually trained
according to an advanced country's curricula. Thus, an engineer's
interest is in TECHNICAL EFFICIENCY, that is, to produce the
maximum amount of output from a given amount of input. Given such
orientation, machines are often considered more efficient than
humans, a capital-intensive technology is chosen.
B.- In some industries, such as chemicals, petroleum refining, and
steel, capital-labour ratios are not alterable to a significant
degree. Thus, capital and labour should be combined in a
relatively fixed proportion. As a result, there may be no
substitute for a highly capital-intensive technology.
C.- In many developing societies, the technical, administrative, and
managerial resources needed to implement labour-intensive
technology are scarce. As a result, it may be cheaper for a TNC
to use a capital-intensive technology, conserving expensive
personnel.
D.- TNCs may find that modifying their capital-intensive technology
is more expensive than employing it without modification.
E.- The policies of some developing countries may make capital
cheaper than its equilibrium price, that is, the price determined
by market forces of demand and supply. The cheaper capital, in
turn, may encourage the use of capital-intensive technology.
Policies that lead to factor market distortions include minimum
wage legislation, capital subsidization, and artificially low
foreign exchange prices. The minimum wage legislation, resulting
from organized labour pressure, artificially raises the level of
wages in a developing country and discourages the use of a
labour-intensive technology. On the other hand, capital subsidies
and low foreign exchange prices, designed to promote
industrialization, encourage the use of a capital-intensive
technology.
DICKEN'S MODEL
The subject of TNCs is highly controversial attracting a variety
of complaints by host countries against these big corporations. See
FT(1986) for the case of TNCs in industrialised countries. By and large,
the major criticisms, especially in connection with TNCs' activities
in less developed societies, are as follows:
1.- They raise needed capital locally, contributing to rise in
interest rates in their host countries. By the same token, they
make local capital, in relative terms, even more scarce, blocking
domestic investment from growing, or forcing domestic investments
to be financed through loans from abroad.
2.- The majority (sometimes even 100 percent) of the stocks of a
TNC's subsidiary is owned by the parent company. Consequently,
the host country's residents do not have much control over the
operations of these corporations within their borders.
3.- They reserve the key managerial and technical positions for
expatriates. As a result, they do not contribute to the "learning-
by-doing" process in host countries.
4.- They do not provide training for host countries' workers.
5.- They do not adapt their technology to the conditions that exist
in host countries. In less developed societies TNCs have used
capital-intensive technologies that are inappropiate for labour-
abundant developing economies ( see BOX 2 )
6.- They concentrate their research and development activities in
their home countries. As a result, they restrict the transfer of
modern technology and know-how to host countries.
7.- The give rise to demands for luxury goods in host countries at the
expense of essential consumer goods.
8.- They start their foreign operations by the purchase of existing
firms, rather than by developing new productive facilities in host
countries.
9.- They do not contribute to host countries' exports.
10.- They worsen the income distribution of host countries.
11.- They do not observe the objectives of the host countries'
national plans for development.
12.- They earn excessively high profits and fees, due to their
monopoly power in host countries. They utilise the technique
called "transfer pricing" (see BOX 3) to earn abnormal profits
avoiding taxation. The above exerts a negative pressure on
balance of payments.( see BOX 4).
13.- They dominate major industrial sectors.
14.- They are not accountable to their host nations, only to their
home governments.
15.- They contribute to inflation by stimulating demand for scarce
resources.
16.- They recruit the best personnel and the best managers from host
countries at the expense of local entrepreneurs. See BOX 1.
17.- They form alliances with corrupt (and non corrupt) developing
societies elites ( See R. Rojas, "The Murder of Allende", and
R. Rojas, "Latin America: Blockages to Development", in this
databank ).
18.- They interfere with political conditions of developing host
societies.
19.- They disregard the impact of their actions on consumer safety and
environmental conditions.
20.- They disregard the cultural and social impact of their actions
on host countries.
P. Dicken ("Global Shift. Industrial change in a turbulent world",
P.C.P, 1988) presents a model which is very useful to
assess if the presence of a particular TNC in the country is positive
or not.
Dicken distinguishes the nature of the foreign investment, the nature
of the host economy and the major areas of TNCs impact.
