developed state with which we are now familiar, have, instead knowhow and capital beyond the borders of their own countries in order to set up productive activities in other countries.

POLITICAL ROLE OF MNC'S

Now, how does this create a political problem according to our way of thinking? Without claiming to be original, I would say that the political problem arises from the contrast between the uniform picture that the companies, of which we are speaking, have of the supply and demand markets in which they operate and which, as they see it, form a coherent whole and the fact that the world is still organized along the lines of national structures and that within each national structure the authorities representing the communities living within the borders of any one state regard themselves as solely responsible and solely authorized to regulate the conditions of development and economic life for the communities they represent.

The political problem does not, however, derive so much from the existence side by side of this unified outlook on the part of the multinational companies and the multistate structure as from the fact that each state, generally speaking, has a different view of the conditions best suited to promoting the development of its own people. This gives rise to a multiplicity of different rules, standards, and situations, with which the multinational companies must cope as best they can. This wide range of different situations creates, as you yourself, Mr. Lange, have pointed out, suspicions and misunderstandings which must be dispelled, and it also gives rise to problems which must be solved if, as has been pointed out by many interested parties in Eruope, the multinational companies are to continue in the future to make that contribution to the welfare of mankind which they have been making up to now.

IS A CODE REALLY POSSIBLE?

This brings me to the heart of the problem, which is as follows: can we visualize a set of international rules which will define once and for all the conditions under which multinational companies may operate and fix in a precise and stable fashion the rights and duties of all bodies involved in international economic relations? I hasten to add that the multinational companies are only one type of body and that there are others, such as semistate bodies, that is to say, companies whose capital is owned by the state. Indeed, in many cases states themselves carry on economic activities outside their own borders.

Looking at from a theoretical angle, the problem is a worldwide one. Rules, such as those of which you speak, Mr. Lange, must, if they are to offer a genuine solution to the problem, apply to all the countries of the world, and since rules of this kind always require an authority which will see to it that they are observed and also be prepared to modify these rules as circumstances change, it seems to us today, Mr. Lange, that it will be very difficult to attain these objectives on a world scale. Since you were so kind as to refer to my past record as a member of the European Commission, I may say that we in Europe have gained a certain amount of experience in this matter. The European Community has existed since 1958 but the Community was really born in 1952, so

that we can say that for 25 years now certain states of Western Europe have been trying to create this unified context. I do not deny that important progress has been made but we are still very far from our goal, despite the fact that these are states which do not differ markedly from each other, are geographically close and have all undertaken certain particularly well-defined commitments.

ROLE OF UNITED NATIONS

Can we really envisage the achievement of something of this nature in the near future within the context of the United Nations? I mention the United Nations, because, as you all know, certain actions have been got underway under the auspices of the United Nations which are designed to achieve the same end, albeit along slightly different lines to those mentioned by Mr. Lange, inasmuch as within the context of the United Nations the emerging countries seem to regard as acceptable a new economic order in which, in reality, most if not all of the burdens fall on the investing countries, leaving the host countries complete freedom of action. However, that may be, this is clearly a problem which cannot and must not be ignored. I am sure that I speak for the Fiat company, but not for Fiat alone, I feel, when I say that the multinational companies, or those truly worthy of that name, that is to say, those that really take to heart their mission to organize the factors of production, i.e., labor, capital, technology and the available raw materials in the manner best suited to serve mankind, are anxious, insofar as this is possible, for uniform rules and regulations, which in the long term will dispel, by means of greater openness to public supervision, those suspicions and those hostilities which keep them from doing their best.

At the same time, they are anxious that in what we may call a legal context, they can be sure that the conditions under which they are allowed to invest are not suddenly changed in such a way that from one moment to another they find themselves saddled with serious responsibilities towards those who have financed these investments. As far as we in Fiat are concerned, I would say that our position on this problem is extremely openminded and we are anxious to encourage the free play of ideas, no matter where they may come from, so that we may arrive as speedily as possible at practical solutions to these problems. While not wishing to raise any false hopes, we feel that we should go about tackling these problems not only under the auspices of the United Nations but also of more homogeneous bodies such as OECD and the EEC.

