Towards a World Transnationals' Organisation?
Towards a World Transnationals' Organisation?
The year 1998 marks 50 years of the global trading system under GATT and World Trade Organisation (WTO). Celebrations take place at the second bi-annual Ministerial Conference from 18th to 20th May 1998 in Geneva. At the same time, renegotiations are being prepared due to start in the year 1999 or 2000. The EU Ministers already expressed their support for a so-called 'Millennium Round' which might introduce new areas into the WTO, such as an agreement to liberalise investment.
Citizen groups and non-governmental organisations (NGOs) see little reason for celebration. The Ministerial Conference and preparations for the new negotiations are being conducted in the WTO's usual nontransparent way, without consultations with citizens. Their concerns that free trade and investment only benefit a few and contribute to environmental destruction, are not taken into account. However, the views of business, especially from transnational corporations (TNCs), are well reflected in the WTO decisions. Two-thirds of world trade is conducted by one or more TNC. This booklet explains how TNCs easily influence decision-makers at the highest level and succeed. It does not pretend to cover the full story but indicates how the TNC interests play a crucial role in negotiations while WTO decision-makers pretend that free trade is in the interest of all.
New negotiations should not start without new analysis and better insight about the role and practices of corporations in a globalising world. This booklet suggests some ways to redress the current bias towards business interests, a minimum in light of the coming 50 years.
As the World Trade Organisation conducts its second bi-annual Ministerial Conference from 18th to 20th May 1998 in Geneva, it also celebrates 50 years of the global trading system.
While it is the 132 member countries who are responsible for decision-making across the WTO's organisational bodies, it is the private sector who conducts the actual trade and who is increasingly influencing the policy positions of member countries. For the very large firms, the multinationals and trans-national corporations (TNCs), the WTO is a very important domain of trade jurisdiction and a crucial determinant of the extent to which they are able to operate unhindered. An analysis on the role of TNCs in the WTO is absent in the WTO's own trade policy review mechanism and annual reports of international trade.
In 1997, the WTO reported that world trade in goods reached $ 5.3 trillion, and trade in services an additional $ 1.3 trillion. The United Nations Conference on Trade and Development (UNCTAD) figures indicate that:
These figures reflect the fact that corporations having a global outreach through their subsidiaries or corporate partnerships, are better positioned to take advantage of international trade than are smaller unaffiliated companies. TNCs are structured to form global trade strategies which position them to take most advantage.
The enormous interest that TNCs have in the WTO is expressed through their growing influence over decision-makers on all WTO matters, which surpasses that of citizens and non-profit non-government organisations. Thus, the aim of this booklet is to examine how TNCs influence WTO decision-making and effect policy outcomes. This issue is particularly important in the context of upcoming events in the WTO.
The Ministerial Conference in May 1998 is important in the lead up to renegotiating the agreement in agriculture which is scheduled for the end of 1999. Although the Conference avoids to take decisions, it will face the renegotiation of the WTO agreement on services and the review of the agreement on investment measures (TRIMs)as well as TRIPs scheduled for 2000. The scheduled review in 1999 of Art. 27.3 (b) of the agreement on trade related intellectual property rights (TRIPs), providing exception on patenting of life forms, is hardly on the agenda.
The decision to conduct a new 'round' of negotiations revising many trade sectors simultaneously may be raised and could lead to WTO involvement in new areas - such as a new agreement on investment and competition rules. This potential round of negotiation has been dubbed the 'Millennium Round' - a phrase coined by Sir Leon Brittan, the trade Commissioner of the European Union, and vociferous supporter of the idea.
In March 1998, European Union Ministers agreed that they wanted the 1998 Ministerial Conference to set in train [a] thorough and wide ranging groundwork which would cover all potential areas of future negotiation in order to be ready for the Millennium Round to begin in 2000. They intend all contracting parties to pledge their commitment to the negotiations. A final decision is expected to be taken at the WTO Ministerial Conference in 1999.
