• Heritage Action
  • More
Backgrounder #608 on International Organizations

October 5, 1987

The Centre on Transnational Corporations: How the U.N. Injures Poor Nations

By

(Archived document, may contain errors)

T1 608 October 5, 1987 THE CENTRE ON TRANSNATIONAL CORPORATIONS: I HOW THE U.N. INJURES POOR NATIONS The United Nations has a long history of attacking the free enterprise system.

A key elemeht in this is the campaign against multinational corporations or, as they are called at the U.N., Transnational Corporations (TNCs A leader in this attack is the New York-based Centre on Transnational Corporations (CTC).

Corporations; which was established in 19

74. The Commission has 48 members: 12 from Africa, 11 from Asia, 10 from Latin America, 5 from the Soviet bloc, and 10 from the Western democracies (including the United States The CTCs annual budget is $5.4 million, of which the U.S. pays one-fourth, or $1.4 million.

The creation and activities of the CTC reveal some of the worst of the U.N.

It is not so much that the CTC wastes money, although this is not inconsequential.

Nor is it even that the CTC mainly has been engaged in harassing American and oth er Western firms trying to conduct business in the Third World. What is most serious is that the policies and actions of the CTC, as of those of many other U.N organs, impede economic growth in developing countries. The CTC penalizes those nations and soc i eties that are the globe's poorest The CTC is the secretariat of the U.N. Commission on Transnational Eosuring Perpetual P&erty. One of the CTC's main functions, for example, is the drafting of a so-called Code of Conduct dealing with TNCs. The. Code has b een in the discussion stage for over a decade and is currently stalled, mainly because of Western objections. The West opposes the double standard built into how the code defines a TNC. Under its. definition, only Western and Third World firms will be cov e red by the Code; giant 'communist bloc enterprises will be exempt. -2 A much more important objection is that the Code is designed to force Western companies to operate according to the New International Economic Order or NIEO-the U.N.3 prescription for m andatory resource transfers from the West to the developing world. NIEO, more broadly, is a strategy that will ensure perpetual poverty in the Third World.

The CTC also is involved in recommending ways to deal with Third World debt problems by blaming tran snational banks for the problem and in devising consumer-oriented information systems on the activities of corporations. Little effort is made to disguise the deliberate anti-West and anti-free enterprise motive of these projects.

Much of the CTC's work duplicates that of other international agencies, such as the U.N. Conference on Trade and Development (UNCTAD), the U.N.

Environment Programme, and the International Monetary Fund. As a result of this duplication and CTCs growing politichation, the U.S. has reduced considerably its participation in the CTC's work.

While originally the Commission on Transnational Corporations operated on a consensus procedure, this arrangement ended at its 1977 meeting. Unless the Commission returns to a consensus approach, which is highly unlikely, the U.S should stop supporting the Centre and the Commission altogether. This would save the U.S. $1.4 million annually. Much more important, it would signal that the U.S rejects the CTC's anti-growth philosophy and refuses to g i ve credibility to the CTC and other international agencies that refuse to support policies genuinely designed to help Third World nations develop economically THE CK! AND THE NEW IN"ATI0NAL EKONOMIC ORDER The Commission on Transnational Corporations was e s tablished in 1974 by the U.N. Economic and Social Council, through resolution 1913 (LVII). The report on which the resolution is based, entitled 'The Impact of Multinational Corporations on Development and on International Relations E/SSOO/Rev. 1, ST/ESA/ 6 , 1974 explicitly opposed TNCs, favoring their control by governments. The report states for example, that TNCs although powerful engines of growth, tend to accentuate rather than reduce inequalities in the absence of proper government policies TNCs also are said to "often exploit natural resources in developing countries for export to world markets."

The fundamentally anti-TNC purpose of the CTC was confirmed this April 17 by A. V. Trepelkov, the Soviet representative to the Economic and Social Council wh en he boasted that "the Centre's main task [was] to identify the negative consequences of the activities of TNCs and submit proposals on ways to eliminate such consequences suppOrting a "New" Order. The Commission, through the Centre, has produced a numbe r of studies and reports. Among them is "Progress made toward the establishment of the New International Economic Order (NIEO The role of TNCS" published in 1980 (E/C.10/74 This report outlines the purpose of NIEO 3 to "redress the economic imbalance betwe en developed and developing countries and proposes specific activities for the CTC.

