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NO INVESTMENT RULES REDUCING FLEXIBILITY,SAYS RICUPERO

by Chakravarthi Raghavan


Geneva, 27 Sep 99 -- There is no relationship whatsoever between negotiations and agreement on multilateral rules on investment and the possibility of increasing attractiveness of countries to Foreign Direct Investment, UNCTAD Secretary-General, Rubens Ricupero asserted Monday.

Ricupero also underlined the need for empirical research and evidence on the effects of developing countries hosting FDI, and technological innovation and diffusion of imported technology in the host countries, and the real effects of FDI on the Balance-of-Payments of the host country, whether the FDI generates enough export earnings to offset the chronic trade deficits of the country.

At a press conference to release the World Investment Report 1999 (WIR-99), Ricupero said he himself had attended several seminars organized by the WIR division to promote investment agreements, and at the first one, in 1995, in response to his question, representatives of the transnational corporations had said, that the existence of an agreement was a 'minor consideration' in their choice of locations for investment.

Speaking for himself, said Ricupero, he would be opposed to any agreement that would reduce the flexibility of choice of policies by a developing country in this area. "I am against it, and will be against it in the future," said Ricupero.

Ricupero also distanced himself from the WIR-99 view, based on technology and patent licensing fees remitted abroad (as between a TNC subsidiary in a host country to parent TNC), that technology transfer was taking place.

Technology transfer for most people, said Ricupero, was something very different: technology development by large companies in the host country, and being available for use and shared by the companies in the developing countries.

But this was not the definition of technology transfer adopted by the WIR, said Ricupero.

Present at the press conference with Ricupero was Prof. Sanjaya Lall, Oxford academic, and consultant for WIR-99 and chief author of the part about FDI and Enhancing Technology capacities in Developing countries.

Ricupero and Lall were asked to comment and explain the differing views, even from within UNCTAD, on the issue of FDI, TNCs and the transfer of technology to developing countries.

There was one view coming out of WIR-99, the questioner said, that seemed to suggest that by creating a climate to attract FDI and bringing in TNCs, the host country gains in technology transfer. There was a box inside the report pointing to the 1992 Rio Declaration and provisions of WTO's TRIPs Agreement and that of GATS implying technology transfer. But there is no assessment in the WIR whether in fact the provisions of TRIPS and GATS had been effective.

The TNC division's in-hour journal on transnational corporations had carried an article by Canadian academic and former trade negotiator, Sylvia Ostry, to the effect that while there is technology transfer between parent and subsidiary of a TNC, there is no evidence of diffusion of technology within the host country, and there was need for policy instruments.

There was another view about FDI, TRIPS and other WTO agreements, and technology transfer and development in developing countries, found in the analysis of these issues in UNCTAD's Trade and Development Report issued just last week.

There was also the UNCTAD view, supporting the TDR conclusions, found in the UNCTAD's Trade divisions papers and technical support to developing countries in developing a 'positive agenda' for the next round - an activity in which Ricupero himself was taking a personal interest.

There was also the view that Prof Lall had reportedly presented earlier this year at the Helsinki conference under the auspices of the UNU/Wider institute (whose proceedings would probably be edited and published 2 years later), where Lall's paper was the subject of comments and discussions by other academics and according to reports, Lall himself had said they did not know and had no evidence that in fact TNCs and FDI promote technology transfer and development in host countries.

Ricupero said the authors of the WIR had adopted the view that licence, royalties and other fees remitted to parent TNCs on technology could be taken as a measure of the transfer of technology (TOT).

But for most people, TOT meant something else, and meant technological innovation and development in the host developing countries.

Ricupero drew attention to a box in the WIR about the experience of Brazil that showed that the acquisitions and mergers of Brazilian enterprises by foreign firms had resulted in an interruption of R & D activities that had been previously been conducted in Brazil by the acquired domestic enterprise.

The head of UNCTAD also referred to a recent WTO panel ruling on export subsidies of Brazil and Canada (in mutual disputes raised by one against the other) on aircraft exports, and the panel holding both to be at fault, and said the export of aircraft was a high-technology industry where Brazil had been successful. There was a large import content, but the design and development was entirely Brazilian, and this had been possible because the enterprise concerned was domestic and had not been owned by a foreign firm, Ricupero said.

There is a need for empirical research and evidence on the question of FDI, TNCs and technological innovation and development in host developing countries, Ricupero said.

Another area needing empirical research and evidence, he said, is the effect of FDI on the balance-of-payments of the host country, and the FDI generating more exports and helping to reduce the chronic trade deficits of the host country.

His own country, Brazil was the second leading country, next only to China, in attracting FDI. But most of it had gone to mergers and acquisitions, and investments in the 'non-tradeable' sectors or sectors for production for the domestic market and consumption, and thus had added to the BOP problems.