NATURE OF THE FOREIGN INVESTMENT:
A) method of entry:
establishment of a new plant
acquisition of existing firm
joint venture with local firm
B) function:
to extract/process natural resource
to serve host country market (import-substitution)
to serve export markets (export-led)
C) attributes:
industry type
technology
scale of operations
extent of integration within parent family
NATURE OF THE HOST ECONOMY:
1) level of economic development
2) social, political. cultural characteristics
Depending on 1) and 2) differents outcomes will result from the
MAJOR AREAS OF TNC IMPACT:
1) capital and finance:
initial inflow of capital
capital raised locally
profits retained locally
profits remitted to parent company
transfer pricing (see BOX 1)
cost to host country of obtaining plant
2) technology:
extent of technology transfer
appropriateness of technology
cost to the country
3) trade and linkages:
propensity to export
propensity to import materials and components
use of local suppliers (extent of local linkages)
4) industrial structure and entrepreneurship:
effect on concentration of industry
effect on competitive position of
existing indigeneous firms
effect on formation of new indigeneous firms
5) employment and labour issues:
volume of employment
type of employment (skills, gender)
wage levels and recruitment
labour relations
stability
PROBABLE EFFECT OF A VERY HIGH LEVEL OF FOREIGN CONTROL ON A
HOST ECONOMY:
A) potential loss of sovereignty and autonomy
B) external dependence (e.g. on foreign technology)
C) truncation: (fracture)
of individual plants
of the economy as a whole, or
of key economic sectors
---------------------------------------------------------------------
From the five major areas of TNC impact, trade and linkages is the
most important, because has connections with the other four, originating
a wide range of negative/positive outcomes, depending on the relative
strength among the negotiators: transnational corporation and host
country's government.
1-5 2-5 3-5 4-5
1-3 2-4 3-4 4-3
2-3 3-2 4-2
3-1
To enhance their negotiating power, transnational corporations are in
the process of creating a treaty on foreign investment that will give
enormous power to international capital:
the Multilateral Agreement on Investment (MAI).
The treaty attempts to protect and expand the power of corporations
guaranteeing them un unchangeable investment environment, total
free hand for repatriation of profits, unlimited market access, and
no obligation to respect the needs of the host economy.
After colonization of Africa and Asia in the XIX century, this
Multilateral Agreement on Investment is the most open imperialistic
behaviour of the ruling classes in the rich countries. The United States
and the European Union governments announced their intention to impose
the agreement on developing societies after it is approved by the OECD.
(for details see BOX 2)
_______________________________________________________________________
BOX 1__________________________________________________________________
TRANSFER PRICING
Because the market for technology is highly imperfect and pricing
information is not readily available, the pricing for technology
transfer represent a complex issue (or an instance of criminal
behaviour), which is further complicated by what is known as TRANSFER
PRICING. Transfer pricing refers to the pricing of goods and services
that pass between either a parent company and its subsidiaries or the
subsidiaries themselves. Because transfer pricing are set by the
corporate family when dealing with each other, the prices may not
reflect market prices. Often a market price for a particular good or
service may not even exist. As a result, a TNC may use transfer
pricing to minimize taxes or to overcome foreign exchange controls
that prohibit the repatriation of funds.
Because tax rates are different between nations, a parent company
exporting goods and services to a subsidiary in a high-tax nation
(compared to the taxes charged in the home country) could set a high
transfer price. This has the effect of decreasing the profits of the
foreign subsidiary and lowering taxes in the host country. In the same
manner, if the subsidiary is located in a low-tax nation, A TNC could
minimize taxes by charging a low transfer price. However, if import
tariffs are present, the TNC will consider both taxes and tariffs in
formulating the transfer pricing policy because a high transfer price
means a high value for the goods and services sold. Similarly, a low
transfer price means a low value for the goods and services sold.
Because import tariffs are imposed on the declared value of imports,
this leads to a higher or lower tariff cost depending on the case, a
TNC should measure the tax benefit of a higher or lower transfer price
against the resulting higher or lower tariff cost. A high transfer
price will be charged if the savings on the host country's taxes are
greater than the additional tariff costs. A low transfer price will
be used if the savings on tariffs are greater than the additional
taxes.
Foreign exchange controls prevent repatriation of funds by TNCs.
To circumvent such controls, a TNC can charge high transfer prices
to its subsidiaries, thus repatriating profits from those host
countries that impose foreign exchange controls.
