National Treatment for Multinational Enterprises:
Will the OECD Governments Meet the Challenge?
By CARL G. NISSER and DON WALLACE, JR.
The OECD Declaration on International Investment and Multinational Enterprises of June 21, 1976 established two important principles: 1) that Member countries accord multinational enterprises (MNE's) treatment no less favorable than that accorded in like situations to domestic enterprises (National Treatment); and 2) that multinational enterprises should be encouraged by Member countries to adhere to a set of voluntary guidelines regarding disclosure of information, competition policy, taxation, employment and industrial relations, and other matters.1
The OECD Declaration was the result of more than 18 months of difficult and sometimes animated negotiations among the 24 Member countries of the OECD.2 After some hesitation—by Canada and some other countries regarding the question of National Treatment—the Declaration was adopted by all Member countries of the OECD, except Turkey. The Declaration included an Annex of Guidelines for Multinational Enterprises and was followed by three Decisions of the Council: Inter-Governmental Consultation Proce-
dures on the Guidelines for Multinational Enterprises; International Investment Incentives and Disincentives; and National Treatment.
Although much has been written concerning the OECD Guidelines3 since their adoption, little attention has been focused on the importance of the OECD Declaration on National Treatment andthe related National Treatment Decision. This article will analyse the scope and application of the OECD National Treatment principleand its implications for corporate policy-makers who seek assurance of non-discriminatory treatment by host governments.
The National Treatment provisions of the OECD Declaration may establish a new international norm4 to protect foreign-controlled enterprises against discriminatory regulations, administrative practices and government policies in favor of comparable domestic enterprises. The significance of the OECD Declaration becomes all the more clear when one takes into account that Member countries of the OECD embrace 60 % of world industrial production and host 80 % of world investment, as well as serving as the home countries for over 90 % of the world's multinational enterprises.
The National Treatment Decision established the mechanism for implementing the National Treatment principle. Each Member country is required to report its exceptions to National Treatment and provide specific reasons therefor. The Decision authorizes the OECD Committee on International Investment and Multinational Enterprises (CIME) to act as a forum for consultations, at the request of a Member government, and to periodically review the implementation of National Treatment and any exceptions there to.
As in the past, international business managers may be reluctant tobring direct "charges" against a host government for unfair or discriminatory practices because the host government could possibly respond with retaliatory measures of another kind. But the OECD National Treatment Decision solves this problem, at least in part, by structuring its review process, at the present time, on a functional and sectorial basis rather than country by country approach. Exceptions to National Treatment are now discussed categorically, by nature of operations or by sector, thus minimizing the possibility
that an identifiable multinational enterprise will be viewed as challenging the practices of a specific host country during the review process.
International business managers of MNE's can play a key role in the consultation and review process by cooperating with the national delegations to the CIME and the national Business and Industry Advisory Committees (BIACs)5 and by providing information which will assist in the formulation of an accurate functional analysis of exceptions to National Treatment. Of course, it is also conceivable that a particular situation may warrant applying direct public pressure on a host government through the publication of derogations to National Treatment in the news media.
Before analysing the situation regarding National Treatment, it should be pointed out that BIAC and TUAC (the Trade Union Advisory Committee) were consulted during the elaboration of the Guidelines and will be so in the future. Both organizations did publicly welcome the Guidelines. In a press statement, BIAC "welcomes the positive efforts made by Member governments to coordinate their attitude towards international and multinational enterprises". BIAC particularly welcomed that the Guidelines seek to eliminate discrimination between national and multinational, and between state-owned and private enterprises. However, BIAC also noted that the Guidelines do not alter the Member countries' rights to provide the conditions under which enterprises operate within the national jurisdiction.
While multinational enterprises are being commended by host governments to comply with the voluntary MNE Guidelines, it is appropriate to examine whether governments of Member countries have adhered to their obligations to accord multinational enterprises operating within their territory the rights of National Treatment. This requires a clear understanding of the scope and limitations of the National Treatment provisions of the OECD Declaration.