The EU Ministers intend to send a strong message to public opinion explaining the advantages and benefits of further liberalising trade. But it is important to ask to what extent benefits of trade liberalisation would be skewed in favour of TNCs, the main private actors in trade, and disadvantage the wider, national and local economies and communities.
The 1948 General Agreement on Tariffs and Trade (GATT), upon which the WTO was built, was originally equipped to deal solely with reducing tariffs and adopted a very technical and narrow industrial approach. Since, national and regional administrations have not developed the methodology or capacity to evaluate the wider impacts of the trade agreement upon their societies. They have often employed narrowly
This pattern persists despite the WTO having developed its jurisdiction well beyond the area of tariff reduction. The WTO now covers a wide range of sectors with implications for most aspects of life, for example, in the area of intellectual property rights (bio-technology), agriculture (food), the services industry (transport) and telecommunications.
Trade rules play a crucial role in the capacity of a company or corporation to gain or lose in the market, and to serve its aim of achieving higher profits. For TNCs, trade and investment rules determine their freedom to move freely around the globe making use of the cheapest labour and production, playing suppliers off against each other, achieving economies of scale, and locating the largest and most lucrative markets. They have successfully promoted trade rules which protect their interests. For example, the TRIPS Agreement protects intellectual property rights in all WTO member countries and obstructs the production of imitation products. Some calculations show that up to 90% of technology and product patents in the world are owned by TNCs. The TRIMs (Trade Related Investment Measures) Agreement led to the outlawing of investment measures by host governments which had been an obstacle to TNCs by imposing local content requirement and restricting the repatriation of profits.
In order to understand how national policy on trade is reached, we need to examine the demands of TNCs on governments, and the methods by which they convey these. This will allow an insight into how these demands are met and how new rules can be made at the expense of the wider national and international community and the environment. In an effort to redress the absence of research in this area, this booklet explains some of the channels of influence utilised by TNCs and provides a few examples of their effects.
The modes by which businesses convey their preferences, and persuade policy-makers to support them are both formal and informal as well as direct and indirect.
Close ties in the US and Japan
The link between the private sector and the formation of trade policy is closest and most visible in the US and Japan. In the EU, it is less institutionalised.
The Union of Industrial and Employers Confederations of Europe (UNICE) is the umbrella organisation for all employers in the EU, big and small, and the official representative body of the European business and industrial community. However, the interests of the larger companies can often prevail in areas such as trade and investment. UNICE has frequent contacts with the EC either via phone calls or
Given that the Ministers of the EU have to direct the EC on negotiations with the WTO, the different contacts of the private sector with politicians and trade policy-makers at the national level affect the EU's decisions on trade overall (see ERT).
Influence at different levels
The most direct way in which businesses and TNCs can advance their interests and ensure their incorporation in the WTO is through participation in 'expert meetings' which are integral to negotiations, or attending WTO Ministerial conferences as part of a national delegation. More informally, lobbyists of sectoral business associations and TNCs meet negotiators before and after WTO
There are also many indirect contacts and influences between business and politicians which can facilitate support for TNC positions. The enormous role TNCs can play in a nation's economy can make their host government a very accommodating and attentive audience. Smaller businesses cannot carry the same weight.
The boundaries between government and big business can become blurred by the participation of politicians on company boards and advisory committees. In the reverse, former employees and entrepreneurs who engage in a political career can, by doing so, create a channel of informal influence.
TNCs have the capacity to engage in expensive public relations and advertisements. For instance, they advertised in major business reviews and newspapers in favour of the completion of the Uruguay Round, and on one occasion, in answer to a newspaper article which opposed their views. Donating to political parties and election campaigns is another lobbying method which can have a direct influence on voting and therefore, policy outcomes. During the Uruguay Round, US analysts tried to predict how Congress would vote at the end of the negotiations by identifying which position was held by which TNC, and to which party they had made donations.
The influential role of BIAC, the Business and Industry Advisory Committee to the OECD, should not be underestimated. The OECD - Organisation for Economic Cooperation and Development - often shapes the position that the richer countries adopt in the WTO. The International Chamber of Commerce and TNCs plays an important role in BIAC.