Other circumstances in which a TNC may use transfer pricing to
minimize its costs occur when taxes are imposed on dividens or when
a host country's currency is rapidly depreciating. Because dividend
taxes, in essence, tax the TNC's profit twice, the firm can transfer
funds using a high transfer price instead of repatriating dividends.
If a host country's currency is rapidly depreciating, the TNC can
protect itself by adopting a high transfer pricing policy. This allows
the TNC to exchange the depreciating currency for stronger currencies,
thus minimizing the exchange losses that may result from the weaker
currency. ( See P. Asheghian, "International Economics", West
Publishing Company, USA, 1995, ch. 17 )
________________________________________________________________________
END BOX 1_______________________________________________________________
________________________________________________________________________
BOX 2___________________________________________________________________
Multilateral Agreement on Investment
(Note: This article appeared in the magazine EcoForum, details at the end)
(RRojas Databank.- December 1997)
Ten Reasons to be Concerned About
The Multilateral Agreement on Investment
By Andrea Durbin
Friends of the Earth
with introductory excerpts from The Preamble Collaborative
The world's richest industrialized countries are negotiating a treaty on
foreign investment that will give more power to big corporations. It's
called the Multilateral Agreement on Investment (MAI).
The MAI is a new international economic agreement being negotiated
within the Organization for Economic Cooperation and Development (OECD),
an international body comprised of 29 rich countries. The MAI consists
of a set of rules restricting what governments can do to regulate
international investment and corporate behavior. These rules are
designed to protect and expand the power of corporations and other large
international investors guaranteeing them a stable investment climate,
easy repatriation of profits, open market access, and freedom from any
obligation to serve local economic needs wherever they choose to invest.
The United States and the European Union, who are the primary backers of
the agreement, intend to extend the agreement to developing countries
after it is approved by the OECD.
Confidential negotiations have been underway since May 1995 within the
OECD. Business and industry groups represented by the US Council for
International Business (USCIB), among other lobbies, convinced the
Office of the US Trade Representative (USTR) and the State Department to
initiate negotiations. Industry groups have an ongoing role in crafting
the agreement, and unlike other interest groups, are regularly briefed
by U.S. negotiators. Until recently, the target date for the completion
of negotiations was May 1997; in late March 1997, the OECD announced the
MAI deadline would be pushed back several months. Upon completion, the
agreement will be introduced in the U.S. Congress in one of two ways: as
a treaty, requiring two-thirds Senate ratification, or as an executive
agreement, requiring a simple majority vote in the House and Senate.
Other OECD countries, and ultimately developing nations, will be asked
to sign.
The MAI would give new rights to multinational corporations (MNCs) and
rich foreigners. If you look around the world today, are they the ones
that need help from governments? By going out of its way to knock down
barriers to foreign investment, the MAI would put up new barriers to our
democratic right to regulate our local affairs in ways that make good
economic and environmental sense.
You don't have to take our word for it -- let the MAI speak for itself.
Here are ten direct quotes from confidential drafts of the
agreement. We'll translate the legalese to explain what the
MAI would do in the real world.
1. WHAT'S COVERED?
The MAI says: "Investment means: Every kind of asset owned or directly
controlled by an investor."
TRANSLATION: When you think of foreign investment, what comes to mind?
Probably some big deal where a foreign corporation takes over a company,
or sets up a new factory. The MAI, as the definition indicates, covers
this -- and more-- stocks, bonds, intellectual property rights,
concessions, etc. So anything a government does that affects any of these
assets could be challenged under the MAI.
Environmental controls on foreign-owned factories, restrictions on
international financial speculation, and many other kinds of regulations
all have to submit to the agreement's standards.
2. EQUAL TREATMENT
The MAI says: a country that signs the MAI has to give foreign investors
"treatment no less favorable than the treatment it accords [in like
circumstances] to its own investors"
TRANSLATION: One of the main standards of the MAI is national treatment,
technical language that means countries promise to treat foreign
investors the same as their own investors. What's wrong with that?