The OECD Declaration on International Investment and Multinational Enterprises
In the preamble to the Declaration, Member countries acknowledge the contributions and important role of multinational enterprises. The Declaration calls for cooperation by Member countries to improve the foreign investment climate and to "encourage the positive contribution which multinational enterprises can make to economic and social progress". It is made clear in the preamble to the MNE Guidelines that the concept of Multinational Enterprises comprises "companies or other entities whose ownership is private, state-owned or mixed, established in different countries . . .".6
Article II of the Declaration sets forth the four points regarding National Treatment which Member countries agreed upon. The first point defines the basic principles of National Treatment as follows:
that Member countries should, consistent with their needs to maintain public order, to protect their essential security interests and to fulfil commitments relating to international peace and security, accord to enterprises operating in their territories and owned or controlled directly or indirectly by nationals of another Member country (here in after referred to as "Foreign-Controlled Enterprises") treatment under their laws, regulations and administrative practices, consistent with international law and no less favorable than that accorded in like situations to domestic enterprises (here in after referred to as "National Treatment").
Article II.2 provides that Member countries "will consider applying National Treatment in respect of countries other than Member countries" and Article II.3 provides that Member countries "will endeavor to insure that their territorial subdivisions apply National Treatment". Article II.4 states that "this Declaration does not deal with the right of Member countries to regulate the entry of foreign investment or the conditions of establishment of foreign enterprises".
1. Foreign-Controlled Enterprises
What factors determine whether a particular multinational enterprise is entitled to National Treatment? The Declaration does not require that the enterprise be engaged in a minimum level of activity within the country or be locally incorporated. Member countries
have agreed to accord National Treatment to foreign-controlled enterprises operating within their territories.
Business executives should note that the Declaration defines foreign control quite broadly, encompassing enterprises owned orcontrolled directly or indirectly by nationals of another Membercountry. Presumably, multinational enterprises would turn to national legislation of the host country for additional criteria if questions arise regarding the precise percentage of foreign control which would be deemed "indirect foreign control".
At meetings of the CIME in Paris the delegations have discussed the definition of "owned or controlled directly or indirectly by nationals of another Member country". The representatives of some countries have suggested that such an enterprise is one with morethan 50 % foreign ownership while other representatives proposed that a holding of as low as 10 % would be sufficient. No effort has so far been undertaken to reach a formal compromise on a specific percentage of ownership. Comparable information on interpretations of "Foreign-Controlled Enterprises" is likely to be gathered and further discussed at forthcoming meetings of the CIME.
From the notifications submitted as of July 1978 it is obvious that not only are there wide discrepancies regarding the concepts and definitions used under national law and practices regarding "foreign controlled enterprises" but the definitions also vary within the same country according to the specific purposes of the definition. This is clearly unsatisfactory and should be remedied by the Member Governments.
2. Exceptions to National Treatment
What factors determine whether particular laws, regulations or administrative practices of Member countries constitute exceptions to National Treatment? Clearly, Article II.4 limits the application of National Treatment to multinational enterprises already established or operating within the Member country's territory. This raises the question of whether certain restrictions, such as limited access to financing on the local market, would be interpreted as exceptions to National Treatment or as conditions of entry outside the scope of the National Treatment provisions of the OECD Declaration. It is conceivable that some Member countries should try to defend discriminatory practices which restrict foreign-controlled enterprises byterming such restrictions as conditions of entry or establishment of foreign enterprises and therefore outside the scope of the Declaration altogether. The National Treatment Decision does make clear,
however, that measures which discriminate against new investment by foreign-controlled enterprises already established in their territory would be deemed exceptions to National Treatment.
3. Qualifications and Limitations
The most important qualifications to the application of National Treatment are found in Article II.1 of the Declaration. Exceptions to National Treatment could reasonably be justified by invoking such qualifying clauses as "consistent with their [Member governments'] needs to maintain public order, to protect their essential security interests and to fulfil commitments relating to international peace and security".
Concepts of "public order" and "essential security interests" lend themselves quite easily to expansive applications responding to economic, political and military factors on an international or even purely domestic level. Furthermore, the standard "no less favorable than that accorded in like situations to domestic enterprises" may not apply in certain situations where multinationals, by their very size and nature, are not sufficiently comparable to domestic enterprises of more limited size. Furthermore, nothing in the Declaration restricts the right of a government to nationalize a foreign-controlled enterprise so long as a domestic enterprise would be nationalized in like situations. This could have important ramifications in countries governed by socialist or communist governments or a combination of the two. However, no explicit text was suggested to be included regarding indemnification in cases of nationalization asall OECD countries interpret the international law in such instances in varying comparable terms—prompt, just and equitable compensation.