Among those activities are: facilitating.the transfer of technology from developed to developing nations; regulatory monitoring of TNC activities; an international Code of Conduct; and a technical advisory programme t,o strengthen the bargaining capacity of developing countries. All of these activities and others have been undertaken by the CTC at a cost of some $5 million per year.

Dr. Murray L. Weidenbaum, Director of the Center for the Study of American Business at Washington University in St. Louis, charges that the very production of these CTC "studies" is pernicious. In a lecture last November at the New York based Lehrman Institute, Weidenbaum warned Yesterday's stud i es lead to today's voluntary guidelines which, in turn, become the basis for the treaties and directives of tomorrow The U.N. and its specialized agencies are trying to redistribute the income and wealth of the member tio on^ by stepping up their regulati on of private enterprise."

The regulation of private enterprise, however, is not in the best interest of the developing nations. Far from helping, the CTC's agenda prevents them from followmg the economic paths that lead to prosperity THE CODE OF CONDUCI' ON TRANSNATIONAL CORPORATIONS The drafting of a Code of Conduct for transnational corporations has been one of the CTC's principal undertakings. So far, however, there is no consensus on what the.Code should say.

To date, the "a eed" and nearly agreed dra ft provisions of the Code E(1983/17 Annex Ifdeal with respect for national sovereignty and development objectives of states, human rights, and noninterference in internal and international political affairs. Disagreement continues on most of the issues in v olving the definition of TNCs, including the definition of corrupt practices; transfer of technology; clarity of national laws and regulations; repatriation of capital nationalization; and compensation. Most important, there has been no agreement on wheth e r the Code should be binding or voluntary. Western nations fumly favor the 1atter.l Champions of Replati= The real objective of the Code's supporters is to impose state reeation of TNCs. Wolfgang Sproete, an East German representative on the Economc and S o cial Council, for example, told the Commission on Transnational Corporations this April 10 that the Code is needed because developing countries had encountered great difficulties in regulating the activities of TNCs He was echoed by Nigeria's A.L. Olukann i , who said that TNCs "must be well regulated 1. See US. Department of State, Office of Investment Affairs, Current Stafus Report: Selected International Organization Activities Relating to Tmnsnational Enterprises, July 1986. -4 Western countries consiste ntly have resisted the CTCs anti-TNC attitude.

West Germany's Jurgen Kuehn noted in April, for example, that developing countries could not expect both to welcome foreign investments and to keep blaming TNCs for Third World economic ills.

Above all, Western countries resist the Code's definition of TNCs which exempts Soviet bloc enterprises. Kuehn told the Commission that West Germany calculates that there are 141 socialist enterprises engaged in transnational activities.

In a modest ackno wled ement of this, the Commission in April 1986 passed a resolution that spoke of "the role of enterprises engaged in transnational operations regardless of form or nature of ownership and country of origin This year the Commission noted that the CTC has adequate ways and means to include enterprises "regardless of form or nature of ownership and country of origin These statements, however, are far from sufficient in eliminating the Code's disparities in treating Western and Soviet bloc TNCs Double Standa rd. The double standard on TNCs is the principal reason why for more than a year the U.S. has distanced itself from the CTC.