Nothing, if we freely choose to do so. There is also nothing wrong with
treating foreign corporations differently when it seems appropriate. For
example, if foreign owners are less concerned about the needs of a local
community, governments will often place requirements on them. The MAI
would take away our ability to make this choice, and force 'treatment no
less favorable' as a uniform, inflexible standard. Because the standard
is 'no less favorable,' governments are barred from treating foreign
companies worse than local firms, but they could treat foreign interests
better. This raises the danger that countries will come up with special
deals to compete for foreign investment. Also, since the standard is
vague, we have to look to the rest of the MAI to see what Ono less
favorable' means. As we go further down the list, you'll see that
foreign investors are actually given special rights.
Some countries screen foreign investment to make sure that new
investments are in the national interest, or restrict foreign ownership
of the media and other economic sectors. Because this is 'less
favorable' than how local investors are treated, it would be illegal
under the MAI. Meanwhile, countries that set up special tax breaks and
export zones for foreign corporations would be permitted to keep on
luring businesses away from their present locations.
3. NO CONDITIONS ALLOWED
The MAI says: a country that joins can't "impose, enforce or maintain
any of the following requirements, or enforce any commitment or
undertaking in connection with the establishment, acquisition,
expansion, management, operation, or conduct" of a foreign investment.
TRANSLATION: This is an example of how the MAI gives foreign companies
better than equal treatment. Governments can't require foreign
corporations to meet certain performance requirements, or conditions,
even if these conditions are imposed on local companies. Examples of
forbidden conditions include requirements to use local suppliers, to
take on local partners, or to hire a minimum number of local employees.
4. WHAT IS EXPROPRIATION? THE 'TAKINGS' CONTROVERSY
The MAI says: "A contracting Party shall not expropriate or nationalize
directly or indirectly an investment ... or take any measure or measures
having equivalent effect... except for a purpose which is in the public
interest... accompanied by payment of prompt, adequate and effective
compensation"
TRANSLATION: Under the MAI, governments that 'expropriate' (take over)
an investor's property will have to pay the market price. From an
environmental point of view, problems arise from the inclusion of
indirect' expropriation and measures having the equivalent effect' of
expropriation. In the United States, there has been a controversy over
'takings', which is the domestic legal term for expropriations, and
whether environmental regulations that restrict the use of property
amount to a full-fledged takings that the government has to pay for. By
defining expropriation to include indirect expropriations, the MAI opens
a new door for foreign investors to extend the battle over takings
outside normal political and legal processes, where at least both sides
have the right to be heard, into the one-sided MAI system.
The NAFTA trade agreement between Canada, Mexico and the United States
has investment rules on expropriation similar to those in the MAI. To
give an idea of how foreign corporations can claim that environmental
regulations expropriate their investments, a US company has sued Canada
for $251 million restrictions for banning the import and transfer of
MMT, a potentially toxic fuel additive the company mixes and sells in
Canada.
5. COSTS OF FREE MONEY: CAPITAL MOBILITY & FINANCIAL STABILITY
The MAI says: "Each Contracting Party shall ensure that all payments
relating to an investment in its territory of an investor of another
Contracting Party may be freely transferred into and out of its
territory without delay."
TRANSLATION: Most countries want to attract long-term foreign investment
that can contribute to stable economic growth. This part of the MAI
guarantees much riskier, speculative investment, where foreign money can
pour into a Ohot' market, then quickly pull out if the economy cools down.
The MAI bars countries from putting restrictions on excessive flows of
money into or out of their economies.
Remember the economic crisis in Mexico, where the value of the Peso
crashed, eradicating savings and lowering wages almost instantaneously?
One of the main causes of this financial crisis was big rapid and
unstable inflows and outflows of foreign investment. To avoid this
problem, some countries, like Chile, require foreign investors to keep
new investments in the country for at least one year. The MAI would
outlaw this kind of safety measure, raising the risk that the Mexican
economic crash could be repeated around the world.
6. ENFORCING FOREIGN INVESTOR RIGHTS: THE WORST OF BOTH WORLDS
The MAI says:
RUNNING TO BIG BROTHER: GOVERNMENT TO GOVERNMENT CHALLENGES
"Any dispute between Contracting Parties concerning ... this agreement
shall, at the request of any Contracting Party that is party to the
dispute ... be submitted to an arbitral tribunal for binding decision."
SPECIAL CORPORATE COURTS: INVESTOR TO GOVERNMENT CHALLENGES
"the investor may choose to submit ... [a dispute with a government] for
resolution: a. to the competent courts or administrative tribunals of
the Contracting Party to the dispute ... c. by arbitration in accordance
with this article."