Article II.3 contains an ambiguous qualification—that Member countries will endeavor to ensure that their territorial subdivisions apply National Treatment. How does one judge whether a Member country has indeed endeavored to ensure National Treatment by its territorial subdivision? This provision would presumably apply only to cases where the territorial subdivision is acting with independent authority beyond the jurisdiction of the national government of the Member country (e.g. the United States, Canada, the Federal Republic of Germany, Switzerland, Australia, and possibly others in the future).
It is important for corporate policy-makers to note that, in addition to the limitations and qualifications mentioned above, the Declaration in any event may have rather limited, if any, binding
legal force. The Declaration only stipulates that governments of Member countries should accord National Treatment, in contrast to the mandatory provision in the Decision of the Council that Member countries shall submit timely reports of exceptions to National Treatment. Furthermore, even the "binding" provisions of any decision of the OECD Council are not in fact legally binding upon a Member country until it has complied with the requirements of its constitutional procedures.7 Thus, further qualifications to the OECD National Treatment provisions may be derived from reservations or special limitations applied by Member countries in accordance with their own constitutional procedures. Member countries must make a disclaimer for a provision not to be binding before it participates in a decision or declaration.
Nevertheless, the foregoing saving provisions do not seriously lessen the potential impact of the OECD National Treatment principle upon the regulation of multinational enterprises operating within the territories of Member countries. A fuller understanding of the implications of the OECD Declaration can be obtained by studying it in relation to the national treatment provisions embodied in other international agreements affecting international trade and investment.
4. National Treatment Under Other International Agreements
The National Treatment principle embodied in the General Agreement on Tariffs and Trade (GATT) in Article III states that imported products shall be accorded treatment no less favorable than that accorded to products of national origin with respect to all laws, regulations and requirements affecting sale, offering for sale, purchase, transportation, distribution or use.8 This article prohibits a contracting party from imposing discriminatory internal taxes or charges of any other kind, directly or indirectly, in excess of those applied to like domestic products.
The saving provisions included in the GATT are much broader than those in the OECD Declaration. Article XII permits derogations to safeguard the balance of payments; Article XVIII exempts certain protective measures to implement economic development programs or to protect infant industries; Article XIX, the "escape clause", permits emergency action on imports of particular products
if the imports threaten serious injury to domestic producers of like or directly competitive products; Article XX allows further general exceptions to protect public morals, national treasures, human and animal life, or short supply of essential materials; and Article XXI provides that nothing in the GATT shall be construed to preventany Contracting Party from taking any action which it considers necessary for the protection of its essential security interests.
When compared with exceptions under the GATT, the saving provisions of the OECD Declaration with respect to National Treatment do not seem so broad as to be subject to serious abuse. Infact, the saving provisions embodied in each of these agreements may actually help to ensure their viability. Without limited exemptions many countries would be forced to abrogate multilateral agreements entirely in order to safeguard matters of national sovereignty.
The case law which has developed under the GATT would indicate that the OECD package could be an effective instrument for extending the application of National Treatment. A national law which provided credit for the purchase of domestic but not imported tractors was ruled to be a violation of GATT rules on National Treatment; similar discriminatory treatment with respect to access to credit for foreign-controlled enterprises could now be a violationof the OECD Declaration. Although the OECD Declaration is not a fullfledged treaty with the same legal force as the GATT, the OECD Declaration extends the National Treatment principle to cover international direct investment and operations of MNE's which were not dealt with under the GATT.
In current U.S. practice the Treaty of Friendship, Commerce and Navigation (FCN) is an important bilateral instrument for establishing favorable legal conditions for private investment between the United States and other individual countries. The FCN treaty generally covers a wide range of concerns related to the rights and privileges of citizens and firms from one state who are living, doing business or owning property within the jurisdiction of another The National Treatment principle is the basic standard set forth in most FCN treaties to protect foreign investors from discriminatory treatment. It is set forth in Article VII of the 1953 Treaty with Japanas follows: "companies of either party shall be accorded national treatment with respect to engaging in all types of commercial, industrial, financial and other business activities. . .".
