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would become illegal under the agreement. direct investment in 1996 does not capture the breadth and depth By banning restrictions on the excessive flow of capital in and —_ of economic globalisation. In the same year, TNCs invested a out of countries, the MAI would increase speculative short-term staggering US$1,400 billion in countries in which they were investments of the type that caused the 1994 Mexican peso crisis already represented. This development—the increased presence and recent stock market crashes in South-East Asia. of TNCs in local economies as a strategy to ensure market con- ¢ Unlike other multilateral treaties, the MAI would include a trol—has been labelled "glocalisation".’ dispute settlement mechanism to allow investors to sue national There are in total some 44,000 TNCs in the world, with and local governments for expropriation. This mechanism, which 280,000 subsidiaries and an annual turnover of US$7,000 billion. grants powerful TNCs the right to challenge local and national Two-thirds of world trade results from TNC production networks. legislation emerging from democratic political processes, is an The share of world GDP (gross domestic product) controlled by extremely dangerous political precedent. A ruling of expropria- TNCs has grown from 17 per cent in the mid-1960s to 24 per cent tion, which the MAI defines not only as loss of income but also of in 1984 and almost 33 per cent in 1995.8 reputation, requires states to compensate the investor financially In a parallel and related process, the largest TNCs are steadily and/or to reform laws. The arbitration panel would consist of a _ increasing their global market shares. According to UNCTAD's few trade experts working behind closed doors, beyond public "World Investment Report 1997", the 10 largest TNCs now have scrutiny. The ramifications of this provision upon national envi- an annual turnover of more than US$1,000 billion. Fifty-one of ronmental, health and safety regulations are enormous, as exhibit- the world's largest economies are in fact TNCs. Continuous ed by an ongoing case under the NAFTA in which the US Ethyl mergers and take-overs have created a situation in which almost Corporation is suing the Canadian Government for US$250 mil- every sector of the global economy is controlled by a handful of lion, claiming lost profits and reputation due to the banning of a | TNCs; most recently, the service and pharmaceutical sectors. In toxic gasoline additive. January 1998, for example, the largest business merger in history * The MAI would in effect lock-in signatory countries for a 20- took place in a US$70 billion deal in which Glaxo Wellcome and year period. A country could withdraw from the MAI only after © SmithKline Beecham became the largest pharmaceutical company five years, and companies investing in that country would be cov- on Earth. ered under treaty provisions for an The European Union, the United additional 15 years. States and Japan are responsible for * The MAI would also include the Unlike other multilateral treaties, 85 per cent of all outgoing foreign dangerous provisions of "standstill" i I direct investment (FDI) (1996 figure). and "roll-back". Standstill prohibits the MAI would include a dispute Apart from the Korean Daewoo cor- signatory countries from introducing settlement mechanism to allow poration, all of the 100 largest TNCs new laws or policies which contra- investors to sue national and local are based in this wealthy triad. This dict the MAI. This provision would oe triad has also received the bulk of have a crippling effect on national governments for expropriation. FDI—nearly three-quarters in 1996. environmental and social policy. But the new trend is clear: TNCs Roll-back is the procedure by which This is an extremely dangerous based in the triad plan to step up their countries will be forced to open up sas investments abroad, particularly in protected areas and remove laws political precedent. the Third World. More than half of considered in violation of the MAI. all TNCs anticipate that the share of OECD countries have identified their turnover earned abroad will 1,000 pages of exemptions which would eventually have to be exceed 60 per cent before the year 2000. In 1997, only 28 per rolled back—ranging from Austria's exemption of its chimney- cent of the TNCs were that globally oriented. sweeping industry to social services in the United States. TNCs have already indicated their favourite targets for invest- * The provisions of the MAI would contradict several interna- ment. In 1996, China received one-third of all FDI in the devel- tional agreements signed by governments, including the Climate oping world and the remaining Asian countries received approxi- Convention and its Kyoto Protocol and the Convention on mately the same. In Latin America, Brazil led with US$9.5 bil- Biological Diversity. lion FDI in 1996, followed by Mexico and Argentina. Africa ¢ The MAI would be a freestanding international treaty, open to (minus South Africa) received only US$5.3 billion that year, of accession by non-OECD countries, which means that countries which the oil-producing countries raked in 70 per cent. can sign on a take-it-or-leave-it basis, only allowing time-limited reservations. At least 10 non-OECD countries have expressed = THE REAL IMPACT OF GLOBALISATION interest in joining the MAI from the beginning, including The OECD claims that economic globalisation in general, and Argentina, Brazil, Chile and most likely Hong Kong, Colombia increased foreign investment in particular, will improve living and the three Baltic States of Estonia, Latvia and Lithuania. standards all over the world. However, the experiences of coun- Egypt is also expected to join.® tri which have removed all barriers to foreign investment by direct investment in 1996 does not capture the breadth and depth of economic globalisation. In the same year, TNCs invested a staggering US$1,400 billion in countries in which they were already represented. This development—the increased presence of TNCs in local economies as a strategy to ensure market con- trol—has been labelled "glocalisation".’ There are in total some 44,000 TNCs in the world, with 280,000 subsidiaries and an annual turnover of US$7,000 billion. Two-thirds of world trade results from TNC production networks. The share of world GDP (gross domestic product) controlled by TNCs has grown from 17 per cent in the mid-1960s to 24 per cent in 1984 and almost 33 per cent in 1995. In a parallel and related process, the largest TNCs are steadily increasing their global market shares. According to UNCTAD's "World Investment Report 1997", the 10 largest TNCs now have an annual turnover of more than US$1,000 billion. Fifty-one of the world's largest economies are in fact TNCs. Continuous mergers and take-overs have created a situation in which almost every sector of the global economy is controlled by a handful of TNCs; most recently, the service and pharmaceutical sectors. In January 1998, for example, the largest business merger in history took place in a US$70 billion deal in which Glaxo Wellcome and SmithKline Beecham became the largest pharmaceutical company on Earth. This is an extremely dangerous political precedent. THE REAL IMPACT OF GLOBALISATION The OECD claims that economic globalisation in general, and increased foreign investment in particular, will improve living standards all over the world. However, the experiences of coun- tries which have removed all barriers to foreign investment by joining free trade agreements are quite different. For example, since Mexico signed the NAFTA, real wages in that country have dropped 45 per cent, two million people have become unem- ployed, and the percentage of the population considered "extreme- ly poor" has risen from 31 per cent in 1993 to 50 per cent today.’ It has been demonstrated that those who suffer most from the con- ditions created with these free trade agreements and the conse- quent emergence of free trade zones are women and children. UNCTAD's "Trade and Development Report 1997" concludes EXPLOSIVE GROWTH IN TNC FOREIGN INVESTMENT Global foreign investment was at an all-time peak in both 1994 and 1995, and the 10 per cent worldwide growth in foreign invest- ment in 1996 was also remarkable. Overall, foreign investment growth rates exceed global GNP (gross national product) growth rates (6.6 per cent per year) as well as increases in international trade levels (4.5 per cent per year). But even the breathtaking US$349 billion total for foreign APRIL - MAY 1998 NEXUS - 31 governments for expropriation.