TRANSLATION: The MAI matters because its rules can be enforced. If a
foreign investor thinks a country where it has invested is violating the
MAI, the investor has a choice. It can complain to its own government,
who can take the other country to binding international arbitration. Or
the investor can directly challenge the host country. In either case,
arbitration consists of a few trade experts getting together as judges
and hearing the dispute in a closed panel, without opportunity for
citizens of either country to comment. The panel will decide whether
governments are violating the agreement, and if so, can advise them to
change laws and award damages-- possibly hundreds of millions of dollars
or more-- to the country or investor that brought the complaint.
Letting foreign corporations directly challenge our laws in special
international corporate courts' is a dangerous new idea. Consider a new
law that environmentalists support and some businesses-- national and
foreign-- oppose. Up until now, the two sides could fight it out in the
political process, and in national courts. If the MAI is signed, the
foreign corporations would have a new weapon that no other group could
use. They could challenge the law under the special, one-sided rules of
the MAI, or just threaten to challenge it, holding the risk of
multi-million dollar damages over lawmakers' heads.
7. ENFORCING CITIZENS' RIGHTS?
The MAI says: " "
TRANSLATION: The reason there is a big blank here is that the MAI
doesn't give citizens any rights. Put another way, there are no binding
obligations on foreign investors that citizens, or even governments, can
enforce through the MAI's dispute resolution rules.
Real world implications: Anytime a corporation invests in a project
overseas, there are a number of groups who are affected. The
corporation, certainly; but also residents of the community where the
company invests, including the company's workers; and the host and home
government. If a conflict arises, there needs to open, balanced forums
where all voices can be heard. Instead, the MAI creates a system that is
one-sided (it can only be used to enforce investor's interests) and
exclusionary (citizens can't participate).
8. A RIGHT TO INVEST WITH DICTATORS?
The MAI says: governments can't impose sanctions or deny benefits
"because of investments an investor of another Contracting Party makes,
owns or controls, directly or indirectly, in a third country."
TRANSLATION: Foreign investment in non-democratic countries can help
prop up dictators. For this reason, some nations, states and cities use
their laws as carrots or sticks to discourage businesses from investing
in dictatorial regimes. But the MAI says that foreign companies can't be
punished for investments they make in other countries. This means that
we have to close our eyes to how a foreign investor acts outside of our
borders, so when it comes to foreign corporations, our laws can't
reflect our values.
9. REAL TARGET: DEVELOPING COUNTRIES?
The MAI says: Countries that sign the MAI will "conduct negotiations
with interested non-signatories to the Final Act and make decisions on
their eligibility to become a Contracting party"
TRANSLATION: The plan all along has been to finalize the agreement
inside the OECD, then invite developing countries to sign on. Many
developing countries put more regulations on foreign investment. One of
the main purposes of the agreement is to reach a consensus among
industrialized countries, and use the MAI to pressure developing nations
to open their economies' and change their foreign investment laws.
An increasing amount of foreign investment goes to developing nations.
If developing countries sign the MAI, people in rich and poor countries
could both lose. The MAI will give corporations more rights and
confidence to leave the US and other high wage countries, speeding up
their move overseas in search of cheap labor. And developing countries
will have signed an agreement they did not help draft, and lose the
ability to attach conditions to new foreign investment.
10. WITHDRAWAL: ONCE YOU'RE IN , YOU'RE REALLY IN
The MAI says: "At any time after five years from the date on which this
Agreement has entered into force for a Contracting party, that
Contracting Party may give written notice... of its withdrawal ... The
provisions of this agreement shall continue to apply for a period of
[15] years from the date of notification of withdrawal"
TRANSLATION: Most international treaties require six months notice if a
country wants to drop out. The MAI goes farther. A country that signs
the agreement can't escape until at least five years have passed from
the time the country ratified the MAI. Then, the MAI's rules stop
covering new foreign investment, but existing foreign investment still
get to use the MAI for fifteen more years. This is because the MAI is
more concerned with promoting long-term investor confidence than it is
with our democratic right to change our minds, and change our laws.