The OECD Declaration can be distinguished from modern FCN treaties in at least two significant respects: first, the OECD Declaration is multilateral rather than bilateral; and second, the OECD
Declaration focuses specifically on international investment and does not attempt to deal with the entire range of issues regarding the relations between nations. Both of these factors suggest that the OECD Declaration should be a more effective instrument for promoting uniform liberalization of the international direct investment climate within OECD Member countries.
Unlike the OECD Declaration, most FCN treaties deal with the rights of establishment (or entry) of companies within the territories of other countries. However, the OECD has dealt with entry restrictions in earlier codes.
The Code of Liberalization of Capital Movements, adopted by the OECD Council on December 12, 1961, established a framework within which Member countries have progressively liberalized restrictions on certain long- and short-term capital flows related to direct investment, portfolio investment and various forms of personal capital transfers. Short-term financial credits and loans are specifically omitted, as are the buying and selling of short-term treasury bills and other short-term money market securities, because they are the vehicle for "hot money" and because control of such flows is often considered necessary to buttress domestic monetary policy. Certain long-term transactions are also excluded, notably commercial credits of five years or more which have often been the object of intense trade competition among the industrial nations.
A number of countries maintain specific reservations in respect of specific forms of capital movements. These reservations are reviewed periodically by the OECD's Invisible Transactions Committeeto decide if they are still justified after measures have been taken to make necessary adjustments. Experience with the Code has shown that a number of reservations have in fact been withdrawn or narrowed since their adoption by Member countries. The Invisible Transactions Committee is currently reviewing restrictions of Membercountries with respect to local financing of inward direct investment by foreign-controlled enterprises.
A few countries have invoked general derogations of all or most obligations under Article VII of the Code. This has been necessary due to overall economic and financial problems related to development of the national economy and the balance of payments.
The OECD also adopted a Code of Liberalization of Current Invisible Operations in 1961, which promotes the liberalization of restrictions regarding current invisible transactions and transfers between Member countries (e. g. repairs, processing or finishing work, business travel, transit charges, insurance, etc.). Both this Code and
the Capital Movements Code are significant in that they are evidence of the OECD's experience and accomplishments in the areaof liberalization of restrictions on international direct investmentby Member countries. Moreover, as mentioned above, each of these codes applies to terms of entry or establishment of foreign-controlled enterprises, a subject not dealt with by the OECD Declaration.
It should be noted that other multilateral conventions on international investment have been attempted in the past, aside from the OECD efforts. The Charter for an International Trade Organization (ITO), which failed to be adopted during the early post-World War II years, contained provisions relating to investment in the draft section on Economic Development and Reconstruction. However, the draft agreement was so watered down that businessmen viewed it as largely unsatisfactory.9 Other multilateral conventions since the demise of the ITO have also failed to achieve a meaningful consensus on international investment, due largely to differences over principles and policies with respect to national sovereignty, world economic policy, and domestic political philosophy.
In sum, when compared with national treatment provisions under other international agreements, several points indicate that the OECD Declaration has the potential for being most effective with respect to international direct investment operations: 1) it has aspecific focus on international direct investment issues; 2) it has a clearly defined set of limitations which are no broader than saving provisions of other multilateral agreements of this nature; 3) it takes a functional approach to consultation and review procedures; and 4) it is a multilateral agreement adopted by 23 countries which host approximately 80 % of world investment.
The Decision of the Council on National Treatment
The OECD Declaration was followed by a Decision of the Councilon National Treatment which established the procedures for reviewing exceptions to National Treatment reported by governments of OECD Member countries.
The Decision requires Members countries to notify the OECD within 60 days of exceptions to National Treatment existing at thetime of the adoption of the National Treatment Decision. Exceptions to National Treatment taken after the date of the Decision are
to be notified to the OECD within 30 days together with specific reasons therefor and the proposed duration thereof. No such notification had been received by the OECD as of June 6, 1978. Significantly, the Decision requires Member countries to report exceptionsto National Treatment enacted under the independent powers of its territorial subdivisions "in so far as it (The Member country) has knowledge thereof, within 30 days of the responsible officials of the Member country obtaining such knowledge".
The Decision authorized the OECD Committee on International Investment and Multinational Enterprises (CIME) to periodically review the application of National Treatment "with a view to extending such application of 'National Treatment' ". The CIME was further authorized to act as a forum for consultations, at the request of a Member country, regarding the implementation of National Treatment and any exceptions thereto. The CIME has established a temporary working group on National Treatment. This group which is chaired by mr. Gouthier of the Netherlands had its first meeting on June 6/7, 1978.