Assistant Secretary of State for International Organizations, told the House Foreign Affairs Committee this May that from the begin ning the U.S. has supported a Code of Conduct if it applied to all TNCs. In addition, said Keyes, the Code must be voluntary. It also must be balanced, acknowledging that TNCs, as investors in the Third World, have some rights Alan Keyes Keyes told the Ho u se Committee .that "key members .of the developing countries and the Soviet bloc will have to demonstrate a willingness to make some basic policy changes before there can be a reasonable hope for making progress on the Code." Because recent negotiating se s sions on the Code made virtually no progress, Keyes concluded that "we should not schedule further negotiating sessions until there is clear evidence that a solution can be found to the major outstanding issues Ceosoring a Report. The Soviet Union seems d e termined to preserve the Code's double standard. Four years ago, a Soviet national, Ralph Tsvilev, Assistant Director of the InformationmAnalysis Division of the CTC, demanded the suppression of the Annex to a Center report. The 27-page Annex, entitled "R e cent Trends in International Business Arrangements with Organizations and Enterprises in Socialist Countries included a detailed description of those communist bloc enterprises. The Annex notes that several Soviet bloc countries have accepted direct forei g n investment by Western TNCs; that, by the end of 1978, some 359 joint ventures had been established by seven Soviet bloc enterprises in Western countries; and that over 200 Soviet bloc enterprises concentrated in foreign marketing activities enterprises a re TNCs and thus must be covered by the Code. Tsvilev's successful censoring of the Annex violated the Secretariat's rule of impartiality. Ambassador Jose Sorzano, then U.S. Representative to the .Economic and Social Council, told the Council in July 1983 that "we are outraged both by Tsvilev's behavior and by his success in suppressing the Annex to the Center's survey In effect, the Annex supported the U.S. contention that communist commercial Other disagreements regarding the Code involve principles of i nvestment.

The U.S. believes that TNCs are entitled to fair treatment; prompt and effective compensation in the event of expropriation; and the right to transfer profits and capital freely. Several developing nations have accepted these principles in bilat eral investment treaties. Yet, Keyes told the House committee in the bloc politics of the U.N. system, these moderate developing countries have been unwilling to break ranks with the more extreme developing countries and the commuqist states A- OF TRANWAm O Nm BANKS CTCs efforts concerning the activities of transnational banks have been resisted by the U.S. primarily on the grounds that they duplicate the work of the International Monetary Fund (IMF) and the World Bank. According to U.S representative to the Commission Walter B. Lockwood, Jr., developing countries have been pressing the Centre to be involved in interest rate setting, debt relief and financial flows. The CTC would appear to ,desire additional international financial regulation: at one'time CTC even suggested the creation of a new international financial agency.2 The CK debated transnational banks at its April meeting but it failed even to attempt to define a transnational bank. And the CTC 1987 report on the role of transnational, banks (E/C.10 /1987/13) completely ignored the transnational activities of the banking institutions of the Soviet bloc. It seems that only Western banks are transnational banks.

British Refutation. This position is applauded by Soviet representative G.S.

Markossov who insisted that "the activities of bank agencies in the socialist countries were not 'transnational' in nature, nor in volume A main reason, he noted, is that the purpose of Soviet bloc transnational banks "is not to collect profits but to promote bilateral cooperation Refuting this was Britain's representative Peter Gent. He pointed to the Moscow-Norodny Bank in Britain, which "now had a network in countries around the world including Singapore, where it had made some unfortunate real estate speculations Th is bank surely should come under the definition of a transnational bank.

Transnational banks are blamed for a number of Third World problems including their mounting foreign indebtedness. This prompted the objection of West Germany's Jurgen Kuehn at this A pril's Commission meeting Blame [for the debt] was put exclusively on the banking sector and the crediting countries East Germany's Horst Heininger disagreed and called for "Measures [to] be taken to induce banks to share the burden" of developing countri e s' forei n debt. Ukrainian representative Vladimir Kolibanov accused transnational banks o B "disorganizing the 2. A 1981 CTC report entitled Tmsnational Banks: Operations, Strategies and Their Effects in Developin Countries, for example, recommends the e s tablishment of "an appropriate international agency, fnowledgeable about the problems of transnational banks, developmg countries and home nations." That agency would then examine the report's suggestion for "expanding current co-financing mechanisms" and the establishment of "new mechanisms for 'ca ital pools' for the developing countries."

Third World.

The thrust of the report is to press for greater financial flows F rom the developed countries to the -6 world financial situation And the Cuban represen tative, Even Fontaine-Ortiz emphasized that "the question of external debt only pointed to the need for the new international economic order."

