Jun 10, 1986

90 PERCENT OF WORLD TRADE IN HANDS OF TNCS.

GENEVA, JUNE 5 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Ninety percent of the world trade is in the hands of Transnational Corporations (TNCS) and 30-40 percent of the world trade is really intra-firm transactions, a GATT group involved in exchange of information on services has been told this week.

The group, chaired by Felipe Jaramillo of Colombia, had invited the representatives of the U.N. Centre of TNCS (UNCTC), and the International Telecommunications Union (ITU), to discuss with the group some aspects of their studies and work in the area of services.

In providing an assessment of the TNC role in world trade, the representative of the UNCTC is reported to have underlined that for TNCS "Foreign Direct Investment (FDI) is more important than trade for delivery of services to foreign markets".

The issue of services is sought to be brought into GATT, by the U.S. and other industrialised countries, under the guise of "trade in services", and create a GATT framework in services to secure for their TNCS rights of "investment" and "establishment" as part of "trade rights".

In presenting the UNCTC view, its representative Karl Sauvant is reported to have explained that the UNCTC, from inception, had been mandated to look into all aspects of TNCS, the principal agents for FDI, and had been directed to undertake research studies in several service industries - banking, reinsurance, advertising, tourism, shipping, engineering and consultancy services, and data services or Transborder Data Flows (TDF).

The "dismal state" of statistics of FDI in services, the UNCTC representative is reported to have stressed, is only rivalled by "paucity of data on trade in services", though a number of clear trends had emerged.

In the beginning of 1970's, a quarter of the world FDI stock of 160 billion dollars was in services, while now a third of more than 650 billion of world stock of FDI is in services.

The shift is even more pronounced in FDI flows, and like other FDI, FDI in services originates in the OECD countries, and the greatest majority is located in the same group of countries.

(The U.S.A., U.K., West Germany, Japan and Switzerland are the principal home countries of FDI abroad).

"In the past FDI was primarily in extractive industries, yesterday it was primarily in manufactures, and today it is primarily in service industries", according to the UNCTC.

The shift has also resulted in increase in importance of TNCS in services, and they are prominent in insurance, accounting, advertising, tourism and data services.

In many countries the TNCS or their foreign affiliates are "some of the largest firms in many service industries".

The rise of FDI in services, in the UNCTC view, has to be seen against the background of the transnationalisation of the world economy.

In areas where the TNCS have an option between "trade" and "FDI", they have opted for FDI.

For most exporters of services and service capital (the OECD countries), FDI in services is a more important vehicle for delivery of services to foreign markets than trade.

But this is not so for third world countries or socialists, for whom FDI is of minor importance, and service exports are more important than service sales by their foreign affiliates.

Precise data on FDI and trade in services, available only for the U.S.A., show that in 1982 exports of U.S. private non-factor services amounted to 33 billion, compared to approximately 178 billion of sales by U.S. service affiliates abroad.

This meant, volume of service sales by U.S. TNC affiliates abroad was five times volume of U.S. service exports.

This was also true of U.S. imports - 33 billion of imports in 1982 compared to 125 billion of sales by foreign affiliates in the U.S. - or sales in U.S. by foreign affiliates of non-U.S. TNCS was about four times the volume of U.S. service imports.

Estimates for U.K, Japan, Canada, and the F.R.G., show that sales of foreign affiliates of TNCS headquartered in these countries was about twice as high as volume of their sales exports.

On the TDF, and work being done on this tat UNCTC, Sauvant is reported to have pointed that TDF involved rendering data services - data processing, software, information storage and retrieval, and telecommunication services - across national borders, and normally via TNC computer-communication systems.

TDF enable TNCS to strengthen their capacity to increase coherence of their worldwide corporate systems and to manage scarce resources more efficiently and effectively.

TDF not only speed up communication and improve TNC management, but change the very manner in which TNCS engage in production activities.

TDF is also increasingly the infrastructure for trade in goods, for trade in services, and especially the information-dependent services such as air transport and banking, and has increased the trade ability of services.

Revolutionary technological changes in TDF, has also meant that many of the old regulations set up by countries to exercise control over the service sectors have become obsolete and can easily be evaded by TNCS.

TDF have collapsed time and space, and enabled service transactions to take place at the same time but in different places, even obviating the need for establishment by a TNC of a local branch or affiliate abroad.

The policy issues raised for host governments, had become enormous as a result.

In the case of banking, where all governments exercise control over entry and operations of foreign banks, the TDF and trade ability of some banking services, "have created a new dimension not easily captured by traditional FDI policies, and may even blunt their intentions".

Earlier, the representative of the ITU, Sri Rangan, is reported to have outlined to the group the report and recommendations of the independent Maitland commission, on worldwide expansion and development of telecommunications, and its interconnection with development.

The report, "the missing links", underlines that telecommunications is an infrastructure important for development, and that governments have to take measures to develop this.

While it is for governments to decide whether this should be done publicly or privately, and whether through imports or indigenous means, telecommunications should be run on business lines.

The ITU representative is reported to have pointed out that the report, by an independent commission, did not necessarily reflect ITU policies and instruments, which are laid down by periodic plenipotentiary conferences of ITU membership.

The ITU itself has no views on public or private owner ship of telecommunication services or of regulation or deregulation, since these are issues for each country and government to decide for itself.

The independent commission itself did not go into the question of liberalisation or otherwise of telecommunication services.

Explaining the references in the report to the western economic summit, the ITU representative said an earlier communiqué of western summit had made references to telecommunications, and hence the commission had addressed some of its recommendations on views to the summit nations.

But to the best knowledge of the ITU, these were neither considered nor were any actions taken on them at the Tokyo summit.

The independent commission had not seen telecommunications as merely a service.

In its view, telecommunications is "an essential component in the process of development - a complement to other investments - which can raise the productivity and efficiency of agriculture, industry, commerce (including international trade and tourism), and the social services, and enhance the quality of life in the developing world".

Also, in the commission's view, "the economic and social benefits which an efficient telecommunications system confers on a community, or on a whole nation, can be clearly perceived even when they cannot be quantified.

"The telecommunications system in a developing country can be used not only to disseminate information of immediate importance on a national scale, but also as a channel for education, for strengthening the social fabric, for enriching the national culture ... and an essential element in the development of national infrastructure".

And as President Shoeharto of Indonesia had told the Commission, "telecommunications had played a role in Indonesia in increasing cohesion, the sense of national and regional identity, self-reliance and political stability".

The ITU has been involved in telecommunication services and issues for over a century, and in view of close inter-linkages between telecommunications, informatics, and telematics and data flows, the ITU was working and cooperating with other international organisations in this area, specially the Intergovernmental Bureau of Informatics (IBI) in Rome and UNESCO in Paris.

In discussions with the ITU representative, the U.S. would appear to have suggested that IUT's role appeared to be essentially technical and limited.

India is reported to have pointed out that the group had asked ITU to confine its remarks to the "missing links" report, and had not called for any report or exposition of ITU's much larger involvement in the areas of its competence.

The ITU's work showed that telecommunication services affected and determined the nature of telecom equipment, and there was hence a need to examine linkages. It was not enough if technical work was done separately.

On the commission's recommendations for ITU setting up and organisation to coordinate the development of communications worldwide, the ITU representative is reported to have explained that the Director-General of ITU was yet to submit his recommendations to the plenipotentiary conference, and the situation was now "fluid".

According to third world delegates to the ITU, the U.S. and Western countries are trying to block this recommendation or action, as part of their drive to transnationalise telecommunications and telematics in the third world.