PROGRESS MADE BY EUROPEAN COMMUNITY

I shall not speak at length on the subject of the Community, because a representative of the Community is present here and tomorrow we shall have with us our friend, Mr. Spinelli. I should like to say only that without having succeeded in implementing everything laid down in the treaty, the Community has nevertheless made encouraging progress. All the practical achievements of the nine member states of the Community could one day form the basis for a complete set of rules for the industrialized countries with a free market economy. I am

thinking, for example, of the countries of the North American continent and Japan, and at a second and third remove, one could think of also bringing within the orbit of these same rules the emerging countries, some of whom, it is worth noting, have acquired enormous reserves of capital, which could one day enable them to embark on direct investments outside their own borders.

In the document which has been distributed, some suggestions made by our chairman, Mr. Agnelli, when he gave evidence before the group of experts set up by the United Nations' Economic and Social Committee, are set out. I am not going to read them again here because this would take up too much time. I should only like, in reply to Mr. Lange's invitation to speak frankly, to remind you of what he says on the subject of international agreements between states.

Objectively speaking, it is very difficult today to draw up international agreements between states, agreements of an economic and commercial nature that will be valid, binding, and generally applicable, if the approach to the multinational companies is limited to specific aspects such as harmonization of national legislations on taxation or restrictive practices in the activities of these companies. The problem is a global one and we have no illusions about the possibility of getting very far with approaches of a sectoral character. We must realize the importance of fiscal policy for every economy as an instrument and an integral part of its economic policy.

HARMONIZATION OF TAX POLICIES

Having said that, it is clear that we must take advantage of every possibility offered to us, and we are therefore following with great interest the efforts being made by the European Commission to arrive as soon as possible at a harmonization of tax policies and practices within the Community.

Today in the United Nations organization we have two important bodies, the Commission and the Centre. It is our hope that these two bodies will prove their effectiveness, and we intend to make every possible contribution on our part to their activities, just as we shall also contribute to the work of more restricted bodies such as the OECD, the EEC and the International Labor Office.

By way of conclusion I shall say just a few words on Fiat, since my time is almost at an end. With regard to some of the more serious problems thrown up by relations between the multinational companies and the emerging countries, because as far as we are concerned we do not have any real problems with other industrialized countries, Fiat has an extremely flexible policy, in the sense that when it sets up a plant outside Italy, not only does it not claim 100 percent control of these plants but it, in fact, accepts minority controlling interest, with the majority controlling interests held by state industries.

EXAMPLE OF YUGOSLAVIA

In Yugoslavia, for example, it has a minority interest in a company in which public capital has the majority interest. In other words, it has a broad and flexible range of arrangements for participation in outside companies, and in choosing the proper formula in each particular case, it always takes account first and foremost of the wishes

and preferences of the host country. I think you will all have heard of the Togliattigrad plant in the Soviet Union; this is yet another example of Fiat's flexibility. In the case of Togliattigrad Fiat does not have any controlling interest whatsoever but lends its technology, subject to certain financial conditions, in the form of plant and equipment and assistance in running this plant.

Our chairman, Mr. Agnelli, whose spokesman I am on this occasion, has become convinced by all these facts that, given its particular characteristics, the automobile industry is amongst the multinational companies best calculated to encourage parallel production in the host countries with a consequent increase in employment and acceleration of the process of industrialization. Looking to its own future, the automobile industry feels that it can make a decisive contribution to overcoming what is often called the neocolonialism of the multinational companies, by encouraging patterns of genuine cooperation on an equal basis between industrialized and emerging countries through formulas and agreements sufficiently varied and adapted to suit the historic conditions and the social and political needs of each particular country in question. In the long run, we feel, it is the ability to reshape our entire presence and our policy in the Third World in accordance with these new criteria that will determine to a large extent the development potential of the major automobile manufacturers of the world. Thank you, Mr. Chairman.

Mr. LANGE. Mr. Chandler, please proceed.

STATEMENT OF GEOFFREY CHANDLER, DIRECTOR, SHELL
INTERNATIONAL PETROLEUM, LTD.

Mr. CHANDLER. Mr. Chairman, I'm greatly honored to come before. this body today to discuss the subject of multinational enterprise. I should stress that I shall be talking from my own experience in a particular industry, the oil industry, though much of what I have to say I believe is in principle applicable to the subject as a whole. Mr. Chairman, I have submitted a paper from which I would like to select very briefly certain salient points before coming more directly to Mr. Lange's proposals.

