Oct 15, 1986


GENEVA OCT. 10 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Progress in the adoption of the UN code of conduct on transnational corporations (TNCS) could facilitate the Uruguay Round of Multilateral Trade Negotiations, according to a high-level roundtable held recently at Montreaux in Switzerland.

The benefits of an TNC code of conduct, the round table said, were becoming more and more apparent, and the differences remaining to be resolved were small compared to the potential benefits of a mutually agreed code.

"We hope that our meeting has contributed to a positive contribution in the work on the code", the roundtable said.

Participants in the round table included policy makers and negotiators involved in the ongoing negotiations at the UN on the code of conduct for transnational corporations.

They came from Algeria, China, Denmark, Federal Republic of Germany, Ghana, Germany Democratic Republic, India, Jamaica, Mexico, Norway, Switzerland, U.S.A., U.S.S.R., Yugoslavia, and Zimbabwe, and a representative of the British Tuc and one from the International Chamber of Commerce in Paris.

The Montreaux meeting had been organised by the U.N. Centre on TNCS (UNCTC), as part of its efforts to promote a resolution of the outstanding differences on the code and enable its finalisation.

While planned some time ago, the Montreaux meeting got a certain timeliness in view of the actual outcome at Punta del Este, and the Uruguay round launched there, on the U.S. drive to bring all investment issues into GATT.

A major U.S. objective had been to use trade policy, and the rights within GATT to retaliate against imports of goods from a particular country on the ground impairment of GATT rights, to secure investment rights for its TNCS.

For TNCS, the right of establishment on foreign territory, and ability to produce and deliver goods and services through TNC branches or affiliates in the foreign territory, are more important than any right to trade under GATT free trade provisions.

The U.S. had sought to bring into GATT the entire range of investment issues - in effect seeking rights of investment for TNCS, and spelling out obligations of host governments in relation to such investments including "national treatment" for such foreign capital, and restrict the right of host countries to impose any conditions on such foreign capital like use of domestic inputs or exports of production, as part of the conditions for allowing such investment.

A part of the U.S. aim had been to bring all such issues away from universal fora like the UN into a Rome restricted forum like the GATT where the Soviet Union is not present.

The U.S. effort did not succeed at Punta del Este, and U.S. negotiators were forced to give way and compromise. As a result, the negotiations inside GATT on goods is to deal with only some aspects of the issue - "trade related investment measures".

As provided for in the decision adopted by the GATT Contracting Parties, there is to be an examination of the operation of GATT articles related to the trade restrictive and distorting effects of investment measures, and the negotiations are to elaborate, as appropriate, "further provisions that may be necessary to avoid such effects on trade".

At best, this would enable the U.S. to raise some issues relating to "domestic content" or conditions imposed by third world countries on making use of domestically available inputs (whether goods or services), and "export performance" requirements or export of the whole or a part of their production.

While some of the GATT articles, restrict the ability of host governments to impose "domestic content" requirements, these are largely inapplicable to third world countries, who are entitled to use quantitative restrictions and licensing arrangements for imports to safeguard their balance-of-payments problems.

And GATT provisions do not restrict the right of any country to impose export obligations, unless these involve requiring the enterprise to undertaking "dumping" on foreign markets, in which case the foreign country involved could impose anti-dumping and countervailing duties.

The U.S. and some of the other leading home countries of TNCS have so far been resisting early conclusion of the code. But the narrower focus now of the GATT negotiations on the issue could well persuade them to move in parallel on the TNC code in an effort to gain their overall objectives.

The informal high level roundtable was held on Oct. 3 and 4, and was organised by the UN Centre on TNCS (UNCTC), with financial support from the governments of Netherlands, Norway and Switzerland. The arrangements for the meeting were made by the centre for applied studies in international negotiations in Geneva, which has now provided in a press release some details of the roundtable and its "general reflections".

The code negotiations have been going on for several years at the UN Commission on TNCS, and has still a few key issues that need to be solved, before the code can be finalised.

