Governance in International Trade: The Misconduct of Transnational Corporations

• Author: Taimoon Stewart
• Pages: 100-116

100 GLOBAL GOVERNANCE

Governments of developing countries are being required to incorporate

good governance practices as conditionality for receiving assistance from

international financial institutions and to gain concessions in international

trade negotiations. This is being done primarily to create an enabling

environment within which Transnational Corporations (TNCs) could operate

and maximise profits in developing countries. These governments are therefore

being asked to behave themselves so that foreign corporations can secure a

predictable environment in which to operate. Are TNCs being legally required

by their governments to behave themselves in their conduct of international

trade? This paper addresses the question of the absence of strong governmental

measures to discipline the misconduct of TNCs in international trade when the

effects of such misconduct are felt in developing countries. The vast majority of

TNCs are from industrialised countries.

The paper focuses specifically on international hardcore cartels and their

effects on international trade and particularly the trade of developing countries.

The vast majority of international cartel membership consists of firms from the

US, Europe and Japan. It explores the issues being debated, the existing provisions

to deal with such conduct and the proposals now being advanced in the World

Trade Organization Working Group on Trade and Competition Policy (WTO

WGTCP) and the FTAA negotiations. The findings of the paper are that hardcore

cartel activity in international trade is having an inimical effect on developing

economies which is increasing as industrialised countries enforce antitrust law;

that existing multilateral rules are voluntary and therefore ineffective; that very

little is being done by competition authorities in the developed countries to

sanction the misconduct of their TNCs in developing economies; and that

proposed arrangements do not augur well for the ability of developing countries

to discipline these cartels.

There has been a persistent tension between TNCs and developing countries

GOvERNANCE IN INTERNATIONAL

TRADE: THE MISCONDuCT OF

TRANSNATIONAL CORPORATIONS

TAIMOON STEWART

CHAPTER SIX

Governance in International Trade 101

governments over the last five decades, and longer in the case of Latin America,

over the sharing of capital accumulated in the economy. TNCs, on the one

hand, have an overriding objective of maximising profits by whatever means

available. This is understandable in that this is their business. However, they

have used anti-competitive arrangements and strategies to maximise outflows

of capital, such as transfer pricing, withholding of technology transfer, poor

standards in subsidiaries in developing countries that lead to environmental

pollution and endanger workers (or disasters such as the Union Carbide

explosion in India in which over 3,000 persons were killed and many thousands

have been injured for life).

In response to these strategies, governments of developing countries passed

laws: trade-related investment measures (TRIMs) to force retention of some

share of the capital generated in their economies by TNCs. This was very evident

during the early post-World War II years until the late 1970s. The Third World

debt crisis in the late 1970s–1982 forced debtor economies into arrangements

with the international financial institutions that involved adopting structural

adjustment programmes (SAPs) by which many of the TRIMs were removed.

The emergence of the neo-liberal order has intensified this process, and has

brought in its wake the reordering of developing countries’ economies to

accommodate the needs of international capital. As such, they have had to

change domestic law to provide protection for TNCs intellectual property

products, remove investment measures that limit international investors and

introduce good governance practices amongst others. This thrust is coming

from bilateral and multilateral sources as well as the international financial

institutions. The concern which is explored in this paper is that there is a dual

standard, one that requires developing countries’ governments to conform to

the requirements of global capital and provide an enabling environment, but

which does not require TNCs to follow ethical practices in international trade.

There is an imbalance in that TNCs are being given all that they need, while

developing economies are left unprotected, easy targets for the unscrupulous

exploitative practices of TNCs. It is this imbalance that the paper addresses and

specifically, the existence and practices of hardcore international cartels and

the effectiveness of proposals to deal with them, from a developing countries

perspective.

HARDCORE CARTELS: RECENT EXPERIENCES

Over the last decade, it has become increasingly clear that hardcore cartels

are more prevalent, persistent and damaging than previously thought. Moreover,

with globalisation and the accompanying integration of economies, the effects

of cartels are more widespread than previously experienced. Competition

authorities now find that they need information in several countries in order to