The U.S. opposes all CTC involvement in the transnational bank issue. U.S representative to the Commission Walte r B. Lockwood, Jr. urged the CTC to "stay away from the issue of international finance, including the whole debt question because that issue was so fully handled in other forums such as the IMF and the World Bank I"Am0NAL =AND- OF AmUNTIJ5IG AND REPORTING The gathering and dissemination of information on all aspects of the activities of TNCs has been a major concern of the Centre on Transnational Corporations since its inception. In its publication International Accounting and Reporting Issues 1986 Review, the Centre recommends that TNCs should disclose the amount invested during the. year; the income derived from the investment; changes in the value of the investment TNCs should describe their relationships and types of transactions with other TNCs Auditor s should express their opinion on whether or not the statements submitted by TNCs complied with "established standards" and were "true and fair."

The U.S. does not in principle oppose an information system on TNCs.

Washington warns, however, against colle cting too much information and #'being swamped." U.S. representative Seymour Rubin, whose 12-year tenure with the Commission ended in 1986 has pointed out a particular U.S. concern: the violation of business information confidentiality.

The U.N. representative of a major business organization told The Heritage Foundation that at times corporations also find it annoying to have to respond to questionnaires from the CTC concerning their activities. Not only is it a drain on their resources , it sometimes appears to be politically motivated. A recent circular distributed to companies listed as having subsidiaries in South Africa, for example was ignored by some, notably Mobil Oil Corporation, because it was obviously a political exercise Iaw Q uality Data Western nations emphasize the superfluous nature of the CTC's "information" work. British representatwe Peter Gent has suggested that "it would be more sensible for the CTC to have information on information"--in other words to serve as a guid e for the requesting party to the best source of facts on a particular company. U.S. representative Lockwood told The Heritage Foundation that most of the CTC's information is not of high quality. The representative of a major pharmaceutical company agrees It is make-work for the CTC 7 The principal political supporter of the information network predictably is the Soviet Union. Industrial espionage is high on the Kremlin's priority list. Western representatives note that the majority of requests for CTC dat a on corporations come either from the Soviet bloc or from nongovernmental organizations rather than from the developing nations for which the data presumably are intended.

During the period April 1 to December 31, 1983, according to the CTC, no requests for so-called "company profiles" were received from developing countries; 16 requests were received from nongovernmental organizations in developed countries.

The majority of requests--19--came from the Soviet bloc. Denmark's Peter Hansen current CTC Execu tive Director told The Heritage Foundation that the CTC has since "discontinued the company profiles. But U.S. representative to the Commission Lockwood states that the CTC still engages in compiling information about companies, whatever the label of the p rogram calls for the establishment of special files on TNCs that produce or trade in weapons, which the U.S. and other Western nations strongly resist. Among other things, these files would fail to account for government-to-government weapons transfers su c h as those from Soviet state-owned weapons factories to dozens of Third World recipients Earempting M&s Weapons Trade. The Soviet Union, moreover, repeatedly Though it had no authority to work on such a report, the CTC produced a study in 1985 on TNCs in t he armaments industry, to which the U.S. strongly objected. Then in 1986, the CTC report on "Ongoing and Future Research included an annex on "preliminary findings of a study on TNCs in the production of armaments and transfer of military technology E/C. 1 0/1986/12 Cm AND ENvIROIuItmmTAL ISSUES The CTC became involved in environmental issues after the December 1984 gas leak accident in Bhopal, India. Indian representative P. Mankad told the Commission this April 8 that TNCs "must assume effective safety re sponsibilities and be held accountable for injurious consequences arising out of their operations in a host country Nothing was mentioned, however, about the responsibilities of the host country.