-----------------------------------------------------------------------
FOR MORE INFORMATION: CONTACT: Mark Vallianatos or Andrea Durbin
Friends of the Earth 1025 Vermont Ave, NW 3rd Floor
Washington DC 20005
Phone: 202-783-7400
Fax: 202-783-0444
E-mail: MValli@aol.com
adurbin@foe.org
TO SEE MORE OF THE MAI DRAFT TEXT:
Go to http://www.essential.org/monitor/mai/contents.html
Internet: adurbin@essential.org(2300 words)
-------------------------------------------------------------------------
Reprinted by permission from EcoForum, a magazine published in Kenya by
ELCI, which is a global network of NGOs working on environmental issues
that affect grassroots communities, specifically biodiversity,
desertification, urban issues and trade. Subscriptions to Ecoforum
are $US 15.00, payable to the Environment Liaison Centre International,
P.O. Box 72461 Nairobi, Kenya.
-----------------------------------------------------------------------
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PO Box 62 Phone/Fax 802-586-9628
Craftsbury VT 05826-0062 http://www.mcspotlight.org/
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------------------------------------------------------------------------
RRojas Research Unit, 1997
________________________________________________________________________
END BOX 2____________________________________________GO TOP_____________
________________________________________________________________________
BOX 3___________________________________________________________________
The International Commission of Enquiry into the Crimes of the
Military Junta in Chile, established in 1974 with the support of the
Working Group of the Commission of Human Rights of the United Nations,
reported during its 4th Session, March 28th-29th, 1976, Finlandia
House, Helsinki, that the Chilean secret police (DINA) was victimizing
its prisoners with techniques learnt in the School of the Americas,
Panama Canal Zone.
In page 52, the report says:
"The International Commission has at its disposal reports
given by persons whose trustworthiness is beyond all doubt.
These reports reveal that the DINA interrogators use the
following methods of torture to extort confessions:
a) Both men and women are given electric shocks in the
genitals. This happens on a metal bed to which the naked
victim is bound with his arms and legs spread apart. This
torture is called "roasting".
b) Blows are dealt to all parts of the body and in many cases
this results in the deliberate rupture of the ear-drum.
c) The victim receives burns to parts of the body by
cigarettes or other forms of direct naked flame.
d) The person to be interrogated has his nose and mouth
blocked in order to bring on suffocation.
e) For periods at a time the prisoner's head is put into
a bucket filled with water or excrement.
f) Women detained are raped.
g) Women detained are forced to have sexual intercourse
with dogs.
h) Hot iron objects are inserted into the vagina women.
i) Iron objects are inserted into the victim's anus.
j) Detainees are made to comply by threats that if they
refuse to make any statement their families will be
tortured. Sometimes these threats are really carried out.
Recently the use of pharmaceutical products, especially drugs,
has increased during interrogations. Hypnosis is also being
used (pp. 52-53)
________________________________________________________________________
END BOX 3_______________________________________________________________
________________________________________________________________________
BOX 5___________________________________________________________________
Composition of United States trade associated with United States
transnational corporations
(Millions of dollars; figures in parentheses are percentages)
------------------------------------------------------------------
1966 1977 Change
Exports Imports Exports Imports Exp. Imp.
(%)
----------------------------------------------------------------------
1.Total United States trade 29,287 25,463 117,963 146,946 303 477
2.United States manufactured
trade [a] 23,461 17,493 94,793 86,594 302 395
3.United States trade
associated with trans-
national corporations 19,186 11,708 95,764 80,930 405 603
(66) (46) (81) (55)
Of which:
Trade between parent
and majority-owned
affiliates 6,323 5,088 29,275 30,880 363 507
(33) (43) (31) (38)
Trade between majority-
owned affiliates and
other United States
residents 1,359 1,212 6,539 7,120 381 487
(7) (10) (7) (9)
Trade between parent and
other foreigners 11,476 5,408 59,952 42,929 422 694
Of which:
Trade between parent and
minority-owned affiliates ... ... 2,532 1,342 ... ...
Not included in item 3:
Trade between unaffiliated
United States persons and
minority-owned affiliates ... ... (1,126) (1,433) ... ...
----------------------------------------------------------------------
Sources: Barker, B., "United States foreign trade associated with
United States multinational companies", SURVEY OF CURRENT
BUSINESS, 1972, and United States Department of Commerce
Statistics.
[a] Excluding all imports and exports associated with United States
transnational corporations whose main industry is petroleum and
petroleum products.
________________________________________________________________________
END BOX 5_______________________________________________________________
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