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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:

                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
     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)


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
         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.


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:

          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,

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:
                        (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

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
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
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


     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
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
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
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.


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
              scale of operations
              extent of integration within parent family

              1) level of economic development
              2) social, political. cultural characteristics

Depending on 1) and 2) differents outcomes will result from the


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

                            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

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
   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.

 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.

 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.

 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.

 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

  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

 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.


 The MAI says:
 "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."

 "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.

 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).

 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.

 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.

 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

 Go to
 Internet: 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.

 U.S. McLibel Support Campaign                   Email
 PO Box 62                                        Phone/Fax 802-586-9628
 Craftsbury VT 05826-0062          
 To subscribe to the "mclibel" electronic mailing list, send email

 Subject: <not needed
 Message: subscribe mclibel

 To unsubscribe, change the message to: "unsubscribe mclibel"
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
[a] Excluding all imports and exports associated with United States 
    transnational corporations whose main industry is petroleum and
    petroleum products.
END BOX 5_______________________________________________________________