Exclusive channels for TNCs
Given that traditional lobby instruments can be too cumbersome and indirect to represent their interests in the global economy, TNCs have formed a few tools of their own which are geared towards their interests in a global free-market.
The influence of business and, in particular, TNCs is apparent throughout the WTO. It is not yet possible to assess how far TNCs have gone toward coupling their interests to the WTO's agenda, but it is possible to describe some clear examples.
Shaping the rules
The launch of a new round of negotiations in the GATT in 1986 was very much the result of successful lobbying by TNCs, especially those from the US. American service industries supported the idea that a new services trade regime should underpin any new agreement, and were the driving force in this debate leading up to the Uruguay Round (1986 to 1994). To this end, they formed the Coalition of Service Industries. TNCs such as Federal Express, the then Citibank/Citicorp and American Express were very dynamic in their push for a services agreement that would open up for trading as many countries as possible. One of the most active service-industry advisors to the US Trade Representative (USTR), was Arthur Andersen & Co, the accountant and consulting firm which at the time of the negotiations, in 1989, was already operating in 54 countries and conducted 40% of its business overseas.
Developing countries had fiercely opposed the introduction of new issues to the Uruguay Round, and had first refused a discussion about services. They reasoned that their relatively weak service industries would suffer if exposed to competition, and that instead they required the same government protection - e.g. through procurement and trade barriers - under which the service industries in rich
On the European side, the EC argued the importance of trade in services in which EU businesses have a very strong position. Faced with the US position, driven by demands from the US TNCs, the EC asked the European service industries to co-ordinate and present their position to the EC. No consultation with other industry or community sectors was conducted on this issue.
The US and the EU were able to proceed with negotiating in the Uruguay Round by offering a concession for developing countries to separate negotiations on services from negotiations on trade in goods. However, the American service industries were able, at the end of the negotiations, to achieve their original aim to link these in the sanction mechanism. This enables them to retaliate against goods of
At the times when the Coalition of Service Industries regarded the negotiations as unsatisfactory, they expressed the preference for no agreement over a bad agreement. The US also demonstrated this preference when they refused to conclude an agreement on financial services in the Uruguay
The so-called trade related intellectual property rights became another central element of the Uruguay Round. These negotiations culminated in the TRIPs agreement although developing countries had strongly opposed its inclusion in the Round. Recently, the UNCTAD Secretary-General Ricupero, a
In conjunction with other TNCs, including some specialising in bio-technology, they worked toward reinforcing their stronghold on patented knowledge in all countries party to the GATT and the WTO. Calculations show that up to 80% of technology and product patents in developing countries are owned by TNCs which use product patents as a tool for stifling competitors.
Privately, negotiators acknowledge that the TRIPs Agreement was to a great extent driven by TNC interests. TNC representatives were closely linked with US negotiators, and even supplied sections of the draft TRIPS agreement. This perhaps explains how attempts by others for stronger competition rules against abuse of monopolistic positions were systematically buried.
When it became clear, during the final years of negotiations, that farmer lobbies could derail the Uruguay Round, the business lobby mobilised. In Europe, for instance, more than 100 business leaders from UNICE took the matter to the EC's top trade official and pushed for negotiations to be concluded at the Ministerial Conference in 1990. All along, UNICE remained in close contact with the EC and reasserted its call for the finalising of the Round.
Meanwhile, the ERT pressured government leaders in face-to-face meetings for the conclusion of the Round, opining that securement of the deal, at whatever cost, would benefit the whole of European Business. B.A.T. Industries even went so far as to put an advertisement in The Economist reiterating the point that it was imperative that the current Round be completed, and that problems in agriculture (which accounts for only 3% of European GDP) should not stifle growth in services (which amount of over 50 % [of GDP]). The ICC, also representing the largest TNCs, has for many years actively sought trade deregulation through the Uruguay Round. To illustrate their level of access, their statement in favour of finishing the Round was formally circulated by the GATT Secretariat at some point in the Uruguay Round negotiations. This was reportedly the result of the former friendship between the then Director-General of Sutherland, and the then President of the ICC.
