duct is not possible in relation to economically strong states (such as the United States of America or the countries of the European Communities). Nevertheless, in exceptional cases a multinational undertaking can exert similar pressure on these states. (In this connection, reference need only be made to the capital available to the multinational undertakings, which even exceeds the sum of the national budgets of the industrialized nations.) The desired general agreement on multinational undertakings must above all lay down rules for the conduct of the undertakings in the following areas: (a) competition policy, (b) investment policy, (c) tax policy, (d) capital market policy, (e) monetary policy, (f) labor market policy, and (g) social policy. The following should be examined in detail: (A) COMPETITION POLICY Under present conditions, the market behavior of individual components, of multinational undertakings enables transactions to be made between parent companies and subsidiary companies or dependent undertakings in both directions and among the subsidiary companies or dependent undertakings alone. This creates certain competitive advantages for the branches of the multinational undertakings which they would not enjoy under normal conditions as independent undertakings. These unjustified competitive advantages result largely from the fact that the branches of the undertakings grant one another conditions and charge one another prices which would not be granted or charged to outsiders. Prices are generally either lower than costs or much higher than costs. It should be insured that multinational undertakings and their branches calculate in such a way that actual costs are used and these net costs increased by such an amount as to take account of the normal yield on the capital invested, plus a certain risk margin for that capital. The normal yield should be based on the discount rate of the appropriate central bank. In addition, these undertakings must be obliged to publish profit and loss accounts, balance sheets and consolidated balance sheets and business reports. The published data must show the material, financial and staff links and interdependence of all branches. In this way, these undertakings would also meet the worldwide demand for increased and more widely available information. However, all information given in this connection must be internationally comparable, this question should therefore be covered in international negotiations. Supervision of Multinationals All in all, an important element in the transparency of multinationals' market activities is improved supervision by the nationally or internationally responsible bodies, to prevent abuse. An a priori control of mergers should also be established at international level. (B) INVESTMENT POLICY The responsible authorities in the States concerned must be informed of all investment planned by multinational undertakings or their branches. Moreover, the multinationals must discuss the qualitative and quantitative aspects of the projected investments with these authorities, and in addition the undertakings must regularly report on the investment which they have carried out. (C) TAX POLICY In accordance with the remarks on price fixing in the paragraph on competition policy, a comparable basis must be guaranteed for taxation, enabling the value of goods and services within the undertaking or its branches to be properly assessed. The undertakings should be obliged to pay taxes in the place where their earnings are made. This means that in principle transfer of profits from dependent and subsidiary undertakings to the parent or dominating undertaking would no longer be possible; it should be permissible, however, for a proportion of the profits to be transferred within a multinational undertaking in certain exceptional cases, such as internal financial difficulties. (D) CAPITAL MARKET POLICY Multinationl undertakings should be obliged to notify their capital movements to the relevant central bank of the source country and receiving country. This would give an overall picture of international capital movements. The undertakings must provide access to share ownership for nationals of the host country and must take account of the interests of the host country in their dividends policy. (E) MONETARY POLICY See the first paragraph of (d) “Capital market policy." (F) LABOR MARKET POLICY The undertakings must be obliged to employ nationals of the host country as labor or staff. These must also be employed in the management bodies of dependent companies or subsidiaries. (G) SOCIAL POLICY Employees of these undertakings must be informed and consulted in good time in matters of company policy which concern them (for example, mergers, partial and mass redundancies). They must also be involved in the process of implementation of any redundancies, and the acquired rights of employees must be safeguarded in cases of partial or mass redundancies, mergers, or partial or complete closures. Trade unions and-where applicable-direct representatives of employees-Betriebsräte-must be recognized by multinational undertakings as contracting partners in collective bargaining in determining the working conditions of employees in an undertaking. This requires an internationally valid law on collective agreements. The international exchange of information between the competent cartel or monopoly authorities on the practices of multinational undertakings must be legally guaranteed. The practices of multinational undertakings must be observed by an international body. This body must insure worldwide cooperation aimed at greater transparency of cross-frontier activities of these undertakings and applications of the rules to be laid down in a general agreement on such undertakings. Mr. LANGE. Mr. Colonna, you have the floor. STATEMENT OF GUIDO COLONNA DI PALIANO, MEMBER, BOARD OF DIRECTORS, FIAT, TURINO, ITALY Mr. COLONNA DI PALIANO. Mr. Chairman, members of the delegations from the European Parliament and from Congress, I should like to begin by conveying to you once again the regrets of Mr. Agnelli, president of Fiat, that he is unable to be present in person at this hearing. I thank you for having invited me in his place. I should also like to say how much we in Fiat appreciate the fact that this meeting wished to hear the views of the multinational companies on the topic under consideration, each company naturally giving its views on the basis of its own experience and of its own particular circumstances. I do not know, gentlemen, how much time has been allotted to each of us. I have with me a six page document, but