Dr. Manzoor Ahmad Ambassador & P.R. to the WTO
Permanent Mission of Pakistan, Geneva

International conference „The Public Eye on Davos“, 21 January 2004

I would like to thank the Friends of the Earth for inviting me to this seminar and providing me with this opportunity to speak to you. I am associated with WTO as Pakistan’s Ambassador and Permanent Representative. WTO at present has a mechanism for settling disputes between governments, but has no regulatory authority dealing with the conduct of multinational enterprises (MNEs) or in UN parlance transnational corporations (TNCs).

Is there a need for binding corporate accountability for TNCs? Should regulations be developed for the conduct of TNCs and who should enforce them?

Voluntary action and self-regulation by Transnational corporations does not work. So much is absolutely clear. Examples of corporate irresponsibility abound.

Let us take the example of giant cigarette companies which conduct business in the Third world countries. In many of these countries, laws to limit the promotion of tobacco do not exist as they do in developed countries. When curbs were put on advertising for tobacco in the developed world and cigarette manufacturers started losing their revenue there, they redoubled their efforts to promote tobacco consumption in underdeveloped countries. The companies deliberately promoted cigarette consumption among teenage population of the Third World countries, by aggressive advertisements. In most of these countries there were no laws banning such advertisement, and the tobacco companies took full advantage of this. This is where corporate responsibility should have come in. The companies should have voluntarily put on themselves the same constraints that they are subject to by national laws in the developed countries. Instead, what they did was to compensate for those constraints imposed by the developed countries by making every effort to get younger generations addicted in the Third World. On top of this, developed countries are subsidizing tobacco growers. The US has a 70-year old federally funded tobacco subsidy programme. Their farmers also benefit from a $ 34 million crop insurance programme intended to protect growers from any risks. Over 100,000 farmers in the EU receive over $ I billion in annual subsidies. While the governments in developed countries can sue tobacco companies for tobacco-related illnesses, caused to their citizens, under a WTO Peace Clause, developing countries cannot challenge tobacco subsidies of developed countries.

In other instances, TNCs deliberately violate existing laws in collusion with corrupt governments, and defraud the national exchequers by obtaining favours through kickbacks. Let me give you some specific examples of my own country. Recently a Swiss judge held that two Swiss Companies had been indulging in corrupt practices and had deposited millions of dollars as kickback in private accounts to get a contract. The judge ordered that the kickback money be returned to Pakistan. However, no one is asking the Companies to return the exorbitant amount they charged from the Government of Pakistan through corrupt practices. If it had affected a developed country, I have no doubts that these Companies would have had to go into liquidation and pay off not only illegal gains but also fines and penalties.

For years we have known that many well established pharmaceutical companies are indulging in transfer pricing. They would purchase raw materials from their principals at prices which could be a thousand time more expensive.

In contrast to the well-publicized recent cases of corporate misconduct in the developed countries (such as those involving ENRON, Worldcom and Ahold), where company executives were held accountable, fraud usually goes unchecked in developing countries.

In the absence of binding international code of conduct nothing can be done to bring such companies to justice. There is therefore a need to have legal obligation for the home member of the MNE to prohibit foreign corrupt practices of their corporations. At present, no binding regulations exist to control such practices. Whatever regulations exist are in the nature of guidelines.

There have been several efforts in the past to establish some regulatory framework. It was more than 25 years ago that under the auspices of the United Nations, negotiations commenced on the UN Code of Conduct on TNCs. Among other objectives, the Code was to establish standards of conduct of TNCs from all countries to protect the interest of the host countries and to ensure conformity of their operation to the host country’s national objectives. However, the draft code could not be adopted. Developing countries wanted this to be legally binding but it was not accepted. Several other efforts were also made under the auspices of UNCTAD and ILO, etc. but as yet there are no binding regulations.

That there is a need for developing and implementing accountability regulations is apparent. There should be legal obligation for the home member of the multinational enterprises to prohibit foreign corrupt practices of their corporations. Who should develop them and how can they be enforced?

It is evident that there are not many international organizations which are negotiating forums and at the same time also have enforcement mechanism in place. WTO is one such organization which is a negotiating forum and also has an enforcement mechanism. But WTO has its own limitations.

It is not easy to negotiate an agreement in the WTO. We have seen that agreements on Singapore issues which were to tackle trade facilitation, government procurement, trade and investment and trade and competition policy are being discussed for the last 7 years. If we had internationally agreed rules in these areas, we would be more transparent. For example, according to an OECD study, government procurement world-wide amount to 5,500 billion US dollars. Lack of transparency and corruption can add up to 20% to the cost of public purchasing. Let me again give you an example from my country. A contract for purchase of power was signed with an MNE at US cents 3.29 per KWh. Later through corrupt practice this was raised to US cent 4.70 per KWh. It was also provided that whether or not the country uses this electricity, it will have to pay the cost of 60% of capacity.

Under a transparent procurement policy, this could not have been done. For generations, poor people of Pakistan will have to pay for corrupt practices of a few rich MNEs.

Even if we manage to negotiate a binding instrument, how could we ensure implementation of any decision?

	At present, even if the WTO Panels decide that there were wrongdoing, they can only authorize trade retaliation. Prospect of retaliation by a poor country is hardly a deterrent for an industrialized country, virtually leaving the smaller country without any recourse.
	WTO disciplines apply only to states and not directly to private parties.
	Recommendations are future-directed. No remedy is provided for harm done for past violations.

But as they say “where there is a will there is a way”. If developed countries agree to incorporation of clauses to take account of corrupt practices of their corporations, developing countries would be more tempted to accept negotiation of an agreement on Trade and Investment. Similarly, there would be a better chance of an agreement on Transparency in Government Procurement.

Even if there is no unanimous agreement among the countries to have an agreement, a plurilateral agreement can still be worked out. If we can make a beginning with the 100 largest economies in the world of which 51 are corporations while only 49 are countries, we would have taken a major step towards corporate accountability.

I am therefore convinced for a need to have binding legal instruments for corporate accountability and perhaps WTO would be the most appropriate organization to develop them.