In order to ratify the Uruguay Round in Houses of Parliament, the business and TNCs applied their next round of lobbying and influencing.
Recent negotiations in the WTO are again in response to the of TNC lobby. The Information Technology Agreement (ITA), finalised in 1997, took a large step towards conclusion during the Singapore Ministerial Conference (December 1996). In her opening speech, the US Trade Representative Charlene Barchefsky made it clear that the US was very interested in reducing tariffs on information technology products. Although the review of the implementation of the Uruguay Round agreements was to be a major theme of the Conference, the US and EU delegation focused on reaching an agreement among themselves to reduce tariffs on information technology, and then set about convincing other reluctant countries to join them. The US delegation contained business representatives among a range of other interest groups. Meanwhile, AT&T
One of the primary tasks of WTO members is to review the implementation of the WTO rules. They narrow this task by monitoring to what extent member countries, but not TNCs, apply WTO rules. Given that it is the TNCs who are the major traders, and that their movements go unreviewed by the WTO, current methods of compliance monitoring are not comprehensive. There is very little information publicly available about how the WTO rules were used in corporate strategy, restructuring industry sectors and market concentration, or how they contributed to profits, losses and taxable revenue as part of the billion $ gains that were promised at the end of the Uruguay Round. It remains unquantified to what extent the WTO has influenced the current merger-mania and restructuring, and the massive impact these have had on labour.
In the US, the President's Advisory Committee for Trade Policy and Negotiations took a close look at the progress already made in implementing the Uruguay Round agreements, the prospects for continued implementation, and the operations of the WTO. In 1996, the ACTPN offered a report (Recommendations on US Trade Policy) to assist the US Government in making these assessments and planning for the future, including the agenda and preparations for the December 1996 Singapore Ministerial.
The influence of TNCs is strongly felt where the US Administration continued its commitment to aggressively enforce the protection of intellectual property, which has been improving in part as a result of accelerated implementation of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). The Administration continuously pressures other countries, by every means available, for their compliance in measures to protect intellectual property rights and in accelerating the implementation of the TRIPs agreement. The Administration's commitment to this end results from close consultations with affected industry groups and Congressional leaders. In 1995, US firms received an estimated $ 27 billion in royalties and license fees, accounting for 56% of total global receipts, compared with $ 6 bn and 50 % in 1983.
Setting the new agenda
Ministers from WTO member-countries decided at the 1996 Singapore Ministerial Conference to set up three new working groups: on trade and investment, on trade and competition policy, and on transparency in government procurement. They also instructed the WTO Goods Council to look at possible ways of simplifying trade procedures, an issue sometimes known as trade facilitation which had been promoted by the November conference of the Transatlantic Business Dialogue.
The decisions to create these working groups were a compromise between the developed countries' wish to negotiations in these new areas, and developing countries which wanted no negotiations beyond what had already been agreed. In the rush to bring new issues to the negotiating table, the influence of TNCs can be visible.
On trade and investment, the Uruguay Round had agreed ('built-in agenda') to review before the year 2000 its agreement on trade-related investment measures (TRIMs). It was further agreed to discuss whether provisions on investment and competition policy should be included in the agreement. However, a long coordinated effort by the International Chamber of Commerce (ICC) for liberalising investment succeeded in starting negotiations for a multilateral agreement on investment (MAI) in the OECD in 1995.
Nevertheless, the European Round Table (ERT) remained persistent in its preference that the strategy behind negotiations on investment should take place in the WTO. Incidentally, the EC Commissioner for the WTO, Sir Leon Brittan backed a Multilateral Investment Agreement (MIA) in the WTO. He raised the issue onto the agenda of the Singapore Ministerial Conference with a view to prompting future negotiations.