1. The Role of the CIME and Compliance by Member Governments
Unfortunately, the reporting mechanism of this Decision has not worked well. At the end of the first 60 day period, when initial reports were due, only three reports had been submitted and the Committee then circulated reminders to the remaining delegations. At the meeting of the CIME held on November 9 and 10, 1976, views were exchanged on exceptions to National Treatment for the first time. At that session the Committee approved the use of a standard form for reporting exceptions to National Treatment. The first category of this new format, exceptions according to the nature of operations, includes exceptions with respect to tax obligations, rights to official aid and subsidies, access to bank credit and capital markets, government purchasing and public contracts, and other exceptions. The second category, exceptions by sectors, is comprised of investment at second remove (e.g. acquisition of domestic enterprises by MNE's) and internal regulations and practices (e.g. restrictions of foreign participation in sensitive sectors of the economy).
By March 1977 twenty out of twenty-three delegations had submitted notifications regarding National Treatment. The CIME observed several general problem areas concerning procedures for implementing the National Treatment principles.
First, as mentioned above, the CIME noted that criteria defining "Foreign-Controlled Enterprises" are not sufficiently set forth in the Declaration or National Treatment Decision. Thus, the criteria are left to national legislation and consequently the problem has arisen in relation to the less favorable treatment of "branches" or of foreign companies not incorporated under national law, as opposed to themore favorable treatment of foreign-controlled enterprises which are locally incorporated. Second, the qualifying language of Article II.1 of the Declaration discussed earlier proved to be subject to different interpretations by Member countries. Third, very few countries reported administrative practices which might deny National Treatment. In this area transparency is of particular importance but very cumbersome to achieve. Seemingly arbitrary decisions or prolonged delays can be more time- and money- consuming than clearly restrictive regulations which are known and thus predictable. A heavy and slowmoving bureaucracy is an effective means of deferring international investment.
The OECD has circulated to Member countries the twenty reports on exceptions to National Treatment received prior to March 7, 1977 and those received prior to June 6, 1978. The exceptions contained in these reports were summarized according to the reporting format described above. Although some countries have not yet fully reported exceptions according to the new reporting format, the initial reports do provide useful information to assess compliance by Member countries with the National Treatment principle.
2. The Role of MNE's
How should corporate policy-makers of multinational enterprises respond to the OECD National Treatment Decision? What role, if any, should they play in its implementation?
Formal requests for consultations on exceptions to National Treatment can be initiated only by Member governments. Periodic review of the implementation of National Treatment will be conducted by the OECD and will involve BIAC as well as Member governments, but not MNE's directly. Nevertheless, the cooperation of MNE's is crucial to effective implementation of the OECD National Treatment provisions.
Corporate policy-makers are not expected to come forward with direct charges of discriminatory treatment against particular host governments. Instead, it is suggested that international business managers cooperate by providing information as requested by national BIACs or delegations to the OECD. Such information will not be-
compiled to build a case against the practices of any particular government. Rather, this type of information will be compiled so as to provide a basis for discussion and consultation on the scope andapplication of National Treatment. No particular emphasis should be placed on the performance of any one country across the board oron its dealings with specific multinational enterprises.
The involvement of national or international business associations in a general study of exceptions to national treatment within the OECD countries could also prove to be useful. The United States Chamber of Commerce published the results of a survey of U.S.and Japanese firms in 1975 on the question of investment obstacles in the OECD countries. The report provided interesting information on the kinds of laws, regulations and administrative practices which have in the past discriminated against foreign-controlled enterprises.10
In a similar vein, the International Chamber of Commerce (ICC) Commission on International Investments and Economic Development prepared a "Review of Prescriptions for Domestic Ownership of Foreign Company Equity in Various Countries".11 The review attempted to "single out for purely illustrative purposes a few cases around the world where differing legislation or political pressures are applied to achieve partial local ownership . . . and to examine objectively the problems this process creates for the international investment community".
It may now be appropriate for USA—BIAC (through its Committee on International Investment and Multinational Enterprises) and other national BIACs to play an active role in facilitating the compilation of information on exceptions to National Treatment which firms currently face in OECD countries. Each national BIAC could solicit comments by its MNE's, according to the reporting format developed by the CIME of the OECD, to provide additional background information for consultations or further review of exceptions to National Treatment by the CIME.