The code is meant to define the rights and responsibilities of TNCS and governments.

One part of the code seeks to lay down broad guidelines for the way TNCS should undertake their activities, and maximise their contribution to the development process while minimising the negative effects associated with their activities.

Another part of the draft code lays down guidelines for treatment of TNCS by governments, including the establishment of a stable, predictable and transparent framework for foreign direct investments and the activities of TNCS.

These cover issues such as fair and equitable treatment of TNCS by host governments, national treatment, application of international law and obligations, nationalisation, compensation and dispute settlements, choice of law.

Also involved are a number of other principles considered important by governments and which are seen as central to the conduct of international business.

Among the outstanding issues needing resolution are: treatment of TNCS by host countries, and specifically the question of a reference in the code to international law/international obligations, the issues of non-interference in the internal affairs of states, issues of nationalisation and compensation, national treatment, permanent sovereignty, and jurisdiction and settlement of disputes.

In the view of the roundtable, the world economy has undergone some fundamental changes, and among them the role that TNCS play in international economic relations, in FDI in all economic sectors, and as major conduits for trade, technology transfer and financial flows.

Also over the last decade, there is now a greater understanding of the role and impact of TNCS, and the capacity of countries, especially the third world countries, to deal with matters relating to FDI and benefit from it.

In the view of the roundtable, "in view of the complexities involved a multilateral code on TNCS is desirable so as to provide a mutually agreed set of balanced and universally applicable standards in the interests of all for the whole range of issues relating to TNCS".

Such a code, it was felt, would establish a balanced set of standards of good corporate conduct to be observed by TNCS in their operations and standards to be observed by governments in their treatment of TNCS.

A code would help ensure that the activities of TNCS are integrated in the development objectives of the third world, and establish the confidence, predictability, transparency and stability needed for expanded growth of FDI in a mutually beneficial manner.

The code would therefore contribute "to a reduction of frictions, conflict and painful disruptions between TNCS and countries and enable the flow of FDI to use its potential in the development process".

These elements, in the view of the roundtable, created "a commonality of interest between the host and home countries, as well as TNCS, in a code conductive to increased flows of real investment resources, especially to developing countries".

"The benefits of a code on TNCS transcend those accruing to the parties in the investment process".

"More specifically, since trade and FDI are increasingly intertwined, progress in the adoption of such a code could facilitate the Uruguay round of MTNS. Furthermore, progress on the code would be a positive signal for the value of multilateral cooperation in general".

Participants in the roundtable were: Obed Asamoah (Foreign Affairs Secretary of Ghana), Marino Baldi (Deputy Director of the Federal Office for Foreign Economic Affairs of Switzerland), Clarke N. Ellis (Office of Investment Affairs of the State Department, U.S.A.), Abid Hussain (Member of the Planning Commission of India), Ivan D. Ivanov (Head of the Soviet Department of International Economic Relations), Amir Jamal (Tanzania's Permanent Representative in Geneva and Former Finance Minister), Jurgen Kuehn (Director of Multilateral Trade Questions in the West German Ministry of Economics), David Lea (Assistant General Secretary of the British Trade Union Congress), Miguel Marin Bosch (Ambassador of Mexico and Chairperson of the Special Session of Commission on TNCS), Simbi Mubako (Zimbabwe's Minister of National Supplies), Marie Psimenos (International Chamber of Commerce), Jiadong Qian (China's Permanent Representative at the U.N. in Geneva), Patrick Robinson (from Jamaica and Chairperson of the 12th Session of the TNC Commission), Wolfgang Sporoete (Head of the Department of World Economy in the Institute of International relations in East Germany), Janez Stanovnik (Member of the Presidency of Yugoslavia), Guttorm Vik (of Norway's Ministry of Foreign Affairs), and Layachi Yaker (Ambassador and Former Commerce Minister of Algeria), and Officials from the UNCTC in New York and UNCTAD's Division on Technology.