In a statement delivered directly to the leaders of the richest countries (G7) in Denver 1997, the ICC declared itself in favour of changes to the international rules for cross-border investment in the WTO. The WTO should be shifted, it said, away from its traditional focus on trade and toward international rules for doing business on a global scale following the conclusion of the MAI
Until the beginning of 1998, the chances were very high that the US TNCs would have had their way in the OECD. But the WTO Ministerial Conference in May 1998 might pave the way for rules on liberalising investment to be introduced to the WTO for negotiations in 2000 while the currently troubled MAI negotiations might not have succeeded in the OECD.
Competition policy rules include measures to prevent companies abusing their dominant market positions through, for example, forming cartels or monopolies and restrictive business practices (such as illegal price fixing among a few suppliers or tender candidates). They are operated in most industrialised countries and at the EU level. Efforts for binding rules at international level have so far failed (e.g. in UNCTAD), due to business pressure. The lack of international competition rules seems inconsistent with the WTO's aim of guaranteeing free trade in a world market, and the growing number and size of TNCs.
In 1992 the then EC Commissioner for Competition Policy rules, Leon Brittan, advanced the argument for multilateral competition rules, at the World Economic Forum (another informal and exclusive annual meeting for top political and business leaders in Davos, Switzerland). He proposed a clear set of common rules agreed internationally with effective enforcement under the rule of law, and without the aim of
During the signature ceremony of the Uruguay Round Agreements and the WTO, he and several developing countries expressed interest in starting to integrate multilateral competition rules in the WTO. The US and the business lobby was much less enthusiastic for an international approach to the issue.
In 1996, the EC formally submitted a paper to the EU members in favour of a framework for competition policy in the WTO, but it raised little response from governments who were not enthusiastic as it that had not been supported by the private sector. The non-paper submitted by the EC to the WTO in 1996:
Before the agreed deadline of the year 2000, and due to manoeuvring by the EU, the 1996 WTO Ministerial Conference has established WTO a working group on competition policy rules.
Negotiations for accession of new members
Member countries of the WTO are still on the increase with 34 countries in the process of joining. Among these are small developing countries as well as China and Russia who are increasingly major players in international trade.
The new applicants must negotiate with the WTO and its existing Members as to how they will adapt their legislation to WTO rules, and where tariffs and trade barriers will be removed. Proceedings of negotiations are not transparent and reports of the formal and informal meetings for the entrance of China to the WTO suggest that the EU and US dominate the negotiations. A consultant reportedly witnessed, during several accession negotiations, TNCs lobbying for various measures. Those who had already invested in a given country argued for protective height tariff rates while a TNC interested in exporting to that country rather argued for bringing down tariff rates.
A striking example of how business interests enter the accession negotiations is provided by the market access strategy of the European Union. In order to sharpen up its ability to prise open the world markets that matter most to European business, to create jobs and make European business survive in the long term, the EC has established a computer link with business. Companies can electronically or otherwise report their complaints about market access problems in other countries. The EC will follow up that complaint and investigate how the trade barrier can best be done away with. The EC can use existing WTO rules and procedures, push for new tariff reductions or new WTO trade rules, but if it concerns a country that is applying for WTO membership, the EU will try to prise open that market during its accession negotiations. It does not seem to be the case that the EC weighs development interests against that of its own business.
Similarly, the US Department of Commerce has a Trade complaint hotline.
As TNCs are involved in most world trade and many have been active in promoting WTO rules to their interest, they are, of course also involved in the WTO's dispute settlements and are using WTO procedures to protect the rights of trade they have gained. The WTO sanction mechanism allows action to be taken against those authorities and companies that breach WTO rules. This provides certainty for businesses and TNCs when they are trading and investing abroad.
In the WTO, only member states can be brought before a dispute panel. This means that a company, which is displaced or disadvantaged by a foreign company action or a government rule that is not consistent with the WTO, must first convince its government before the matter can be taken at the WTO. Similarly, if a company breaches a rule of the WTO, its host government must act in its defence and answer the complaint of the prosecuting government. Where a good relationship exists between a company and the national authority, this may increase the likelihood that the authority takes up the case. The financial might and legal expertise of TNCs would be a great advantage in supporting the expense of a, sometimes less than wealthy, national authority acting on behalf of a corporation.
