| GB.268/MNE/2
268th Session Geneva, March 1997 |
| Subcommittee on Multinational Enterprises | MNE |
SECOND ITEM ON THE AGENDA
Developments in other organizations
1. This paper is submitted in accordance with an earlier request made by the Committee on Multinational Enterprises, and briefly summarizes developments in, and the activities of, various international and regional intergovernmental organizations which have codes, guidelines or some form of instrument relating directly or indirectly to multinational enterprises. It updates the information submitted to the Subcommittee at the Governing Body's 261st Session (November 1994).(1) The Office gratefully acknowledges the cooperation of the organizations that responded to its request for information.(2)
United Nations Conference on Trade and Development
(UNCTAD)
Draft International Code of Conduct on the
Transfer of Technology (TOT Code)
2. As indicated in the 1994 report,(3) the United Nations General Assembly, in its resolution 48/167 of 21 December 1993, reiterated that "the conditions do not currently exist to reach full agreement on all outstanding issues in the draft international code of conduct on the transfer of technology". It invited "the Secretary-General of UNCTAD, based on the relevant provisions of the Cartagena Commitment and taking into account the findings of the Ad Hoc Working Group on the Interrelationship between Investment and Technology Transfer, to report to the General Assembly at its fiftieth session on the state of the discussion". In response to this request, the Secretary-General of UNCTAD submitted a report to the General Assembly at its 50th Session.(4)
3. The report by the Secretary-General reviewed the recent developments in the area of the transfer and development of technology, of relevance to the state of the discussion of the draft code of conduct.
4. The Ad Hoc Working Group on the Interrelationship between Investment and Technology Transfer(5) and the outcome of the Uruguay Round of Multilateral Trade Negotiations(6) had concluded that the "developments, which have given rise to conceptual and policy shifts, are of unique relevance to the discussions on the draft code of conduct" and that "... it would ... be important to assess the specific implications of these developments on the international transfer of technology, particularly to developing countries, and assess their possible effects for enterprise and intergovernmental cooperation on the transfer of technology, including the identification of possible rules and principles which might enhance the stability and predictability required for such cooperation".(7) In this context, it was the view of the Secretary-General of UNCTAD that "the negotiations on the current draft code of conduct be formally suspended".(8) No further decision on the matter was taken by the General Assembly of the United Nations.
UNCTAD's new mandate on investment
5. The Ninth Session of the United Nations Conference on Trade and Development (UNCTAD IX, Midrand, South Africa, May 1996) provided a new mandate for UNCTAD in the area of foreign direct investment (FDI) which reflected a clear recognition of the key role FDI plays in the development process and the need for UNCTAD to help enhance its benefits by facilitating policy formulation and stimulating a constructive dialogue between States on FDI. For this purpose UNCTAD was requested in particular to focus on "identifying and analysing implications for development of issues relevant to a possible multilateral framework on investment, taking into account the interests of developing countries and bearing in mind the work undertaken by other organizations".(9)
Recent major research and policy analysis activities
6. UNCTAD's main research and policy analysis work on FDI is contained in the World Investment Report, published annually. The World Investment Report 1994: Transnational Corporations, Employment and the Workplace had a special focus on employment, human resource development and industrial relations. In this respect, the report provided an analytical framework for determining the range of employment effects of FDI and for linking these effects to corporate strategies, and reviewed recent trends. It explained the role of transnational corporations (TNCs) in human resource development, looked at the trade union approaches to international production and drew some policy conclusions suggesting cooperative action for governments, transnational corporations and trade unions.
7. The World Investment Report 1995: Transnational Corporations and Competitiveness took as its special theme the role of TNCs in influencing countries' access to resources and markets and in facilitating economic restructuring. Finally, the World Investment Report 1996: Investment, Trade and International Policy Arrangements deals with the various relationships between investment and trade and discusses recent initiatives to develop international rules on FDI, paying particular attention to policy coherence and the development dimension.
The international framework
8. Also as part of its contribution to the understanding of the issues involved in the construction of international investment instruments, UNCTAD has completed its International Investment Instruments: A Compendium, which brings together, for the first time, the most important international instruments dealing with FDI. The collection reproduces the texts of over 80 normative instruments, including a selection of prototypes for bilateral investment treaties and key instruments prepared by non-governmental organizations. The introduction is an analytical essay on "The evolving international framework for foreign direct investment" which places the instruments in context and identifies the main issues they address.
National policies
9. At the request of the Commission on International Investment and Transnational Corporations, the secretariat is undertaking investment policy reviews. Conducted in a standardized, objective and open manner, with the involvement of the private sector, the reviews are designed to provide government officials with an innovative means of monitoring FDI in a liberal environment. Work has already started on the reviews concerning Pakistan, Egypt, Poland and Peru.
