[Documents menu]History of the Multilaterial Agreement on Investments (MAI)
Message-ID: <199704281922.MAA08244@fraser>
Date: Mon, 28 Apr 1997 12:22:44 -0700
Sender: Forum on Labor in the Global Economy <LABOR-L@YORKU.CA>
From: D Shniad <shniad@SFU.CA>
Subject: More on MAI

Global Giants:
Fears of the Supranational

Critics say a proposed treaty could give too much power to multinationals, whose revenues can exceed those of some nations.

By Paula L. Green, in Journal of Commerce,
Wednesday, April 23, 1997

Corporate economic tentacles will creep a bit further around the globe with an investment treaty now before the Organization for Economic Cooperation and Development in Paris.

Critics already upset with the growing influence of multinationals are afraid that the Multilateral Agreement on Investments -- a full-blown international treaty facing approval by each signatory's parliament -- will simply hand corporations more power if it is signed. Officials from the 29 OECD countries are meeting this week in Paris to talk about the pact -- aimed at providing a level playing field for international investors by mandating national treatment. That means foreign investors will have the same breaks as domestic companies, even in such traditionally sensitive sectors as mining, fisheries and agriculture.

"I think it's overwhelmingly negative and gives corporations more power," said Mark Weisbort, research director at the Preamble Center for Public Policy, a Washington think tank. "It takes economic decision- making from elected officials and parliaments and gives it to unaccountable, unelected, supranational institutions." After nearly two years of negotiations, the pact is set for completion within the next year. Several developing nations, including Argentina, Brazil, Chile, Singapore and Taiwan are reportedly interested in signing.

Critics say the agreement goes beyond the investment treaty approved as part of the General Agreement on Tariffs and Trade, known as Trims, or Trade-Related Investment Measures. It could even hurt developing countries' ability to control the activity of foreign investors and their impact on land, water and air use, they add.

"We're concerned about its deregulation aspects on the environment . . . and there's no balance in it. Corporate rights are not balanced with corporate responsibility," said Charles Arden-Clarke, a senior policy analyst at the Worldwide Fund for Nature in Gland, Switzerland.

But Robert Z. Lawrence, a professor at the Kennedy School of Government at Harvard University, believes the globalization of corporations has provided substantial social benefits and given countries more options.

"The idea that bigger and bigger companies is a bad idea is false. Countries have grown tremendously by attracting foreign investment," Mr. Lawrence said. "And as global markets become more competitive, it tilts the balance in favor of the country." Corporate critics have long charged that multinationals take advantage of globalization to get around national tax, environmental and operating rules. The proliferation of trade pacts and a worldwide economic shift toward more open markets from Moscow to Mozambique has also given multinationals more leverage against the nation state.

At the Institute for Policy Studies, which last year released a study called "The Top 200: The Rise of Global Corporate Power," analysts view the OECD pact as a mechanism to give corporations more power.

"It's a scary development . . . it lifts control on corporations without giving any more power to the people," said Sarah Anderson, a fellow at the Washington-based institute who worked on the study. "Trade barriers have been lifted with trade pacts and this lifts investment barriers. It takes away regulations that have been developed over the decades to protect governments and citizens."

The institute study, completed last fall, shows that 51 of the 100 largest economies in the world are corporations. The study uses 1995 statistics to compare a company's annual sales with a nation's gross domestic product.

The output of General Motors Corp. is bigger than Denmark's economy, for example. And the annual sales of Wal-Mart Inc. exceed the gross domestic products of 158 nations, including Israel, Poland or Greece.

Media blitz misleading

Ms. Anderson says multinationals are already creating worldwide webs of production, consumption and finance while bringing economic benefits to only a third of the planet's 5.6 billion people. And the corporate media blitz about the benefits of globalization are misleading, she claims.

Corporations, for example, always tout the number of jobs they are able to provide as trade barriers fall and investment regulations ease. This liberalization has allowed them to tap into new markets from Mexico to Thailand.

Yet the largest 200 corporations only provide 18.8 million jobs -- less than three-quarters of 1% of the world's work force of 2.6 billion, Ms. Anderson said.

"These big companies can afford to invest in technology and robots that replace workers," Ms. Anderson said. "With Nafta, a lot of the small Mexican companies have been wiped out by large companies."

Nafta is the North American Free Trade Agreement signed by Mexico, the United States and Canada.

Analysts also point to a shift in the mind-set of many developing countries. Twenty years ago, foreign investors were often viewed with suspicion. Now, many Third World countries from China to Bolivia are competing fiercely for multilateral investment. This places more power in the board room, some fear.

Positive shift

But Mr. Lawrence sees the shift toward competition for foreign dollars as positive. In the days of closed markets and state-owned monopolies, countries and their consumers had far fewer choices and often were the victims of their domestic companies.

"If you only have one company making aircraft, who has the power? Boeing or China?" he asked. "But if you have Boeing and Airbus, you can play off one against the other. China has the power."

Meanwhile, the spread and speed of cross-border dealings is leaving a widening gap between the economic and political arenas. From his vantage in the ivory tower of the Brookings Institution in Washington, analyst Wolfgang H. Reinicke sees a world in which government policy-makers can't keep pace.

"There's integration on the economic side, but multiple political arenas. That's creating a sense of fragmentation," Mr. Reinicke said.

As bureaucrats struggle to oversee the changes in the global financial and investment markets, multinationals face a messy web of clashing regulations on everything from taxes to labor to legal topics.

Tax nightmare

For James Mogle, a partner at Coopers and Lybrand LLP in Washington, that messy web of laws means seven-day work weeks and headaches as he tries to keep government tax collectors out of his clients' hair. Corporations doing business in dozens of nations face a tax nightmare.

"With the amount of crossborder trade skyrocketing, it's become a major issue," said Mr. Mogul, refering to the sticky topic of transfer pricing.

Sensitive issue

Transfer pricing is the price a company puts on goods and services it sells to sister operations in other countries. The issue has always been sensitive as governments have long regarded prices charged by a parent company to a subsidiary, or the reverse, as a way to shift profits to countries with lower tax bases.

Now, many tax officials are getting tougher on requiring companies to document their transfer pricing policies and prove they are consistent with the rates charged for similar services or goods by unrelated firms.

Complicated process

The whole process has only gotten more complicated with globalization as multinationals import components from one country, assemble them in another and then ship them to yet a third. And the fact that many developing nations are still sorting out their tax laws and laying down rules to deal with the influx of new investment makes it even tougher for corporate clients.

"It's easy to adopt rules. It's difficult to apply them," said Mr. Mogle, who is an attorney and accountant. "And all the governments are trying to raise more money."