The CTC's approach to environmental issues is as unbalanced as it is on other matters. This was noted by the Netherlands' representative Heleen de Brabander Ypes this sprin She criticized the CTC for giving only the plaintiffs side in a CTC report (E$C.10/1987/12 which had been alluded to in an environmental case b efore U.S. courts. She also noted that in many countries it is the government that is responsible for environmental problems Duplicating Efforts The principal U.S. objection to CTC interest in the environment stems from the duplication of efforts. Lockwoo d has pointed out that the U.N. Environment Programme (UNEP) deals with all aspects of .TNC impact on the environment. In particular, the issue of chemical accidents and their transboundary effects will be examined by UNEP in the near future. -8 A key issu e on the CI'C environment agenda is the preparation of a "List of Products Harmful to Health and Environment in cooperation with other U.N agencies. Here, too, a double standard is in operation. The U.S. consistently has complained about this. Chester Norr i s, Special Adviser to the U.S. for the 41st General Assembly, objected ''particularly [to] the discriminatory commercial data produced by the CTC For example, the agricultural chemical known as 2,4-D is shown in the commercial section of the working draft of the Second Issue of the Consolidated List of Products Whose Consumption And/or Sale Have Been Banned Withdrawn, Severely Restricted or Not Approved by Governments (ST/ESA/192, on p. 434ff as being manufactured by 47 companies. Yet some of those compani e s notably E.I. DuPont de Nemours 8z Co Ciba-Geigy AG, and Eli Lilly and Co. do not in fact make that product. The Dow Chemical Company no longer makes any of the nine trade names shown in its listing. Yet the impression is left that these companies still m anufacture these harmful products. Meanwhile, these December 1986 documents omit altogether companies known to manufacture the product in East Germany, Czechoslovakia, Poland, Hungary, the Soviet Union, Romania, the People's Republic of China, Mexico, and others.

The CTC commissioned a study on the transfer of technologj in 19

84. This has just been published, under the btle Transnational Corporations and Technology Transfer: Eflects cuzd Poky Issues (ST/CTC/86 The report advises developing countries to devise "an active strategy for technology transfer and development."

While acknowledging the importance for development of "dynamic public and private entrepreneurial sectors the ,report continues to exaggerate the power of TNCs and fails to explain the pr oblems encountered by TNCs when host countries show insufficient regard for international patents.

The principal objection of Western nations- to. CTC involvement with technology transfer again is redundancy. The U.N. Conference on Trade and Development, for example, has been working on a Code on Technology Transfer for several years. In the area of transborder data flow, considerable work has been done by the International Telecommunications Union. And general trade issues are the purview of the General A greement on Tariffs and Trade (GAIT ma IN SOUTH AFRICA AND NAMIBIA resources. Studies, conferences, resolutions, and reports consistently stress that Western businesses must take responsibility for ending apartheid. Yet largely ignored by the CTC is the p ositive impact of the TNCs on economic and social development in South Africa (E/C. 10/1986/L4/Add. 11).

The CTC has held numerous Public Hearings on the Activities of TNCs in South Africa and Namibia, where TNCs have been singled out by name for criticism . Gora Ebrahim, representative of the Pan-Africanist Congress of Azania, a pro-Mbst terrorist organization, speaking at the Public Hearings on the Activities The campaign against South Africa has claimed a vast amount of the CTCs -9 of TNCs in South Afric a and Namibia held in New York in September 1985 accused Citibank and Chase Manhattan Bank N.A. of "rescuing the Pretoria government in time of crisis."

The General Motors Corporation is one of several Western companies Singled out in a report by the U.N. Secretary-General on the responsibility of the countries of ownership for alleged TNC violations of U.N. resolutions in South Africa document E/C.10/1987/8 General Motors countered by producing a document on the subject, which the U.S. presented to the CT C . It solidly refuted ,the suggestion in the report that the management of the General Motors' facility had been aided by the South African police THE CE'S ANTIGROWTH BIAS The CTC regularly discusses and produces studies about TNCs and international econom i c relations. The premise of this work was clear as early as 1974 in the report on "The Impact of Multinational Corporations on Development and on International Relations This report, which defined the CTC's purpose, states that "it is necessary for host d e veloping countries to formulate their development strategies clearly in order to direct the investments of multinational corporations in a way that is consistent with their national goals and policies, including income distribution, labor conditions, indu strialization or balance of payments."

