VOLUME 7 NUMBER 2 AUGUST 1998 TRANSNATIONAL CORPORATIONS United Nations United Nations Conference on Trade and Development Division on Investment, Technology and Enterprise Development Editorial statement Transnational Corporations (formerly The CTC Reporter) is a refereed journal published three times a year by UNCTAD. In the past, the Programme on Transnational Corporations was carried out by the United Nations Centre on Transnational Corporations (1975-1992) and by the Transnational Corporations and Management Division of the United Nations Department of Economic and Social Development (1992-1993). The basic objective of this journal is to publish articles and research notes that provide insights into the economic, legal, social and cultural impacts of transnational corporations in an increasingly global economy and the policy implications that arise therefrom. It focuses especially on political- economy issues related to transnational corporations. In addition, Transnational Corporations features book reviews. The journal welcomes contributions from the academic community, policy makers and staff members of research institutions and international organizations. Guidelines for contributors are given at the end of this issue. Editor: Karl P. Sauvant Associate editors: Bijit Bora, Kálmán Kalotay, Fiorina Mugione and Michael C. Bonello Managing editor: Tess Sabico Advisory editor for international framework matters: Arghyrios A. Fatouros Subscriptions A subscription to Transnational Corporations for one year is US$ 45 (single issues are US$ 20). Requests for subscriptions should be addressed to: United Nations Publications, United Nations, Sales Section, Room DC2-853, New York, NY 10017, United States – tel.: 1 212 963 3552; fax: 1 212 963 3062; e-mail: [email protected]; or Palais des Nations, 1211 Geneva 10, Switzerland – tel.: 41 22 917 1234; fax: 41 22 917 0123; e-mail: [email protected]; or to distributors of United Nations publications throughout the world. Note The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the United Nations. The term “country” as used in this journal also refers, as appropriate, to territories or areas; the designations employed and the presentation of the material do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. In addition, the designations of country groups are intended solely for statistical or analytical convenience and do not necessarily express a judgement about the stage of development reached by a particular country or area in the development process. ISSN 1014-9562 Copyright United Nations, 1998 All rights reserved Printed in Switzerland Board of Advisers CHAIRPERSON John H. Dunning, State of New Jersey Professor of International Business, Rutgers University, Newark, New Jersey, United States, and Emeritus Research Professor of International Business, University of Reading, Reading, United Kingdom MEMBERS Edward K. Y. Chen, President, Lingnan College, Hong Kong, Special Administrative Region of China Arghyrios A. Fatouros, Professor of International Law, Faculty of Political Science, University of Athens, Greece Kamal Hossain, Senior Advocate, Supreme Court of Bangladesh, Bangladesh Celso Lafer, Ambassador, Permanent Representative, Permanent Mission of Brazil to the United Nations and to the International Organizations, Geneva, Switzerland Sanjaya Lall, Lecturer, Queen Elizabeth House, Oxford, United Kingdom Theodore H. Moran, Karl F. Landegger Professor, and Director, Program in International Business Diplomacy, School of Foreign Service, Georgetown University, Washington, D.C., United States Sylvia Ostry, Chairperson, Centre for International Studies, University of Toronto, Toronto, Canada Terutomo Ozawa, Professor of Economics, Colorado State University, Department of Economics, Fort Collins, Colorado, United States Tagi Sagafi-nejad, Professor of International Business, Sellinger School of Business and Management, Loyola College of Maryland, Baltimore, Maryland, United States Oscar Schachter, Professor, School of Law, Columbia University, New York, United States Mihály Simai, Professor, Institute for World Economics, Budapest, Hungary John M. Stopford, Professor, London Business School, London, United Kingdom Osvaldo Sunkel, Special Adviser to the Executive Secretary, United Nations Commission for Latin America and the Caribbean, Santiago, Chile; Director, Pensamiento Iberoamericano, Chile Raymond Vernon, Clarence Dillon Professor of International Affairs Emeritus, Harvard University, Centre for Business and Government, John F. Kennedy School of Government, Cambridge, Massachusetts, United States Transnational Corporations Volume 7, Number 2, August 1998 Contents Page ARTICLES A. V. Ganesan Developing countries and a possible multilateral framework on investment: strategic options 1 Jeremy Clegg and The internationalization of telecom- Syed Kamall munications services firms in the European Union 39 Michael M. Mortimore Getting a lift: modernizing industry by way of Latin American integration schemes. The example of automobiles 97 RESEARCH NOTE H. Peter Gray International trade: the “glue” of global integration 137 BOOK REVIEWS 147 Just published 169 Books received 171 v Developing countries and a possible multilateral framework on investment: strategic options A. V. Ganesan* The question of the establishment of a comprehensive and legally binding multilateral agreement for the treatment and protection of foreign direct investment has now come to occupy a prominent place on the international economic policy agenda. Two recent developments have brought this issue to the fore: first, in September 1995 negotiations began in the OECD to establish a Multilateral Agreement on Investment, meant to be a free-standing international treaty open to all OECD members and the European Communities, and to accession by non-OECD member countries as well; and second, the Singapore Ministerial Declaration of December 1996 of the World Trade Organization. Although the Declaration has for the present established only a working group to examine the relationship between trade and investment, it is widely regarded as having sown the seeds for the negotiation of a multilateral framework on investment (MFI) under the domain of the World Trade Organization. Against this background, there are two basic options open to the developing countries in responding to the demand for an MFI: to allow the current trends and arrangements to evolve and gather further strength and momentum and to move towards an MFI on the basis of the experience gained and consensus generated on important issues over time, or to prepare for negotiation of a comprehensive MFI and try to ensure that the resulting framework takes adequate care of their developmental (as well as their political and social) needs and concerns. Should the developing countries decide to take the multilateral route, the World Trade Organization forum may be a better option for them. * Former Commerce Secretary to Government of India, Chennai, India. The manuscript was completed in April 1998, reflecting the status of international discussions and negotiations at that time. This article will be subsequently reproduced in UNCTAD, International Monetary and Financial Issues for the 1990s, Volume 10 (UNCTAD, forthcoming). Background There are several reasons why a multilateral framework on investment (MFI) has become an important issue for industrialized countries now. First, the main home and host countries for the flows and stock of foreign direct investment (FDI), as well as for large transnational corporations (TNCs) whose strategies and operations are increasingly becoming globalized are for the most industrialized countries. The developed countries still account for over four fifths of the global FDI outflows and two thirds of the global FDI inflows. Secondly, the outward flows of FDI from the developed countries are rising, and, more importantly, the share of developing countries in the receipt of those flows is rising too, as many developing countries are increasingly becoming attractive destinations for FDI. The involvement of developing countries in an MFI, instead of its being confined only to industrialized countries, has therefore become a matter of interest to developed countries. However, the fundamental reason behind the demand of the developed countries for a multilateral treaty on FDI is that they see FDI as playing a crucial role in the strategies of their enterprises to gain and consolidate market access around the world. FDI, trade and technology are increasingly intertwined and are becoming complementary or alternative modes of accessing foreign markets. FDI in particular is becoming more important than trade for delivering goods and services to foreign markets and, in addition, it is becoming a powerful vehicle for TNCs to organize production internationally, thereby enhancing their competitive edge. With an estimated $7 trillion in global sales in 1995 (the value of goods and services produced by some 280,000 foreign affiliates of TNCs), international production outweighed exports of goods and services (roughly $6 trillion) as the dominant mode for TNCs to service foreign markets (UNCTAD, 1997).1 Furthermore, while FDI flows were $350 billion in 1996, the total investment