instead of reading it, I think that I shall confine myself to making some comments on it, as Mr. Lange has suggested. PREPARED STATEMENT OF GUIDO COLONNA DI PALIANO, MEMBER, BOARD OF DIRECTORS, FIAT, TURINO, ITALY Transnational companies (we are using the official U.N. definition) have been expanding at an ever increasing rate over the last 20 years and are assuming a growing political as well as economic importance. Some of their characteristics have often made them the object of criticism and have given rise to a good deal of misunderstanding about their role. The reasons for a company moving from a national to a transnational dimension can in practice be very different; this movement is the logical response to the increasingly felt need to organize people, money, sources and technology on a global scale. The transnationals are thus responding to the natural internationalization of trade which results from advantages such as the acquisition of new markets, local production, the export of know-how and investment capital rather than finished products, or the opportunity of lowering production costs (essentially thanks to cheaper raw materials and labor). Looked at objectively, the operations which result from exploiting these "advantages" are justifiable on the "technical" ground of greater economic efficiency, but the problem becomes more complicated as soon as a "political" evaluation is made of the reasons which lead a company to pursue transnational activities. TRANSNATIONALS The transnationals are called upon to carry out their activities in the context of an international system subject to various tensions at all levels so that, as Giovanni Agnelli had occasion to say, “economically, unity has almost been attained, but politically it is still a long way off." The difficulty in establishing a worldwide program for the more efficient and equitable use of resources is the result of the contradictions and unresolved problems faced by mankind in the absence of a world government or, more realistically, of the incapacity of the governments of individual states to reach agreements enabling those subject to international relations-and the transnationals are among them-to act with security and without risk in the framework of rules governing reciprocal relations. It is very interesting in this connection to observe the measures taken by the United Nations with regard to the transnationals, both with the setting up as part of the Ecosoc of a relevant committee and centre, and with the adoption of the Charter of Economic Rights and Duties of States, in which explicit mention is made of the transnationals (Art. 2, headings B and C). In both cases the U.N.'s declared intention is above all to help the emerging countries in their relations with the transnationals, and not vice versa. It does not however appear either logical or productive to overemphasize the demands (in support of the Third and Fourth Worlds) contained in the U.N. resolutions referred to here, since this would be to indulge simply in fruitless as well as dangerous polemic. Rather, while noting the objective situation in which the U.N. finds itself in having somehow to embrace and satisfy the demands of the Third and Fourth World countries for the establishment of a new international economic order, the transnationals themselves could, in one of their own forums (such as the International Chamber of Commerce), consider and agree upon the best way to play an active-if not essential-part in the new order toward which international economic and trade relations are tending. No real conflict exists between the transnationals and the host states on the medium- and long-term perspectives of world development; there are however a series of problems, which until now have been attacked in too haphazard a manner and with a lack of objectivity, which cannot be solved without the managerial capacity, the technological know-how, the financial resources and the international networks of cooperation which are available to the transnationals. In particular, the transnationals may possibly be called upon to play an important part in the food sector, today more than ever before a source of concern, by carrying out agroindustrial projects. It should be remembered in this connection that action on this problem has already been taken by the FAO, under whose auspices, and together with other specialized institutions of the United Nations, a program of industrial cooperation has been in operation for several years (ICP-FAO: Industrial Cooperative Program of the FAO) in which Fiat is participating. The United Nations, which was certainly not created to do nothing, since it was set up as the free expression of the joint wills of its members, is virtually the only "environment" in which the opinions and the needs of the actors who play on the international stage can usefully-and constructively-meet. ROLE OF THE INTERNATIONAL COMMUNITY It is worth recalling at this point that Mr. Agnelli1 indicated six possibilities for the international community to help the transnationals to work in agreement with, and for the mutual benefit of, the nation states. These possibilities can be summed up as follows: (1) Fuller information for transnationals as to investment possibilities and of ways of using them; (2) Quicker and more precise communications between transnationals and governments to create a better understanding of each other's objectives and obligations; (3) Improved flow of technological assistance and advice to the developing countries on questions of foreign and local investment with a view to eliminating difficulties and misunderstandings which would alter or distort reciprocal obligations for the achievement of their own economic objectives (the international bodies, in particular, should take steps to inform the governments of the developing countries on the correct use of the incentives); (4) A definitive code for foreign investment so that the transnationals could act accordingly without the need to fear that the rules would be changed "at half-time" and with the consequent assurance that the stability thus provided would make it possible to estimate profits not only in the short but also in the long term. VOLUNTARY CODE FOR TRANSNATIONALS Valid international rules should therefore be set up, such as a "voluntary code" on the rights, duties and responsibilities of the transnationals. (It should be recalled in this connection that the International Chamber of Commerce has already drawn up a series of "recommendations" on international investments, addressed to both governments and companies. This ICC "guide" could