Further, corporate policy-makers may choose in particular circumstances to apply direct public pressure on governments which apply discriminatory treatment in clear violation of obligations under the OECD Declaration. Labor unions have used the news mediaquite effectively to put pressure on MNE's whom they claim have not
complied with the voluntary MNE Guidelines.12 International labor leaders have also brought specific cases to the CIME, for example through the Belgian delegation, in an effort to review the application of the MNE Guidelines in specific cases. Although MNE's have been reluctant to take such direct action against host governments in the past under applicable FCN treaties, the OECD Declaration may eventually provide a new international norm which may decrease the probability that OECD governments will take reprisals against multinational enterprises seeking legal protection under its terms.
Prospects for Application of National Treatment
Implementation of the National Treatment provisions of the OECD Declaration and Decision of the Council has so far been hampered by in effective reporting practices. Moreover, submissions of data by Member countries on exceptions to National Treatment have not been sufficiently comparable. Thus, it is too early to draw conclusions as to the impact of the OECD package on operations of multinational enterprises within Member countries. Prospects for application of National Treatment in the next few years will depend to a large degree upon four key factors: 1) continued active interest inthis issue on the part of the national delegations to the OECD, particularly the United States delegation; 2) adoption of proposed measures based upon the current review of National Treatment by the CIME; 3) the interest of international business leaders in resolving key issues regarding exceptions to National Treatment andother investment obstacles in the OECD countries and 4) a wide dissemination by the CIME of exceptions to National Treatment whether they are of legal or of administrative nature.
1. Recommendation of the U.S. Delegation
The United States delegation to the CIME has taken an active interest in the implementation of National Treatment provisions. At the
December 1977 meeting of the CIME the United States delegation advocated several measures to promote more effective implementation of the National Treatment principles during 1978, among those being the establishment of a specific subgroup of the CIME to study National Treatment issues; a thorough analysis of international investment flows among OECD countries; and further attention to international accounting standards by another subgroup of the CIME. As has been mentioned above CIME has in June 1978 established a working group on National Treatment. The U.S. delegation in June 1978 submitted a note to CIME on Incentives and performance requirements for foreign direct investment in selected countries. The note covers Tax incentives, Other tax benefits, Financial incentives, Trade-related incentives and Other incentives. The note furthermore includes a part on Performance requirements.
The United States delegation views the above measures as important to an overall balanced review of the whole OECD package. Delegations from other countries do not all share that view. Reservations expressed by various delegations concerning these proposed measures included the following: National Treatment provisions need further clarification before a subgroup can be established to deal with the issue; establishment of new subgroups would place undue administrative burdens upon the CIME and the delegations of smaller countries; ongoing consultations regarding the application of the voluntary MNE Guidelines should be completed before turning to the issue of National Treatment; and the feeling on thepart of some delegations that the problems of National Treatment are simply not of great urgency within the context of the OECD, especially in light of the more serious problems encountered by MNE's in their operations in the lesser developed countries.
The direction which the CIME takes with respect to National Treatment should not depend upon the continued leadership of the U.S. delegation in this area. It would seem to be in the interestof all Member countries to ensure effective implementation of the National Treatment principle so that the OECD package can serveas a model for future multilateral agreements on international direct investment which may include the lesser developed countries.
2. Further Review by the CIME
It is expected that the CIME will try to reach an understanding on much of its current work on the application of the MNE Guidelines and be able to turn more vigorously to the question of National Treatment. Prospects for implementation of National Treatment will
then depend upon the CIME's ability to take measures which will resolve a number of outstanding difficulties.
Definitional problems discussed above must be resolved in order to ensure that submissions by Member countries with respect to National Treatment will be sufficiently comparable. CIME must decide whether BIAC should be invited to play a more active role in providing additional background information to assist inthe subgroup's work. Up to this point the OECD approach has relied upon reports submitted by Member countries, which, as discussed above, has not proven to be entirely effective in regard to National Treatment implementation. CIME must furthermore consider how information on the implementation of National Treatment can be made more readily available to interested members of the public. At the present time many OECD documents relative to its work on this subject bear a "restricted" status. After a more thorough review of this subject has been completed, perhaps summary reports on National Treatment could be released by the OECD to generate public understanding of the protection offered against discriminatory treatment within OECD countries. Of course, specific cases or practices of individual governments may be omitted from such public reports so as not to interfere with the formal consultation procedures set forth in the OECD package. Such publicity could show the West's leadership in providing an open and fair treatment to MNE's.
