'No' to investment rules restricting national policy options - Ricupero

In launching the World Investment Report 1999 (WIR-99), the
UNCTAD Secretary-General made it clear that he was personally
opposed to any agreement on multilateral rules on investment
that would reduce the policy options of a developing country.
He also expressed the view that, in his opinion, the existence
or otherwise of such an agreement would not affect the
prospects of a country attracting foreign investments.

by Chakravarthi Raghavan

THERE is no significant relationship between an agreement on
multilateral rules on investment and the possibility of
increasing the attractiveness of countries to foreign direct
investment, UNCTAD Secretary-General Rubens Ricupero asserted
on 27 September.

Ricupero also underlined the need for empirical research and
evidence on the effects of developing countries hosting FDI,
technological innovation and diffusion of imported technology
in the host countries, and the real effects of FDI on the
balance of payments (BOP) of the host country, whether 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 organised by the WIR division to promote investment
agreements. At the first one, in 1995, in response to his
question, representatives of the transnational corporations
(TNCs) had said that the existence of an agreement was a
'minor consideration' in their choice of locations for

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 from
a TNC subsidiary in a host country to the 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 the technology 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 on 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 the WTO's Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS)
and the General Agreement on Trade in Services (GATS) implying
technology transfer. But there was no assessment in the WIR on
whether in fact the provisions of TRIPS and GATS had been

The TNC division's in-house 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 is a need for
policy instruments.

Another view

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 (TDR) issued just the
week before WIR-99 was released.

There was also the UNCTAD view, supporting the TDR
conclusions, found in its trade division papers and technical
support to developing countries in developing a 'positive
agenda' for the next round of trade negotiations - 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 a Helsinki conference under the
auspices of the World Institute for Development Economics
Research of the United Nations University (UNU/WIDER) (the
proceedings of which would probably be edited and published
two years later), where Lall's paper was the subject of
comments and discussions by other academics. According to
reports, Lall himself had said they did not know and had no
evidence that TNCs and FDI do in fact promote technology
transfer and development in host countries.

Ricupero said the authors of the WIR had adopted the view that
licensing, 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.

Need for empirical research

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

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, with 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 BOP of the host country, and
whether the FDI generates more exports and helps 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
towards mergers and acquisitions, and investments in the
'non-tradeable' sectors or sectors for production for the
domestic market and consumption. This had thus 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.
Lall, though invited to do so, 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 literally a weighty document, weighing 1.6 kg, and
contains all kinds of boxes, figures, charts and narration,
but it is short on clear analysis and conclusions from them.
The report (which is that of the UNCTAD secretariat) lists a
15-person team as its authors, 11 persons as having provided
special inputs, 12 for providing research assistance, one
principal consultant and nine 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 167, besides nine persons who helped in
production and editing! And it is known inside UNCTAD that
some staff to whom parts of the WIR were sent for comments and
who provided critical comments, did not agree to their names
being mentioned.

Reports, studies and discussion papers, and articles in
learned journals, usually mention those who had provided
comments, with the authors saying they have 'benefited' from
the comments but that all failings are those of the authors.

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 example, are
contradicted by the contents of the Trade and Development
Report issued the previous week (which had also, before issue,
consulted other concerned divisions inside UNCTAD for inputs
and comments), which had some contrary views on FDI and BOP,
on the very small proportion of FDI that is 'greenfield', and
on the negative effects of the WTO agreements such as TRIPS
and GATS. Instead of resorting to the alibi that nothing can
be done because of the rules of the game, the TDR called for
changes in those very rules.

Hasty conclusions

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

An example is Box XVIII:5 (pp. 243-4), with UNCTAD given as
the source, about TNCs and the evolution of modern
agriculture. It says that in agribusiness, there is the
'declining importance' of traders, who act as a bridge between
buyers and sellers who did not know each other before, and
that communication technology, including the Internet, allows
buyers and sellers to find each other more easily and
increases competition, cutting profit margins for traders and
eroding their competitive advantage. 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 way ahead of rest of the world in terms of computer
use, Internet access and use etc, and the claim of the
Internet having eliminated traders and providing direct
producer- supplier contacts should be true of that country.
But several studies, including some by the Minnesota-based
Institute for Agriculture and Trade Policy (outlined in the
week of 20 September at a UN Food and Agriculture Organisation
(FAO) symposium in the UNCTAD building) on the effect of
decoupled farmer support in the US, show that in fact there is
a 'disconnect' between suppliers (farmers) in the US and
consumers or buyers abroad; that farm-level prices have been
dropping and farmers produce more (benefiting from fungible
decoupled domestic support); that the belief that when prices
fall there will be less production in a 'market-oriented'
agriculture is not being borne out even in the US; that
Cargill and one or two other 'traders' have 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 the
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, Brazil or
anywhere else are not the producers but middlemen 'traders'.

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

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

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 and commitment, he saved the
institution 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 '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.- (Oct/Nov 99)

The above article first appeared in the South-North
Development Monitor (SUNS- issue no. 4517) of which
Chakravarthi Raghavan is the Chief Editor.