be a valid starting point for the drafting of a nonimperative "code of conduct" which would be endorsed by international agreement.) It should be noted, at this point, that it is objectively difficult today to draw up international agreements of an economic and commercial nature between states which are binding, valid and fully applicable, if the position of the transnationals is restricted by specific arguments relating to the harmonization of national taxation laws or restrictions on the activities of companies; (5) Every effort should be made to study procedures aimed at avoiding-or settling disputes on investments, either at national level, or, above all, at the level of international organizations; (6) New negotiations, or revisions of existing agreements, should place more decisive emphasis on measures which might facilitate a convergence of interests between the transnationals and the developing countries. The validity of Mr. Agnelli's considerations, as set out above, becomes clearer still if one considers the tasks assigned to the committee and center for the transnationals established by the U.N. within the framework of Ecosoc, which are: (a) The Commission (political body): research activities and coordination of all initiatives involving the transnationals and the other parties involved in international economic and commercial relations and, in particular, the carrying out of any type of measure considered necessary with a view to strengthening the "capacities" of the host countries, particularly where they are developing countries, to negotiate with the transnationals; and to collect, analyze and distribute information to all interested parties. (b) The Center (technical wing): supports the Commission by providing the necessary technical services; its role consists essentially in the analysis of information and the preparation of relevant documents as well as the organization and coordination of technical cooperation schemes. Certain parallels are evident between the guidelines drawn up by the transnationals and the initiatives based on the United Nations recommendations. It would be desirable, however, in the spirit of "development cooperation," for the transnationals to make their presence more strongly felt in the international organizations using all channels available," in order not to lose a good and 1 Giovanni Agnelli: Report to the "Group of Eminent Persons" set up by the U.N.'s secretariat to study the impact of the transnationals on development and international relations (Geneva, Palais des Nations, November 7, 1973). 2 At U.N. level. the ICC; in the ILO and the IOE; at OECD and the BIAC level; in the EEC and the UNICE. possibly unique opportunity to play the part which is their rightful due in the international system. On the other hand, however, there remains the possibility for the transnationals to act individually on the basis of their own code of conduct drawn up on the basis of information and experience gained in the field. THE CASE OF FIAT As regards Fait, which is transnational in a rather special and small-scale way, it follows, in helping the developing countries and by loaning managerial expertise and technology, a policy which, in its full respect for the sovereignty of the host country-and in the framework of agreements reached with it—can be described as fully flexible. By way of example: Only very rarely does Fiat work through wholly-owned subsidiaries; in all other cases-where responsibilities are usually shared with local public capital-it operates through joint ventures in which it has a minority holding. Our company, moreover, has a small but significant share in the Yugoslavian ZCZ (Zavodi Crvena Zastava), a Socialists industrial enterprise, while in Poland it works not on the basis of payment but by trade in finished components. In many other cases Fiat has declared itself ready to provide projects, technological know-how and managerial services on the basis of a lump sum settlement (the case of the Togliattigrad works in the Soviet Union serves as an example); it is also open to suggestions for the revision and modification of its own participation criteria when requested. Mention should also be made of the freedom our company grants to its affiliates in trade union affairs, the type of approach made in penetrating the markets of emerging countries (beginning with the production of capital goods like tractors, earth-moving machines and industrial vehicles), as well as the systematic search for local capital participation which Fiat's experience has shown to be quite positive; in short, it is precisely this preference to share responsibility with local partners which constitutes our company's best argument against the accusations leveled at the transnationals. ADVANTAGE OF MOTOR VEHICLE INDUSTRY The moment the Third and Fourth World countries were willing to admit only industries whose presence would bring them real advantages in terms of knowhow, managerial training and capital investment, interesting possibilities were opened for the motor vehicle sector in those areas. The automobile industry, indeed, does more than most to provide work for supporting industries with a consequent increase in employment and speeding-up of the industrialization process. In this way the automobile industry should be able to make a decisive contribution to overcoming what is often called the neocolonialism of the transnationals by supporting instead forms of genuine cooperation on an equal basis between industrial and developing countries (in other words outside the framework of international organizations which may have been created to do this job) based on formulas and widely varying agreements designed to take account of historical conditions and the social and political requirements of each country. Development opportunities for the major world motor vehicle manufacturers depends to a great extent on the ability to restate the policy of a presence in the Third World in accordance with these new criteria. Mr. COLONNA DI PALIANO. We feel, as I think the rapporteur, Mr. Lange, does also, that the phenomenon of the multinational companies, which has been growing at an ever-increasing pace over the past years, must be regarded not only as an economic but also as a political phenomenon. I shall not speak here of the economic reasons for this phenomenon, as these are well-known to all of you. I shall simply confine myself to saying that in the majority of cases, companies which have reached a certain maturity, a certain point in the mainstream which for the past 30 years has swept international trade along to the highly |