PREPARED STATEMENT OF GEOFFREY CHANDLER, DIRECTOR, SHELL INTERNATIONAL PETROLEUM, LTD.

I am honored by the invitation to appear before you to take part in your discussions under this head. The following submission endeavors to outline the nature and relationships of the international business with which I am familiar, an understanding of which I believe is essential to constructive discussion of problems arising and of their appropriate solution.

The nature of international economic and commercial relationships has evolved over the years. The simple trader exporting to foreign markets has developed, in many cases, into a company with subsidiary companies and manufacturing facilities outside its country of origin. This trend was manifest well before the Second World War, but the postwar period has seen an immense growth in the flow of international investment which has contributed greatly to the development process in both industrialized and developing countries. Such investment has offered a package-a combination of human skills, particularly in technology and management, in addition to money and a willingness to venture into new fields, despite the added risk or uncertainty for companies operating outside their country of origin.

GOVERNMENTS ROLE IN INVESTMENTS

Such a development has only been possible with the agreement and, indeed, encouragement of governments. The impetus for investment abroad has come in part from the initiative of the companies seeking to employ their resources efficiently and profitably, and in part from the encouragement of governments, particularly in developing countries, which, through tax incentives, have competed with one another to attract the scarce resources of investment. Certain bilateral agreements have facilitated the establishment of companies in the territory of contracting states on a reciprocal basis. In the case of Europe, the Treaty of Rome has intentionally stimulated the spread of industrial investments in member countries.

A large part of the economic and commercial activity that now crosses frontiers is conducted by groupings of companies, each of which carries out its business in its individual country, and each of which is subject to the laws, regulations, and customs prevailing in that country. In general-particularly in developing countries-this foreign investment has succeeded because it has developed resources or provided services which would not otherwise be developed or provided at that point in time. It holds no privileged position and these opportunities are equally open to nationally owned companies to develop if they are available and capable of doing so. In industrialized countries foreign investment has also competed with existing industries and often shown itself able to do so successfully because of more efficient management or a better research capability and has thus contributed to a general raising of efficiency. These groupings of companies have grown as a result of a number of individual investment decisions. each one of which has required implicit or explicit consent on the part of the government of the country in which the investment was planned.

GENERALIZATIONS MISLEADING

The immense variety of what are commonly regarded as "multinational enterprises" is such that heterogeneity is far more striking than homogeneity, which makes a definition for general application impossible. Any generalization on the subject can therefore be dangerous and misleading. If any generalization is possible, it is that the elements of the "multinational enterprise" are comprised of foreign investment, the relationships between parent companies and subsidiaries, and, where applicable, international production, and that "multinational enterprise" appears basically to be foreign investment writ large. At the same time, these groupings offer a special economic contribution in being able to use the experience of operations carried out under a wide variety of conditions for the benefit of each unit.

The contribution that "multinational enterprise" makes to world development is significant, although not without problems. The need is to isolate the substance of these problems from emotion, or there is a real possibility that the contribution will be frustrated by action based on ignorance or misunderstanding. In the removal of misunderstanding, companies have a significant part to play through the provision of information, openness, and in the practice of good behavior. In the last analysis the only sure basis for survival is mutual advantage: companies have no power beyond this to ensure their own survival.

OIL INDUSTRY IS INTERNATIONAL

The oil industry is essentially international. The main areas of production and consumption lie in different parts of the world and a complex exercise of matching supply to the needs of the marketplace is required. Oil has to be produced where accumulations occur and go to where it is needed; this led typically-for competitive and economic reasons-to the growth of companies inte grated from the wellhead to the consumer which constituted, I believe, the most efficient way of meeting oil demand. The recent changes imposed by oil producing countries on established concessionary arrangements radically alter the previous pattern of integration, but are likely to be replaced by arrangements of a contractual nature.

The Royal Dutch/Shell group of companies forms one of the largest of such groupings. Their investments are located in many parts of the world and it is important to examine the reasons underlying the individual decisions that have over the years led to its present shape. Oil companies have first to search for