Nowhere is it sueested that host countries should shift their national policies away from income redistribution toward private sector development. According to Seymour Rubin, former U.S. representative to the Commissi on on Transnationals and currently Professor of Law at American University, the CTC is not interested in promoting free enterprise Erroneous Conctusion. Since the arrival of Peter 'Hansen .of Denmark as (JTC Director in 1985, notes Rubin, the (JTC has bec o me particularly careful not to antagonize the U.S. The CTC's latest report on TNCs and international economic relabons (E/C.10/1087/2) recognizes the importance of host country policies in encouraging or discouraging investment. The report even notes that creating "an improved investment climate" might attract TNCs. But instead of endorsing this, let alone actively promoting the virtue of free enterprise, the report erroneously concludes that "the evidence to date gives no indication of an overall positive response to the improved investment climate that developing countries have been trying to foster."

The fact is that almost all the evidence confirms that Third World policy changes can improve their economies dramatically. Instead of admitting this, the r eport blames TNCs for "heightened oligopoly" and for a trend toward the domination of markets for certain certain products by some handful of corporations By contrast,, the latest World Development Report of the World Bank 10 documents the fact that free trade policies boost economic growth in the Third World.3 Impeding Economic Development One of the most vivid examples of the CTC's flawed approach to development is the Code of Conduct for Transnationals.

This Code does nothing for development. Rather, it reinforces the myth that regulation will help Third World nations-and if possible, mandatory regulation.

Unfortunately, the U.N. system plays into the hands of the more radical developing nations. As Ambassador Keyes told Congress in May in the bloc politics of the U.N. system moderate developing countries have been unwilling to break ranks with the more ext reme [developing countries] and the communist states He therefore sees little prospect for early agreement on the Code.

Murray Weidenbaum has attacked the CTC's attempt to regulate business Unlike the existing body of domestic regulation says Weidenbaum th is new burst of international regulation is not primarily motivated by a desire to improve business performance. Rather, the current style of rule-making is aimed at more political objectives, notably the redistribution of economic power Weidenbaum consid e rs the CTC's Code of Conduct for Transnationals, in particular, to be the most dangerous of the proposals or actions by international. agencies in connection with regulating the day-to-day operations of private companies CONCLUSION A basic premise of the Centre on Transnational Corporations is that an antagonistic relationship exists between transnational corporations and the Third World. Implicit in this premise is the proposition that TNCs must be regulated.

Rather than providing strong pro-growth advice to developing countries, the CTC spends much of its time blarmng TNCs for South Africa's system of apartheid, for poverty in the Third World, for environmental problems, and for not investing enough in developing countries.

The CTC has been trying for more than a decade to draft a Code of Conduct for TNCs, but no consensus has been reached, even on the definition of TNCs.

There is also no agreement on whether the Code should be voluntary or mandatory.

Consequently, the U.S. has drastically reduced its participation in the Centre's activities.

The CTC also is involved in an openly anti-Western "Harmful Products List which singles out companies' presumably producing such products. The list is inaccurate, and one-sided: it completely ignores products from the Eastern bloc or the Third World.

Ending US Participation. The "information" system the CTC is attempting to gather on TNCs, moreover, is not only in most cases out of date and incomplete but often a burden, even a political nuisance, to Western compan ies. The U.N. is wasting its money on such a system 3. Michael Prow, "Neutral Trade Regimes Boost Economic Growth Financial Times, July 1, 1987 11 Most important, however, the (TC fails to encourage developing countries to pursue the policies that will le a d to reater economic success. Instead, it is biased original mandate for the U.S. to cease participation in the CTC altogether. It is time to focus attention on the U.N.'s anti-growth economic agenda and to repudiate its anti Western bias as well as its r egulatory zeal m favor of regulating the activities o f Western companies, in line with the CTC's The U.S. already has reduced its role in the CTC. The time now has come Juliana Geran Pilon Ph.Dr Senior Policy Analyst

Heritage's daily Morning Bell e-mail keeps you updated on the ongoing policy battles in Washington and around the country.


The subscription is free and delivers you the latest conservative policy perspectives on the news each weekday--straight from Heritage experts.


The Morning Bell is your daily wake-up call offering a fresh, conservative analysis of the news.


More than 450,000 Americans rely on Heritage's Morning Bell to stay up to date on the policy battles that affect them.


Rush Limbaugh says "The Heritage Foundation's Morning Bell is just terrific!"


Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."


Sign up to start your free subscription today!