Examples in dispute settlement cases where TNCs have played a major role are:
Challenges in bio-technology
The WTO has played a vital role in serving TNC interests in intellectual property rights through the Agreement on Trade Related Intellectual Property Rights (TRIPs). By providing a mechanism protecting patents issued in one country to cover all WTO member countries (after the year 2000), the WTO is redressing the alleged loss of billions of dollars by industry, but this might be at the expense of the poor.
The continued interest in TRIPs by TNCs is reflected in statements made by their special organisations described above.
The first issues mentioned in the statements have been reflected in US policy. For instance, in the WTO the US has argued strongly for accelerated implementation of TRIPs, and some countries have agreed to do so. It would be interesting to know to what extent the US has linked this with its aggressive bilateral policy towards legalising IPR protection in developing countries.
The latter arguments about patenting of life forms and lack of compensation for communities reflect some of the criticisms that have been growing around IPRs and bio-technology. Much of the controversy, raised by the global reach provided by TRIPs, has not been dealt with in the WTO. To illustrate some practices by TNCs that have raised concern, examples are used here that have been observed from Monsanto:
Many other issues still remain undiscussed. The fear is that because TNCs are so closely linked to WTO decision-makers, especially those in US and the EU, these issues will hardly be raised and dealt with properly in the WTO, which has more enforcement power than other organisations dealing with agri-biotech issues (e.g. FAO, WIPO).
UNICE wrote in its statement about TRIPs and the environment (September 1997) that it was dismayed that a number of NGOs seem[ed] to oppose effective protection of intellectual property rights on environmental grounds and considered the TRIPS agreement to be one of the most fundamental and important results of the Uruguay Round.
Similarly, on globalisation which the WTO is dedicated to support through trade and investment liberalisation, the International Chamber of Commerce (ICC) declared to the leaders of the G7 in 1997: [globalisation] is increasingly perceived in the public mind more as a threat rather than an opportunity. The misconceptions that are growing around globalisation must be combatted.[T]here is an urgent need for both governments and business to do much more to explain to the public at large the benefits and opportunities that will flow from globalisation. The ICC continued by declaring that globalisation was a business driven phenomenon and that business was the natural partner of governments to design the multilateral rules for the worldwide market place. In March 1998, the EU Ministers decided (General Council) that they wanted to give a strong message to public opinion explaining the advantages and benefits of further liberalising trade.
At the same time, business is aggressively asking for a special relationship with the WTO. The Chair of the ICC is quoted as saying that business wants neither to be the secret girlfriend of the WTO, nor should the ICC have to enter the WTO through the servantÕs entrance.
However, TNCs and business have already much more access to WTO decision-makers than citizen groups and NGOs. Citizens and non-profit organisations have very few ways to express and explain their concerns and experiences to WTO decision-makers up to the highest level. Current WTO arrangements that give NGOs only indirect access to WTO decision-makers, and that allow distribution of documents only after decisions are taken, further undermine NGOs and citizenÕs small capacity to deal with WTO issues.
In order to seriously assess what the impact is of the WTO agreements such as TRIPs as well as the globalisation process that the WTO accelerates, the WTO needs to urgently improve transparency about its decision-making process as well as mechanisms that allow citizens and NGOs to have their concerns taken into account.
The WTO could work toward redressing the lack of analysis and the bias towards business interests prior to the start of further negotiations by:
This booklet has been issued by the Transnational Institute (TNI), a decentralised Fellows of scholars, researchers and writers from the Third World, Europe and the US committed to critical and forward-looking analysis of sustainable development issues, particularly in the areas of poverty, marginalisation and conflict. It is part of TNI's research project on the impact and accountability of World
Myriam Vander Stichele is Fellow of TNI and Cosrdinator of the WTO project. She has been monitoring trade issues and the GATT/WTO since 1990 and has supported political activists and social movements through many publications and by giving talks throughout the world. The views expressed are those of the author and do not necessarily reflect views of TNI.
This booklet on "Towards a World Transnationals' Organisation?" has been made possible through the financial contribution of the HKH Foundation (US).