Forthcoming activities
10. The current work of UNCTAD on FDI includes the preparation of a publication on bilateral investment treaties which will contain an analysis of recent trends and an up-to-date list of treaties signed. Also in preparation is a publication showing recent changes in national FDI regimes and analysing them.
Intergovernmental Working Group of Experts on International Standards
of Accounting and Reporting (ISAR)
11. ISAR held its 13th and 14th Sessions in Geneva in March 1995 and July 1996. The 13th Session was entirely devoted to various topics in environmental accounting at the corporate level. The Group decided that guidance for disclosure in financial statements was of increasing concern to many governments, and that these pronouncements should be synthesized and brought together in one place so as to provide a guideline for national standard setters. The Group also discussed why transnational corporations find it difficult to adopt the concept of sustainable development.
12. At its 14th Session, the Group took up the topics of accounting for commercial banks, accounting for government concessions, transfer pricing, reasons for non-compliance with international accounting standards and the work of the World Trade Organization in reducing barriers to trade in accountancy services. Developing countries questioned the adequacy of the information they received on transfer pricing and called for greater disclosure in financial statements. While a move towards adopting international accounting standards is being promoted by the International Organization of Securities Commissions (IOSCO), developing countries and countries in transition still have difficulty in their practical application.
World Bank
World Bank Guidelines on the Treatment
of Foreign Direct Investment
13. The Bank continues to monitor the use made by its member countries of the Guidelines on the Treatment of Foreign Direct Investment, which were brought to their attention by its Development Committee in September 1992.
14. More broadly, the World Bank group as a whole contributes in many ways to fostering increased flows of private foreign investments in developing countries. The IBRD and IDA have financed projects with components supporting government measures to liberalize foreign investment regimes. The International Finance Corporation (IFC) finances projects without a government guarantee; the Multilateral Investment Guarantee Agency (MIGA) provides guarantees against non-commercial risks to foreign investors; and the International Centre for Settlement of Investment Disputes (ICSID) provides facilities for the conciliation and arbitration of investment disputes.
World Development Report 1995
15. It may be noted that the World Bank's World Development Report 1995: Workers in an Integrating World was devoted to labour issues. The report explored how the changes in the world economy are affecting the lives and expectations of workers around the world. It concluded that market-based development strategies are the best way of raising the standards of workers, including the poorest.
Organisation for Economic Cooperation and Development
(OECD)
Multilateral Agreement on Investment (MAI)
16. The launch of negotiations in the OECD on a Multilateral Agreement on Investment (MAI) stood out as a landmark in 1995. The MAI, negotiated in a specially established negotiating group, would be a legally binding treaty providing high standards for the liberalization of investment regimes and investment protection, and with effective dispute settlement procedures. It would aim to go beyond existing liberalization based on a "top-down" approach: the only exceptions permitted would be those listed when adhering to the agreement, and these would be subject to progressive liberalization. The MAI would be a free-standing international treaty open to all OECD members and to accession by non-member countries.
17. In a progress report, the Negotiating Group informed the Council at ministerial level that most substantive issues had been examined. In particular, rapid progress had been made in the area of investment protection. The negotiations should be completed by the spring of 1997.
OECD Recommendation on bribery
in international business transactions
18. The OECD began to implement its 1994 Recommendation on bribery in international business transactions, which calls on member countries to combat the bribery of foreign officials. The Working Group on Bribery, created to oversee implementation of the Recommendation, examined the measures that member countries have taken to this end and began its in-depth analysis of specific issues, including the criminalization of the bribery of foreign public officials. In April 1996 the OECD issued a recommendation to eliminate the tax deductibility of bribes paid abroad. Detailed proposals on criminalization and an evaluation of the 1994 Recommendation will be presented to the OECD Council in spring 1997.
Investment and labour standards
19. Trade and labour standards have come to the fore since the conclusion of the Uruguay Round. Part of the issue is the closely related question of the impact of differences in labour standards on flows of international direct investment. As part of a major OECD study on trade and labour standards,(10) the OECD's Committee on International Investment and Multinational Enterprises (CIME) examined --
- the role of labour standards in investment decisions;
- the impact of multinational enterprises on labour standards in investors' home and host countries;
- the possible contribution of the OECD Guidelines for Multinational Enterprises to wider observance of these standards.