The views of Ricupero thus were against the views coming out of the WIR authors in their successive reports since 1995.

Mr. Lall though invited, did not respond to the question about the views on technology and FDI in the WIR, and in his paper and discussions at the Wider meeting in Helsinki.

WIR-99 is a "weighty" document, literally, it weighs 1.6 kgms, with all kinds of boxes, figures, charts and narration, but short on clear analysis and conclusions from them.

The Report (which is that of the UNCTAD secretariat) lists a 15-person team as authors, 11 persons as having provided special inputs, 12 for providing research assistance, one principal consultant and 9 other consultants, 34 others as having provided special inputs, and 85 as 'experts' who were consulted (including at UNCTAD consultation meetings of experts) - a total of 166, besides nine persons who helped in production and editing! And it is known inside UNCTAD, that some staff to whom the parts of WIR were sent for comments, who provided critical comments, did not agree to their names being mentioned.

Reports, studies and discussions papers, and articles in learned journals, usually mention those who had provided comments, but the authors saying they had 'benefited' from the comments, but that all failings are those of the author. There is no such disclaimer here, and on the face of it everyone mentioned bears some responsibility.

But some of the claims and conclusions, for e.g., are contradicted by the contents of the Trade and Development Report issued last week (which too before issue consulted other concerned divisions inside UNCTAD, for inputs and comments) had some contrary views on FDI and BOP, on very small FDI that is 'greenfield', and on the negative effects of the WTO agreements for e.g. on TRIPS and GATS, and instead of the alibi of nothing could be done because of the rules of the game, called for changes in the rules of the game.

Successive issues of the annual WIRs come up with hasty conclusions promoting TNCs, without rigorous analysis. This year's report is too full of them.

An example is Box XVIII:5 (p 243-4), with UNCTAD given as the source, about TNCs and evolution of modern agriculture. It says that in agribusiness, there is the "declining importance" of traders, who acted as a bridge between buyers and sellers who did not know each other before, and that thanks to communication technology, including internet, allows buyers and sellers to find each other more easily, increases competition, cutting profit margins for traders and eroding. There is also the claim that while TNCs have been important in expanding trade in processed foods, large retailers have provided important channels for non-traditional commodities such as fresh fruits and vegetables.

The US is the leader, way ahead of rest of the world, in terms of computer use, internet access and use etc etc, and the claim of internet having eliminated traders and provided direct producer-supplier contacts should be true of that country.

But the fact, brought out in several studies, including some by the Minnesota-based Institute of Agriculture Trade Policy (outlined last week at an FAO symposium in the UNCTAD building) on the effect of the de-coupled farmer support in the US, show that in fact there is a 'disconnect' between suppliers (farmers) in US and consumers or buyers abroad, that farm-level prices have been dropping and farmers produce more (benefiting from fungible de-coupled domestic support), that the belief that when prices fall there will be less production in a 'market-oriented' agriculture is not happening even in the US, that Cargill and one or two other "traders" have an oligopolistic control over a range of agricultural commodity trade, that farmers have no other choice but to sell to one or the other firm, and that the "traders" are getting a bigger and bigger share of the difference between producer-level price and price paid by consumers.

The large retailers in the UK, even by the loose definitions of the UNCTAD TNC division, are in fact TNCs, and the exporters of fruits and vegetables from Kenya, or Brazil or anywhere else are not the producers, but middle-men "traders".

It is naive to suggest as the box does, that while buyer-driven commodity chains provides significant opportunities for growth, the next issue for producers is to turn these into producer-driven chains.

It is perhaps time for "slimming" the future WIRs, bringing more serious economic analytical capacity and disciplines (which the division now lacks), and above all saving the Secretary-General every year the embarrassment of explaining and distancing himself from the conclusions and recommendations.

Mr. Ricupero took over the helm of UNCTAD, at a very difficult time for the institution (when a range of forces, including some former aspirants for the job, had joined up to close it). By his knowledge, eclectic reading, commitment, he saved the institutions and jobs, and has pulled UNCTAD back to the front-ranks of economic discourse, thinking and analysis displayed in what the UNCTAD press office head called last week "UNCTAD's flagship report." PERHAPS SECTIONS OF THE STAFF OWE SOME OBLIGATION TO ENSURE THAT THE AUTONOMY HE PROVIDES FOR MANY VOICES DOES NOT BECOME AN EMBARRASSMENT. (SUNS4517)

This document was published in the South-North Development Monitor(SUNS), edited by Mr C. Raghavan. It is being circulated for the benefit of the NGO community.

For recirculation please obtain permission from Mr Raghavan at suns@igc.apc.org

 


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