3. Key Issues for MNE's
What direct impact might the application of National Treatmenthave on operations of foreign-controlled enterprises within theOECD countries? The following is a list of the general kinds of discriminatory treatment which might now be covered by the OECD Declaration:* Tax Obligations: Higher tax rates, "branch taxes", denial of exemptions, or other special provisions for liabilities of foreign controlled enterprises.* Right to Official Aid and Subsidies: Denial of subsidies for MNE operations in sectors not related to the host country's need to maintain public order and to protect essential security interests.* Access to Local Bank Credit and Capital Markets: Restrictions on access to local credit for companies whose foreign capital exceeds a
specified percentage of total capital, special conditions attached to domestic loans granted against a non resident guarantee, or controlson bank loans in local currency to foreign-controlled enterprises.* Government Purchasing and Public Contracts: Buy-national requirements or other discriminatory procurement policies not justified by the need to protect essential security interests and to fulfil commitments relating to international peace and security.* Investment at Second Remove: Contingent authorization for acquisition of real property, restrictions on the purchase of a controlling interest in existing domestic companies, or other barriers to local direct investment by foreign-controlled enterprises already established within Member countries.* Internal Regulations and Practices: Nationality requirements for ownership or management of industries or businesses in specified sectors of the country's economy, such as agriculture, telecommunications, the computer industry, transportation, insurance, mining, banking or military supplies.
It should be kept in mind that National Treatment applies not onlyto laws and regulations but also to administrative practices of the host country. Application of National Treatment to administrative practices will undoubtedly prove to be a key issue of concern to corporate policy-makers of MNE's. The cooperation of international managers in providing information on this subject will be crucial since many such measures are taken on a case by case basis at the discretion of the local authorities.
Special attention should be paid to the policies adopted by the OECD countries who are also members of the European Economic Community (EEC). The Member states of the EEC have individually participated in the OECD Declaration and National Treatment Decision and should hence individually adhere to them. Yet it is uncertain whether those countries which are members of both the OECD and the EEC will grant non-EEC-based foreign controlled enterprises advantages comparable to the Common Market-based enterprises operating within their territories.
The Council of Ministers of the EEC adopted on December 21, 1976 a Directive on coordinating procedures for the award ofpublic supply contracts13 and a Resolution concerning access to community public supply contracts for products originating in non
Member countries. This set of laws will enter into effect on July 1, 1978 and refers to all public supply contracts (with some exceptions, e.g., construction, production and distribution of water, energy and telecommunications services, and data processing equipment) to be issued by public authorities within the EEC if worth more than 200,000 EUA (approximately $220,000). It appears that only companies meeting the requirements of Article 58 of the Treaty of Rome qualify for participation under the law of publics upply contracts, and thus it seems likely that non-EEC-based foreign-controlled enterprises could be denied National Treatment in this respect, contrary to the provisions of the OECD Declaration.
The OECD Declaration on International Investment and Multinational Enterprises provides a balanced approach to multilateral cooperation in the field of international direct investment. It encourages voluntary compliance by MNE's and it provides legal protection for MNE's against discriminatory treatment by host governments.
The OECD approach with respect to National Treatment may prove to be more effective than National Treatment under other international agreements. Its clearly defined limitations, its specificfocus on investment issues, its functional approach to consultation and review procedures, and its multilateral nature all render it a significant contribution to the expansion of international norms beyond those embodied in current international trade and investment agreements.
The OECD Member governments have devoted considerable attention to the application of the MNE Guidelines during the last two and a half years. Yet it remains to be seen whether international business managers will show as strong an interest in the implementation of the National Treatment principle as international labor leaders have already shown in forcing multinational enterprises to comply with the voluntary MNE Guidelines. Perhaps the time has come for international business leaders to challenge the OECD Member governments to live up to their pledge to accord National Treatment to foreign-controlled enterprises operating within their territories. The full effectiveness of the OECD Declaration depends on whether the OECD governments will be able to meet this challenge.