20. The CIME found that empirical evidence on the direct relationship between FDI and core labour standards is scarce and open to different interpretations. While core labour standards may not be systematically absent from the investment decisions of OECD investors in favour of non-OECD destinations, aggregate FDI data suggest that core labour standards are not primary factors in most investment decisions by OECD companies. Nevertheless, some governments in non-OECD countries have restricted labour rights in the belief that doing so would help attract FDI. Inward FDI from non-OECD countries, some of which have had problematic records of respecting core labour standards, has also increased. According to reports by multinational enterprises from OECD countries, core labour standards are not regarded as a factor in assessing investment opportunities in a potential host country. In these circumstances, host countries may be able to enforce core labour standards without risking negative repercussions on FDI flows. Such enforcement may also work as an incentive to raise productivity through investment in human and physical capital.
OECD Guidelines for Multinational Enterprises
21. In the above OECD study it was observed that the OECD Guidelines for MNEs have a role to play as a voluntary instrument to promote responsible behaviour by MNEs. This role would be enhanced if home and host countries made it known that they expected foreign investors to follow the standards set by the Guidelines worldwide and if non-OECD members were encouraged to endorse the Guidelines. The number of countries having done so has already been increased by the accession of new members to the OECD, while new observers to the Committee are required to endorse the Guidelines as well.
22. Consideration could also be given to revising the Guidelines to include those core standards that are not explicitly covered, namely the prohibition of forced labour, the exploitation of child labour and discrimination. This would send a clear message, indicating the importance OECD governments attach to the respect of such standards.
23. In the context of the MAI negotiations, consideration is being given to the possibility of incorporating the Guidelines into the MAI without changing their non-binding character.
Barriers to market access
24. The OECD is working to identify policy obstacles to inward investment in order to formulate recommendations for their elimination. Work advanced on market access barriers stemming from monopolies and concessions, discrimination against foreign investors in privatization, measures justified by national security, restrictions on the cross-border movement of key personnel and restrictive business practices, whether or not based on government regulation. This work is being taken into account in the MAI negotiations.
Capital controls
25. The OECD concluded its examination of member countries' remaining restrictions on foreign investment in real estate for non-business purposes and corresponding reservations under the Capital Movements Code. This examination led to recommendations by the Council and actions by certain member countries to narrow the scope of their reservations in this field. At present an examination of the rules on the admission of foreign securities to national capital markets in OECD countries is being conducted.
Country examinations
26. The OECD continued its examinations of member countries' FDI policies in order to promote compliance with the stipulations on FDI in its liberalization instruments (the Capital Movements Code and the National Treatment Instrument). The reviews concerning Denmark, Finland, Norway, the United States, France and Switzerland were completed, and the results published in the series OECD Reviews of foreign direct investment.
New members
27. One of the essential conditions for accession to OECD membership is the acceptance by the candidate country of the obligations of the OECD Liberalisation Codes and the commitments under the Declaration and Decisions on International Investment and Multinational Enterprises. In 1995 and 1996 the OECD thoroughly examined the regulations on cross-border capital flows, foreign direct investment and trade in services of the Czech Republic, Hungary, Poland and the Republic of Korea, and determined that these countries had met OECD requirements in these areas; the accession of these countries was concluded.
28. As part of the accession process, new members are required to adhere to the 1976 Declaration and Decisions on International Investment and Multinational Enterprises -- which encompass the OECD Guidelines on Multinational Enterprises -- and to participate fully in the implementation thereof (including the establishment of a National Contact Point for the Guidelines).
Relations with non-members
29. The Advisory Group on Investment (AGI) provides a forum for regular exchanges of views and experience between FDI policy-makers in the transition economies. Issues recently addressed by the AGI include investment finance and guarantees, the role of FDI in services in transition economies, and the role of FDI in the cross-border development of small and medium-sized enterprises.
30. In 1996, the OECD published foreign direct investment guides on Estonia, the Russian Federation, Bulgaria and Uzbekistan.
31. Foreign direct investment is a central element of OECD's dialogue with the Dynamic Non-Member Economies (DNME) in Asia and Latin America, as well as with other emerging market economies in the newly created Emerging Market Economies Forum. The dialogue has been used, inter alia, to inform non-members on progress made in the MAI negotiations and to hear their views on this matter.
32. In response to the request by the OECD Council at ministerial level to explore possibilities for dialogue and cooperation with China where mutual interests exist, the Committee on International Investment and Multinational Enterprises and the Trade Committee analysed trade and investment links between OECD member countries and China. A workshop with the participation of a high-level delegation from China was held in March 1995. As follow-up on the workshop, the OECD is helping China improve its statistical system for inward FDI.
World Health Organization (WHO)
International Code of Marketing of Breast-Milk Substitutes
33. The Director-General of WHO presented the ninth in a series of biennial reports (document A49/4, part VIII) on infant and young child nutrition to the 97th Session of the WHO Executive Board and to the 49th World Health Assembly in January and May 1996 respectively. Since 1994, 26 member States have taken new, predominantly legislative, action usually giving effect to parts of the Code. Overall, since the adoption of the Code (1981), 149 member States (i.e. 78 per cent) have reported on steps they have taken to give effect to it.
34. The aim of the International Code is to contribute to the provisions of safe and adequate nutrition for infants, by protecting and promoting breast-feeding, and by ensuring the proper use of breast-milk substitutes, when these are necessary, on the basis of adequate information and through appropriate marketing and distribution. The Code (Article 11.7) provides for reporting in even years on the status of its implementation.
35. Following its examination of the report by the Director-General, the Executive Board decided that biennial reporting should continue, but that every second report should be a comprehensive report, starting in 1998. The World Health Assembly for its part urged member States to ensure that monitoring the application of the International Code and subsequent relevant resolutions is carried out in a transparent, independent manner, free from commercial influence; to ensure that the practices and procedures of their health-care systems are consistent with the principles and aims of the Code; and to provide the Director-General with complete and detailed information on the Code's implementation.
36. The next report by the Director-General on the status of implementation of the International Code will be presented in 1998 to the Executive Board and the World Health Assembly.
Food and Agriculture Organization
of the United Nations (FAO)
International Code of Conduct on the Distribution
and Use of Pesticides (Code)
37. A main function of the 1985 Code, which has been adopted unanimously by all FAO member countries, is to serve as a point of reference for governments, the pesticide industry, pesticide users and others in the proper management, trade and use of pesticides. The Code is designed to be used, within the context of national law, as a basis whereby government authorities, pesticide manufacturers, those engaged in trade, and any citizens or users of pesticides, may judge whether their proposed actions and the actions of others constitute acceptable practices.
38. During the last two years, the FAO has provided technical assistance to many developing countries and subregions to help them implement various provisions of the Code. The main aim was to upgrade and strengthen governments' ability to register, control and improve safety and efficiency in the use of agricultural pesticides, within the concept of Integrated Pest Management (IPM). The Code includes provision for the Prior Informed Consent (PIC) procedure for chemicals that have been banned or severely restricted for health or environmental reasons. PIC procedures are operated jointly by FAO (for pesticides) and UNEP (for other substances) in a joint programme which involves participation by governments on a voluntary basis. Meanwhile, the FAO Council and the Governing Council of UNEP have agreed to convert PIC into a form of legally binding instrument, and several intergovernmental and other technical meetings have been held towards that end.
39. In a related development, FAO has made an analysis of and is about to publish a document on replies by member countries to a questionnaire on the extent of observance of the Code by governments, the pesticide industry, users of pesticides and others entitled "Analysis of government responses to the second questionnaire on the state of implementation of the International Code of Conduct on the Distribution and Use of Pesticides" (FAO, Rome, 1996). Such information is collected at appropriate intervals in order to monitor developments, including the identification of specific areas -- both geographical and technical (e.g. regulations, standards, responsibilities, policies, safety problems, etc.) requiring further attention or higher priority and follow-up by governments, the pesticide industry and/or any other parties concerned.
European Commission (DGV)
European Union
40. The Council of Ministers of the European Union adopted, on 22 September 1994, Council Directive 94/45/EC of 22 September 1994 on the establishment of a European Works Council or a procedure in Community-scale undertakings and Community-scale groups of undertakings for the purposes of informing and consulting employees.(11)
41. This Directive is applicable to all EU Member States except the United Kingdom, and also to Norway, Iceland and Liechtenstein.
42. The Directive provides for the establishment of a European Works Council or an alternative procedure for informing and consulting employees, on a transnational basis, in undertakings and groups of undertakings employing at least 1,000 workers in the Member States of the European Union and at least 150 in each of two of them.
43. For that purpose, and following a specific request, an agreement can be concluded between the central management and a special negotiating body representing employees. If the parties do not conclude such an agreement within a given period of time (normally three years), a number of subsidiary provisions will apply. According to these, a European Works Council must be established in the company or group of companies in question, who will be entitled to be informed and consulted on transnational matters. The annex to the Directive contains a set of rules of procedure for the establishment and operation of this body.
44. Member States must implement the provisions of the Directive in national laws up to 22 September 1996. Pending this implementation, a significant number of multinational corporations and their employees have taken advantage of the possibility offered by Article 13 of the Directive, which exempts from its obligations those undertakings and groups of undertakings where an agreement has been reached before the final date for implementation of the Directive on transnational information and consultation of workers, applicable to the entire workforce. It is foreseen that up to 200 multinational corporations would have concluded such agreements by 22 September 1996.
The Southern Cone Common Market(12)
45. Argentina, Brazil, Paraguay and Uruguay comprise the Southern Cone Common Market (MERCOSUR) which was set up on 26 March 1991 by the Treaty of Asunción. The aims of MERCOSUR are to lower tariffs progressively among Member States in order to form a common market, adopt regional policies in a number of areas including investment, and promote the free movement of capital, goods, services and natural persons. On 5 August 1994 a Protocol for the promotion and protection of investment originating from non-member States of MERCOSUR was adopted.(13) The provisions of this instrument cover the following: fair and equitable treatment of foreign investors; national treatment; protection against nationalization or expropriation except for reasons relating to public or social interests; the prompt payment of just and adequate compensation; freedom to transfer in convertible currency, investment capital and profits, compensation, different payments and the remuneration of nationals of the third countries concerned; the settlement of disputes over the interpretation and application of agreements concluded between a MERCOSUR member State and the State from which the investor originates; the settlement of disputes involving a foreign investor and the host country; and the duration of agreements. Member States have a duty to exchange information on ongoing and future negotiations concerning agreements for the promotion and protection of investment with non-member States. They will also consult with each other if there are to be significant changes in their national policies regarding the treatment of foreign investment. This Protocol may be regarded as a complement to that adopted on 17 January 1994, concerning the Promotion and Reciprocal Protection of Investment among MERCOSUR members, many of the provisions of which are similar.(14)
Geneva, 27 January 1997.
1 GB.261/MNE/3/5. Earlier papers were submitted in November 1982, 1983, 1984, 1985, 1986, 1987, 1989, 1990, 1991, 1992 and 1993 (GB.221/MNE/3/3, GB.224/MNE/3/3, GB.228/MNE/3/1, GB.231/MNE/3/3, GB.234/MNE/3/6, GB.238/MNE/5/5, GB.244/MNE/3/5, GB.248/MNE/3/4, GB.251/MNE/3/2, GB.254/MNE/3/5 and GB.258/MNE/3/4). Attention is also drawn to the information contained in the paper entitled "ILO activities on multinational enterprises: Coordination with other organizations" (GB.234/MNE/4/3), submitted to the Committee in November 1986.
2 The Subcommittee is also referred to the paper submitted to the Working Party on the Social Dimensions of the Liberalization of International Trade, entitled: "Overview of the activities of other international organizations and bodies ..., with special reference to the WTO Ministerial Conference" (Singapore, 9-13 December 1996).
4 Negotiations on an international code of conduct on the transfer of technology. Report by the Secretary-General of UNCTAD. TD/CODE TOT/60.
5 "A new partnership for development: The Cartagena Commitment", see Proceedings of the United Nations Conference on Trade and Development, Eighth Session, Report and Annexes (TD/364/Rev.1, United Nations publication, Sales No. E.93.II.D.5), para. 173.
6 The Uruguay Round of Multilateral Trade Negotiations: Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Marrakesh, Morocco, 15 April 1994.
9 United Nations Conference on Trade and Development: Midrand Declaration and a Partnership for Growth and Development, adopted by the United Nations Conference on Trade and Development at its Ninth Session (document TD/377 of 24 May 1996), p. 24.
10 Trade, employment and labour standards: A study of core workers' rights and international trade, OECD Publications, 1996. See also GB.267/WP/SDL/2.
11 OJ L 254 of 30 September 1994.
12 Also referred to as the Southern Common Market, the Common Market of the Southern Cone and the Common Market of the South. The Mercado Común del Sur (MERCOSUR) is also known by the acronym MERCOSUL.
13 MERCOSUR\CMC\DEC No. 11/94, 10 pp. (mimeo).
14 Concluded in the city of Colonia del Sacramento (Paraguay), the instrument is known as the Protocol of Colonia for the Promotion and Reciprocal Protection of Investment in MERCOSUR (Intrazonal) (Protocolo de Colonia para la promoción y protección recíproca de inversiones en el MERCOSUR (Intrazona)), MERCOSUR\CMC\DEC No. 11/93) 9 pp., plus one-page annex. In the annex to the Protocol, the four signatories indicated the industries and sectors for which they reserved the right to withhold the granting of national treatment to investors from member countries of MERCOSUR, on a temporary basis. They agreed to meet every three months to follow up on measures for eliminating those exceptions.